<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
----------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
----------
Commission File Number: 0-11625
MFIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2793022
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30 Ossipee Road, P.0. Box 9101
Newton, Massachusetts 02464-9101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 969-5452
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant; (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of the
registrant (without admitting that any person whose shares are not included in
determining such value is an affiliate),
<PAGE>
-2-
based upon the closing sale price of the Common Stock on March 16, 2000 as
reported on the Over-the-Counter Bulletin Board was $3,450,512.
The number of shares outstanding of the registrant's Common Stock as of March
16, 2000 was 7,313,588 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1999. Portions of such proxy statement are incorporated by reference into Part
III of this report.
Item 1. BUSINESS:
Company Overview:
MFIC Corporation ("MFIC" or the "Company"), through its wholly-owned
subsidiaries, Microfluidics Corporation ("Microfluidics") and MediControl
Corporation ("MediControl"), its Microfluidics Division, as well as its other
operating divisions, Epworth Mill and Morehouse-COWLES specializes in producing
and marketing a broad line of proprietary fluid materials processing systems
used for a variety of grinding, mixing, milling, and blending applications
across a variety of industries and for use in numerous applications within those
industries. Microfluidizer(R) materials processor systems are produced at the
Microfluidics Division, while dispersers, dissolvers, colloid mills and vertical
media mills are produced at the Morehouse-COWLES Division, and horizontal media
mills and ball mills are produced at the Epworth Mill Division, which also sells
and distributes grinding media.
Microfluidizer(R) materials processing equipment, produced by the Company's
Microfluidics Division, is used to formulate emulsions, dispersions, and
liposomes, and is used in cell disruption. Emulsions are found in a broad
variety of common products, including processed foods, medicines and
photographic films. Dispersions are often employed in products such as inks,
pigments and coatings. The Company believes that the processing technique of the
Microfluidizer(R) equipment enhances the stability and consistency of emulsions
and dispersions due to the equipment's unique ability to consistently produce
uniform micron scale particles in many applications. Liposomes, which are
biodegradable cell-like structures, are used to encapsulate medications or
nutrients, and are typically used in cosmetic or pharmaceutical products. In
addition, Microfluidizer(R) equipment is used in biotechnology applications to
harvest, through cell disruption, the cultivated product contents of plant and
animal cells.
<PAGE>
-3-
The Epworth Mill and Morehouose-COWLES product lines are used to blend,
emulsify, disperse, deagglomerate and grind fluid formulations. These fluid
formulations may be liquid/liquid or liquid/solid formulations and are generally
prepared in quantities ranging from one gallon to hundreds of gallons in an
industrial environment. In connection with the processing of emulsions and
dispersions, the various pieces of equipment in the product lines may be used in
preparatory steps prior to introduction of the product into the
Microfluidizer(R) system for further processing.
Epworth Mill and Morehouse-COWLES equipment is also used independent of the
Microfluidizer(R) equipment in the preparation of many industrial fluid
formulations where the desired product characteristics do not require high
energy Microfluidizer(R) processing.
While the Microfluidizer(R) equipment is generally used in the processing
of expensive, high, value added niche end-products that require extremely small
particle size, the Epworth Mill and Morehouse-COWLES equipment is used in
broader, lower value-added applications requiring less stringent particle size
reduction.
The combination of product lines from the three divisions results in one of
the broadest offerings of fluid processing equipment in the materials processing
market. The Company, in late 1998 and early 1999, integrated its three divisions
such that its corporate marketing and sales group is now responsible for the
marketing and sales of the products from all three divisions. The acquisition of
the Epworth Mill and Morehouse-COWLES divisions in 1998 and the consolidation of
marketing and sales personnel into one group enables the Company to sell
stand-alone pieces of equipment to smaller companies that require only limited
processing capability, as well as integrated systems or multiple pieces of
equipment from more than one division to larger customers that have a variety of
fluid processing requirements.
The Company was incorporated in Delaware in 1983. The Company, formerly
named Biotechnology Development Corporation, changed its name effective June 8,
1993 to Microfluidics International Corporation, and again changed its name
effective July 12, 1999 to MFIC Corporation. Its principal executive offices are
located at 30 Ossipee Road, in Newton, Massachusetts, 02464-9101 and its
telephone number is (617) 969-5452.
Microfluidizer(R) and Zinger(R) are trademarks of the Company, which have
been registered with the United States Patent and Trademark Office.
Morehouse-COWLES(TM), Epworth Mill(TM) and Microfluidics(TM) are trademarks of
the Company for which registration applications have been filed with the United
States Patent and Trademark Office. All other trademarks or trade names referred
to herein are the property of their respective owners.
<PAGE>
-4-
The Technology:
The Company's Microfludizer(R) materials processor device is based on
patents and related technology tat were licensed by the Company from Arthur D.
Little & Co. in 1983 and subsequently purchased by the Company in 1985. The
Company holds two United States patents related to the apparatus and process
used to intimately mix liquids and disperse particulate solids in
microemulsions.
The Company's Microfluidizer(R) device is used in processing industries to
mix materials that are normally very difficult to mix. The Microfluidizer(R)
device allows manufacturers in the chemical, pharmaceutical, biotechnology,
cosmetic, and food processing industries to produce higher quality products with
better characteristics on a more consistent basis than with other blending and
mixing techniques.
The Company's Epworth Mill products consist of ball mills and horizontal
media mills. The division is also engaged in the sale and distribution of
grinding media. The division's ball mills are used in coarse grinding
application of liquid slurries or dry materials such as ore from mines or coarse
slurries of material that will later be processed into finer slurries. The ball
mills use large media in a horizontal rotating cylindrical vessel to crush and
grind the product being processed. The Epworth Mill Division's patented
Zinger(R) horizontal media mill utilizes a unique design for grinding and
dispersing solid materials in a liquid carrying medium. The design is based upon
established rotating, horizontal shaft technology but adds the unique capability
of enhanced mechanical activity between the grinding media and the product
formulation. The enhanced mechanical activity is achieved through a unique
combination of rotating discs and a specially designed containment vessel. In
comparison to traditional horizontal media mills, the Zinger technology has
demonstrated improved productivity in terms of greater volumes of product
processed at acceptable quality than the comparably sized and priced horizontal
media mills.
The Company's Morehouse-COWLES products consist of vertical, rotary shaft
technology which can be fitted with various blades, discs or mixing devices and
are used for a variety of blending, mixing, deagglomerating and dispersing
applications in a variety of industries including the protective and conductive
coating, ink and pigment, pharmaceutical, and food industries. As one of the
early inventors of dispersers, dissolvers, colloid mills, and media mills, the
COWLES(TM) name is an industry-accepted symbol of quality, reliable products.
Commercial Applications:
The Microfluidizer(R) equipment can be used to mix and formulate emulsions,
dispersions and liposomes, and for cell disruption.
Emulsions are homogenous mixtures of oil and water components (or other
normally immiscible components), which, if mixed properly, do not readily
separate. Emulsions comprise many products, such as processed foods, medicines,
photographic films, hydraulic fluids and polymers. The Company believes that,
generally, an emulsion processed with Microfluidizer(R) equipment will exhibit
improved stability and require reduced concentrations of costly emulsifying
agents that are otherwise needed to enhance product stability.
<PAGE>
-5-
Dispersions are mixtures of fine solids suspended in liquid so that the two
do not separate readily after processing. Similar to emulsions, dispersions are
used in a variety of consumer and industrial products, including pigments for
paints and inks, iron oxide for magnetic tapes and mascara, phosphorescent
coatings for TV screens and fluorescent lamps, barium titanate for capacitors,
toners and inks.
Liposomes are biodegradable cell-like structures, formed from materials
such as cholesterol and lecithin, that can be used to encapsulate medications or
nutrients. Pharmaceutical and cosmetic manufacturers use liposomes as a delivery
system to target active ingredients for specific anatomical sites and to prolong
their efficacy. To date, liposomes have been used commercially in two
applications, of medical diagnostic agents and cosmetics. Applications include
the encapsulation of dye to be used as a marker in medical diagnostic tests and
the encapsulation of ingredients for deeper skin penetration, or time release
control, as well as pharmaceutical, food and specialized agricultural
applications.
In the biotechnology industry, Microfluidizer(R) equipment is currently
used to harvest, by cell rupture, the contents of plant or animal cells. The
precision with which the Microfluidizer(R) equipment can be used to break up
materials allows the encapsulating cell wall to be ruptured without damage to or
contamination of the cell contents. As a result, the Microfluidizer(R) equipment
minimizes the amount and presence of cell wall debris, thus resulting in maximum
yields.
The Microfluidizer(R) equipment is generally used in commercial
applications where a scientist, formulator or chemist is trying to improve a
product formulation for an expensive, high value added end product.
Microfluidizer(R) equipment is initially employed in a research laboratory, with
the equipment subsequently being used in scaleup to pilot scale production of
new or improved products, and ultimately, for full production scale volumes as
the improved product comes to market. From laboratory to production, the volume
of product processed range from 1/2 liter to 200 liters per minute.
The Epworth Mill and Morehouse-COWLES products are generally used for
blending, mixing, deagglomeration and dispersion of paints and coatings, inks,
adhesives, sealants, and pigment dispersions. These applications tend to be less
technically demanding, the formulations are less expensive to produce and the
volumes of product produced are large.
<PAGE>
-6-
The Products:
A. The Microfluidics Division currently manufactures and markets the following
lines of equipment:
The HC Series: The HC Series, also known as "Homogenizers," is a
laboratory-scale series of equipment that is intended to impart moderate levels
of energy into a customer's product with greater flow rates than the more energy
intensive Microfluidizer(R) devices. Operating pressures of products in the
Company's HC Series can range from under 500 psi to as high as 8,000 psi, and
will process as much as two liters of fluid per minute.
The M-110 Series: The M-110 Series, a laboratory product line, is designed
primarily for research and development applications. Standard models can operate
at pressures as high as 25,000 psi and have a flow rate that exceeds one-half of
a liter of product per minute. The most recent introduction in this line is the
M-110EHI model designed for "non-sanitary" industrial applications such as
paint, coatings, pigments and other chemical/industrial applications. This model
is constructed from epoxy painted carbon steel rather than from standard
stainless steel that the Company used in other models. The M-110EHI includes an
on-board hydraulic pump system for high performance "lab scale" micro-mixing at
processing pressures up to 25,000 psi and flow rates up to 450 ml/min and has
numerous standard features and options such as an explosive-proof model.
The M-140 Series: The M-140, introduced in June of 1994, is a
laboratory-scale unit developed for customers in the chemical, biotechnology,
pharmaceutical, cosmetic and food processing industries who require elevated
operating pressures to achieve better performance. The M-140K can achieve
operating pressures up to 40,000 psi. The M-140K has a built-in hydraulic system
and utilizes a double-ended intensifier pump that provides a highly uniform
pressure profile. It has been designed with important safety features such as an
explosion-proof motor, starter and electrical controls. The M-140EHI is the
industrial counterpart to the M-140K and is constructed for non-sanitary
applications.
The M-210 Series: The M-210 Series is primarily marketed to pharmaceutical,
cosmetic and food product manufacturers who have created a successful new or
improved formulation on the M-110 Series unit and would like to increase their
productive capacity. The M-210 Series unit is typically used for testing
formulations at greater volume levels before initiating full-scale production.
For some customers (such as pharmaceutical product manufacturers), the M-210
Series may have the capacity to function as a production unit.
The M-610 Series: The M-610 Series consists of custom-built models used for
large-scale manufacturing. These units have flow rates of up to 50 gallons per
minute and generate operating pressures up to 40,000 psi.
<PAGE>
-7-
The M-700 Series: The M-700 Series was introduced in the latter part of
1998 and is designed, engineered, and constructed for use in "rugged" industrial
environments such as coatings, paints, and pigments research and manufacturing.
The M-700 Series products are constructed from painted carbon steel instead of
the stainless steel of previous models and will use components especially
designed to withstand such hazards as dust, grease, and water spray. Because the
equipment is not used in sanitary environments, it can be constructed using
materials and methods that otherwise could not be used in pharmaceutical,
biotechnology, and other "clean" application industries and is also more
cost-effective, resulting in list price reductions of 30% and more.
The M-700 Series equipment is available in a variety of configurations and
flow rates depending upon motor size and the number of intensifier pumps. The
M-7250-20 is a 50 H.P. machine with 2 intensifier pumps with a maximum operating
pressure of 20,000 psi. It achieves flow rates and productive capacity exceeding
that of the M-210 series and is, therefore, considered by the Company to be a
large volume production unit.
B. The Epworth Mill Division currently manufactures and markets the following
lines of equipment, and sells and distributes the following grinding media:
Ball Mills: Ball Mill equipment uses grinding media that can deagglomerate
and grind wet or dry product formulations on a batch or continuous basis. Batch
size can range from ounces to more than 3,000 gallons.
Media: Sale and distribution of media includes a wide variety of grinding
media from media producers around the world. The media is used in the Company's
products as well in competitors' products. Media types include all currently
used materials in the industry including glass, ferrous, stone, steel shot, and
ceramic.
Zinger(R) Horizontal Media Mills: This milling equipment is available in
the following sizes that process products in volumes ranging from 1/4 liter to
60 liter batches or on a continuous basis.
o The XL Series: The XL Series equipment is used in laboratory environments
and has processing vessel sizes from .25 liters to .33 liters.
o The SV Series: The SV Series equipment is used in pilot scale
environments and has processing vessel sizes from 3.0 to 5.1 liters.
o The LV Series: The LV Series equipment is used in production environments
and has processing vessel sizes from 27 to 60 liters.
<PAGE>
-8-
C. The Morehouse-COWLES Division currently manufactures, distributes and markets
the following lines of equipment:
Colloid Mills and Stone Mills: Colloid Mills and Stone Mills are utilized
for processing chemicals, food products and minerals where the user desires
to reduce particles to 15-25 microns in size and where the capital
equipment costs must be minimized.
Vertical Media Mills: Vertical Media Mills are used in connection with
batches or continuous milling of products in a wide variety of industries
including chemical, agricultural, cosmetics and food. Batch sizes typically
range from 2 to 60 gallons with throughput capacities of 2 to 900 gallons
per hour.
Single Shaft Dissolvers and Dispersers: Single Shaft Dissolvers and
Dispersers are available in a variety of sizes to meet demand from
laboratory to full production volume. Generally, these dissolvers and
dispersers are used in lower cost products, at viscosities up to 50,000
centipoise that require blending, mixing, deagglomeration and dispersion.
Multi-shaft Dissolvers and Dispersers: Multi-shaft Dissolvers and
Dispersers are available in a variety of sizes to meet demand from
laboratory to full production volume. Generally these dissolvers and
dispersers are used for high viscosity products up to 2 million centipoise.
Customized Units: To meet larger production volume requirements or
specialized applications, the division provides customized units on a
specialized quotation basis.
Marketing and Sales:
The Company's marketing and sales activities are conducted through a
corporate marketing and sales group that is responsible for the worldwide
marketing and sales of products from all three of the Company's divisions.
Marketing is conducted through advertising, direct mail, seminars, trade
shows and telemarketing. In addition, the Company has an active program of field
demonstrations, as well as demonstrations to potential users in the Company's
applications laboratories. International distributors and sales agents are
supported with trade advertising, collateral literature and trade show
materials. The distributors also advertise directly on their own behalf and
attend regional and international trade shows. As an aid to the marketing and
sales activity for the equipment, the Company provides prospective customers
with access to its testing laboratories. These laboratories provide free
processing and particle size and distribution analysis of a prospective
customer's sample formulation. Additionally, a prospective customer may pay for
subsequent laboratory time and services on a fee for services basis, which
includes equipment rentals.
<PAGE>
-9-
Epworth Mill Division:
The product lines of the Epworth Mill Division have direct competition in
its major markets. The Ball Mill sales, Ball Mill repair and distribution of
media business segments are targeted at a well- defined market with competition
based upon price, delivery, and service.
The Company sells its divisions' equipment in the United States through a
network of independent regional sales representative firms who are overseen and
assisted by the Company's regional sales managers. In Canada, the Microfluidics
Division has an exclusive distributor. In Europe, the Company sells its
equipment through a network of independent regional sales agents and
distributors who are assisted by the Company's European Sales Manager and his
staff. In Asia and the Pacific Rim, the Company sells through a network of
regional distributors. Customers in other geographical regions are assisted
directly by Company sales staff.
Customers:
The users of Microfluidizer(R) systems are industrial producers of high
value-added fluid materials in the chemical, pharmaceuticals, food, cosmetic and
biotechnology industries. Mizuho Industrial Co. Ltd. accounted for 20% of
revenues in 1997. No other customers accounted for more than 10% of the
Company's revenues in 1999, 1998 or 1997.
Competition:
The Microfluidizer(R) equipment product line of high shear processors has
direct competition in its major markets, including pharmaceutical and
coatings/chemical applications, but management believes that the Microfluidics
Division products have larger installed bases and competitive performance over
products of our competitors. The Company believes that the Microfluidizer(R)
equipment product line offers the broadest and most dynamic operating pressure
range on the market and in many critical formulations produces better quality
products for our customers.
The M-700 Series of fluid processors together with the M-210 and M-610
product lines provide high shear fluid processing capabilities for both sanitary
and industrial applications. The Company believes that the Microfluidizer(R)
product line provides a distinct advantage over the product lines of our
competitors with respect to the processing of abrasive slurries or solids
dispersed in liquids in large part because of the Company's unique,
wear-resistant, diamond interaction chamber and the special design of the
intensifier pumping system.
<PAGE>
-10-
The patented Zinger horizontal media mill competes against a
well-established group of competitive mills. The unique design of the Zinger
media mill, however, results in an economic advantage for customers who employ
the Zinger media mill because they are able to process larger volumes of product
while attaining at least the same quality as produced by competitive mill, and
can do so occupying less floor space. As customers replace older mills or expand
their facilities, they will gain an economic advantage by lowering the
processing costs of their products by using a mill, such as the Zinger media
mill, which more efficiently processes larger quantities of product than
competitive mills.
Morehouse-COWLES:
The product lines of the Morehouse-COWLES Division have direct competition
in its major market segments. The Morehouse-COWLES product line has strong brand
name recognition, a large installed base and a reputation for high quality,
reliable, processing systems. The systems of this division have a very broad
market use in a wide variety of mixing, blending, grinding, and dispersing
applications and therefore have potential for high volume unit shipments.
The Company faces, and will continue to face, intense competition from
other companies who manufacture and sell fluid materials processing systems used
in grinding, mixing, milling and blending applications. The Company is subject
to significant competition from organizations that are pursuing technologies and
products that are similar to the Company's technology and products. Some of the
organizations competing with the Company have greater capital resources,
research and development staffs and facilities and marketing capabilities than
the Company. The Company's future success will depend in large part on its
maintaining a competitive position in the fluid materials processing systems
field. Rapid technological development by the Company or others may result in
products or technologies becoming obsolete before the Company recovers the
expenses it incurs in connection with their development. Products offered by the
Company could be made obsolete by less expensive or more effective technologies.
There can be no assurance that the Company will be able to make the enhancements
to its technology necessary to compete successfully with newly emerging
technologies. The Company expects competition to intensify in the fluid
materials processing systems field as technical advances are made and become
more widely known.
Research and Development:
The Company's research and development efforts are focused on developing
new mixing techniques for the process industries and further enhancing the
functionality, reliability and performance of existing products. Research and
development costs were $927,582, $935,880 and $459,240 in 1999, 1998, and 1997
respectively. The Company continues to pursue development of the multi-stream
mixer reactor (See Patents and Proprietary Rights Protection) by working with
customers who assist in the development of the system with both application
knowledge and financial support. Patent coverage for this new product is in
various stages of prosecution in the major industrial countries.
<PAGE>
-11-
Cooperative Research Arrangements:
The Company subsidizes research and development activities centered around
Microfluidizer(R) processing technology at a number of research centers and
universities. The Company's subsidy of these activities takes the form of
substantial reduction or elimination of the customary rental charges for the
Microfluidizer(R) equipment provided for use. The Company has, in recent years,
subsidized research and development in the following fields at the following
universities: The University of Massachusetts, Lowell - biotechnology; Lehigh
University - polymer chemistry; Universite Laval (Quebec) - food science;
Worcester Polytechnic Institute ("WPI") - catalytic chemistry; and Purdue
University - pharmaceuticals. In addition to their research activities, these
universities provide the Company with contacts at industrial companies that may
utilize the Microfluidizer(R) processing technology.
In addition to providing subsidies, the Company has entered into the following
research arrangement:
Worcester Polytechnic Institute (WPI)
The Company has supported research and development at WPI since 1988. In
1992, the Company entered into a cooperative venture with WPI to develop, patent
and license for WPI, for its commercial applications, the Microfluidizer(R)
process technology in the following fields: (i) the production of catalysts used
in chemical and petroleum processing; (ii) the manufacture of advanced ceramic
materials; and (iii) the destruction of volatile organic compounds and other
organic contaminants in process waste water. The Company and WPI applied for
United States and foreign patents in 1992 and 1993, respectively, which cite the
Microfluidizer(R) processing technology as enabling the above process
technologies. The two applied-for United States patents were both granted and
issued to WPI in the United States in 1995. In 1996 one applied for patent was
granted to WPI in France for European entry in the Patent Cooperation Treat
("PCT") countries. Patent issuance for these process technologies in several
other foreign jurisdictions is either pending or is in the latter stages of
prosecution.
<PAGE>
-12-
Based upon market research and technical evaluation to date, the Company is
focusing its activities on the synthesis of advanced zeolite and metal oxide
catalysts using the WPI process technology. A catalyst is a substance that
initiates, accelerates and determines the course of a chemical reaction. The
Company believes that properties of proprietary catalysts may improve industrial
process economics by making more efficient use of raw materials, reducing energy
requirements and increasing product yields. The Company believes that the
catalytic materials produced by the Microfluidizer(R) process may result in
improved efficiency and extended life, compared with conventional catalysts.
Patents and Proprietary Rights Protection:
To protect its proprietary rights, the Company relies on a combination of
U.S. patent and trademark laws, trade secrets, confidentiality agreements,
contractual provisions and technical means. In the event of patent infringement
or breach of confidentiality, there can be no assurance that these measures will
be adequate or that the Company will have sufficient resources to prosecute or
prevail in an action against a third party. In addition, the Company has not
sought patent or trademark protection for its Microfluidizer(R) equipment's
interaction chamber in any country other than the United States and, as such,
its proprietary rights are not subject to the protection of patent or trademark
laws of foreign countries where the Company's equipment is sold. The Company's
Microfluidizer(R) equipment process patent expires March 13, 2007 and its device
patent expires August 6, 2002. In 1997 the Company completed development of a
novel adaptation of its Microfluidizer(R) equipment - a "Multi-Stream Continuous
Chemical Reactor". In August 1997, the Company filed a patent application for
the device and its processes with the United States Patent and Trademark Office
and filed a Patent Cooperation Country (PCT) application on May 5, 1998. The
Company's Zinger horizontal media mill is protected by a United States patent
granted June 5, 1997.
Manufacturing:
At present, the Microfluidics Division subcontracts the manufacture of many
of the components of its equipment to third parties, with the division
undertaking the remaining fabrication, assembly and performance testing. The
division has selected certain primary suppliers based upon pricing terms and the
quality of their products. The Company believes that there are adequate
available alternate manufacturing sources and suppliers for the division's
components and raw materials.
Epworth Mill and Morehouse-COWLES divisions perform a significant portion
of machining and assembly operations at their respective manufacturing
locations. Certain specialty components of the systems are provided by outside
contractors. The Company believes that there are adequate available alternate
contractors to provide them with specialty components.
<PAGE>
-13-
The loss of any primary supplier could have a material, adverse effect on
the Company's business, financial condition, or results of operations.
Government Regulation:
Certain of the Company's customers utilize the Company's equipment in
processes and production that are subject to governmental regulation. For
example, the manufacturing and marketing of pharmaceutical products requires the
approval of the Food and Drug Administration ("FDA") within the United States
and of comparable agencies in foreign countries. The FDA has established
mandatory procedures, safety standards and protocols that apply to the
manufacture, clinical testing and marketing of new pharmaceutical products in
the United States. The process of seeking and obtaining FDA approval of a new
product often takes a number of years and often involves the expenditure of
substantial resources. The FDA approval process contributes to the extremely
long lead times that are attendant to manufacturing equipment orders for these
applications.
Further, in addition to product approvals, the FDA imposes requirements as
to manufacturing practices, record keeping and reporting ("Good Manufacturing
Practices" or "GMP"). GMP-regulated companies are subject to inspections by the
FDA (inclusive of Microfluidizer(R) equipment) and product approvals may be
withdrawn if GMP are not met.
At present, the Company's customers include companies who are making FDA
approved drugs and preparations for external use and companies who utilize
Microfluidizer(R) equipment for the formulation or production of FDA approved
parenteral (injectable) drugs or compounds.
Various laws, regulations and recommendations relating to safe working
conditions, laboratory practices and the purchase, storage, movement, import and
export, use and disposal of harmful or potentially harmful substances that may
be used in connection with the Company's research work are, or may, be
applicable to its activities. These laws include, among others, the United
States Atomic Energy Act, the Clean Air Act, the Clean Water Act, the
Occupational Safety and Health Act, the National Environmental Policy Act, the
Toxic Substances Control Act, the Resource Conservation and Recovery Act,
national restrictions on technology transfer, import, export and customs
regulations and other present and possible future local, state or Federal
regulation. The extent of adverse governmental regulation which might result
from future legislation or administrative action cannot be accurately predicted.
Certain agreements that may be entered into by the Company involving exclusive
license rights may also be subject to national or supranational antitrust
regulatory control, the effect of which cannot be predicted.
<PAGE>
-14-
Backlog:
The Company's backlog of accepted and unfilled orders at March 16, 2000 and
March 16, 1999 was approximately $3,371,000 and $1,188,000 respectively. Revenue
is not recognized until equipment is shipped. Backlog as of any particular date
should not be relied upon as indicative of the Company's net revenues for any
future period.
Employees:
The Company has approximately 84 full-time employees as of March 16, 2000.
None of the Company's employees are covered by a collective bargaining
agreement, and the Company considers its relations with its employees to be
satisfactory. The Company believes that its future success will depend in large
part on its ability to attract and retain highly skilled employees.
Item 2. PROPERTIES
The Company's corporate headquarters are in Newton, Massachusetts. The
Company also maintains two other locations in South Haven, Michigan and
Fullerton, California. The Company rents approximately 125,000 square feet of
offices, production and research and development facilities at these locations
for administrative, development and production activities. A small portion of
space is sublet to another entity. The lease terms expire at various times
through August 2006. The Company has the option to extend the leases for up to
ten additional years. The Company believes these facilities will be adequate for
operations for the next several years.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 1999.
<PAGE>
-15-
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Over the Counter Bulletin Board
under the symbol "MFIC". The following table sets forth the range of quarterly
high and low bid quotations for the last two fiscal years, as furnished by the
National Association of Securities Dealers Automated Quotation System. The
quotations represent interdealer quotations without adjustment for retail
markups, markdowns, or commissions, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Quarters Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31
1999 1999 1999 1999 1998 1998 1998 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Common Stock
- ------------------------------------------------------------------------------------------------
Low 1/4 3/8 1/4 5/8 13/16 1-1/8 2 2-3/8
- ------------------------------------------------------------------------------------------------
High 7/16 13/16 3/4 1 1-5/16 2-7/16 2-13/16 3-5/16
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
As of March 16, 2000, there were approximately 379 holders of record of the
Company's Common Stock.
The Company has never paid any cash dividends on its Common Stock and
presently anticipates that no dividends on its Common Stock will be declared in
the foreseeable future. The Company's current policy is to retain all of its
earnings to finance future growth. In addition, pursuant to loan covenants
contained in the Company's loan agreement with its commercial leader, the
Company may not pay dividends without the commercial lender's prior approval.
<PAGE>
-16-
Item 6. SELECTED FINANCIAL DATA
The selected financial information presented below is derived from the
audited consolidated financial statements of the Company for each of the five
years in the period ended December 31, 1999. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related Notes included elsewhere in this Form 10-K.
As discussed in Note F to the accompanying financial statements, in August
1998, the Company acquired the assets and assumed certain liabilities of two
businesses, Morehouse-COWLES and Epworth Manufacturing Company. These
acquisitions were accounted for as a purchase. Accordingly, in the accompanying
financial statements, the results of operations and cash flows include
Morehouse-COWLES and Epworth Mill for all of 1999 but do not include them for
periods prior to August 15, 1998.
Selected Statement of Operations Data
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues $14,024,369 $ 8,869,679 $ 7,105,706 $ 6,273,768 $ 5,273,399
- -------------------------------------------------------------------------------------------------------------------------------
Operating expenses 14,417,304 9,968,142 6,702,410 5,922,885 6,556,747
- -------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (392,935) (1,098,463) 403,296 350,883 (1,283,348)
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense (542,045) (149,043)
- -------------------------------------------------------------------------------------------------------------------------------
Other income 58,847 50,012 50,009
- -------------------------------------------------------------------------------------------------------------------------------
Interest income 9,835 119,492 159,256 100,612 98,675
- -------------------------------------------------------------------------------------------------------------------------------
Gain on sale of investments
and assets 11,864 36,203 91,863 174,776
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes (854,434) (1,091,811) 704,427 501,504 (1,009,897)
- -------------------------------------------------------------------------------------------------------------------------------
Income tax benefit (413,630) 403,630 (1,107,422)
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (854,434) (1,505,441) 1,108,057 501,504 (2,117,319)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per share: $(.15) $ (.28) $ .23 $ .10 $ (.43)
Net income (loss) per share
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share: $(.15) $ (.28) $ .22 $ .10 $ (.43)
Net income (loss) per share
- -------------------------------------------------------------------------------------------------------------------------------
Selected Balance Sheet Data
- -------------------------------------------------------------------------------------------------------------------------------
Working capital 1,404,820 $ 1,575,113 $ 6,805,556 $ 6,072,621 $ 5,599,714
- -------------------------------------------------------------------------------------------------------------------------------
Total assets 13,227,316 14,700,022 8,872,218 7,183,324 6,715,986
- -------------------------------------------------------------------------------------------------------------------------------
Long term debt 775,000 675,000
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 7,161,111 8,029,786 7,538,143 6,428,523 6,029,081
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-17-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
RESULTS OF OPERATIONS
Fiscal 1999 Compared to Fiscal 1998
As discussed in Note F to the accompanying financial statements, in August
1998, the Company acquired the assets and assumed certain liabilities of two
businesses, Morehouse-COWLES and Epworth Manufacturing Company. These
acquisitions were accounted for as a purchase. Accordingly, in the accompanying
financial statements, the results of operations and cash flows include
Morehouse-COWLES and Epworth Mill for all of 1999 but do not include them for
periods prior to August 15, 1998.
Total revenues for the year ended December 31, 1999 were $14,024,369 as
compared to revenues of $8,869,679 for the year ended December 31, 1998,
representing an increase of $5,154,690, or 58%. This increase in revenues was
the result of $4,790,861 in additional revenue generated by the Company's
Epworth Mill and Morehouse-COWLES divisions, and an increase in sales by the
Microfluidics Division of the Company in the amount of $363,829.
For the Microfluidics Division, North American sales for the year ended
December 31, 1999 increased to $4,518,962, or 5% as compared to North American
sales of $4,299,285 for the year ended December 31, 1998. This increase in North
American sales was principally due to an increase in the sale of spare parts.
Foreign sales were $1,899,989 for the year ended December 31, 1999 compared to
$1,755,836 for the year ended December 31, 1998, an increase of approximately
$144,000 or 8%. This increase in foreign sales was principally due to an
increase in the sale of machines compared to 1998.
Within the Microfluidics Division, sales of the M-110 Laboratory Series
decreased by approximately $240,000, from $2,555,842, or 42% of sales, in 1998
to $2,315,636, in 1999, or 36% of sales, while spare part sales increased by
approximately $484,000 to 37% of sales, to $2,404,936 in 1999, from $1,920,491
in 1998. Sales of a new line, the M-700 Series, accounted for approximately
$572,000, or 9% of sales in 1999. Sales of the M-210 Series decreased by
approximately $295,000 to 3% of division sales to $204,853 in 1999 from
$499,372, or 8% of sales, in 1998. In addition, the Company's sale of M-610
large volume production units in fiscal 1999 was one unit, down from three units
from fiscal 1998, representing a decrease of approximately $598,000.
<PAGE>
-18-
Total cost of goods sold for 1999 was $7,990,398 or 57% of revenue, as
compared to $4,954,826 or 56% of revenue for 1998. The increase in cost of goods
sold in absolute dollars reflects the increase in sales generated by the Epworth
Mill and Morehouse-COWLES operating divisions of the Company, offset by a
decrease in cost of goods sold by the Microfluidics Division of approximately
$408,000. For the Microfluidics Division of the Company, cost of goods sold was
$2,403,245, or 37% of sales, compared to $2,810,954, or 46% of sales, for 1998.
The decrease in cost of goods sold was due to reduced sales of large volume
machines, which have a lower gross profit margin. The Company's three major
product lines have different profit margins, as well as multiple profit margins
within each product line. In the course of the periods compared, there may be
significant changes in the cost of revenues as a percentage of revenue depending
on the mix of product sold. Also, the cost of sales as a percent of revenue will
differ between laboratory and pilot plan units sold, due to the difference in
costs between air driven and electric-hydraulic units.
Total operating expenses for 1999 were $6,426,906 or 46% of revenue, as
compared to $5,013,316, or 57% of revenue, for 1998, which is an increase of
$1,413,590, or 28%.
Research and development expenses for 1999 were $927,582 compared to
$935,880 for 1998, a decrease of $8,298, or 1%. Excluding research and
development expenses attributable to the Epworth Mill and Morehouse-COWLES
operating divisions of the Company of $359,463, which represented an increase of
approximately $102,000, the decrease in research and development expenses of the
Microfluidics Division of approximately $110,000 is primarily due to a decrease
in payroll and related costs of approximately $121,000, offset by a decrease in
grant reimbursement funds of approximately $27,000.
Sales and Marketing expenses for 1999 increased approximately $571,000,
from $2,363,844 in 1998 to $2,934,668, or 24%. Excluding selling expenses of
approximately $938,000 attributable to the Epworth Mill and Morehouse-COWLES
divisions of the Company, selling expenses increased by approximately $145,000,
from $1,851,584 to $1,996,277 due to an increase in advertising expense of
approximately $92,000, travel and entertainment expenses of approximately
$40,000, and printing expenses of approximately $33,000.
For the year ended December 31, 1999, general and administrative expenses
increased by approximately $851,000, from $1,713,592 for the year ended December
31, 1998, to $2,564,656. Excluding expenses attributable to the Epworth Mill and
Morehouse-COWLES operating divisions of the Company of approximately $877,000 in
1999 and $396,000 in 1998, general and administrative expenses increased
approximately $370,000, principally due to an increase in amortization of
goodwill in connection with the purchases of the assets and selected liabilities
of the Epworth Mill and Morehouse-COWLES divisions of approximately $246,000,
and an increase in professional fees of approximately $170,000, offset by a
decrease in corporate overhead of approximately $23,000.
<PAGE>
-19-
Interest income for 1999 decreased to $9,835 from $119,492 for 1998, a
decrease of $109,657 or 92%. The decrease for 1999 was due to the amount of cash
available to invest.
The Company realized a gain on the sale of a portion of the Company's
holdings in PolyMedica Industries, Inc. in the amount of $36,203 for the year
ended 1998, and a gain on the sale of Cardiotech International, Inc., in the
amount of $11,864 for 1999.
The Company realized a gain on the sale of fixed assets in 1999 of $58,847.
In the fourth quarter of 1998, the Company adjusted the valuation allowance
against its deferred tax assets, resulting in a charge of $413,630, due to the
uncertainty of earning sufficient taxable income to realize the benefit of the
deferred tax assets. The Company had a sales backlog of $3,371,000 and
$1,188,000 at March 16, 2000 and March 16, 1999, respectively, consisting of
purchase commitments for each division's line of equipment.
Fiscal 1998 Compared to Fiscal 1997
Total revenues for the year ended December 31, 1998 were $8,869,679 as
compared to revenues of $7,105,706 for the year ended December 31, 1997,
representing an increase of $1,763,973, or 25%. This increase in revenues was
the result of $2,814,557 in additional revenue generated by the Company's
Epworth Mill and Morehouse-COWLES divisions offset by a decrease in sales by the
Microfluidics Division of the Company, of $1,050,584.
For the previously sole operating division of the Company, North American
sales for the year ended December 31, 1998 increased to $4,299,285, or 6% as
compared to North American sales of $4,070,290 for the year ended December 31,
1997. This increase in North American sales was principally due to an increase
in the sale of machines. Foreign sales were $1,755,836 for the year ended
December 31, 1998 compared to $3,035,416 for the year ended December 31, 1997, a
decrease of approximately $1,279,580 or 42%. This decrease in foreign sales was
principally due to a decrease in the sale of machines compared to 1997.
Within the Microfluidics Division, sales of the M-110 Laboratory Series
increased by approximately $261,000, to $2,555,842, or 42% of sales, in 1998
from $2,295,324, in 1997, while spare part sales increased by approximately
$49,000 to 32% of sales, to $1,920,491 in 1998, from $1,871,424 in 1997. Sales
of the M-210 Series decreased by approximately $1,229,000 to 8% of division
sales to $499,372, in 1998 from $1,727,953, or 24% of sales, in 1997. In
addition, the Company's sale of large volume production units in fiscal 1998 was
three units, down from five units from fiscal 1997, representing a decrease of
approximately $297,000.
<PAGE>
-20-
Total cost of goods sold for 1998 was $4,954,826 or 56% of revenue, as
compared to $3,265,593 or 46% of revenue for 1997. The increase in cost of goods
sold in absolute dollars reflects the increase in sales generated by the new
Epworth Mill and Morehouse-COWLES operating divisions of the Company, offset by
a decrease in sales of machines by the Microfluidics Division. For the
Microfluidics Division of the Company, cost of goods sold was $2,810,954, or 46%
of sales, compared to $3,265,923, or 46% of sales, for 1997. The decrease in
cost of goods sold was due to reduced foreign sales. The Company's three major
product lines have different profit margins, as well as multiple profit margins
within each product line. In the course of the periods compared, there may be
significant changes in the cost of revenues as a percentage of revenue depending
on the mix of product sold. Also, the cost of sales as a percent of revenue will
differ between laboratory and pilot plan units sold, due to the difference in
costs between air driven and electric-hydraulic units.
Total operating expenses for 1998 were $5,013,316, or 57% of revenue, as
compared to $3,436,817, or 48% of revenue, for 1997, which is an increase of
$1,576,499, or 46%.
Research and development expenses for 1998 were $935,880 compared to
$459,240 for 1997, an increase of $476,640, or 104%. Excluding research and
development expenses attributable to the new Epworth Mill and Morehouse-COWLES
operating divisions of the Company that approximated $258,000, the increase in
research and development expenses is primarily due to an increase in payroll
costs of approximately $118,000, and a decrease in grant reimbursement funds of
approximately $111,000.
Sales and marketing expenses for 1998 increased approximately $616,000 or
35% from $1,748,146 to $2,363,844. Excluding selling expenses of approximately
$512,000 attributable to the new Epworth Mill and Morehouse-COWLES divisions of
the Company, selling expenses increased by approximately $103,000, from
$1,748,146 to $1,851,584, due to an increase in outside commissions of
approximately $73,000, consulting expense of approximately $29,000, delivery
expense of approximately $23,000, partially offset by a decrease in payroll and
related costs of approximately $61,000.
For the year ended December 31, 1998, general and administrative expenses
increased by approximately $484,000, from $1,229,430 for the year ended December
31, 1997, to $1,713,592. Excluding expenses attributable to the new Epworth Mill
and Morehouse-COWLES operating divisions of the Company of approximately
$396,000 and amortization of goodwill in connection with the purchase of the new
divisions of approximately $154,000 for 1998, general and administrative
expenses decreased approximately $66,000, principally due to a decrease in
professional fees of approximately $52,000.
Interest income for 1998 decreased to $119,492 compared to $159,256 for
1997, a decrease of $39,764 or 25%. The decrease for 1998 was due to the amount
of cash available to invest.
<PAGE>
-21-
The Company realized a gain on the sale of a portion of the Company's
holdings in PolyMedica Industries, Inc. in the amount of $36,203 and $91,863 for
the years ended 1998 and 1997 respectively.
The Company received other income of $50,012 for 1997. The other income
resulted from royalty income of $4,168 per month due to the sale of the
Company's Dermasome product line in December, 1995.
In the fourth quarter of 1998, the Company adjusted the valuation allowance
against its deferred tax assets, resulting in a charge of $413,630, due to the
uncertainty of earning sufficient taxable income to realize the benefit of the
deferred tax assets. The Company had a sales backlog of $1,187,837 and $601,781
at March 16, 2000 and March 16, 1999, respectively, consisting of purchase
commitments for each divisions' line of equipment.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the acquisition of the Epworth Mill and Morehouse-COWLES
divisions, the Company had financed its operations primarily through the use of
cash and cash equivalents on hand, and cash flows from operations.
The Company generated cash of $970,442 in 1999 used cash of $1,259,391 in
1998, and generated cash of $1,289,874 from operations in 1999, 1998, and 1997,
respectively. In 1999, the Company's principal operating cash requirements were
to fund its net loss from operations, an increase in trade and other
receivables, an increase in prepaid expenses, offset by a decrease in current
liabilities and a decrease in inventory. In 1998, the Company's principal
operating cash requirements were to fund its net loss from operations and reduce
other current liabilities, offset by decreases in inventory and trade and other
receivables. In 1997, the amount of the cash increase was principally the result
of net income increased by an increase in current liabilities of $569,274 and
decreased by a non-cash tax benefit of $403,630 and an increase in inventories
of $145,170.
The Company used cash of $23,855 for investing activities in 1999. Net cash
generated by investing activities included the proceeds from the sale of assets,
net of the purchase of capital equipment. As of December 31, 1999, the Company
had no material commitments for capital expenditures. The Company utilized
$6,638,534 for investing activities in 1998. Net cash used for investing
activities included the excess cost of assets purchased in the acquisition of
the Epworth Mill and Morehouse-COWLES divisions over their fair value, business
assets acquired net of cash, as well as the purchase of capital equipment. The
Company generated cash from investing activities in 1997 of $23,424, principally
from the sale of investments for $91,863, offset by the purchase of fixed assets
of $68,439.
<PAGE>
-22-
For financing activities, the Company used cash of $1,301,128 in 1999,
generated cash of $4,365,424 in 1998, and used cash of $16,638 in 1997
respectively. In 1999 cash was used to pay down the line of credit, and purchase
treasury stock, and was offset in part by the issuance of stock under the
employee stock option plan. In 1998, cash was generated from the proceeds of
borrowings to finance the acquisition of the Epworth Mill and Morehouse-COWLES
divisions. In 1997, this amount was principally the result of the purchase of
treasury stock, offset, in part, by the issuance of stock under the Company's
employee stock option and purchase plans.
The cash and cash equivalents balance at December 31, 1999 was $196,172, a
decrease of $354,541 from the December 31, 1998 balance of $550,713. At December
31, 1999, the Company maintained a line of credit with Comerica Bank. The line
of credit facility provided for maximum borrowing of $3,425,000. As of December
31, 1999 and March 16, 2000, the Company had borrowings of $3,075,815 and
$2,248,489 respectively (See Subsequent Events footnote with regard to the
borrowings at March 16, 2000).
Assuming that there is no significant change in the Company's business, the
Company believes that cash flows from operations, together with existing cash
balances, will be sufficient to meet its working capital requirements for at
least the next twelve months.
NASDAQ DELISTING
The Company's Common Stock was listed on the Nasdaq National Market (the
"National Market") under the symbol "MFIC". The Company was notified by the
National Market that, as of October 9, 1998, the Company was not in compliance
with the National Market requirements for the continued listing of its Common
Stock because the public float of the Common Stock was less than $5,000,000 for
more than thirty consecutive days. Nasdaq calculates the market value of a
Company's common stock by multiplying the closing bid price of the stock by the
number of shares held by non-affiliates. The Company estimated that 4,494,502
shares were currently held by non-affiliates. The notice from the National
Market further stated that the Company's Common Stock would be delisted as of
January 18,1999 if the public float was not $5,000,000 or more for a period of
ten consecutive trading days during the ninety-day period from October 19, 1998
to January 17, 1999. Further, as of September 30, 1998, the Company fell below
another of the National Market's continued listing requirements - its net
tangible assets (total assets minus goodwill) had fallen below $4,000,000 to
$3,251,953. Finally on March 11, 1999, the National Market notified the Company
that the Company was not in compliance with the minimum bid price requirement.
As of March 24, 1999, the Company had still not satisfied any one of the three
foregoing requirements. The Company requested a hearing before the National
Market to request a "phase-down" to the Nasdaq SmallCap Market. This meeting
took place on March 19, 1999. The Company's request was not granted and on April
23, 1999 the Company's stock was delisted from the National Market. The Company
is currently listed on the Over the Counter Bulletin Board. The liquidity of
such securities
<PAGE>
-23-
may be impaired not only in the number of shares that could be bought and sold,
but also through delays in the timing of transactions, reductions in securities
analysts' and media coverage of the Company, and lower prices than might
otherwise be attained.
NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for the Derivative Instruments and Hedging Activities," which
is effective for the Company's quarter ended March 31, 2001. SFAS No. 133
significantly modifies Accounting and Reporting Standards for derivatives and
hedging Activities. The impact of SFAS No. 133, if any, on the Company has not
yet been determined.
YEAR 2000 DISCLOSURE
The Year 2000 issue was primarily the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. As a result,
such computer systems would be unable to interpret dates beyond the year 1999,
which could have caused a system failure or other computer errors leading to a
disruption in the operation of such systems. In 1998 the Company developed a
strategic plan to update its information systems in order to meet business
needs. In 1998, the Company established a project team to coordinate existing
Year 2000 activities and address remaining Year 2000 issues. The Company devoted
the necessary resources to identify and modify systems potentially impacted by
Year 2000, or implement new systems to become Year 2000 compliant in a timely
manner. In 1999, the Company executed its Year 2000 plan as systems potentially
impacted by Year 2000 were identified and, if necessary, modified. In addition,
the Company developed contingency plans for key operational areas that could
have been impacted by the Year 2000 problem. The Company did not incur any
significant Year 2000 issues during or after the move into the new calendar
year. The total cost of executing the Company's Year 2000 plan in 1999 was
approximately $75,000.
CERTAIN FACTORS AND CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Management believes that this report may contain forward-looking statements
that are subject to certain risks and uncertainties including statements
relating to the Company's plan to achieve full sales/marketiing and operational
integration of its divisions, to achieve revenue growth, to maintain and/or
increase operating profitability, and to attain net income profitability. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties that could cause actual results achieved by
the Company to differ materially from those described in the forward-looking
statements. The Company cautions investors that there can be no assurance that
the actual results or business conditions will not differ materially from those
projected or suggested in such forward-looking statements as a result of various
factors, including but not limited to, the following risks and uncertainties:
(i) the ability to manage the integration of the Epworth Mill, Morehouse-COWLES,
and Microfluidics divisions into a cohesive operation and the successful
operating results of such integrated operations, (ii) whether the performance
advantages of the Company's Microfludizer/(R)/ or Zinger/(R)/ materials
processing equipment will be realized commercially or that a commercial market
for the equipment will continue to develop, and (iii) whether the Company will
have access to sufficient working capital through continued and improving cash
flow from sales and ongoing borrowing availability, the latter being subject to
the Company's ability to comply with the covenants and terms of the Company's
loan agreement with its senior lender.
ITEM 7A) QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
The Company's fixed rate debt is not exposed to cash flow or interest rate
changes but is exposed to fair market value changes in the event of refinancing
this fixed rate debt.
The Company had approximately $3,076,000 of variable rate borrowings
outstanding under its revolving credit agreement. A hypothetical 10% adverse
change in interest rates for this variable rate debt would have an approximate
$29,000 negative effect on the Company's earnings and cash flows.
<PAGE>
-24-
For additional information about the Company's financial instruments, see
Notes G and Note N.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company and its
Subsidiaries appear on the following pages of this Form 10-K.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2 & F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
-25-
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information concerning directors of the Company required under this
item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission not later
than 120 days after the close of the Company's fiscal year ended December 31,
1999.
Executive Officers
The information concerning executive officers of the Company required under
this item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission no later
than 120 days after the close of the Company's fiscal year ended December 31,
1999.
Item 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1999.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1999.
<PAGE>
-26-
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1.) Consolidated Financial Statements.
The following Consolidated Financial Statements are included in
Item 8:
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a)(2.) Financial Statement Schedules.
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the
notes thereto.
(a)(3.) List of Exhibits.
<PAGE>
-27-
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
- -------------- ----------------------
<S> <C>
3(a) Certificate of Incorporation for the Company, as amended (filed
as Exhibit 2A to Registration Statement No. 0-11625 on Form 8-A
and as Exhibit 3.1(a) to the Company's Report on Form 10-Q for
the quarterly period ended September 30, 1999 and incorporated
herein by reference).
3(b) Amended and Restated By-Laws for the Company (filed as Exhibit
3.3(b) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by
reference).
**10.1 1987 Stock Plan (filed as Exhibit 10(g) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987
and incorporated herein by reference).
**10.2 1988 Stock Plan (filed as Exhibit 10(g) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988
and incorporated herein by reference).
10.3 1989 Non-Employee Directors Stock Option Plan (filed as Exhibit
10.1 to the Company's registration statement on Form S-8 filed
October 22,1996 and incorporated herein by reference).
10.4 Lease for 30 Ossipee Road, Newton, Massachusetts dated May 23,
1997 between Microfluidics International Corporation and J. Frank
Garrity, Trustee of 1238 Chestnut Street Trust under Declaration
of Trust dated May 23, 1969, recorded with Middlesex South
Registry of Deeds in Book 11682, Page 384 (filed as Exhibit
3.10(a) to the Company's form 10-Q for the quarterly period ended
June 30, 1997 and incorporated herein by reference).
10.5 Letter of Understanding between Microfluidics International
Corporation and Worcester Polytechnic Institute dated as of April
3, 1992 (filed as Exhibit 3.10(f) to the Company's Form 10-K for
the fiscal year ended December 31, 1993 and incorporated herein
by reference).
10.6 Agreement between Microfluidics International Corporation and
Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit
3.10(g) to the Company's Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference) with
amendments dated September 1, 1994 and March 31, 1995.
10.7 Amendment to agreement dated September 1, 1994 between
Microfluidics International Corporation and Catalytica, Inc.
dated as of October 18, 1993 (filed as Exhibit 3.10(g) to the
Company's Form 10-K for the fiscal year ended December 31, 1993,
and incorporated herein by reference).
10.8 Amendment to agreement dated March 31, 1995 between Microfluidics
International Corporation and Catalytica, Inc. dated as of
October 18, 1993 (filed as Exhibit 3.10(g) to the Company's Form
10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference)
</TABLE>
<PAGE>
-28-
<TABLE>
<S> <C>
10.9 License Agreement among Microfluidics International Corporation,
Worcester Polytechnic Institute and Catalytica, Inc. dated as of
October 18, 1993 (filed as Exhibit 3.10(h) to the Company's Form
10-K for the fiscal year ended December 31, 1993 and incorporated
herein by reference).
**10.10 Amendment to agreement dated September 1, 1994 between
Microfluidics International Corporation and Catalytica, Inc.
dated as of October 18, 1993 (filed as Exhibit 3.10(g) to the
Company's Form 10-K for the fiscal year ended December 31, 1993,
and incorporated herein by reference).
**10.11 Letter, dated August 15, 1995, from Microfluidics International
Corporation to Michael T. Rumley. (filed as Exhibit 3.10(j) to
the Company's Form 10-K for fiscal year ended December 31, 1995
and incorporated herein by reference).
10.12 Letter, dated December 31, 1995 from Microfluidics International
Corporation to Irwin J. Gruverman. (filed as Exhibit 3.10(k) to
the Company's Form 10-K for fiscal year ended December 31, 1996
and incorporated herein by reference).
10.13 Warrant for the Purchase of Shares of Common Stock, dated July
14, 1993, in favor of Ladenburg, Thalmann & Co. Inc. (filed as
Exhibit 3.10(l) to the Company's Form 10-K or fiscal year ended
December 31, 1996 and incorporated herein by reference).
10.14 Letter, dated December 31, 1996, from Microfluidics International
Corporation to Irwin J. Gruverman. (filed as Exhibit 3.10(o) to
the Company's Form 10-K for fiscal year ended December 31, 1996
and incorporated herein by reference).
10.15 Agreement between Microfluidics International Corporation and
Catalytica, Inc. dated January 1,1995 regarding participation in
and management of the Advanced Technology Program (ATP). (filed
as Exhibit 3.10(p) to the Company's Form 10-K for fiscal year
ended December 31, 1996 and incorporated herein by reference).
10.16 Consulting Agreement with James Little. (filed as Exhibit 3.10(q)
to the Company's Form 10-K for fiscal year ended December 31,
1996 and incorporated herein by reference).
*10.17 Supplemental Agreement between Catalytica Advanced Technologies,
Inc. and Microfluidics International Corporation dated
December 31, 1997.
**10.18 Letter dated December 31, 1997, from Microfluidics International
Corporation to Irwin J. Gruverman and G & G Diagnostics Corp.
10.19 1988 Stock Plan as amended (filed as Exhibit 10(a) to the
Company's Form 10-Q for the quarterly period ended March 31, 1997
and incorporated herein by reference.
</TABLE>
<PAGE>
-29-
<TABLE>
<S> <C>
10.20 Asset Purchase Agreement dated as of June 19, 1998, by and among
the Company, Epworth Manufacturing Company and Morehouse-COWLES,
Inc.(filed as Exhibit 2.1 to Schedule 13D of Bret A. Lewis, File
No. 005-35850, and incorporated herein by reference).
10.21 Stockholders Agreement dated August 14, 1998, by and among the
Company and J.B. Jennings and Bret A. Lewis (filed as exhibit 2.2
to Schedule 13D of Bret A. Lewis, File No. 005-35850, and
incorporated herein by reference.
10.22 $500,000 Subordinated Promissory Note issued by the Company to
Epworth Manufacturing Company (filed as exhibit 99.2 to the
Company's Form 8-K on August 27, 1998, File No. 000-11625, and
incorporated herein by reference).
10.23 $300,000 Subordinated Promissory Note issued by the Company to
Epworth Manufacturing Company (filed as exhibit 99.2 to the
Company's Form 8-K on August 27, 1998, File No. 000-11625, and
incorporated herein by reference).
10.24 Revolving credit loan between Comerica Bank and the Company dated
August 12, 1998 (filed as Exhibit 10.1 to the Company's form 10-Q
for the quarterly period ended September 30, 1998 and
incorporated herein by reference).
10.25 Letter Dated December 31, 1998 from Microfluidics International
Corporation To Irwin J. Gruverman (filed as exhibit 3.10(2) to
the Company's Annual Report on Form 10-K for fiscal year ended
December 31, 1998 and incorporated herein by reference).
*10.26 Revolving Credit and Term Loan Agreement among MFIC Corporation
and National Bank of Canada dated February 28, 2000.
*10.27 Revolving Credit Note of the Company in favor of National Bank of
Canada in the amount of $4,000,000.00 dated February 28, 2000.
*10.28 Term Note of the Company in favor of National Bank of Canada in
the amount of $475,000.00 dated February 28, 2000.
*10.29 Security Agreement of the Company in favor of National Bank of
Canada dated February 28, 200.
*10.30 Trademark and Trademark Applications Security Agreement of the
Company in favor of National Bank of Canada dated February 28,
2000.
*10.31 Patent and Patent Applications Security Agreement of the Company
in favor of National Bank of Canada dated February 28, 2000.
*10.32 Unlimited Guaranty of Microfluidics Corporation in favor of
National Bank of Canada dated February 28, 2000.
</TABLE>
<PAGE>
-30-
<TABLE>
<S> <C>
*10.33 Stock Pledge Agreement between the Company and National Bank of
Canada dated February 28, 2000.
*10.34 Subordination Agreement among the Company, Lake Shore Industries,
Inc. and National Bank of Canada dated as of February 28, 2000.
*10.35 Subordinated Promissory Note on the Company in favor of Lake
Shore Industries, Inc. in the amount of $300,000.00 dated
February 28, 2000.
*10.36 Forbearance Agreements with Comerica Bank.
*10.37 Settlement Agreement dated January 17, 2000 by and among the
Company, Bret A. Lewis, J. B. Jennings, Lake Shore Industries,
Inc., and JLJ Properties, Inc., with $300,000 Subordinated
Promissory Note dated February 28, 2000 issued by the Company to
Lake Shore Industries, Inc. (FKA Epworth Manufacturing Company,
Inc).
*10.38 Letter dated December 31, 1999 from MFIC Corporation to Irwin J.
Gruverman and G&G Diagnostics Corp.
*10.39 Letter dated December 31, 1999 from MFIC Corporation to Irwin J.
Gruverman.
*10.40 First Amendment to Revolving Credit and Term Loan Agreement
between the Company and National Bank of Canada dated
March 30, 2000.
*23(a) Consent of Deloitte & Touche LLP.
*27 Financial Data Schedule
</TABLE>
- ----------
* Filed herewith
** Management contracts or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to of this report.
(b) Reports on Form 8-K.
(c) Exhibits.
The Company hereby files as part of this Form 10-K the Exhibits listed
in Item 14(a)(3) as set forth above.
(d) Financial Statement Schedules.
See (a)(2) above.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders of MFIC
Corporation:
We have audited the accompanying consolidated balance sheets of MFIC
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, comprehensive (loss) income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
MFIC Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 28, 2000
F-1
<PAGE>
MFIC CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
ASSETS December 31, December 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $196,172 $550,713
- ------------------------------------------------------------------------------------------------------------------
Marketable securities 10,080
- ------------------------------------------------------------------------------------------------------------------
Accounts receivable, less allowance of $65,321 and 2,710,684 2,284,840
$100,000 in 1999 and 1998 respectively.
- ------------------------------------------------------------------------------------------------------------------
Other receivables 108,607 84,845
- ------------------------------------------------------------------------------------------------------------------
Accounts receivable- related party 23,252 24,417
- ------------------------------------------------------------------------------------------------------------------
Inventories 3,477,123 4,450,926
- ------------------------------------------------------------------------------------------------------------------
Prepaid expenses 180,187 164,528
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 6,696,025 7,570,349
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Equipment and Leasehold Improvements, at cost:
- ------------------------------------------------------------------------------------------------------------------
Furniture, fixtures and office equipment 461,852 436,447
- ------------------------------------------------------------------------------------------------------------------
Machinery and equipment 929,330 893,388
- ------------------------------------------------------------------------------------------------------------------
Leasehold improvements 310,563 310,563
- ------------------------------------------------------------------------------------------------------------------
1,701,745 1,640,398
- ------------------------------------------------------------------------------------------------------------------
Less: Accumulated depreciation and amortization (859,875) (644,065)
- ------------------------------------------------------------------------------------------------------------------
841,870 996,333
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Goodwill (net of accumulated amortization of $554,329 in 5,610,130 6,010,130
1999 and $154,329 in 1998 respectively)
- ------------------------------------------------------------------------------------------------------------------
Patents, licenses and other intangible assets (net of 79,291 123,210
accumulated amortization of $467,389 in 1999 and $423,470
in 1998)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 13,227,316 14,700,022
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
See notes to consolidated financial statements
F-2
<PAGE>
MFIC CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity December 31, December 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
- ---------------------------------------------------------------------------------------------------------------------
Accounts payable and other accrued expenses $ 1,480,220 $ 1,158,999
- ---------------------------------------------------------------------------------------------------------------------
Accrued interest- related party 77,500 20,164
- ---------------------------------------------------------------------------------------------------------------------
Accrued compensation 34,543 78,488
- ---------------------------------------------------------------------------------------------------------------------
Accrued vacation pay 85,169 98,667
- ---------------------------------------------------------------------------------------------------------------------
Customer advances 537,958 166,136
- ---------------------------------------------------------------------------------------------------------------------
Line of credit 3,075,815 4,347,782
- ---------------------------------------------------------------------------------------------------------------------
Current portion of long-term debt- related party 125,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 5,291,205 5,995,236
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- ---------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current portion- related party 775,000 675,000
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Stockholders Equity:
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share, 20,000,000 shares 60,613 60,570
authorized; 6,061,307 and 6,056,983 shares issued and
outstanding at December 31, 1999 and 1998, respectively
- ---------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 12,494,839 12,491,423
- ---------------------------------------------------------------------------------------------------------------------
Accumulated deficit (4,720,234) (3,865,800)
- ---------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income 10,080
- ---------------------------------------------------------------------------------------------------------------------
Less: Treasury Stock, at cost, 242,719 and 235,219 shares in (674,107) (666,487)
1999 and 1998 respectively
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 7,161,111 8,029,786
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $13,227,316 $14,700,022
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
See notes to consolidated financial statements
F-3
<PAGE>
MFIC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $14,024,369 $8,869,679 $7,105,706
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Cost of goods sold 7,990,398 4,954,826 3,265,593
- -----------------------------------------------------------------------------------------------------------------------
Research and development 927,582 935,880 459,240
- -----------------------------------------------------------------------------------------------------------------------
Selling, general and administrative 5,499,324 4,077,436 2,977,577
- -----------------------------------------------------------------------------------------------------------------------
Total cost and expenses 14,417,304 9,968,142 6,702,410
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (392,935) (1,098,463) 403,296
- -----------------------------------------------------------------------------------------------------------------------
Interest expense (542,045) (149,043)
- -----------------------------------------------------------------------------------------------------------------------
Interest income 9,835 119,492 159,256
- -----------------------------------------------------------------------------------------------------------------------
Other income 58,847 50,012
- -----------------------------------------------------------------------------------------------------------------------
Gain on sale of investments 11,864 36,203 91,863
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (854,434) (1,091,811) 704,427
- -----------------------------------------------------------------------------------------------------------------------
Income tax benefit (provision) (413,630) 403,630
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) (854,434) (1,505,441) 1,108,057
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Basic Earnings per share:
- -----------------------------------------------------------------------------------------------------------------------
Average shares outstanding: basic 5,818,588 5,296,923 4,914,722
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $(.15) $(.28) $.23
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Diluted Earnings per share:
- -----------------------------------------------------------------------------------------------------------------------
Average shares outstanding: diluted 5,818,588 5,296,923 4,966,998
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $(.15) $(.28) $.22
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Comprehensive
(Loss) Income
- -----------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $(854,434) $(1,505,441) $1,108,057
- -----------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on marketable securities (45,558) (11,799)
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive Income (Loss) $(854,434) $(1,550,999) $1,096,258
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
See notes to consolidated financial statements
F-4
<PAGE>
MFIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended Dec. Year ended Dec. Year ended Dec.
31, 1999 31, 1998 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operations:
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $(854,434) $(1,505,441) $1,108,057
- -------------------------------------------------------------------------------------------------------------------
Reconciliation of net income to cash used by operations:
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 692,948 321,251 105,383
- -------------------------------------------------------------------------------------------------------------------
Issuance of common stock employee compensation 30,000
- -------------------------------------------------------------------------------------------------------------------
Bad debt expense (income) (34,679) 30,000 19,877
- -------------------------------------------------------------------------------------------------------------------
Gain on sale of investments (11,864) (36,203) (91,863)
- -------------------------------------------------------------------------------------------------------------------
Gain on sale of assets (58,847)
- -------------------------------------------------------------------------------------------------------------------
Income tax (benefit) provision 413,630 (403,630)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash due to change in:
- -------------------------------------------------------------------------------------------------------------------
Receivables and other receivables (413,762) 391,771 102,852
- -------------------------------------------------------------------------------------------------------------------
Inventories 973,803 766,258 (145,170)
- -------------------------------------------------------------------------------------------------------------------
Prepaid expenses (15,659) (48,615) (4,906)
- -------------------------------------------------------------------------------------------------------------------
Current liabilities 692,936 (1,592,042) 569,274
- -------------------------------------------------------------------------------------------------------------------
Net cash from (used by) operations 970,442 (1,259,391) 1,289,874
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Cash flows from (used by) investing activities:
- -------------------------------------------------------------------------------------------------------------------
Proceeds from sale of investments 11,864 36,203 91,863
- -------------------------------------------------------------------------------------------------------------------
Proceeds from sale of assets 169,394
- -------------------------------------------------------------------------------------------------------------------
Excess of cost over assets purchased (goodwill) (3,339,459)
- -------------------------------------------------------------------------------------------------------------------
Purchase of fixed assets and leasehold improvements (205,113) (233,062) (68,439)
- -------------------------------------------------------------------------------------------------------------------
Business assets acquired net of cash (3,102,216)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Net cash used (provided by) investing activities (23,855) (6,638,534) 23,424
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Cash flows from (used by) financing activities:
- -------------------------------------------------------------------------------------------------------------------
(Payments) proceeds from line of credit (1,271,967) 4,347,782
- -------------------------------------------------------------------------------------------------------------------
Principal payments on long term debt (25,000)
- -------------------------------------------------------------------------------------------------------------------
Issuance of common stock under employee stock purchase plan 7,724 21,788
- -------------------------------------------------------------------------------------------------------------------
Issuance of common stock under employee stock option plan 3,459 25,061 16,964
- -------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (7,620) (15,143) (55,390)
- -------------------------------------------------------------------------------------------------------------------
Net cash from (used by) financing activities (1,301,128) 4,365,424 (16,638)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash Equivalents (354,541) (3,532,501) 1,296,660
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 550,713 4,083,214 2,786,554
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year 196,172 550,713 4,083,214
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
- -------------------------------------------------------------------------------------------------------------------
Assets acquired in exchange for notes and common stock 2,825,000
- -------------------------------------------------------------------------------------------------------------------
Cash paid for interest 479,560 100,861
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
See notes to consolidated financial statements.
F-5
<PAGE>
MFIC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Numbers of Common Additional Accumulated Accumulated Number of Treasury Total
Shares of Stock at paid-in deficit Other Shares of Stock
Common par value capital Comprehensive Treasury
Stock Income Stock
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1996 5,094,781 $50,948 $10,374,508 $(3,468,416) $67,437 192,119 $(595,954) $6,428,523
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Change in unrealized
depreciation on
marketable securities (11,799) (11,799)
- ------------------------------------------------------------------------------------------------------------------------------------
Stock options exercised 9,175 91 16,873 16,964
- ------------------------------------------------------------------------------------------------------------------------------------
Stock in lieu of salary 20,000 200 29,800 30,000
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from employee
stock purchase plan 12,848 129 21,659 21,788
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury stock 28,600 (55,390) (55,390)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 1,108,057 1,108,057
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1997 5,136,804 51,368 10,442,840 (2,360,359) 55,638 220,719 (651,344) 7,538,143
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Change in unrealized
depreciation on
marketable securities (45,558) (45,558)
- ------------------------------------------------------------------------------------------------------------------------------------
Stock options exercised 16,250 163 24,898 25,061
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from employee
stock purchase plan 3,929 39 7,685 7,724
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of stock in
conjunction with
purchase of Epworth and
Morehouse divisions 900,000 9,000 2,016,000 2,025,000
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury stock 14,500 (15,143) (15,143)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss (1,505,441) (1,505,441)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1998 6,056,983 60,570 12,491,423 (3,865,800) 10,080 235,219 (666,487) 8,029,786
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Reclassification
adjustment for gain
included in net income (10,080) (10,080)
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from employee
stock purchase plan 4,324 43 3,416 3,459
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury stock 7,500 (7,620) (7,620)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss (854,434) (854,434)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1999 6,061,307 $60,613 $12,494,839 $(4,720,234) $0 242,719 $(674,107) $7,161,111
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
See notes to consolidated financial statements
F-6
<PAGE>
MFIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. Description of Business
MFIC Corporation ("MFIC" or the "Company"), through its wholly-owned
subsidiaries, Microfluidics Corporation ("Microfluidics") and
MediControl Corporation ("MediControl"), its Microfluidics Division,
as well as its operating divisions, Epworth Mill and Morehouse-COWLES
specializes in producing and marketing a broad line of proprietary
fluid materials processing systems used for a variety of grinding,
mixing, milling, and blending applications across a variety of
industries and for use in numerous applications within those
industries. Microfluidizer(R) materials processor systems are produced
at the Microfluidics Division, while dispersers, dissolvers, colloid
mills and vertical media mills are produced at the Morehouse-COWLES
Division, and horizontal media mills and ball mills are produced at
the Epworth Mill Division, which also sells and distributes grinding
media.
2. Consolidation
The consolidated financial statements of the Company include the
accounts of the Company and its wholly owned subsidiaries,
Microfluidics Corporation ("MFIC") and MediControl Corporation
("MediControl").
All significant intercompany transactions have been eliminated.
3. Cash Equivalents
The Company considers securities with maturities of three months or
less, when purchased, to be cash equivalents.
4. Marketable Securities
The Company's marketable securities are categorized as available for
sale securities as defined by the Statement of Financial Accounting
Standards No. 115, "Accounting
F-7
<PAGE>
for Certain Investments in Debt and Equity Securities" (SFAS 115).
Unrealized holding gains and losses, net of tax, are included as a
component of stockholders' equity until realized. For the purpose of
computing realized gains and losses, cost is identified on a specific
identification basis.
5. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis.
6. Equipment and Leasehold Improvements
The Company's equipment and leasehold improvements are recorded at
cost. Depreciation is computed on the straight-line method, based upon
useful lives of three to five years. Leasehold improvements are
amortized on the straight-line method based upon the shorter of the
estimated useful lives or remaining life of the lease. Expenditures
for maintenance and repairs are expensed as incurred. Upon retirement
or sale of property and equipment, the cost of the disposed asset and
the related accumulated depreciation are removed from the accounts and
any resulting gain, or loss is credited or charged to operations.
7. Patents, Licenses, Other Intangible Assets and Goodwill
Patents, patent applications, rights and goodwill are stated at
acquisition cost. Amortization is recorded using the straight-line
method over the shorter of the legal lives or useful life of the
patents. Goodwill is being amortized over 15 years.
8. Impairment of Long-Lived Assets
At each balance sheet date, the Company assesses whether there has
been an impairment in the value of long-lived assets by determining
whether projected undiscounted cash flows generated by the applicable
asset exceeds its net carrying value as of the assessment date. The
amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. As of December 31,
1999 and 1998 there were no such impairments.
F-8
<PAGE>
9. Income Taxes
The Company provides for income taxes based on the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes, which requires recognition of deferred
tax assets and liabilities based on the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based upon the difference between the
financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to be reversed. Under SFAS No. 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized as
income or loss in the period that includes the enactment date.
10. Revenue Recognition
Product sales and related cost of sales are reflected in income when
goods are shipped.
11. Earnings (Loss) per Share
Basic net income (loss) per share (EPS) is computed by dividing income
available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted net income (loss)
per share (EPS) reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common
stock unless the effects of such equivalent shares were antidilutive.
A reconciliation of the numerators and denominators of the basic and
diluted EPS computations for income (loss) per share from continuing
operations is shown below. Options to purchase 1,304,731, 1,416,587
and 946,150 shares of common stock were outstanding for the years
ended 1999, 1998 and 1997, respectively. All options outstanding
during 1999 and 1998 were excluded from computation of diluted EPS
because the effect of such options would have been antidilutive, and
the options exercise price was greater than the average market price
of common. For 1997, 52,276 shares were included in the computation.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Average shares outstanding- basic 5,818,588 5,296,923 4,914,722
- --------------------------------------------------------------------------------
Basic earnings (loss) per share: $(.15) $(.28) $.23
- --------------------------------------------------------------------------------
Average shares outstanding 5,818,588 5,296,923 4,914,722
- --------------------------------------------------------------------------------
Effect of dilutive stock options 52,276
- --------------------------------------------------------------------------------
Average shares outstanding- diluted 5,818,588 5,296,923 4,966,998
- --------------------------------------------------------------------------------
Diluted earnings (loss) per share $(.15) $(.28) $.22
- --------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE>
12. Use of Estimates
The process of preparing consolidated financial statements in
conformity with generally accepted accounting principles requires the
use of estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
13. New Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for the Derivative Instruments and Hedging
Activities," which is effective for the Company's quarter ended March
31, 2001. SFAS No. 133 significantly modifies Accounting and Reporting
Standards for derivatives and hedging Activities. The impact of SFAS
No. 133, if any, on the Company has not yet been determined.
14. Fair Value of Financial Instruments
Marketable securities are carried at fair value, based on quoted
market prices, in the accompanying consolidated balance sheets. The
carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximates fair value due
to the short term nature of these accounts. The Company's bank debt,
because it carries a variable interest rate, is stated at its
approximate fair market value. The Company's subordinated debt bears
interest at 10%, which approximates fair market value.
15. Certain 1997 amounts have been reclassified to conform with 1999 and
1998 presentations.
B. INDUSTRY SEGMENT, EXPORT SALES AND MAJOR CUSTOMER:
The Company has one business segment: the development, manufacture,
marketing and sale of process and formulation equipment. The Company's
sales are primarily to companies with processing needs in the chemical,
pharmaceutical, food, cosmetic, and biotechnology industries.
Sales to Europe were approximately $1,024,000, $832,000, and $1,453,000,
and sales to Asia were approximately $1,542,000, $924,000, and $1,582,000
in 1999, 1998 and 1997, respectively, of the total revenues.
F-10
<PAGE>
Mizuho Industrial Co. Ltd. (a distributor) accounted for 20% of revenues in
1997. No other customers accounted for over 10% of the Company's revenues
in 1999, 1998 and 1997.
C. MARKETABLE SECURITIES:
At December 31, 1998, the Company held 6,720 shares in a publicly traded
company, Cardiotech International, Inc.
In both 1998 and 1997, the Company sold shares of PolyMedica Industries,
Inc. (3,940 in 1998 and 10,000 in 1997), at a gain of $36,203 and $91,863
respectively. In 1999, the Company sold 6,720 shares of Cardiotech
International, Inc. at a gain of $11,864.
D. INVENTORY
The components of inventories are as follows at December 31:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------
<S> <C> <C>
---------------------------------------------------------------------------
Raw materials $2,070,913 $1,875,881
---------------------------------------------------------------------------
Work in progress 320,151 1,075,711
---------------------------------------------------------------------------
Finished goods 1,086,059 1,499,334
---------------------------------------------------------------------------
TOTAL $3,477,123 $4,450,926
---------------------------------------------------------------------------
</TABLE>
E. INTANGIBLE ASSETS
The Company purchased the rights and title of certain liposome and
microemulsion technology devices from Arthur D. Little in 1985. The
unamortized license fee and patent are included in intangible assets and
are being amortized using the straight line method over the useful life of
the patent, 17 years. Patents and other intangible assets were purchased in
1991 as a result of a share exchange by MediControl stockholders. These
patents and other intangible assets were being amortized using the straight
line method over five years. In addition, in 1995, the Company capitalized
$96,680 of patent costs related to the cooperative venture described in
Note L. Amortization charged to expense was $43,920 in 1999, 1998, and
1997.
F-11
<PAGE>
F. ACQUISITIONS
On August 14, 1998 (the "Closing Date") MFIC purchased substantially all of
the assets (the "Transferred assets") and assumed certain liabilities of
Epworth Manufacturing Company of South Haven, Michigan ("Epworth") and
Morehouse-COWLES, Inc. of Fullerton, California ("Morehouse" and together
with Epworth, the "Sellers") pursuant to an Asset Purchase Agreement (the
"Agreement") dated as of June 19, 1998 by and among MFIC, Epworth and
Morehouse. Messrs. J.B. Jennings and Bret A. Lewis were the sole
stockholders of both Epworth and Morehouse (the "Principals"). Epworth and
Morehouse each manufactures and distributes a product line of
crushing/grinding, mixing, dissolving and dispersion systems for solid or
solids materials processing that are marketed together under the EMCO
U.S.A. trade name.
In accordance with the Agreement, MFIC paid or delivered to the Sellers the
following as consideration for the purchase price: (i) $5,508,480 in cash,
(ii) two subordinated promissory notes in the aggregate principal amount of
$800,000 (the "Promissory Notes") and (iii) 900,000 shares of MFIC's
restricted common stock, $.01 par value per share, subject to the
restrictions set forth in a Stockholders Agreement among MFIC and the
Principals dated August 14, 1998 (the "Stockholders Agreement"). MFIC also
incurred approximately $500,000 in expenses. In addition, MFIC assumed
approximately $1,930,000 in accounts payable and accrued liabilities. The
acquisition has been accounted for under the purchase method of accounting.
As a result of the acquisition, the Company paid an amount in excess of the
fair market value of the assets purchased less liabilities assumed
(goodwill). This amount is being amortized over a fifteen year period,
which the Company determined to be the proper term.
If the acquisition had occurred as of January 1, 1997, proforma information
for the years ended December 31, 1998 and 1997 would be as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Year ended Dec. Year ended Dec.
31, 1998 31, 1997
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $14,719,874 $18,824,327
-----------------------------------------------------------------------------------------
Net income (loss) (2,066,436) 938,455
-----------------------------------------------------------------------------------------
Earnings (loss) per share:
-----------------------------------------------------------------------------------------
Basic: (.39) .16
-----------------------------------------------------------------------------------------
Diluted: (.39) .16
-----------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
G. INDEBTEDNESS
Long-term debt consisted of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
10% subordinated note payable $475,000 $500,000
- --------------------------------------------------------------------------------
10% subordinated note payable 300,000 300,000
- --------------------------------------------------------------------------------
775,000 800,000
- --------------------------------------------------------------------------------
Less current portion 125,000
- --------------------------------------------------------------------------------
TOTAL $775,000 $675,000
- --------------------------------------------------------------------------------
</TABLE>
The subordinated notes are payable to the former Principals of Morehouse
and Epworth. Subsequent to December 31, 1999, this indebtedness was
restructured. See Note N to the Consolidated Financial Statements.
Since August 1998, the Company operated under a revolving loan and security
agreement with Comerica Bank. The outstanding balance was $3,075,815 and
$4,347,782 at December 31, 1999 and 1998, respectively, bearing interest at
12.25% and 7.125% respectively. Since May 5, 1999, the Company has operated
under a forbearance agreement to the Comerica Bank loan agreement which
restricted the level of borrowings, and prohibited the Company from paying
dividends. The unused portion of the line of credit was $339,185 and
$652,218 at December 31, 1999 and 1998 respectively. On February 28, 2000,
the line was replaced by a line of credit and a term loan with the National
Bank of Canada as discussed in Note N.
H. EMPLOYEE BENEFITS
Effective January 1, 1990, the Company offered a 401(k) profit-sharing plan
(the "Plan"), to its employees. All Company and related entity employees
who are eighteen years of age and have completed one hour of service are
eligible to participate in the Plan. Employees may contribute from 1% to
20% of their compensation. Until 1997, the Company's contribution was
discretionary, with contributions made from time to time as management
deemed advisable. The Company made matching contributions of $0, $23,842
and $17,466 in 1999, 1998 and 1997 respectively. Plan administration
expenses of $3,951, $3,464 and $1,500 were incurred by the Company in,
1999, 1998, and 1997, respectively. The Company instituted a cafeteria plan
in 1992, giving the employees certain pre-tax advantages on specific
payroll deductions.
F-13
<PAGE>
I. INCOME TAXES
The provision/(benefit) for income taxes for the years ended are as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Federal State Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
Current $ $ $
- --------------------------------------------------------------------------------
Deferred
- --------------------------------------------------------------------------------
TOTAL $0 $0 $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
Current $0 $0 $0
- --------------------------------------------------------------------------------
Deferred 351,630 62,000 413,630
- --------------------------------------------------------------------------------
TOTAL $351,630 $62,000 $413,630
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
Current $9,544 $456 $10,000
- --------------------------------------------------------------------------------
Deferred (365,482) (48,148) (413,630)
- --------------------------------------------------------------------------------
TOTAL $(355,938) $(47,692) $(403,630)
- --------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
The approximate tax effect of each type of temporary difference and
carryforward before and after allocation of the valuation allowance is as
follows at December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net operating loss $1,655,418 $1,277,669 $1,015,976
- ---------------------------------------------------------------------------------------------------------------
Research and development credit 185,823 188,159 183,344
- ---------------------------------------------------------------------------------------------------------------
Inventory capitalization 323,496 306,343 172,773
- ---------------------------------------------------------------------------------------------------------------
Accruals and Allowances 64,711 79,467 74,518
- ---------------------------------------------------------------------------------------------------------------
Marketable securities (4,032) (22,255)
- ---------------------------------------------------------------------------------------------------------------
Depreciation and amortization (60,780) (2,034) (10,726)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 2,168,668 1,845,572 1,413,630
- ---------------------------------------------------------------------------------------------------------------
Valuation allowance (2,168,668) (1,845,572) (1,000,000)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Net deferred tax asset after valuation allowance $0 $0 413,630
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has a federal net operating loss tax (NOL) carryforward of
approximately $4,698,000 and research and development tax credit
carryforwards of approximately $177,000 expiring at various dates beginning
in 2001 through 2019. Ownership changes may result in future limitations on
the utilization of net operating losses and research and development tax
credit carryforwards.
Based on the financial results known at December 31, 1999, the Company has
established a valuation allowance against the deferred tax asset due to the
uncertainty of earning sufficient taxable income to realize the benefit of
these assets. Therefore the Company increased the valuation allowance by
$323,096 and $845,572 in 1999 and 1998 respectively.
The following schedule reconciles the difference between the federal income
tax rate and the effective income tax rate for the years ended December 31,
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Federal income tax rate (34.0)% (34.0)% 34.0%
- --------------------------------------------------------------------------------
State income tax rate (6.0)% (6.0)% 6.0%
- --------------------------------------------------------------------------------
Permanent differences 4.5% 0.4% 0.7%
- --------------------------------------------------------------------------------
Change in valuation allowance 35.5% 77.5% (98.0)%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL EFFECTIVE TAX RATE 0% 37.9% (57.3)%
- --------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
J. STOCKHOLDER'S EQUITY:
The Company adopted the 1988 Stock Plan as the successor plan to the 1987
Stock Plan, which, as amended at the 1997 stockholder's meeting, authorizes
the grant of Stock Rights for up to 2,350,000 shares of Common Stock and
the 1989 Non-Employee Director Stock Option Plan which, as amended at the
1996 stockholders' meeting, authorizes the grant of nonqualified stock
options for up to 500,000 shares of Common Stock.
Additionally, the Company has an employee stock purchase plan (ESOP). Under
the employee stock purchase plan, participants are granted options to
purchase the Company's common stock twice a year at the lower of 85% of
market value at the beginning or end of each period. Calculation of the
number of options granted, and subsequent purchase of these shares, is
based upon voluntary payroll deductions during each six month period. The
number of options granted to each employee under this plan is limited to a
maximum amount of 1000 for each six month period. The number of shares
issued pursuant to this plan totaled 4,324, 3,929, and 12,848 in 1999,
1998, and 1997 respectively.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. FASB Statement No. 123 "Accounting For Stock-
Based Compensation"("FAS 123") was issued by the FASB in 1995 and, if fully
adopted, changes the method for recognition of cost on plans similar to
those of the Company. Adoption of SFAS 123 is optional. Therefore, the
Company has elected to provide disclosure only of the impact of FAS 123.
Proforma disclosures as if the Company adopted the cost recognition
requirements under SFAS 123 in 1995 are presented below.
The Company's employee stock option plan provides for the granting of
nonqualified stock options that 1.) are granted at prices which equate to
or are above the market value of the stock on the date of the grant; 2.)
vest ratably over a three and one half to four year service vesting period
and 3.) expire ten years subsequent to award.
A summary of the status of the Company's stock options as of December 31,
1999, 1998, and 1997 and changes during the year ended on those dates is
presented below:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
---------------------------------------------------------------------------------------
Shares Exer. Price Shares Exer. Price Shares Exer. Price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding, at beginning of year 1,416,587 $1.15 946,150 $2.37 1,080,900 $2.62
- ----------------------------------------------------------------------------------------------------------------------------
Option shares:
- ----------------------------------------------------------------------------------------------------------------------------
- -Granted 64,044 .71 1,701,625 1.34 114,000 1.75
- ----------------------------------------------------------------------------------------------------------------------------
- -Exercised 0 0 16,250 1.54 45,175 1.44
- ----------------------------------------------------------------------------------------------------------------------------
- -Cancelled 176,900 1.16 1,214,938 2.38 203,575 2.57
- ----------------------------------------------------------------------------------------------------------------------------
Outstanding, at end of year 1,303,731 $1.13 1,416,587 $1.15 946,150 $2.37
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
In October, 1998 the Board of Directors approved a vote to reprice
1,591,225 employee stock options. The options were originally issued
between January 1990 through January 1998 and had original grant process
ranging between $1.16 and $6.25. The grant price for these options was
lowered to $1.13 which reflects the market value of the stock as of the
reprice date. The repriced options vest over either a three or four year
period, depending upon when the original grants were issued. No
compensation expense is required to be recorded.
The table below summarizes options outstanding and exercisable at December
31, 1999:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Exercisable Weighted
Remaining Average As of Average
Range of Number of Contractual Exercise December 31, Exercise
Exercise Price Options Life Price 1999 Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
.56 - 2.25 1,286,731 7.5 $1.17 668,519 $1.22
- --------------------------------------------------------------------------------------------------------------------
2.26 - 5.88 17,000 .6 2.77 9,500 2.94
- --------------------------------------------------------------------------------------------------------------------
TOTAL 1,303,731 7.5 1.13 678,019 $1.24
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Price Range of Outstanding Options at Year End $.56 - 5.88 $1.00 - 5.88 $1.47 - 6.25
- -------------------------------------------------------------------------------------------------------
Options Exercisable at Year End 678,019 354,910 522,000
- -------------------------------------------------------------------------------------------------------
Options Available for Future Grant 879,294 766,438 1,253,125
- -------------------------------------------------------------------------------------------------------
Weighted Average Fair Value of Options
Granted During the Year $0.63 $1.22 $0.84
- -------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of each option granted during 1999, 1998 and 1997 is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: (i) dividend yield of 0%; (ii) expected
volatility of 137%; (iii) risk-free interest rate of 5.25% in 1999 and
1998, and 5.51% in 1997; and (iv) Expected life of five years.
Had compensation cost for the Company's 1999,1998 and 1997 grants for
stock-based compensation plans been determined consistent with SFAS 123,
the Company's net income (loss), and diluted net income (loss) per share
for 1999, 1998 and 1997 would approximate the proforma amounts below:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
As Reported Proforma
- -----------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Net income/ (Loss) $(854,434) $(1,505,441) $1,108,057 $(1,209,813) $(1,843,511) $1,013,667
- -----------------------------------------------------------------------------------------------------------------------
Net income/ (Loss) per share $(.15) $(.28) $.22 (.21) $(.35) $.20
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
In connection with financial advisory services rendered to the Company in
1993, the Company, on July 15, 1993, granted a warrant to purchase up to
75,000 shares at a per share
F-17
<PAGE>
purchase price of $4.50 commencing on July 14, 1994 and exercisable until
July 14, 1998. The warrant was not exercised by the expiration date.
On September 23, 1999, the Chief Executive Officer of the Company, Irwin J.
Gruverman, was granted warrants to purchase up to 100,000 shares of the
Company's common stock at a per share price of $.52 a share, having an
expiration date of July 2, 2004. As of December 31, 1999, there were
100,000 warrants outstanding.
At December 31, 1999, the Company has reserved 2,850,000 shares for
issuance under the above mentioned stock plans and warrants.
K. COMMITMENTS AND CONTINGENCIES:
At December 31, 1999, the Company had operating leases for the rental of
its facilities which require the following minimum payments for the next
five years:
<TABLE>
<CAPTION>
--------------------------------------------
Minimum Payments
--------------------------------------------
<S> <C>
--------------------------------------------
2000 $387,180
--------------------------------------------
2001 257,930
--------------------------------------------
2002 168,180
--------------------------------------------
2003 168,180
--------------------------------------------
2004 66,000
--------------------------------------------
</TABLE>
Rent expense for 1999, 1998, and 1997 was approximately $499,000, $282,000
and $170,000, respectively. The current leases are due to terminate at
various times through August 2006.
L. COOPERATIVE VENTURE:
In 1992, the Company formed a cooperative venture with Worcester
Polytechnic Institute to develop, patent, and license for commercial
application the Microfluidizer(R) processing technology in certain fields.
Expenditures for this venture were $0 in 1999, 1998 and 1997. The costs in
connection with patent applications of $96,680 have been included in
intangible assets.
In October of 1993, the Company signed a license and research and
development agreement with Catalytica, Inc., as joint licensee, to further
the studies of the venture with Worcester Polytechnic Institute, as
licensor. The Company spent $286,256 in 1997 for this venture. The Company
was reimbursed $137,403 in 1997 from a government grant awarded jointly to
Catalytica, Inc. and the Company in relation to this project. The remainder
of the expenditures were included in research and development expense.
F-18
<PAGE>
M. RELATED PARTY TRANSACTIONS
During 1999, 1998 and 1997, the Company and an entity G&G Corporation (G&G)
controlled by Mr. Gruverman, the Company's Chairman, entered into an
arrangement whereby such entity reimbursed the Company for a portion of
certain administrative expenses. The Company was reimbursed approximately
$79,291, $76,363 and $74,125 by G&G during 1999, 1998 and 1997,
respectively. At December 31, 1999 and 1998, G&G owed the Company $23,252
and $24,417 respectively.
As discussed in Notes F and G, the Company owed the former Principals of
Morehouse and Epworth $775,000 at December 31, 1999. Interest expense on
the subordinated debt for 1999 and 1998 was $77,500 and $30,465
respectively.
N. SUBSEQUENT EVENTS- SETTLEMENT AGREEMENT, DEBT RESTRUCTURING AND REFINANCING
On December 20, 1999 the Company signed an agreement in principle (the
"Agreement In Principle") with J.B. Jennings and Bret A. Lewis, the former
owners of the Epworth Mill and Morehouse-COWLES businesses (the "Sellers"),
Lake Shore Industries, Inc., and JLJ Properties, Inc., entities owned and
controlled by the Sellers. The Agreement In Principle set forth
understandings among the parties concerning restructuring of the Company's
subordinated debt and resolution of various disputes. On January 17, 2000 a
definitive settlement agreement incorporating these subject matters was
executed between the parties (the "Settlement Agreement"). Pursuant to this
Settlement Agreement Seller's subordinated loans totaling $775,000 would be
restructured upon the closing of a new senior loan facility. Such
restructuring included all outstanding and unpaid interest and setoffs to
such notes provided for under the terms of the August 14, 1998 Asset
Purchase Agreement. At such closing $500,000 of this debt would be
converted to 500,000 shares of Common Stock. The Company retained the right
to repurchase such shares for a 3 year period at a per share price of
$1.75. The remaining $300,000 would be structured as a new subordinated
promissory note with annual interest at 10%, with interest only being paid
in the first year, and the principal together with interest then being
amortized over 4 years starting in the second year. A disputed lease
between the Company and one of the Seller's entities for property located
in South Haven, Michigan, which was the subject of a suit to terminate
filed by the Company, was voluntarily dismissed in return for the payment
by the Company of a total of $58,000. The initial payment in the amount of
$30,000 was paid on January 19, 2000 upon execution of the Settlement
Agreement and the balance on February 28, 2000. The Company dismissed with
prejudice by joint stipulation its lawsuit to terminate the lease. The
Company and the Sellers executed a mutual release of liability related to
the August 14, 1998 Asset Purchase Agreement.
F-19
<PAGE>
Senior Debt Financing
On February 28, 2000 (the "Closing Date") the Company entered into a
revolving credit and term loan agreement with National Bank of Canada (the
"Lender") providing the Company with a $4,475,000 three-year revolving
credit and term loan facility (the "Credit Facility").
The Credit Facility is comprised of: (i) a $4 million three year revolving
line of credit ("Revolving Credit Line") with advances thereunder bearing
interest at an interest rate equal to the prime rate (the "Prime Rate" for
United States borrowings from the National Bank of Canada as publicly
announced from time to time) plus one-half percent (.50%). All borrowings
under the Revolving Credit Line are evidenced by a $4 million promissory
note having a maturity date of February 28, 2003 (the "Revolving Note"),
and (ii) a $475,000 term promissory note, amortized over a five year period
but having a maturity date of February 28, 2003 and bearing interest at an
interest rate equal to the Prime Rate plus three quarters of one percent
(.75%). Loans under the Credit Facility are secured by a collateral pledge
to the Lender of substantially all the assets of the Company and its
subsidiaries. The Company's Microfluidics Corporation subsidiary has
guaranteed the Company's obligations to the Lender under the Credit
Facility. The Company has pledged to the Lender all shares of Microfluidics
Corporation owned by the Company.
From the proceeds of the initial loan, the Company repaid the outstanding
balance owed to Comerica Bank of approximately $2,585,000.
As one of the Lender's conditions precedent to the closing of the Finance
Facility, the Company's Chairman, Irwin Gruverman, at the closing of the
Credit Facility purchased for $250,000 1,000,000 shares of restricted
Common Stock of the Company. This purchase was approved by the Company's
Board of Directors on December 30, 1999.
In connection with the closing of the Credit Facility, and pursuant to a
Settlement Agreement dated January 17, 2000 with the Company's subordinated
debt holders, the subordinated debt of the Company was restructured in the
following manner. The outstanding August 14, 1998 $500,000 subordinated
promissory note, having a remaining $475,000 principal balance together
with accrued interest at the Closing Date in the approximate amount of
$77,500, and accrued interest on the August 14, 1998 $300,000 subordinated
note were converted to 500,000 shares of MFIC restricted common stock (the
"Conversion Shares"). The fair market value of the Company's Common Stock
on the date of the Agreement In Principle
F-20
<PAGE>
was $0.31 per share. MFIC was granted the right for a three-year period to
repurchase the Conversion Shares at purchase price of $1.75 per share. The
August 14, 1998 $300,000 subordinated note was replaced with a new $300,000
subordinated promissory note dated February 28, 2000 (the "2000
Subordinated Note"). The 2000 Subordinated Note has a maturity date of
February 28, 2005 and bears interest at a rate of ten percent (10%) per
annum. The note is payable interest only in its first year and then is
payable in equal quarterly installments of principal together with
outstanding interest thereon until maturity.
As a result of the debt restructuring and refinancing, the Company will
record an extraordinary gain of approximately $195,000 in the first quarter
of 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the city of Newton,
Commonwealth of Massachusetts, on the 30th day of March, 2000.
MFIC CORPORATION
By: /s/ Michael A. Lento
----------------------------------
Michael A. Lento
President
F-21
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Irwin J. Gruverman Chief Executive Officer March 30, 2000
- ------------------------ (Principal Executive Officer),
Irwin J. Gruverman Chairman of the Board of
Directors and Secretary
/s/ Michael A. Lento President and Treasurer March 30, 2000
- ------------------------ (Principal Financial and
Michael A. Lento Accounting Officer)
/s/ James N. Little Director March 30, 2000
- ------------------------
James N. Little
/s/ Vincent Cortina Director March 30, 2000
- ------------------------
Vincent Cortina
</TABLE>
F-22
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
<S> <C>
3(a) Certificate of Incorporation for the Company, as amended (filed
as Exhibit 2A to Registration Statement No. 0-11625 on Form 8-A
and as Exhibit 3.1(a) to the Company's Report on Form 10-Q for
the quarterly period ended September 30, 1999 and incorporated
herein by reference).
3(b) Amended and Restated By-Laws for the Company (filed as Exhibit
3.3(b) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by
reference).
**10.1 1987 Stock Plan (filed as Exhibit 10(g) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987
and incorporated herein by reference).
**10.2 1988 Stock Plan (filed as Exhibit 10(g) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1988
and incorporated herein by reference).
10.3 1989 Non-Employee Directors Stock Option Plan (filed as Exhibit
10.1 to the Company's registration statement on Form S-8 filed
October 22,1996 and incorporated herein by reference).
10.5 Lease for 30 Ossipee Road, Newton, Massachusetts dated May 23,
1997 between Microfluidics International Corporation and J. Frank
Garrity, Trustee of 1238 Chestnut Street Trust under Declaration
of Trust dated May 23, 1969, recorded with Middlesex South
Registry of Deeds in Book 11682, Page 384 (filed as Exhibit
3.10(a) to the Company's form 10-Q for the quarterly period ended
June 30, 1997 and incorporated herein by reference).
10.5 Letter of Understanding between Microfluidics International
Corporation and Worcester Polytechnic Institute dated as of April
3, 1992 (filed as Exhibit 3.10(f) to the Company's Form 10-K for
the fiscal year ended December 31, 1993 and incorporated herein
by reference).
10.6 Agreement between Microfluidics International Corporation and
Catalytica, Inc. dated as of October 18, 1993 (filed as Exhibit
3.10(g) to the Company's Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference) with
amendments dated September 1, 1994 and March 31, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
<S> <C>
**10.10 Amendment to agreement dated September 1, 1994 between
Microfluidics International Corporation and Catalytica, Inc.
dated as of October 18, 1993 (filed as Exhibit 3.10(g) to the
Company's Form 10-K for the fiscal year ended December 31, 1993,
and incorporated herein by reference).
**10.11 Letter, dated August 15, 1995, from Microfluidics International
Corporation to Michael T. Rumley. (filed as Exhibit 3.10(j) to
the Company's Form 10-K for fiscal year ended December 31, 1995
and incorporated herein by reference).
10.12 Letter, dated December 31, 1995 from Microfluidics International
Corporation to Irwin J. Gruverman. (filed as Exhibit 3.10(k) to
the Company's Form 10-K for fiscal year ended December 31, 1996
and incorporated herein by reference).
10.13 Warrant for the Purchase of Shares of Common Stock, dated July
14, 1993, in favor of Ladenburg, Thalmann & Co. Inc. (filed as
Exhibit 3.10(l) to the Company's Form 10-K or fiscal year ended
December 31, 1996 and incorporated herein by reference).
10.14 Letter, dated December 31, 1996, from Microfluidics International
Corporation to Irwin J. Gruverman. (filed as Exhibit 3.10(o) to
the Company's Form 10-K for fiscal year ended December 31, 1996
and incorporated herein by reference).
10.15 Agreement between Microfluidics International Corporation and
Catalytica, Inc. dated January 1,1995 regarding participation in
and management of the Advanced Technology Program (ATP). (filed
as Exhibit 3.10(p) to the Company's Form 10-K for fiscal year
ended December 31, 1996 and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
<S> <C>
10.16 Consulting Agreement with James Little. (filed as Exhibit 3.10(q)
to the Company's Form 10-K for fiscal year ended December 31,
1996 and incorporated herein by reference).
*10.17 Supplemental Agreement dated December 31, 1997 between Catalytica
Advanced Technologies, Inc. and the Company.
**10.18 Letter dated December 31, 1997, from Microfluidics International
Corporation to Irwin J. Gruverman and G & G Diagnostics Corp.
10.19 1988 Stock Plan as amended (filed as Exhibit 10(a) to the
Company's Form 10-Q for the quarterly period ended March 31, 1997
and incorporated herein by reference.
10.20 Asset Purchase Agreement dated as of June 19, 1998, by and among
the Company, Epworth Manufacturing Company and Morehouse-COWLES,
Inc.(filed as Exhibit 2.1 to Schedule 13D of Bret A. Lewis, File
No. 005-35850, and incorporated herein by reference).
10.21 Stockholders Agreement dated August 14, 1998, by and among the
Company and J.B. Jennings and Bret A. Lewis (filed as exhibit 2.2
to Schedule 13D of Bret A. Lewis, File No. 005-35850, and
incorporated herein by reference.
10.22 $500,000 Subordinated Promissory Note issued by the Company to
Epworth Manufacturing Company (filed as exhibit 99.2 to the
Company's Form 8-K on August 27, 1998, File No. 000-11625, and
incorporated herein by reference).
10.23 $300,000 Subordinated Promissory Note issued by the company to
Epworth Manufacturing Company (filed as exhibit 99.2 to the
Company's Form 8-K on August 27, 1998, File No. 000-11625, and
incorporated herein by reference).
10.24 Revolving credit loan between Comerica Bank and the Company dated
August 12, 1998 (filed as Exhibit 10.1 to the Company's form 10-Q
for the quarterly period ended September 30, 1998 and
incorporated herein by reference).
10.25 Letter Dated December 31, 1998 from Microfluidics International
Corporation To Irwin J. Gruverman (filed as exhibit 3.10(2) to
the Company's Annual Report on Form 10-K for fiscal year ended
December 31, 1998 and incorporated herein by reference).
*10.26 Revolving Credit and Term Loan Agreement among MFIC Corporation
and National Bank of Canada dated February 28, 2000.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
<S> <C>
*10.27 Revolving Credit Note of the Company in favor of National Bank of
Canada in the amount of $4,000,000.00 dated February 28, 2000.
*10.28 Term Note of the Company in favor of National Bank of Canada in
the amount of $475,000.00 dated February 28, 2000.
*10.29 Security Agreement of the Company in favor of National Bank of
Canada dated February 28, 200.
*10.30 Trademark and Trademark Applications Security Agreement of the
Company in favor of National Bank of Canada dated February 28,
2000.
*10.31 Patent and Patent Applications Secur8ty Agreement of the Company
in favor of National Bank of Canada dated February 28, 2000.
*10.32 Unlimited Guaranty of Microfluidics Corporation in favor of
National Bank of Canada dated February 28, 2000.
*10.33 Stock Pledge Agreement between the Company and National Bank of
Canada dated February 28, 2000.
*10.34 Subordination Agreement among the Company, Lake Shore Industries,
Inc. and National Bank of Canada dated as of February 28, 2000.
*10.35 Subordinated Promissory Note on the Company in favor of Lake
Shore Industries, Inc. in the amount of $300,000.00 dated
February 28, 2000.
10.36 Forbearance Agreements with Comerica.
*10.37 Settlement Agreement dated January 17, 2000 by and among the
Company, Bret A. Lewis, J. B. Jennings, Lake Shore Industries,
Inc., and JLJ Properties, Inc., with $300,000 Subordinated
Promissory Note dated February 28, 2000 issued by the Company to
Lake Shore Industries, Inc. (FKA Epworth Manufacturing Company,
Inc).
*10.38 Letter dated December 31, 1999 from MFIC Corporation to Irwin J.
Gruverman and G&G Diagnostics Corp.
*10.39 Letter dated December 31, 1999 from MFIC Corporation to Irwin J.
Gruverman.
*10.40 First Amendment to Revolving Credit and Team Loan Agreement
between the Company and National Bank of Canada dated
March 30, 2000.
**10.41 Warrant for the purchase of shares of common stock issued to
Irwin J. Gruverman dated July, 1999. (filed as Exhibit 3.1(b)
to the Company's Form 10-Q for the quarter ended September 30,
1999 and incorporated herein by reference.
21 Subsidiaries of the Registrant (filed as Exhibit 3.21 to the
Company's Form 10-K for fiscal year ended December 31, 1996
and incorporated herein by reference).
*23(a) Consent of Deloitte & Touche LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
<S> <C>
*27 Financial Data Schedule
</TABLE>
- ----------
* Filed herewith
** Management contracts or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to of this report.
<PAGE>
EXHIBIT 10.17
SUPPLEMENTAL AGREEMENT
THIS AGREEMENT, effective this 31ST the day of December 1997 ("Effective Date")
is made between Catalytica Advanced Technologies, Inc., a Delaware corporation
(CATI") being a wholly owned subsidiary of Catalytica, Inc., a publicly held
Delaware corporation ("CATALYTICA"), both corporations having their principal
offices in Mountain View, California and Microfluidics International
Corporation, a Delaware corporation having its principal offices in Newton,
Massachusetts, together with its wholly owned subsidiary, Microfluidics
Corporation, (collectively referred to hereinafter as "MFIC").
WHEREAS, CATALYTICA and MFIC previously entered into a License Agreement with
Worcester Polytechnic Institute ("WPI") dated October 18, 1993 pursuant to
which WPI licensed to MFIC and CATALYTICA certain "Inventions" and "Licensed
Patents" within the "Licensed Field" (the "WPI License Agreement"), and
WHEREAS, CATALYTICA and MFIC previously entered into a development agreement
dated October 18, 1993, as amended from time to time, (the "Development
Agreement") directed to the development for commercialization of certain jointly
licensed WPI technology and know-how within the Licensed Field using MFIC's then
available Microfluidizer materials processor devices (the "Original Program"),
and
WHEREAS, several amendments have been executed among the Parties modifying the
Development Agreement, in particular altering from time to time the proportion
of cost sharing and allocation of benefits, if any, to be derived from
commercialization revenues which may arise during the course of the development
and commercialization of technology within the Licensed Field, and
WHEREAS, CATALYTICA and MFIC were jointly awarded a $2.2 million Advanced
Technology Program Grant from the U.S. Department of Commerce (the "Grant") and
have entered into an agreement relating to management of such Grant program (the
"National Institute of Standards and Technology ("NIST") Cooperative
Agreement"), and
WHEREAS, WPI's applied-for-patents have issued in the United States and
elsewhere since the date of the WPI License Agreement and the Development
Agreement thus defining the "Licensed Field" and patent estate licensed to the
Parties, and
WHEREAS, collaborative efforts between the Parties have since the date of the
Development Agreement, as agreed upon and provided for, focused almost solely on
catalysis as the single area of development, and
WHEREAS, MFIC has developed a new Microfluidizer "Multi-Stream Continuous
Chemical Reactor" (the "New Device") which has been utilized by CATALYTICA and
MFIC under the Development Agreement, and for which novel device MFIC, as sole
inventor, has filed with the United States Patent and Trademark Office (the
"USPTO") a patent application on August 5, 1997 (the "Multi-Stream
Application"), and
WHEREAS, CATALYTICA desires to substitute CATI in its place in this Agreement
and under the Program and through CATI desires to file certain Continuation In
Part Applications ("CIP's") to the Multi-Stream Application utilizing MFIC's
priority filing date, and
1 of 12 Pages
<PAGE>
WHEREAS, CATALYTICA, CATI and MFIC believe that it would be: (1) beneficial to
effect certain modifications of, additions to, and consolidation of certain
existing agreements among the Parties including the Development Agreement, and
(2) to resolve and clarify certain issues relating to (a) the scope of the
technology and the collaborative program goals to be pursued during the balance
of the Development Agreement, and (b) the sharing of benefits from
commercialization of the technology, which issues have arisen during the course
of the collaborative development program, and (3) to make provision for
CATALYTICA's filing and prosecution with MFIC of the CIP's to the Multi-Stream
Application.
NOW THEREFORE, in consideration of the mutual premises, terms and conditions
hereinafter set forth, CATI and MFIC agree to the following:
1. Relationship to Previous Agreements
1.1 The terms and conditions of this Agreement shall supersede
and replace the terms and conditions of the Development Agreement, as amended by
Amendments No. 1 and No. 2 dated respectively July 1994 and February 1995
(hereinafter the "1993 Agreement"), the agreement between CATALYTICA and MFIC
dated January 1, 1995 (hereinafter the "1995 Agreement") all of which will
become null and void as of the effective date of this Agreement.
Notwithstanding the foregoing, the Confidentiality and Non-Disclosure Agreement
between the Parties dated April 6, 1995 (the "Confidentiality Agreement") will
survive in full force and effect unaltered by this Agreement except that it will
also be binding upon CATI. All Confidential Information communicated hereunder
to either Party, its officers, employees, consultants and agents, either through
the time of execution of this Agreement or disclosed hereafter, will be governed
and protected by the provisions of such Confidentiality Agreement.
Notwithstanding the substitution of CATI in place of CATALYTICA, CATALYTICA
shall be jointly and severally liable for any and all obligations, damages or
other claims or causes of actions that MFIC now has or will have in the future
against CATI, and CATI specifically warrants and represents that it has the
proper authority and capacity to so bind CATALYTICA.
2. Definitions
2.1 The following terms shall have the following meanings
within the context of this Agreement and the collaboration:
(a) The Revised Field of collaboration shall mean the development and
commercialization of catalyst materials, catalyst support materials, excluding
zeolites, prepared using a Microfluidizer materials processing device or New
Device, which in the case of the excluded zeolites will be solely owned by the
inventing party.
(b) The Technology shall mean the Licensed Patents and know-how within the
Revised Field and/or the Licensed Field granted under a joint license to the
Parties under the WPI License Agreement for commercialization utilizing either
or both the Microfluidizer materials processor or the New Device.
(c) Restated Program shall mean the continued collaborative efforts by
CATALYTICA, through CATI, and MFIC to develop the Technology within the Revised
Field.
2 of 12 Pages
<PAGE>
2.2 Program Management
a. The Restated Program will be directed by a Management Committee
consisting of two representatives of each Party. The work plans and budgets will
be mutually agreed upon on a semi-annual basis. MFIC and CATI will each provide
to the other timely reports of their evaluations and development efforts.
b. CATALYTICA, through CATI, shall continue to serve as administrator
(the "Administrator") for the collaborative venture between the Parties and for
the purposes of the Grant, MFIC has granted to CATALYTICA a Power of Attorney
for the sole purpose of binding MFIC to those terms and conditions of the NIST
Cooperative Agreement. As Administrator CATALYTICA has and through CATI will
perform day-to-day management and administration of the Grant in accordance with
all legal and regulatory requirements, including the NIST Cooperative Agreement.
c. MFIC, after reviewing the Cooperative Marketing Agreement between
CATALYTICA and Mitsubishi Corporation ("MC") for commercial exploitation of
certain technologies/products in Japan, has granted to CATALYTICA the sole and
exclusive right within Japan to represent the collaborative interests of both
Parties in technology resulting from the collaboration under such agreement
insofar as CATALYTICA elects to include such technology in the list of
technologies/products which MC shall market to potential customers in Japan on
CATALYTICA's behalf. In this regard, MFIC has agreed to be bound by, and to
otherwise honor, the terms of such agreement as it applies to technology
resulting from the collaboration under the agreement, and to take action which
may be reasonable necessary to take advantage of any commercial opportunity
identified by MC.
2.3 Restated Program Costs Except for the patent costs which
are covered as set forth in paragraph 4.1 below, each Party shall be responsible
for its own Restated Program costs (and reimbursement thereof under the Grant)
pursuant to work plan and an annual budget mutually agreed upon prior to
execution of this Agreement and attached hereto as SCHEDULE A. Such budget and
schedule will be revised annually on or by February 15th and attached to the
Agreement as a new SCHEDULE A. In this regard, the Parties agree that the
ownership of commercial benefits shall be allocated based on the cumulative
approved Program costs (including any patent costs incurred pursuant to
paragraph 4.1 hereof) for each Party as follows:
a. Option Exercise
MFIC has agreed to exercise its option not to make a payment to CATALYTICA for
one-half of the difference between CATALYTICA's and MFIC's actual approved Phase
I research costs from inception through December 1997, accordingly, CATALYTICA's
and CATI's ownership of the commercial benefits of the collaboration shall be
adjusted in proportion to the total approved costs incurred by each Party for
the collaboration up to December 31, 1997. In this regard, it is agreed that
as of December 31, 1997, CATALYTICA's and CATI's total approved expense costs
are $4,087,775 whereas MFIC's total approved costs are $1,244,545 (inclusive of
patent costs of $90,246), and therefore the ownership of commercialization
benefits is reallocated such that CATALYTICA and CATI own approximately seventy
seven percent (77%) and MFIC owns approximately twenty-three percent (23%) of
such benefits. Notwithstanding the foregoing and the provisions of Paragraph 2.4
(b) below MFIC and CATALYTICA and CATI agree that despite the relative actual
amount of expenditures of the respective Parties during the term of this
Agreement MFIC's allocable ownership of commercialization benefits shall not
fall below twenty percent (20%) except as provided under Section 7.4
hereinafter.
3 of 12 Pages
<PAGE>
b. Commercial Benefits : Ownership : Allocation for Remainder of
Restated Program
The Parties hereby agree that for the period which commenced on January 1, 1995
and for the remainder of the Restated Program, or until earlier termination as
provided for hereunder, that the ownership of the commercial benefits and
division of any profits of the collaboration shall be divided on an ongoing
basis in accordance with the cumulative approved Restated Program costs for each
Party at the time regardless of whether such costs are paid or reimbursed by a
third party to the Party incurring those costs.
2.4 Term of Restated Program The Restated Program shall continue until
December 31, 1998 unless extended for additional one year periods as provided
for under Section 7 hereinafter (the "Termination Date"). In this regard, the
Parties may agree to continue the Development Phase of the Restated Program for
other areas in the Revised Field even though an agreement has been reached for
commercialization of one or more business opportunities and/or technical areas
within the Revised Field.
2.5 when and if the Parties agree that any aspect of the Technology within
the Revised Field has been developed to a stage suitable for commercial
utilization, the Parties shall promptly, and in good faith, negotiate a budget
and terms covering the commercialization efforts for that particular product or
project which budget will be attached to this Agreement (such budgets
collectively being referred to as the "Commercialization Budgets"). Such
Commercialization Budgets will be based on the following principles.
(a) the commercialization effort shall be carried out, pursuant to a
commercialization plan which is mutually agreed to by the Parties.
(b) The benefits of commercialization, for example, the gross profit
from any commercialization effort, shall be shared between the Parties on a
proportional basis in accordance with the ratio of each Parties approved
Restated Program costs at the time that the commercialization or project is
initiated (see paragraph 2.3 above).
(c) If the event that Parties both agree to a specific
commercialization effort of the Technology within the Revised Field then the
costs of such effort or project shall be shared pro rata according to the
ownership of benefits allocation at the time that the first license for
commercialization is granted to a third party and each Party shall supply goods
and services to the commercialization effort based upon a budget for such
commercialization activities at its respective cost plus fifteen percent (15%).
In the event that the Parties do not agree on participation in the project then
such project and the costs thereof shall be treated as though an undertaking
outside of the Revised Field.
(d) In the event that CATI wishes to commercialize Technology that is
outside the Revised Field using MFIC's equipment, MFIC agrees to provided to
CATI then commercially available equipment and supporting services therewith at
prices and under terms consistent with those it customarily provides to its
customers. However, in the event that CATI wants equipment which is
developmental or experimental in nature MFIC will not be obligated to build or
furnish such equipment but will in good faith make any determination as to its
availability. CATI is free to propose a collaboration to MFIC in areas outside
of the Revised Field but MFIC shall be under no obligation to participate in
such undertaking(s). In the event of any collaboration by CATI and MFIC in such
undertakings the sharing of costs and benefits among the Parties shall be
negotiated in good faith and in a commercially reasonable manner.
4 of 12 Pages
<PAGE>
(e) MFIC will have the sole and absolute right to supply its
Microfluidizer equipment and/or New Device for industrial utilization of the
Technology within the Revised Field on behalf of MFIC and CATI.
(f) CATI will have the first right to out-license Technology (other
than equipment related Technology) and to sell catalysts and other materials
resulting from the use of the Technology within the Revised Field on behalf of
MFIC and CATI according to a mutually agreed-upon mechanism.
(g) The Parties will make available to the collaboration all
Technology needed to commercialize Technology within the Revised Field to the
extent that each is legally able to do so, except that MFIC reserves the right
to withhold certain disclosure as is provided for in the Confidentiality
Agreement.
(h) Termination provisions will allow the non-terminating Party to
complete the development and commercialization of Technology within the Revised
Field. The terminating Party will receive remuneration, at an appropriate level
in consideration of the contributions of the terminating Party, from net profits
received by the non-terminating Party from commercialization of Technology
within the Revised Field subsequent to the termination.
3. Technology Rights and Ownership : Inventions : Ownership and Assignment :
Licenses: Assignment of Intellectual Property Rights : Disclosure :
Cooperation in Prosecution of Rights and Patents
3.1 The Parties agree that only Technology relating to the Revised Field
shall be included within the Restated Program under this Agreement.
3.2 Any technology, whether patentable or not, brought by CATALYTICA or
CATI to the Restated Program, or developed solely by CATALYTICA or CATI under
the Restated Program shall be owned by CATI. Any technology, whether patentable
or not, brought by MFIC to the Restated Program, or developed solely by MFIC
under the Restated Program shall be owned by MFIC. Any technology or know-how,
whether patentable or not, developed jointly by the Parties under the Restated
Program shall be jointly owned by MFIC and CATI subject to the provisions of
Paragraph 3.3 below.
3.3 In the event CATI invents, develops or acquires an ownership interest in
technology, whether patentable or not, to modifications or improvements to the
Microfluidizer(R) equipment or the New Device as a result of collaborating on
the Program or any other result until such time as CATALYTICA or CATI purchases
a Microfluidizer(R) processor or New Device from MFIC for use outside the
Program, CATI agrees (i) to promptly disclose to MFIC all such modifications and
improvements, and (ii) transfer and assign to MFIC CATI's ownership interest
therein. This provision is intended to enable MFIC and its customers to freely
use, without payment, any such CATALYTICA or CATI modifications or improvements.
If MFIC develops or acquires an ownership interest in Technology or know-how to
production of catalysts or catalyst supports, exclusive of zeolites, as a result
of collaborating on the Restated Program, MFIC agrees to: (i) promptly grant to
CATI a non-exclusive royalty-free license, worldwide license, with rights to
sublicense, to practice under MFIC's ownership interest in such Technology
within the Revised Field.
5 of 12 Pages
<PAGE>
3.4 If either Party elects to practice outside of the Revised Field,
Technology which (a) is covered by a patent of which it acquires ownership of,
or (b) it has license rights to under this Agreement or the WPI License
Agreement then such Party will retain exclusive rights and ownership of such
technology, except that in the case of equipment related inventions or
discoveries made by CATI an exclusive royalty-free license, worldwide (with
rights to sublicense) to practice such technology or invention will be granted
to MFIC. Such uses by either Party shall be subject to an independent
requirement of reporting to WPI on such commercialization activities, the
payment of royalties therefore to WPI, and, if applicable, any payment or
financial obligation due to Professor William A. Moser, unless the Parties
mutually agree to expand the Revised Field to encompass the use in question.
4. Patent Costs and Filing Procedures
4.1 MFIC shall be responsible for paying all patent-related costs under
the WPI License Agreement and each Party shall pay all of the patent-related
costs for any patent application which they own separate and apart from the
other Party hereto under Paragraphs 3.2 or 3.4 above. Further, all patent
related costs for jointly-owned patents and/or patent applications hereunder
shall be shared on the basis of proportional ownership of commercialization
benefits unless an different arrangement is negotiated between the parties. For
the purposes of this Agreement "patent-related costs" shall be defined to
include all costs relating to filing, prosecution, allowance and maintenance of
patent applications and issued patents. All patent costs incurred under this
paragraph shall be included in approved Restated Program costs to determine
ownership of commercial benefits under paragraph 2.3 hereof.
4.2 In all cases, the non-filing Party shall cooperate reasonably, on a no
cost basis, with the filing Party to assure that such patent rights are
perfected. Further, in case of joint inventions, the Parties shall mutually
agree as to which Party shall take control of the filing, prosecution and
maintenance of the maintenance of the proposed patent application in any given
case.
4.3 MFIC, as sole inventor, has filed the Multi-Stream Application for
the New Device with the USPTO and CATALYTICA through CATI wishes to file and
prosecute CIP's to that patent application utilizing MFIC's priority application
date (a "Unified Filing").
(a) For the filing of such CIP's within the Revised Field MFIC will
cooperate with CATI in such CIP filings in the U.S. and in Unified Filings in
selected foreign jurisdictions. If MFIC wishes to participate in such foreign
filings then MFIC and CATI will share the filing and prosecution costs of such
foreign Unified Filing applications on an equal basis. The rights to new claims
arising from issuance of CIP claims will be controlled cooperatively by MFIC and
CATALYTICA within the framework and guidelines of the collaboration and this
Agreement, however, MFIC and CATI will each retain non-exclusive rights with
right to sublicense under such Unified Filings, provided however, that neither
CATALYTICA nor CATI shall have any rights with regard to equipment related
inventions. In the event of MFIC's participation in such CIP's, MFIC's
obligation to cost share in patent applications shall extend to no more
countries than the Moser/WPI patents were filed and not subsequently abandoned.
In the event that MFIC does not participate in the costs of the filing of a
particular application then MFIC will not receive any royalty or licensing
income derived from the issuance of a patent in that jurisdiction but will
receive protection of its New Device in that jurisdiction to the extent that
MFIC has obtained such protection.
6 of 12 Pages
<PAGE>
(b) For the filing of such CIP's outside of the Revised Field CATI
will present to MFIC for confidential review on a case by case basis all
findings, data and information. MFIC will review such information and inform
CATI of its desire to either jointly proceed with CATI on a negotiated basis
(irrespective of the Parties' ownership percentages in the collaboration within
the Revised Field) or will allow CATI to proceed alone (using MFIC's priority
filing date) in which case CATI will retain exclusive rights to such inventions.
In the event of MFIC's participation in such CIP's, the Parties will negotiate
in good faith as to the countries for filing within and/or establish a limit on
the total expenditures for such patent filings. Also, in the event of MFIC's
participation in such CIP's MFIC and CATI will each retain non-exclusive rights
with right to sublicense under such Unified Filings, provided however that
neither CATALYTICA or CATI shall have any rights with regard to equipment
related inventions.
5. Confidentiality : First Right of Opportunity to Purchase
5.1 The Parties have made provision for the protection of their
respective proprietary and confidential information that they have and may
continue to disclose to each other pursuant to a Confidentiality and Non-
Disclosure Agreement between the Parties dated April 6, 1995. Such agreement is
hereby incorporated by reference and modified only by stating that the receiving
Party under such agreement may use Confidential Information disclosed from this
date forward thereunder only for the purposes of this Agreement and the
collaborative effort in the Revised Field under the Refined Program.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS
CATI and MFIC each warrant, represent and covenant to each other as follows:
(a) it has the full right and corporate authority to enter into this
Agreement and to perform all of its obligations hereunder, and neither this
Agreement nor the performance of any of its obligations hereunder or of any
related agreement are in violation of any other agreement or instrument to which
it is a party or by which it may be bound.
(b) it shall not willfully or recklessly make any proprietary claims
or use any technology or invention that would infringe on the patent, copyright
or other proprietary intellectual property rights of any third party, without
first obtaining written permission or license from such party.
7. TERM AND TERMINATION
7.1 The term of this Agreement shall begin on the Effective Date and
shall automatically terminate without notice or other further requirement on the
first anniversary hereof if the Parties have not by such date agreed in writing
to an annual extension hereof and adopted a new annual budget to be attached as
SCHEDULE A. Such requirement shall continue annually during the term of this
Agreement.
7.2 This Agreement may be terminated at any time upon the provision
of written notice from either of the Parties.
7 of 12 Pages
<PAGE>
7.3 Either party shall have the right to terminate this Agreement in
the event that the other Party:
(a) is in default or breach of any material provision of this
Agreement, (and with the exception of breaches of confidentiality
provided for in subsection (b) hereunder) providing the non-breaching
Party has given the breaching Party written notice specifying such
breach and the breaching Party has failed to cure such breach within
sixty (60) days of receipt of such written notice. The non-breaching
Party shall retain or be granted all rights necessary to commercialize
the Technology in the Revised Field (which are held by the breaching
Party) and the breaching Party shall have no rights to utilize the
Technology commercially in the Revised Field without written consent of
the non-breaching Party.
(b) breaches any of the provisions of the Confidentiality Agreement
by CATALYTICA or CATI.
(c) is the subject of voluntary or involuntary bankruptcy or insolvency
proceedings, or its winding up of business, sale or merger of
substantially all of its assets. For the purposes of this Section
CATALYTICA shall be deemed to be a Party.
(d) breach of any warranty, representation or covenant by either
Party.
7.4 In the event that this Agreement is terminated pursuant to paragraphs
7.1 or 7.2 above and either Party subsequently wants to continue its development
and/or commercialization efforts with the Technology in the Revised Field, it
shall notify the other Party of its intention to so continue and provide with
said notice a summary of any relevant information available since the date of
termination. Within thirty (30) days of such notice, the receiving Party shall
either agree to resume the cooperation under the terms of this Agreement or
otherwise be deemed to have agreed to allow the offering Party to continue
development and commercialization efforts without the receiving Party. In this
case the receiving (and declining) Party shall continue to have rights to
Technology within the Revised Field. If MFIC is the receiving (and declining)
Party it shall, when requested, provide equipment and services on an arm's
length basis under terms consistent with those customarily afforded by MFIC to
its customers but will not be obligated to build or furnish equipment which is
developmental or experimental in nature. The offering Party shall be entitled to
adjust the allocation of ownership of commercialization benefits by the amounts
of such reasonable expenditures as it incurs in unilaterally pursuing its
efforts within the Revised Field. MFIC shall be entitled to include in any such
alteration of the allocation of such benefits any and all post-termination
expenditures relating to prosecution, modification, defense or maintenance of
the WPI Patents. In the event that no notice of intent to proceed is issued
within one (1) year of such termination, then each Party will grant to the other
Party a royalty-free, non-exclusive license with right to sublicense to
manufacture, have goods manufactured, sell, use, or import then existing
Technology within the Revised Field owned by the granting Party to the extent
that it is legally able to do so. Further, each Party will from time to time
deliver to each other summary of any materially relevant information or
developments occurring since the date of termination.
8 of 12 Pages
<PAGE>
7.5 Notwithstanding the foregoing, no termination shall alter or affect
the obligations of CATI or MFIC under Subparagraph 3.3 or under Paragraph 5 of
this Agreement whether arising prior to or after termination, which obligations
shall specifically survive termination and continue in full force and effect.
7.6 Damages: Legal and Equitable Relief All legal and equitable rights,
remedies and damages available to the Parties shall be considered cumulative and
the use or choice of a particular remedy, damage or relief shall not preclude
either Party's further exercise of other rights, remedies and damages. Damages
and relief available to the Parties shall specifically include an equitable
accounting of all earnings, profits and other benefits arising from breach or
violation including lost income potential and lost business opportunity. No
delay or omission in exercising any rights under this Agreement shall operate as
a waiver of that or any other right; a waiver or consent given by either Party
on a certain occasion is effective only in that instance and shall not
constitute or be construed as a bar to or a waiver of any right on any other
occasion, unless otherwise agreed to by in writing.
8. ASSIGNMENT : BINDING NATURE OF OBLIGATIONS
8.1 This Agreement is personal in its character, and no Party hereto shall
assign, sell, transfer or encumber this Agreement or the interest therein, or
permit any other arrangement having a similar effect, without the express
written consent of the remaining Party, except as a result of sale,
consolidation, reorganization or other transfer involving a Party's business or
assets relating to the Primary Field, provided further that the Party's assignee
in such case gives the other Party hereto written assurance of its commitment to
fulfill the transferring Party's obligations under this Agreement.
8.2 This Agreement shall be binding on and inure to the benefit of the
successors or permitted assigns of the Parties hereto, and all entities
controlled by them.
9. NOTICE
All notices of any kind and description whatsoever required, permitted or
provided for under this Agreement shall be in writing and shall be deemed to
have been received when personally deliver or when mailed through the United
States Postal Service, postage prepaid, certified mail with return receipt, or
by Federal Express or other recognized private expedited carrier or delivery
service with signature required with all charges prepaid to the parties at their
respective addresses below:
If to MFIC to: Microfluidics International Corporation
Attention: Michael A. Lento, President
30 Ossipee Road
Newton, MA 02164-9101
If to CATALYTICA to: Catalytica, Inc.
Attention: Peter H. Kilner,
Director, Business Development
430 Ferguson Drive
Mountain View, CA 94043
9 of 12 Pages
<PAGE>
10. MISCELLANEOUS PROVISIONS
10.1 In the event of acts of God, action of the elements, war, invasion,
civil commotion, insurrection, labor disturbance, fire, flood, earthquake, or
governmental restriction, interruption or delay in raw material supplies or
supply of substandard raw material which is beyond the control of a Party
hereto, which render performance under this Agreement impossible, failure on
that account during each period shall be excused during such period or periods
of inability to perform.
10.2 Each performing Party warrants that it will use all reasonable
efforts to carry out the Restated Program using professionally qualified
personnel in accordance with generally accepted professional standards.
However, the Parties recognize that the Restated Program to be performed by the
performing Party is experimental and/or developmental in nature and, therefore,
the performing Party can make no warranty or representation with regard to the
successful completion of the Restated Program can be completed in a time
certain.
10.3 This Agreement and the documents incorporated herein contain the
entire understanding between the Parties with respect to the Restated Program
and may be modified only by a written instrument duly executed by each Party's
authorized representative. If a Party hereto shall, on any occasion, fail to
perform any term of this Agreement and the other Party shall not enforce that
term, the failure to enforce on that occasion shall not preclude enforcement on
any other occasion.
10.4 The Parties agree that the provisions of this Agreement are
severable. If any provision hereof shall be held to be invalid or unenforceable
by any law, rule, order, or regulation of any government or by the final
determination of any state or federal court, such invalidity or unenforceability
shall not effect the enforceability of the remaining provisions of the
Agreement, and such provision shall be reformed and construed to the extent
permitted by law so that the remainder is valid and enforceable. Such
invalidity shall not affect the enforceability of such provision in any
jurisdiction where such provision has not been held to be invalid.
10.5 This Agreement shall be governed by laws of the State of California,
except for breaches of the confidentiality provisions hereof by CATALYTICA or
CATI in which event MFIC may apply the laws of the Commonwealth of Massachusetts
or such other jurisdiction as MFIC may determine is more effective for the
prosecution of an action hereunder. All other disputes arising or resulting
from this Agreement which cannot be settled by mutual consent by the Parties
shall be subject to arbitration in San Francisco, California if MFIC is the
complaining Party or Boston, Massachusetts if CATALYTICA is the complaining
Party, pursuant to the American Arbitration Association's Rules for Commercial
Arbitration in effect at the time arbitration is initiated.
10.6 Paragraph headings and captions used herein in this Agreement are for
convenience of reference only and shall not to be considered in the construction
or interpretation any term or provision of this Agreement. This Agreement has
been jointly prepared on the basis of the mutual understanding of the Parties
and shall not be construed against either Party by reason of such Party's being
the drafter hereof.
10.7 The Parties are acting as independent contractors and shall not be
considered partners, joint venturers or agents of the other except as expressly
provided hereunder or in writing.
10 of 12 Pages
<PAGE>
10.8 Unless otherwise expressly provided herein, no right, express or
implied, is granted by this Agreement to either party to use in any manner the
trade name(s), service mark(s) or trademark(s) owned by, or licensed to the
other in connection with the performance of this Agreement.
10.9 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the Parties hereto have each caused this Agreement to be
executed as a sealed instrument, and to be delivered one to another as of the
day, month and year first written above.
ACCEPTED FOR:
MICROFLUIDICS INTERNATIONAL CORPORATION
/s/ Michael A. Lento
By:____________________________________
Michael A. Lento
____________________________________
Name
President
____________________________________
Title
ACCEPTED FOR:
CATALYTICA, INC.
/s/ Norman Smith
By:___________________________________
Norman Smith
___________________________________
Name
President
___________________________________
Title
11 of 12 Pages
<PAGE>
SCHEDULE A
RESTATED PROGRAM BUDGET
JANUARY TO DECEMBER 1998
Catalytica
<TABLE>
<S> <C>
- -------------------------------------------------------
Salary and Fringe $200,000
- -------------------------------------------------------
Overhead @ 210% $420,000
- -------------------------------------------------------
Analytical Services $100,000
- -------------------------------------------------------
Lab Supplies and Other $100,000
- -------------------------------------------------------
Total $820,000
- -------------------------------------------------------
</TABLE>
12 of 12 Pages
<PAGE>
EXHIBIT 10.26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REVOLVING CREDIT AND TERM LOAN AGREEMENT
among
MFIC CORPORATION
and
- --------------------------------------------------------------------------------
NATIONAL BANK OF CANADA
- --------------------------------------------------------------------------------
Dated February 28, 2000
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
1. DEFINITIONS AND RULES OF INTERPRETATION............................1
ss.1.1. Definitions..............................................1
ss.1.2. Rules of Interpretation.................................10
2. THE LOANS.........................................................11
ss.2.1. Commitment to Make Revolving Credit Loans...............11
ss.2.2. Unused Line Fee.........................................11
ss.2.3. The Revolving Credit Note...............................12
ss.2.4. Interest on Revolving Credit Loans......................12
ss.2.5. Requests for Revolving Credit Loans.....................12
ss.2.6. Maturity................................................12
ss.2.7. Mandatory Repayments of Revolving Credit Loans..........12
ss.2.8. Commitment to Make Term Loan............................13
ss.2.9. The Term Note...........................................13
ss.2.10. Interest on Term Note...................................13
ss.2.11. Repayment of Term Loan..................................13
ss.2.12. Optional Prepayments of Term Loan.......................13
3. CERTAIN GENERAL PROVISIONS........................................13
ss.3.1. Commitment Fee..........................................13
ss.3.2. Funds for Payments......................................14
ss.3.3. Computations............................................14
ss.3.4. Additional Costs, Etc. .................................14
ss.3.5. Capital Adequacy........................................15
ss.3.6. Certificate.............................................16
ss.3.7. Interest After Default..................................16
4. COLLATERAL SECURITY...............................................16
5. REPRESENTATIONS AND WARRANTIES....................................16
ss.5.1. Corporate Authority; Etc. ..............................16
ss.5.2. Governmental Approvals..................................17
ss.5.3. Title to Properties; Leases.............................17
ss.5.4. Financial Statements....................................17
ss.5.5. No Material Changes, Etc. ..............................18
ss.5.6. Franchises, Patents, Copyrights, Etc. ..................18
ii
<PAGE>
ss.5.7. Litigation..............................................18
ss.5.8. No Materially Adverse Contracts, Etc. ..................18
ss.5.9. Compliance With Other Instruments, Laws, Etc. ..........18
ss.5.10. Tax Status..............................................19
ss.5.11. No Event of Default.....................................19
ss.5.12. Holding Company and Investment Company Acts.............19
ss.5.13. Absence of UCC Financing Statements, Etc. ..............19
ss.5.14. Setoff, Etc. ...........................................19
ss.5.15. Certain Transactions....................................19
ss.5.16. Employee Benefit Plans; Multiemployer Plans;
Guaranteed Pension Plans................................19
ss.5.17. Regulations U and X.....................................20
ss.5.18. Environmental Compliance................................20
ss.5.19. Subsidiaries............................................20
ss.5.20. Lease Summaries.........................................21
ss.5.21. Loan Documents..........................................21
6. AFFIRMATIVE COVENANTS OF THE BORROWER.............................21
ss.6.1. Punctual Payment........................................21
ss.6.2. Maintenance of Office...................................21
ss.6.3. Records and Accounts....................................21
ss.6.4. Financial Statements, Certificates and Information......21
ss.6.5. Notices.................................................23
ss.6.6. Existence; Maintenance of Properties....................24
ss.6.7. Insurance...............................................25
ss.6.8. Taxes...................................................25
ss.6.9. Inspection of Properties and Books......................25
ss.6.10. Compliance with Laws, Contracts, Licenses, and Permits..26
ss.6.11. Use of Proceeds.........................................26
ss.6.12. Bank Accounts...........................................26
ss.6.13. Cash Management.........................................26
ss.6.14. Further Assurances......................................27
7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER AND ITS SUBSIDIARIES...27
ss.7.1. Restrictions on Indebtedness............................27
ss.7.2. Restrictions on Liens, Etc. ............................28
ss.7.3. Restrictions on Investments.............................29
ss.7.4. Merger, Consolidation...................................29
ss.7.5. Sale and Leaseback......................................29
ss.7.6. Compliance with Environmental Laws......................29
ss.7.7. Distributions. Corporation Action.......................30
ss.7.8. Subsidiaries............................................30
iii
<PAGE>
ss.7.9. Fiscal Year.............................................30
ss.7.10. Loans and Advances......................................30
ss.7.11. Terms of Subordinated Indebtedness......................30
8. FINANCIAL COVENANTS OF THE BORROWER...............................31
ss.8.1. Consolidated Tangible Net Worth.........................31
ss.8.2. Liabilities to Worth (Leverage) Ratio...................31
ss.8.3. Consolidated Net Income.................................31
ss.8.4. Minimum Debt Service....................................32
ss.8.5. Maximum Capital Expenditures............................32
ss.8.6. Minimum Availability Covenant...........................32
9. CLOSING CONDITIONS................................................32
ss.9.1. No Material Adverse Change..............................32
ss.9.2. Financial Statements....................................32
ss.9.3. Landlord Waivers........................................32
ss.9.4. Corporate Structure.....................................33
ss.9.5. No Default or Event of Default..........................33
ss.9.6. Litigation..............................................33
ss.9.7. Evidence of Insurance...................................33
ss.9.8. Compliance with Law.....................................33
ss.9.9. Certified Copies of Organization Documents..............33
ss.9.10. By-laws; Resolutions....................................33
ss.9.11. Incumbency Certificate; Authorized Signers..............34
ss.9.12. Environmental Review....................................34
ss.9.13. Employment; Product Liability...........................34
ss.9.14. Validity of Liens.......................................34
ss.9.15. Officer's Certificates..................................34
ss.9.16. Opinion of Counsel Concerning Organization and
Loan Documents .........................................35
ss.9.17. Equity Infusion.........................................35
ss.9.18. Subordinated Debt.......................................35
ss.9.19. Loan Documents..........................................35
ss.9.20. Borrowing Base Report...................................35
ss.9.21. Payment of Fees.........................................35
ss.9.22. Minimum Day One Availability............................35
ss.9.23. Cash Management.........................................35
ss.9.24. Additional Documents....................................35
10. CONDITIONS TO ALL BORROWINGS......................................35
ss.10.1. Representations True; No Event of Default...............36
ss.10.2. No Legal Impediment.....................................36
iv
<PAGE>
ss.10.3. Governmental Regulation.................................36
ss.10.4. Proceedings and Documents...............................36
11. EVENTS OF DEFAULT; ACCELERATION; ETC. ............................36
ss.11.1. Events of Default and Acceleration......................36
ss.11.2. Termination of Revolving Credit.........................39
ss.11.3. Remedies................................................39
ss.11.4. Distribution of Collateral Proceeds.....................39
12. SETOFF............................................................40
13. EXPENSES..........................................................40
14. INDEMNIFICATION...................................................41
15. SURVIVAL OF COVENANTS, ETC. ......................................41
16. ASSIGNMENT AND PARTICIPATION......................................42
ss.16.1. Assignments.............................................42
ss.16.2. Participations..........................................42
ss.16.3. Pledge by Lender........................................42
ss.16.4. No Assignment by Borrower...............................42
ss.16.5. Disclosure..............................................42
17. NOTICES, ETC. ....................................................42
18. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE................43
19. HEADINGS..........................................................43
20. COUNTERPARTS......................................................43
21. ENTIRE AGREEMENT, ETC. ...........................................44
22. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS....................44
23. CONSENTS, AMENDMENTS, WAIVERS, ETC. ..............................44
24. SEVERABILITY......................................................44
v
<PAGE>
EXHIBITS
A. Form of Revolving Credit Note
B. Form of Revolving Credit Loan Request
C. Form of Term Note
D. Form of Compliance Certificate
vi
<PAGE>
SCHEDULES
5.7 Litigation
5.15 Certain Transactions
5.16 Employee Benefit Plans
5.18 Hazardous Substances and Underground Tanks
5.19 Subsidiaries
6.13 Demand Deposit/Checking Accounts
6.7 Insurance
7.1 Outstanding Indebtedness
7.2 Outstanding Liens
vii
<PAGE>
REVOLVING CREDIT AND TERM LOAN AGREEMENT
This REVOLVING CREDIT AND TERM LOAN AGREEMENT is made as of the 28th day
of February, 2000, by and among MFIC CORPORATION (the "Borrower"), a Delaware
corporation with its principal executive offices at 30 Ossipee Road, Newton,
Massachusetts 02464 and NATIONAL BANK OF CANADA, a Canadian chartered bank (the
"Lender") with a place of business at One Federal Street, Boston, Massachusetts
02110.
1. DEFINITIONS AND RULES OF INTERPRETATION.
ss.1.1. Definitions. The following terms shall have the meanings set forth
in this ss.1 or elsewhere in the provisions of this Agreement referred to below:
Accounts. "Accounts" as defined in the UCC and also all accounts
receivable and other forms of obligations and rights to payment for credit
extended for goods sold or leased, or services rendered.
Agreement. This Revolving Credit and Term Loan Agreement, including the
Schedules and Exhibits hereto, all as modified, amended, supplemented or
restated.
Applicable Margin. The per annum rates set forth below for the following
Loans
Facility Applicable Margin
-------- -----------------
Revolving Credit Loans 0.50%
Term Loan 0.75%
Availability. The lesser of (a) or (b), below.
(a) The Revolving Credit Ceiling
(b) (i) Eighty-five percent (85%) of the Borrower's Eligible
Accounts.
plus
(ii) the lesser of:
(A) Fifty percent (50%) of the Borrower's Eligible
Inventory; or
(B) One Million Five Hundred Thousand and NO/100
Dollars ($1,500,000.00).
Balance Sheet Date. December 31, 1999.
-1-
<PAGE>
Borrower. As defined in the preamble hereto.
Business Day. Any day, other than a Saturday or Sunday, or legal holiday
on which banking institutions in Boston, Massachusetts are open for the
transaction of banking business.
Capital Expenditures. All Capitalized Leases and all expenditures made by
the Borrower or any of its Subsidiaries which are capitalized or are required to
be capitalized on the Consolidated balance sheet of the Borrower and its
Subsidiaries in accordance with Generally Accepted Accounting Principles.
Capitalized Leases. Leases under which the Borrower or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are capitalized or are required to be capitalized on the
balance sheet of the lessee or obligor in accordance with Generally Accepted
Accounting Principles.
Change In Control. Shall mean the occurrence of any of the following:
(a) The acquisition, by any group of persons (within the
meaning of the Securities Exchange Act of 1934, as amended) or
by any person, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission) of 50%
or more of the issued and outstanding capital stock of the
Borrower having the right, under ordinary circumstances, to
vote for the election of directors of the Borrower.
(b) (i) Irwin J. Gruverman shall cease, for any reason other
than his death or disability, to serve as the Chairman of the
Borrower's Board of Directors, or (ii) Irwin J. Gruverman
shall cease to serve as the Chairman of the Borrower's Board
of Directors as a result of his death or disability, unless
within ninety (90) days after such occurrence, the Borrower
shall have entered into an employment agreement with a person
to succeed Irwin J. Gruverman, which person is experienced in
the Borrower's industry and in performing the duties performed
by Irwin J. Gruverman for the Borrower, and has been approved
by a majority of the then Board of Directors of the Borrower,
and is otherwise reasonably satisfactory to the Lender.
Closing Date. The first date on which the conditions set forth in ss.9
and ss.10 have been satisfied and any Loans are to be made.
Code. The Internal Revenue Code of 1986 and the rules and regulations
thereunder, collectively as the same may be supplemented or amended and in
effect from time to time.
-2-
<PAGE>
Collateral. All assets of the Borrower and its active Subsidiaries,
whenever acquired. "Collateral" includes, without limitation, all Accounts,
Inventory, Equipment, Investment Property and General Intangibles.
Consolidated or consolidated. With reference to any term defined herein,
shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with Generally Accepted Accounting
Principles.
Consolidated EBITDA. With respect to any fiscal period, the result
(determined with respect to the same period and without duplication) of the
following: (a) Consolidated Net Income (or Deficit); plus (b) depreciation,
amortization, and other noncash items included as an expense of the Borrower and
its Subsidiaries in the determination of Consolidated Net Income (or Deficit);
plus (c) all taxes included as an expense of the Borrower and its Subsidiaries
in the determination of Consolidated Net Income (or Deficit); plus (d) interest
included as an expense of the Borrower and its Subsidiaries in the determination
of Consolidated Net Income (or Deficit).
Consolidated Intangible Assets At any date, those assets of the Borrower
and its Subsidiaries, that, in accordance with Generally Accepted Accounting
Principles, should be classified as intangible assets on a Consolidated balance
sheet of the Borrower and its Subsidiaries, including such items as goodwill,
the purchase price of acquired assets in excess of the fair market value
thereof, unamortized debt discount and expense, trademarks, trade names, service
marks, brand names, copyrights, patents and licenses, and rights with respect to
the foregoing; all amounts representing any write-up in the book value of any
assets of the Borrower resulting from a revaluation thereof; to the extent not
already deducted, all reserves; the value of any minority interests in
Subsidiaries; and/or the aggregate amount of all loans made by the Borrower or
any Subsidiary to any officer, employee, or shareholder of the Borrower or any
Subsidiary.
Consolidated Net Income (or Deficit). With respect to any fiscal period,
the consolidated net income (or deficit) of the Borrower and its Subsidiaries,
after deduction of all expenses, taxes, and other proper charges, determined in
accordance with Generally Accepted Accounting Principles.
Consolidated Tangible Net Worth. With respect to any fiscal period, (i)
the difference between (x) the Borrower's Consolidated Total Assets and (y) the
Borrower's Consolidated Total Liabilities, plus (z) the Borrower's Subordinated
Indebtedness, less (ii) the book value of the Borrower's Consolidated Intangible
Assets, all calculated in accordance with Generally Accepted Accounting
Principles.
Consolidated Total Assets. At any date, all assets of the Borrower and its
Subsidiaries that, in accordance with Generally Accepted Accounting Principles,
should be classified as assets on a Consolidated balance sheet of the Borrower
and its Subsidiaries.
-3-
<PAGE>
Consolidated Total Liabilities. At any date, all liabilities of the
Borrower and its Subsidiaries that, in accordance with Generally Accepted
Accounting Principles, should be classified as liabilities on the Consolidated
balance sheet of the Borrower and its Subsidiaries, including, in all events,
all Indebtedness of the Borrower and its Subsidiaries, whether or not so
classified.
Debt Service Charges. With respect to any fiscal period, the sum of (a)
the expenses of the Borrower for such period for interest payable with respect
to Indebtedness for borrowed money, plus (b) current maturities of long term
indebtedness paid or payable during such period, all as determined in accordance
with Generally Accepted Accounting Principles.
Default. See ss.11.1.
Distribution. The declaration or payment of any dividend on or in respect
of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly by the Borrower through a
Subsidiary of the Borrower or otherwise; the return of capital by the Borrower
to its shareholders as such; or any other distribution on or in respect of any
shares of any class of capital stock of the Borrower.
Dollars or $. Dollars in lawful currency of the United States of America.
Drawdown Date. The date on which any Loan is made or is to be made.
Eligible Accounts. Those of the Borrower's Accounts in which the Lender
has a valid and perfected first priority security interest and which the Lender
deems eligible for borrowing, but excluding, without limitation, each of the
following Accounts, unless otherwise mutually agreed by the Lender and the
Borrower:
(1) Any Account which has been outstanding for more than ninety (90)
days from the invoice date.
(2) Any Account which is owed by any account debtor if fifty percent
(50%) or more of the Accounts due from such account debtor exceed the
limitations on eligibility described in Subparagraph (a), above.
(3) Any which, when aggregated with all of the accounts of that
account debtor, exceeds thirty-five percent (35%) of the then aggregate of
Eligible Accounts.
(4) Any Account to the extent that the subject account debtor claims
any offset, chargeback, or contra or is otherwise disputed.
(5) Any Account as to which the principal place of business of the
subject account debtor is not within the continental United States unless
(x) such account
-4-
<PAGE>
is insured by credit insurance satisfactory to the Lender; or (y) such
account is secured by a letter of credit or sight draft (in each case, the
terms, conditions and issuer of which are satisfactory to the Lender) and
which sight draft shall be collaterally assigned to the Lender.
(6) Any Account which arises out of any sale made on a basis other
than upon terms usual to the business of the Borrower.
(7) Any Account which arises out of a finance charge due to the
Borrower.
(8) Any Account which is owed by any Subsidiary or other affiliated
entity or Person.
(9) Any Account as to which the account debtor has filed a petition
for relief under the federal Bankruptcy Code or made an assignment for the
benefit of creditors; or if any petition or other application for relief
under the Bankruptcy Code has been filed against the account debtor; or if
the account debtor has failed, suspended its business operations, become
insolvent, or suffered a receiver or trustee to be appointed for any of
its assets or affairs; or if the account debtor is generally not paying
its debts as they become due.
(10) Any Account which is on a sale and return, sale on approval,
consignment, or any other repurchase or return basis.
(11) Any Account which is on a bill-and-hold basis for which the
Borrower has not received written authorization from the account debtor to
hold the asset which the subject of the Account.
(12) Any Account as to which the Lender reasonably believes the
collection of such Account is insecure or that such Account may not be
paid by reason of the account debtor's financial inability to pay.
(13) Any Account as to which the account debtor is the United States
of America or any department, agency, or instrumentality thereof, unless
the Borrower assigns its right to payment of such Account to the Lender in
accordance with the terms of the Assignment of Claims Act of 1940, as
amended (31 U.S.C. ss.3727).
(14) Any other Account which the Lender, in its reasonable
discretion, deems ineligible for borrowing.
Eligible Inventory. Such of the Borrower's raw material and finished goods
inventory in which the Lender has a valid and perfected first priority security
interest, which is not obsolete or unmerchantable, and as the Lender from time
to time deems eligible for borrowing in its reasonable discretion. Eligible
Inventory shall be valued at the lower of cost (calculated on a "first-in
first-out" (FIFO) basis) or market value.
-5-
<PAGE>
Employee Benefit Plan. Any employee benefit plan within the meaning of
ss.3(3) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.
Environmental Laws. Any and all applicable foreign, federal, state and
local environmental, health or safety statutes, laws, regulations, rules, and
ordinances (whether now existing or hereafter enacted or promulgated), of all
governmental agencies, bureaus or departments which may now or hereafter have
jurisdiction over the Borrower or any of its Subsidiaries and all applicable
judicial and administrative and regulatory decrees, judgments and orders
relating to injury to, or the protection of, real or personal property or human
health or the environment, including, without limitation, all requirements
pertaining to reporting, licensing, permitting, investigation, remediation and
removal of emissions, discharges, releases or threatened releases of Hazardous
Substances, whether solid, liquid or gaseous in nature, into the environment or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of such Hazardous Substances.
Equipment. "Equipment" as defined in the UCC and all motor vehicles,
rolling stock, machinery, office equipment, plant equipment, tools, dies, 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 and any and all accessions and additions thereto and substitutions
therefor.
ERISA. The Employee Retirement Income Security Act of 1974 and the rules
and regulations thereunder, collectively as the same may be supplemented or
amended and in effect from time to time.
ERISA Affiliate. Any Person which is treated as a single employer with the
Borrower under ss.414 of the Code.
ERISA Reportable Event. A reportable event (other than a reportable event
described in Subsections 4043(b)(2)-(4) and 4043(b)(6)-(9), which do not require
a thirty (30) day notice to the PBGC) with respect to a Guaranteed Pension Plan
within the meaning of ss.4043 of ERISA and the regulations promulgated
thereunder as to which the requirement of notice has not been waived.
Event of Default. See ss.11.1.
General Intangibles. "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; tax
refunds and abatements; insurance refunds and premium rebates; all means and
vehicles of investment or hedging, including, without limitation, options,
warrants, and futures contracts; records; customer lists; telephone numbers;
goodwill; causes of action; judgments; payments under any settlement or other
agreement; literary rights; rights to performance; royalties; license and/or
franchise fees; rights of admission; licenses; franchises; license agreements,
including all rights of the Borrower to enforce same; permits, certificates of
-6-
<PAGE>
convenience and necessity, and similar rights granted by any governmental
authority; patents, patent applications, patents pending, and other intellectual
property; internet addresses and domain names; developmental ideas and concepts;
proprietary processes; blueprints, drawings, designs, diagrams, plans, reports,
and charts; catalogs; manuals; technical data; computer software programs
(including the source and object codes therefor), computer records, computer
software, rights of access to computer record service bureaus, service bureau
computer contracts, and computer data; tapes, disks, semi-conductors chips and
printouts; trade secrets rights, copyrights, mask work rights and interests, and
derivative works and interests; user, technical reference, and other manuals and
materials; trade names, trademarks, service marks, and all goodwill relating
thereto; applications for registration of the foregoing; and all other general
intangible property of the Borrower in the nature of intellectual property;
proposals; cost estimates, and 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.
Generally Accepted Accounting Principles or GAAP. Principles that are (i)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to time
and (ii) consistently applied with past financial statements of the Borrower
adopting the same principles; provided that in each case referred to in this
definition of "Generally Accepted Accounting Principles" a certified public
accountant would, insofar as the use of such accounting principles is pertinent,
be in a position to deliver an unqualified opinion (other than a qualification
regarding changes in Generally Accepted Accounting Principles) as to financial
statements in which such principles have been properly applied.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of ss.3(2) of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Hazardous Substances. Any substance (i) the presence of which requires or
may hereafter require notification, investigation or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste,"
hazardous material" or "hazardous substance" or "controlled industrial waste" or
"pollutant" or "contaminant" under any present or future Environmental Law or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601
et seq.) and any applicable local statutes and the regulations promulgated
thereunder; (iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of any foreign country, the United States, any state
of the United States, or any political subdivision thereof to the extent any of
the foregoing has or
-7-
<PAGE>
had jurisdiction over the Company; or (iv) without limitation, which contains
gasoline, diesel fuel or other petroleum products, asbestos or polychlorinated
biphenyls ("PCB's").
Indebtedness. All obligations, contingent and otherwise, that in
accordance with Generally Accepted Accounting Principles should be classified
upon the Consolidated balance sheet of the Borrower and the Borrower's
Subsidiaries as liabilities, or to which reference should be made by footnotes
thereto, including in any event and whether or not so classified: (a) all
obligations for borrowed money or other extensions of credit whether or not
secured or unsecured, absolute or contingent, including, without limitation,
unmatured reimbursement obligations with respect to letters of credit or
guarantees issued for the account of or on behalf of the Borrower and its
Subsidiaries and all obligations representing the deferred purchase price of
property, other than accounts payable arising in the ordinary course of
business, (b) all obligations evidenced by bonds, notes, debentures or other
similar instruments; (c) all liabilities secured by any mortgage, pledge,
security interest, lien, charge, or other encumbrance existing on property owned
or acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (d) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others or
otherwise, including any obligations with respect to puts, swaps, and other
similar undertakings, any obligation to supply funds to or in any manner to
invest in, directly or indirectly, the debtor, to purchase indebtedness, or to
assure the owner of indebtedness against loss, through an agreement to purchase
goods, supplies, or services for the purpose of enabling the debtor to make
payment of the indebtedness held by such owner or otherwise, and the obligations
to reimburse the issuer in respect of any letters of credit; and (e) that
portion of all obligations arising under Capital Leases that is required to be
capitalized on the consolidated balance sheet of the Borrower and its
Subsidiaries.
Inventory. "Inventory" as defined in the UCC and all goods, wares,
merchandise, raw materials, work in process, finished goods, and all packaging,
advertising, and shipping materials and documents related to any of the
foregoing, and all labels and other 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 of sale or service, or used or consumed or to be used or consumed in
the Borrower's business.
Investment Property. Has the meaning given that term in the UCC.
Investments. All expenditures made and all liabilities and commitments
incurred (contingently or otherwise) for the purchase or acquisition of capital
stock, partnership interests, or equity interests or securities, or Indebtedness
of, or for loans, advances, capital contributions or transfers of property to,
or in respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person.
Lender. As defined in the preamble hereto.
Liabilities. All indebtedness, obligations and liabilities of the Borrower
and its Subsidiaries to the Lender, individually or collectively, under this
Agreement or any of the other
-8-
<PAGE>
Loan Documents or in respect of any of the Loans or the Notes or other
instruments at any time evidencing any thereof, whether existing on the date of
this Agreement or arising or incurred hereafter, direct or indirect, joint or
several, absolute or contingent, matured or unmatured, liquidated or
unliquidated, secured or unsecured, arising by contract, operation of law of
otherwise.
Loan Documents. This Agreement, the Notes, the Security Documents and
other instruments, documents and agreements executed in connection therewith, as
each may be modified, amended, supplemented or restated.
Loans. The Revolving Credit Loans and the Term Loan to be made by the
Lender hereunder.
Maturity Date. February 28, 2003 or such earlier date on which the Loans
shall become due and payable pursuant to the terms hereof.
Microfluidics. Shall mean Microfluidics Corporation, a Delaware
corporation which is a wholly-owned Subsidiary of the Borrower.
Multiemployer Plan. Any multiemployer plan within the meaning of ss.3(37)
of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate.
Note(s). The Revolving Credit Note and the Term Note.
Outstanding. With respect to the Loans, the aggregate unpaid principal
thereof as of any date of determination.
PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of ERISA
and any successor entity or entities having similar responsibilities.
Permitted Liens. Liens, security interests and other encumbrances
permitted by ss.7.2.
Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
Prime Rate. The annual rate of interest publicly announced from time to
time by the Lender in the United States as its "Prime Rate."
Real Estate. All real property at any time owned or leased (as lessee or
sublessee) by the Borrower or any of its Subsidiaries.
Revolving Credit Ceiling. $4,000,000.00.
-9-
<PAGE>
Revolving Credit Loans. Revolving credit loans made or to be made by the
Lender to the Borrower pursuant to ss.2.
Revolving Credit Note. See ss.2.3.
SEC. The Securities and Exchange Commission.
Security Documents. All security agreements, mortgages, pledge agreements
and other instruments, documents, and agreements from the Borrower and/or any
Subsidiary, granting a lien, security interest or other right in favor of the
Lender in any asset of the Borrower or its Subsidiaries to secure the
Liabilities, whether such agreements now exist or hereafter arise.
Subordinated Indebtedness. Indebtedness in favor Lake Shore Industries,
Inc., a Michigan corporation in the principal amount of $300,000.00 which is
expressly subordinated in right of payment, in form and on terms approved by the
Lender in writing, to the prior payment in full of the Loans.
Subsidiary. Any corporation, association, partnership, trust, or other
business entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes or controlling interests) of the outstanding Voting Interests.
Term Loan. The Term Loan made or to be made by the Lender to the Borrower
pursuant to ss.2.9.
Term Note. See Section 2.10, below.
UCC. The Uniform Commercial Code as enacted in The Commonwealth of
Massachusetts, as such may be supplemented or amended and in effect from time to
time.
Voting Interests. Stock or similar ownership interests, of any class or
classes (however designated), the holders of which are at the time entitled, as
such holders, (a) to vote for the election of a majority of the directors (or
persons performing similar functions) of the corporation, association,
partnership, trust or other business entity involved, or (b) to control, manage,
or conduct the business of the corporation, partnership, association, trust,
limited liability company, limited liability partnership or other business
entity involved.
ss.1.2. Rules of Interpretation.
(1) A reference to any document or agreement shall include
such document or agreement as amended, modified or
supplemented from time to time in accordance with its
terms and the terms of this Agreement.
(2) The singular includes the plural and the plural includes
the singular.
-10-
<PAGE>
(3) A reference to any law includes any amendment or
modification to such law.
(4) A reference to any Person includes its permitted
successors and permitted assigns.
(5) Accounting terms not otherwise defined herein have the
meanings assigned to them by Generally Accepted
Accounting Principles.
(6) The words "include", "includes" and "including" are not
limiting.
(7) All terms not specifically defined herein or by
Generally Accepted Accounting Principles, which terms
are defined in the UCC, have the meanings assigned to
them therein.
(8) Reference to a particular "ss." refers to that section
of this Agreement unless otherwise indicated.
(9) The words "herein", "hereof", "hereunder" and words of
like import shall refer to this Agreement as a whole and
not to any particular section or subdivision of this
Agreement.
2. THE LOANS.
Subpart A - The Revolving Credit Loans.
ss.2.1. Commitment to Make Revolving Credit Loans. Subject to the terms
and conditions set forth in this Agreement, the Lender agrees to lend to the
Borrower, and the Borrower may borrow, repay, and reborrow from time to time
between the Closing Date and the Maturity Date upon notice by the Borrower to
the Lender given in accordance with ss.2.5, such sums as are requested by the
Borrower (each a "Revolving Credit Loan"), provided, that the sum of the
Outstanding amount of the Revolving Credit Loans (after giving effect to all
amounts requested) shall not at any time exceed Availability. Each request for a
Revolving Credit Loan hereunder shall constitute a representation and warranty
by the Borrower that the conditions set forth in ss.9 and ss.10, in the case of
the initial Revolving Credit Loan, and ss.10, in the case of all other Revolving
Credit Loans, have been satisfied on the date of such request.
ss.2.2. Unused Line Fee. The Borrower agrees to pay to the Lender, an
unused line fee calculated at the rate of one-quarter of one percent (.25%) per
annum on the average daily amount by which the Revolving Credit Ceiling exceeds
the Outstanding amount of Revolving Credit Loans during each calendar quarter or
portion thereof from the date hereof to the Maturity Date. The Unused Line Fee
shall be payable quarterly in arrears on the first Business Day of each calendar
quarter for the immediately preceding calendar quarter commencing on the first
-11-
<PAGE>
such date following the date hereof, with a final payment on the Maturity Date
or any earlier date on which the Lender's commitment to make Revolving Credit
Loans shall terminate.
ss.2.3. The Revolving Credit Note. The Revolving Credit Loans shall be
evidenced by the promissory note of the Borrower in substantially the form of
Exhibit A hereto (the "Revolving Credit Note"), dated as of the Closing Date and
completed with appropriate insertions. The Revolving Credit Note shall be
payable to the order of the Lender in the principal amount of Four Million and
No/100 Dollars ($4,000,000.00).
ss.2.4. Interest on Revolving Credit Loans.
(1) The outstanding principal balance of the Revolving Credit Loans
shall bear interest at a rate equal to the aggregate of the Prime Rate
plus the Applicable Margin.
(2) The Borrower shall pay interest on each Revolving Credit Loan in
arrears on the first day of each month, commencing April 1, 2000.
ss.2.5. Requests for Revolving Credit Loans. The Borrower shall give to
the Lender telephonic notice (confirmed in writing in the form of Exhibit B
hereto) of each Revolving Credit Loan requested hereunder. Each such notice
shall be irrevocable and binding on the Borrower and shall obligate the Borrower
to accept the Revolving Credit Loan requested from the Lender on the proposed
Drawdown Date.
Notices for any Revolving Credit Loans shall be furnished to the Lender no
later than 1:30 p.m. (Boston time) on the Business Day on which such proposed
Drawdown Date has been requested. Each such notice shall specify (i) the
principal amount of the Revolving Credit Loan requested and (ii) the proposed
Drawdown Date of such Revolving Credit Loan. Subject to the terms and conditions
of this Agreement, the Lender will make such Revolving Credit Loan by the end of
that Business Day.
ss.2.6. Maturity. The Borrower promises to pay on the Maturity Date, and
there shall become absolutely due and payable on the Maturity Date, all of the
Revolving Credit Loans Outstanding on such date, together with any and all
accrued and unpaid interest thereon.
ss.2.7. Mandatory Repayments of Revolving Credit Loans. (a) If at any time
the aggregate Outstanding principal balance of the Revolving Credit Loans
exceeds Availability, then the Borrower shall immediately pay the amount of such
excess to the Lender for application to the Revolving Credit Loans.
(b) On each Business Day, the Borrower shall cause all proceeds of
the Collateral and from any other assets or source to be directed to a lockbox,
blocked account, or other recipient over which the Lender has control, with such
proceeds to be applied against the then Outstanding principal balance of the
Revolving Credit
-12-
<PAGE>
Loans; provided, however, for purposes of the calculation of interest on the
unpaid principal balance of the Revolving Credit Loans, such payment shall be
deemed to have been made two (2) Business Days after such transfer.
Subpart B - The Term Loan.
ss.2.8. Commitment to Make Term Loan. Subject to the terms and conditions
set forth in this Agreement, the Lender agrees to make, and the Borrower shall
borrow, on the Closing Date the sum of $475,000.00 (the "Term Loan").
ss.2.9. The Term Note. The Term Loan shall be evidenced by the promissory
note of the Borrower, substantially in the form of Exhibit C hereto (the "Term
Note"), dated as of the Closing Date and completed with appropriate insertions.
ss.2.10. Interest on Term Note.
The Outstanding principal balance of the Term Loan shall bear interest
from the period commencing with the Drawdown Date thereof at a rate equal to the
aggregate of the Prime Rate plus the Applicable Margin. The Borrower shall pay
interest on the Outstanding principal balance of the Term Loan in arrears on the
first day of each month, commencing April 1, 2000.
ss.2.11. Repayment of Term Loan. The Outstanding principal balance of the
Term Note shall be payable in thirty-five (35) consecutive monthly installments,
the first of which shall be due on the first (1st) day of April, 2000, and the
subsequent of which shall be due on the same day of each calendar month
thereafter. Each of the monthly installments, except the last, shall be in the
principal sum of $7,917.00. In all events and under all circumstances, unless
sooner paid or accelerated, the then unpaid principal balance of the Term Note
and all accrued and unpaid interest thereon, and all unpaid costs and expenses
shall be due and payable on the Maturity Date.
ss.2.12. Optional Prepayments of Term Loan.
The Borrower shall have the right, at its election, to repay the
Outstanding amount of the Term Loan, as a whole or in part, at any time without
penalty or premium. No prepayment hereunder shall postpone the date for, or
reduce the amount of, any subsequent payment under the Term Loan. Any portion of
the Term Loan which is prepaid may not be reborrowed.
3. CERTAIN GENERAL PROVISIONS.
ss.3.1. Commitment Fee. The Borrower agrees to pay to the Lender on the
Closing Date a Commitment Fee in the amount of $22,375.00. The Commitment Fee is
nonrefundable, and the Borrower shall not be entitled to any credit, rebate or
repayment of the Commitment Fee notwithstanding any termination or suspension of
the Lender's obligation to fund all or any portion of the Loans.
ss.3.2. Funds for Payments.
-13-
<PAGE>
(1) All payments of principal, interest, commitment fees, closing
fees and any other amounts due hereunder or under any of the other Loan
Documents shall be made to the Lender, at its head office at One Federal
Street, Boston, Massachusetts 02110, or at such other location that the
Lender may from time to time designate, in each case in immediately
available funds.
(2) All payments by the Borrower hereunder and under any of the
other Loan Documents shall be made without setoff or counterclaim and free
and clear of and without deduction for any taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any
jurisdiction or any political subdivision thereof or taxing or other
authority therein unless the Borrower is compelled by law to make such
deduction or withholding. If any such obligation is imposed upon the
Borrower with respect to any amount payable by it hereunder or under any
of the other Loan Documents, the Borrower will pay to the Lender, on the
date on which such amount is due and payable hereunder or under such other
Loan Document, such additional amount in Dollars as shall be necessary to
enable the Lender to receive the same net amount which the Lender would
have received on such due date had no such obligation been imposed upon
the Borrower. The Borrower will deliver promptly to the Lender
certificates or other valid vouchers for all taxes or other charges
deducted from or paid with respect to payments made by the Borrower
hereunder or under such other Loan Document.
ss.3.3. Computations. All computations of interest on the Loans and of
other fees payable by the Borrower to the extent applicable shall be based on a
360-day year and paid for the actual number of days elapsed. Any change in
interest rates hereunder resulting from a change in the Prime Rate shall become
effective as of the day on which such change in the Prime Rate becomes
effective. Whenever a payment hereunder or under any of the other Loan Documents
becomes due on a day that is not a Business Day, the due date for such payment
shall be extended to the next succeeding Business Day, and interest shall accrue
during such extension. The Outstanding amount of the Loans as reflected on the
Lender's records from time to time shall be considered correct and binding on
the Borrower and shall be prima facie evidence of the Outstanding amount owing
and unpaid to the Lender, unless within ten (10) Business Days after receipt by
the Lender from Borrower of any notice of such Outstanding amount, the Borrower
shall notify the Lender to the contrary.
ss.3.4. Additional Costs, Etc. If any present or future applicable law,
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to the Lender by any central bank or other fiscal, monetary or
other authority (whether or not having the force of law), shall:
(1) subject the Lender to any prospective tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this
Agreement, the other Loan
-14-
<PAGE>
Documents or the Loans (other than taxes based upon or measured by the
income or profits of the Lender); or
(2) prospectively materially change the basis of taxation (except
for changes in taxes on income or profits) of payments to the Lender of
the principal of or the interest on any Loans or any other amounts payable
to the Lender under this Agreement or the other Loan Documents; or
(3) prospectively impose or increase or render applicable (other
than to the extent specifically provided for elsewhere in this Agreement)
any special deposit, reserve, assessment, liquidity, capital adequacy or
other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans by,
or commitments of an office of the Lender; or
(4) prospectively impose on the Lender any other conditions or
requirements with respect to this Agreement, the other Loan Documents, the
Loans, or any class of loans or commitments of which any of the Loans
forms a part.
and the result of any of the foregoing is
(1) to increase the cost to the Lender of making, funding,
issuing, renewing, extending or maintaining any of the
Loans; or
(2) to reduce the amount of principal, interest or other
amount payable to such Lender hereunder on account of
the Loans; or
(3) to require such Lender to make any payment or to forego
any interest or other sum payable hereunder, the amount
of which payment or foregone interest or other sum is
calculated by reference to the gross amount of any sum
receivable or deemed received by the Lender from the
Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by the Lender
at any time and from time to time and as often as the occasion therefor may
arise, pay to the Lender such additional amounts as will be sufficient to
compensate the Lender for such prospective additional cost, reduction, payment
or foregone interest or other sum.
ss.3.5. Capital Adequacy. If any present or future law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) or the interpretation thereof by a court or governmental authority with
appropriate jurisdiction affects the amount of capital required or expected to
be maintained by the Lender or any corporation controlling the Lender and the
Lender determines that the amount of capital required to be maintained by it is
increased by or based upon the existence of the Loans made or deemed to be made
pursuant hereto, then the Lender may notify the Borrower of such fact, and the
Borrower shall pay to the Lender from time to time on demand, as an additional
fee payable hereunder, such amount as the Lender shall determine in good faith
and certify in a notice to the Borrower to be an amount that will
-15-
<PAGE>
adequately compensate the Lender in light of these circumstances for its
increased costs of maintaining such capital.
ss.3.6. Certificate. A certificate setting forth any additional amounts
payable pursuant to ss.ss.3.4 or 3.5 and a brief explanation of such amounts
which are due and the manner in which such amounts were calculated, submitted by
the Lender to the Borrower, shall be prima facie evidence that such amounts are
due and owing unless within ten (10) Business Days after receipt by the Borrower
of such certificate, the Borrower shall notify the Lender to the contrary.
ss.3.7. Interest After Default. Following the occurrence of an Event of
Default, principal and (to the extent permitted by applicable law) interest on
the Loans and all other amounts payable hereunder or under any of the other Loan
Documents, at the option of the Lender, shall bear interest payable on demand at
a rate per annum equal to the aggregate of the applicable interest rates for the
subject Loans plus three percent (3.0%) per annum.
4. COLLATERAL SECURITY. The Liabilities shall be secured by a perfected
first priority security interest to be held by the Lender (subject only to
Permitted Liens) in the Collateral.
5. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to
the Lender as follows.
ss.5.1. Corporate Authority; Etc.
(1) Incorporation; Good Standing. The Borrower and Microfluidics
each (i) is a corporation, validly existing and in good standing under the
laws of the State of Delaware, (ii) has all requisite power to own its
property and conduct its business as now conducted and as presently
contemplated, and (iii) is in good standing as a foreign corporation and
is duly authorized to do business in each jurisdiction where Collateral is
located and in each other jurisdiction where such qualification is
necessary.
(2) Authorization. The execution, delivery and performance of this
Agreement and the other Loan Documents to which the Borrower and
Microfluidics is to become a party and the transactions contemplated
hereby and thereby (i) are within the authority of such Person, (ii) have
been duly authorized by all necessary proceedings, (iii) do not and will
not conflict with or result in any breach or contravention of any
provision of law, statute, rule, regulation or agreement to which such
Person is subject or any judgment, order, writ, injunction, license or
permit applicable to such Person, and (iv) do not and will not conflict
with any provision of such Person's organization documents or other
charter documents or bylaws of, or any agreement or other instrument
binding upon, such Person.
(3) Enforceability. The execution and delivery of this Agreement and
the other Loan Documents to which the Borrower and Microfluidics is or is
to become a party will result in valid and legally binding obligations of
such Person enforceable
-16-
<PAGE>
against such Person in accordance with the respective terms and provisions
hereof and thereof, except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to the
extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which
any proceeding therefor may be brought.
ss.5.2. Governmental Approvals. The execution, delivery and performance by
the Borrower of this Agreement and the other Loan Documents to which the
Borrower and Microfluidics is or is to become a party and the transactions
contemplated hereby and thereby do not require the approval or consent of, or
filing with, any governmental agency or authority other than those already
obtained and the filing of related financing statements in the appropriate
records office with respect thereto.
ss.5.3. Title to Properties; Leases. The Borrower and its Subsidiaries own
all of the assets reflected in the Consolidated balance sheet of the Borrower as
at the Balance Sheet Date or acquired since that date (except property and
assets sold or otherwise disposed of in the ordinary course of business since
that date), and such assets are not subject to any mortgages, leases,
conditional sales agreements, title retention agreements, liens or other
encumbrances except Permitted Liens.
ss.5.4. Financial Statements. The following financial statements have been
furnished to the Lender:
(1) A Consolidated balance sheet of the Borrower and its
Subsidiaries as of the Balance Sheet Date, and a Consolidated statement of
income for the fiscal year then ended, accompanied by an auditor's report
prepared without qualification by the Borrower's independent certified
public accountant (except that the Lender acknowledges that the auditor's
opinion for fiscal year 1998 notes a "going concern" qualification. Such
balance sheet and statement of income have been prepared in accordance
with Generally Accepted Accounting Principles and fairly present the
financial condition of the Borrower as at the close of business on the
date thereof and the results of operations for the fiscal year then ended.
There are no contingent liabilities of the Borrower or any of its
Subsidiaries as of such date involving material amounts, known to the
officers of the Borrower or any of its Subsidiaries not disclosed in said
balance sheet and the related notes thereto.
(2) A Consolidated balance sheet, a Consolidated statement of income
and a Consolidated statement of cash flow of the Borrower and its
Subsidiaries for each of the fiscal quarters of the Borrower ended since
the Balance Sheet Date certified by Borrower's chief financial officer to
have been prepared in accordance with Generally Accepted Accounting
Principles consistent with those used in the preparation of the annual
audited statements delivered pursuant to paragraph (a) above and to fairly
present the financial condition of the Borrower and its Subsidiaries as at
the close of business on the dates thereof and the results of operations
for the fiscal quarters then ended (subject to
-17-
<PAGE>
year-end adjustments). There are no contingent liabilities of the Borrower
or any of its Subsidiaries as of such dates involving material amounts,
known to the officers of the Borrower or any of its Subsidiaries, not
disclosed in such balance sheets and the related notes thereto.
ss.5.5. No Material Changes, Etc. Since the Balance Sheet Date, there has
occurred no materially adverse change in the financial condition or business of
the Borrower or its Subsidiaries as shown on or reflected in the Consolidated
balance sheet of the Borrower as of the Balance Sheet Date, or the Consolidated
statement of income for the fiscal year then ended, other than changes in the
ordinary course of business that have not had any materially adverse effect
either individually or in the aggregate on the business or financial condition
of the Borrower or its Subsidiaries.
ss.5.6. Franchises, Patents, Copyrights, Etc. The Borrower and its
Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of its business substantially as now conducted without known
conflict with any rights of others.
ss.5.7. Litigation. Except as disclosed on Schedule 5.7, there are no
actions, suits, proceedings or investigations of any kind pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries before any court, tribunal or administrative agency or board that,
if adversely determined, might, either in any case or in the aggregate,
materially adversely affect the properties, assets, financial condition or
business of the Borrower or its Subsidiaries or materially impair the right of
the Borrower and its Subsidiaries to carry on business substantially as now
conducted by them, or result in any substantial liability not adequately covered
by insurance, or for which adequate reserves are not maintained on the balance
sheet of the Borrower, or which question the validity of this Agreement or any
of the other Loan Documents, or any action taken or to be taken pursuant hereto
or thereto.
ss.5.8. No Materially Adverse Contracts, Etc. Neither the Borrower nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrower or its Subsidiaries. Neither the
Borrower nor any of its Subsidiaries is a party to any contract or agreement
that has or is expected, in the judgment of the Borrower's officers, to have any
materially adverse effect on the business of the Borrower or its Subsidiaries.
ss.5.9. Compliance With Other Instruments, Laws, Etc. Neither the Borrower
nor any of its Subsidiaries is in violation of any provision of its charter or
other organization documents, by-laws, or any agreement or instrument to which
it may be subject or by which it or any of its properties may be bound or any
decree, order, judgment, statute, license, rule or regulation, in any of the
foregoing cases in a manner that could result in the imposition of substantial
penalties or materially and adversely affect the financial condition, properties
or business of the Borrower and its Subsidiaries.
-18-
<PAGE>
ss.5.10. Tax Status. The Borrower and its Subsidiaries (a) has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (b) has paid
or will pay before becoming delinquent all taxes and other governmental
assessments and charges shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and by appropriate
proceedings and (c) has set aside on its books provisions reasonably adequate
for the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Borrower know of no basis for any such claim.
ss.5.11. No Event of Default. No Default or Event of Default has occurred
and is continuing.
ss.5.12. Holding Company and Investment Company Acts. Neither the Borrower
nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of
a "holding company", or an "affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
ss.5.13. Absence of UCC Financing Statements, Etc. Except with respect to
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry, or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any Collateral or rights thereunder.
ss.5.14. Setoff, Etc. The Collateral and the rights of the Lender with
respect to the Collateral are not subject to any setoff, claims, withholdings or
other defenses. The Borrower is the owner of the Collateral free from any lien,
security interest, encumbrance and, to the knowledge of the Borrower, any other
claim or demand, except for Permitted Liens.
ss.5.15. Certain Transactions. Except as disclosed on Schedule 5.15, none
of the officers, trustees, directors, or employees of the Borrower or any of its
Subsidiaries is presently a party to any transaction with the Borrower or any of
its Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
trustee, director or such employee or any corporation, partnership, trust or
other entity in which any officer, trustee, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
ss.5.16. Employee Benefit Plans; Multiemployer Plans; Guaranteed Pension
Plans. Neither the Borrower nor any ERISA Affiliate maintains or contributes to
any Employee Benefit Plan, Multiemployer Plan or Guaranteed Pension Plan other
than as set forth in Schedule 5.16 hereof.
-19-
<PAGE>
ss.5.17. Regulations U and X. No portion of any Loan is to be used for the
purpose of purchasing or carrying any "margin security" or "margin stock" as
such terms are used in Regulations U and X of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Parts 221 and 224.
ss.5.18. Environmental Compliance. Except as disclosed on Schedule 5.18,
to the best of the Borrower's knowledge
(1) the operations of the Borrower and each of the Subsidiaries
comply with all applicable Environmental Laws;
(2) none of the operations of the Borrower or any of the
Subsidiaries is the subject of any judicial or administrative proceeding
alleging the violation of any Environmental Laws;
(3) none of the operations of the Borrower or any of the
Subsidiaries is the subject of any federal or state investigation
evaluating whether the Borrower or any of the Subsidiaries disposed of any
hazardous or toxic waste, substance or constituent at any site that may
require remedial action, or any federal or state investigation evaluating
whether any remedial action is needed to respond to a release of any
hazardous or toxic waste, substance or constituent into the environment;
(4) neither the Borrower nor any of the Subsidiaries has filed any
notice under any federal or state law indicating past or present
treatment, storage or disposal of a hazardous waste or reporting a spill
or release of a hazardous or toxic waste, substance or constituent into
the environment;
(5) neither the Borrower nor any of the Subsidiaries has any
material contingent liability of which the Borrower has knowledge or
reasonably should have knowledge in connection with any release of any
hazardous or toxic waste, substance or constituent into the environment,
nor has the Borrower or any of the Subsidiaries received any notice,
letter or other indication of potential liability arising from the
disposal of any hazardous or toxic waste, substance or constituent into
the environment.
ss.5.19. Subsidiaries. (a) Schedule 5.19 sets forth all of the
Subsidiaries of the Borrower. The Borrower or a Subsidiary is the owner, free
and clear of all liens and encumbrances, of all of the issued and outstanding
capital stock of each Subsidiary. All shares of such stock have been validly
issued and are fully paid and nonassessable and no rights to subscribe to any
additional shares have been granted, and no options, warrants, or similar rights
are outstanding.
ss.5.20. Lease Summaries. The Borrower has delivered to the Lender true,
accurate and complete copies of all leases of any Real Estate to which the
Borrower or any Subsidiary is a party (either as lessor or lessee).
-20-
<PAGE>
ss.5.21. Loan Documents. All of the representations and warranties of the
Borrower and any Subsidiary made in the other Loan Documents or any document or
instrument delivered to the Lender or the Lenders pursuant to or in connection
with any of such Loan Documents are true and correct in all material respects.
6. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and
agrees that, so long as any Liability is Outstanding or the Lender has any
obligation to make any Loan:
ss.6.1. Punctual Payment. The Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Loans and all interest, fees
and other Liabilities provided for in this Agreement, all in accordance with the
terms of this Agreement and the Notes, as well as all other sums owing pursuant
to the Loan Documents.
ss.6.2. Maintenance of Office. The Borrower will maintain its chief
executive office in Newton, Massachusetts, or at such other place in the United
States of America as the Borrower shall designate upon not less than forty five
(45) days prior written notice to the Lender.
ss.6.3. Records and Accounts. The Borrower will (a) keep, and cause each
of its Subsidiaries to keep, true and accurate records and books of account in
which full, true and correct entries will be made in accordance with Generally
Accepted Accounting Principles and (b) maintain adequate accounts and reserves
for all taxes (including income taxes), depreciation and amortization of its
properties and the properties of its Subsidiaries, contingencies, and other
reserves.
ss.6.4. Financial Statements, Certificates and Information. The Borrower
will deliver to the Lender:
(1) As soon as practicable, but in any event not later than ninety
(90) days after the end of each fiscal year of the Borrower, the
Borrower's Form 10K filed with the SEC and the audited Consolidated
balance sheet of the Borrower and its Subsidiaries at the end of such
year, and the related audited Consolidated statements of earnings and cash
flows for such year, each setting forth in comparative form the figures
for the previous fiscal year and all such statements to be in reasonable
detail, prepared in accordance with Generally Accepted Accounting
Principles, and accompanied by an auditor's report prepared without
qualification by the Borrower's independent certified public accountant,
Deloitte & Touche, LLP (or any successor thereto as determined by the
Borrower's stockholders, which successor must be reasonably acceptable to
the Lender), together with the notes accompanying the financial statements
and a written statement from such accountants to the effect that they have
read a copy of this Agreement, and that, in making the examination
necessary to said certification, they have obtained no knowledge of any
Default or Event of Default, or, if such accountants shall have obtained
knowledge of any then existing Default or Event of Default they shall
disclose in such statement any such Default or Event of Default.
-21-
<PAGE>
(2) As soon as practicable, but in any event not later than forty-five
(45) days after the end of each of the Borrower's fiscal quarters, copies of the
unaudited Consolidated balance sheet of the Borrower and its Subsidiaries as of
the end of such quarter, and the related unaudited Consolidated statements of
income and cash flow for such quarter and that portion of the Borrower's fiscal
year then elapsed, the Borrower's Form 10Q filed with the SEC, all in reasonable
detail and prepared in accordance with Generally Accepted Accounting Principles,
together with a certification by the principal financial or accounting officer
of the Borrower that the information contained in such financial statements
fairly presents the financial position of the Borrower and its Subsidiaries on
the date thereof (subject to year-end adjustments) and that no Default or Event
of Default then exists (or if a Default or Event of Default then exists,
specifying the nature thereof).
(3) (i) As soon as practicable, but in any event, not later than thirty
(30) days after the end of each month, copies of the unaudited Consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of such month,
and the related unaudited Consolidated statements of income and cash flow for
such month and that portion of the Borrower's fiscal year then elapsed; and
(ii) As soon as practicable, but in any event, not later than
twenty-one (21) days after the end of each month, copies of the Borrower's sales
journals, cash receipts journal, accounts receivable aging, inventory listing,
accounts payable aging, bank recapitulation report and reconciliation report,
all of the foregoing and all in reasonable detail and prepared in accordance
with Generally Accepted Accounting Principles, together with a certification by
the principal financial or accounting officer of the Borrower that the
information contained in such financial statements fairly presents the financial
position of the Borrower and its Subsidiaries on the date thereof (subject to
year-end adjustments).
(4) Simultaneously with the delivery of the financial statements referred
to in subsections (a) and (b), above, a statement in the form of Exhibit D
hereto signed by the Borrower's Chief Financial Officer and (i) setting forth in
reasonable detail computations evidencing compliance with the covenants
contained in ss.ss.8.1 through 8.6 and (if applicable) reconciliations to
reflect changes in Generally Accepted Accounting Principles since the Balance
Sheet Date, and (ii) confirming the existence/non-existence of any Event of
Default.
(5) On each Business Day, a Borrowing Base Report (as of the then
immediately prior Business Day) in such form as from time to time may be
satisfactory to the Lender, which shall include, among other things, the
previous day's invoiced sales and cash receipts together with corresponding
borrowings and payments under the Revolving Credit Loans.
-22-
<PAGE>
(6) Contemporaneously with the filing or mailing thereof, copies of all
material of a financial nature filed with the SEC or sent to the stockholders of
the Borrower.
(7) Contemporaneously with the Borrower's receipt thereof, copies of all
accountants' management letters.
(8) As soon as practicable, but in any event not later than thirty (30)
days prior to the end of each fiscal year, a budget consisting of monthly
projections of the financial condition and results of operations of the Borrower
and its Subsidiaries for the following fiscal year, including, but not limited
to, a projected balance sheet, statement of operations, statement of cash flows
and statement of changes in stockholders' equity for such fiscal year.
(9) From time to time such other financial data and information as the
Lender may reasonably request.
ss.6.5. Notices.
(1) Defaults. The Borrower will promptly notify, and will cause each of
its Subsidiaries to promptly notify, the Lender in writing of the occurrence of
any Default or Event of Default. If any Person shall give any notice or take any
other action in respect of a claimed default (whether or not constituting an
Event of Default) under this Agreement or under any note, evidence of
indebtedness, indenture or other obligation to which or with respect to which
the Borrower or any of its Subsidiaries is a party or obligor, whether as
principal or surety, and such default would permit the holder of such note or
obligation or other evidence of indebtedness to accelerate the maturity thereof,
which acceleration would have a material adverse effect on the Borrower, the
Borrower shall forthwith give written notice thereof to the Lender, describing
the notice or action and the nature of the claimed default.
(2) Environmental Events. The Borrower will promptly give notice, and will
cause each of its Subsidiaries to promptly give notice, to the Lender (i) of any
violation of any Environmental Law that the Borrower or any of its Subsidiaries
reports in writing or is reportable by such Person in writing to any federal,
state or local environmental agency and (ii) upon becoming aware thereof, of any
inquiry, proceeding, investigation, or other action, including a notice from any
agency of potential environmental liability, or any federal, state or local
environmental agency or board, that in either case involves any Real Estate or
has the potential to materially affect the assets, liabilities, financial
condition or operations of the Borrower, any Subsidiary or the Lender's security
interests pursuant to the Security Documents.
(3) Notification of Claims against Collateral. The Borrower will, and will
cause each of its Subsidiaries, immediately upon becoming aware thereof, to
notify the Lender in writing of any setoff, claims (including, with respect to
any Real Estate,
-23-
<PAGE>
environmental claims), withholdings or other defenses to which any of the
Collateral, or the rights of the Lender with respect to the Collateral, are
subject.
(4) Notice of Litigation and Judgments. The Borrower will, and will cause
each of its Subsidiaries to, give notice to the Lender in writing of any
litigation or proceedings threatened or any pending litigation and proceedings
affecting the Borrower or any of its Subsidiaries or to which the Borrower or
any of its Subsidiaries is or is to become a party involving an uninsured claim
against the Borrower or any of its Subsidiaries or that could reasonably be
expected to have a materially adverse effect on the Borrower and stating the
nature and status of such litigation or proceedings. The Borrower will, and will
cause each of its Subsidiaries to, give notice to the Lender, in writing, in
form and detail satisfactory to the Lender, of any judgment not covered by
insurance, final or otherwise, against the Borrower or any of its Subsidiaries.
ss.6.6. Existence; Maintenance of Properties.
(1) The Borrower will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, and the existence of
Microfluidics as Delaware corporations. Except with respect to MediControl
Corp., which the Borrower intends to dissolve, the Borrower will do or cause to
be done all things necessary to preserve and keep in full force all of its
rights and franchises and those of its Subsidiaries. The Borrower (i) will cause
all of its properties and those of its Subsidiaries (except with respect to
MediControl Corp.) used or useful in the conduct of its business or the business
of its Subsidiaries to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment, (ii) will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Borrower may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times, and (iii) will, and will cause each of its Subsidiaries
(except with respect to MediControl Corp.) to, continue to engage primarily in
the businesses now conducted by it and in related businesses.
(2) The Borrower shall:
(1) keep the Collateral in good order and repair (ordinary
reasonable wear and tear and insured casualty excepted).
(2) not suffer or cause the waste or destruction of any material
part of the Collateral.
(3) not use any of the Collateral in violation of any policy of
insurance thereon.
(4) not sell, lease, or otherwise dispose of any of the
Collateral, other than the following:
-24-
<PAGE>
(1) unless disposition is made in the ordinary course of
Borrower's business and the proceeds are delivered to
the Lender for repayment of the Liabilities and/or if
such Collateral is replaced by the Borrower with newer
assets
(2) the disposal of Equipment which is obsolete, worn out,
or damaged beyond repair, which Equipment is replaced to
the extent necessary to preserve or improve the
operating efficiency of the Borrower.
(3) the turning over to the Lender of all proceeds of the
Collateral as provided for herein and in the other Loan
Documents.
ss.6.7. Insurance. Schedule 6.7 sets forth all presently existing
insurance maintained by the Borrower and any Subsidiary. The Borrower, and to
the extent applicable, any Subsidiary, will maintain insurance on all Collateral
as required by the Loan Documents, including, without limitation, naming the
Lender as loss payee on all such policies, and will maintain with respect to its
other properties, and will cause each of its Subsidiaries to maintain with
financially sound and reputable insurers, insurance with respect to such
properties and its business against such casualties and contingencies as shall
be in accordance with the general practices of businesses engaged in similar
activities in similar geographic areas and in amounts, containing such terms, in
such forms and for such periods as may be reasonable and prudent. The Lender
shall not require a collateral assignment of any life insurance policies on any
Person.
ss.6.8. Taxes. The Borrower and any Subsidiary will duly pay and
discharge, or cause to be paid and discharged, before the same shall become
overdue, all taxes, assessments and other governmental charges imposed upon it
and its real properties, sales and activities, or any part thereof, or upon the
income or profits therefrom, as well as all claims for labor, materials, or
supplies.
ss.6.9. Inspection of Properties and Books. (a) Upon one (1) day's notice
to the Borrower, the Borrower and any Subsidiary shall permit the Lender or any
of the Lender's other designated representatives to visit during regular
business hours and inspect any of the properties of the Borrower or any of its
Subsidiaries to examine the books of account of the Borrower and its
Subsidiaries (and to make copies thereof and extracts therefrom) and to discuss
the affairs, finances and accounts of the Borrower and its Subsidiaries with,
and to be advised as to the same by, its officers, all at such reasonable times
and intervals as the Lender may reasonably request.
(b) Without limiting the rights of the Lender under ss.6.9(a),
above, prior to the occurrence of an Event of Default, the Borrower shall permit
the Lender, at the Borrower's expense, (i) to undertake one (1) commercial
finance examination every ninety (90) days (for which the charge to be paid by
the Borrower shall be $550.00 per day, but shall not exceed $15,000.00 in any
calendar year, plus expenses); (ii) to obtain appraisals of any of the
Borrower's
-25-
<PAGE>
or any Subsidary's assets in form and substance and by appraisers
satisfactory to the Lender. Upon the occurrence of an Event of Default, the
Lender may conduct such field examinations of the Borrower and any Subsidiary at
such times as the Lender in its discretion deems appropriate and at the
Borrower's sole cost and expense.
ss.6.10. Compliance with Laws, Contracts, Licenses, and Permits. The
Borrower will comply with, and will cause each of its Subsidiaries to comply
with (a) all applicable laws and regulations now or hereafter in effect wherever
its business is conducted, including all Environmental Laws, (b) the provisions
of their corporate charters and other charter documents and by-laws, (c) all
agreements and instruments to which such Person is a party or by which such
Person or any of such Person's properties may be bound and (d) all applicable
decrees, orders, and judgments except for violations which, in the aggregate, do
not have a material adverse effect on the business, operations, properties,
assets, or financial condition of the Borrower and its Subsidiaries. If at any
time while any Liability is Outstanding or the Lender has any obligation to make
Loans hereunder, any authorization, consent, approval, permit or license from
any officer, agency or instrumentality of any government shall become necessary
or required in order that the Borrower may fulfill any of its obligations
hereunder, the Borrower will promptly take or cause to be taken all reasonable
steps within the power of the Borrower to obtain such authorization, consent,
approval, permit or license and furnish the Lender with evidence thereof.
ss.6.11. Use of Proceeds. The Borrower will use the proceeds of the Loans
solely to refinance existing Indebtedness to Comerica and for working capital
purposes.
ss.6.12. Bank Accounts. To permit the Lender to monitor the financial
performance of the Borrower and each of the Borrower's Subsidiaries, the
Borrower shall, and shall cause each of its Subsidiaries to, maintain all of its
deposit accounts with the Lender.
ss.6.13. Cash Management.
(1) The Borrower shall establish and maintain a lockbox arrangement
with the Lender (the "Lockbox") on terms and conditions satisfactory to
the Lender.
(2) Attached hereto as Exhibit 6.13 is a schedule of all present
checking or other demand daily deposit accounts maintained by the Borrower
or any Subsidiary other than the deposit account to be established with
the Lender pursuant to ss.6.12 above. The Borrower shall provide the
Lender with a blocked account agreement or controlled disbursement account
agreement with such depository institutions at which such accounts are
maintained, each of which agreements shall be satisfactory to the Lender
(the "Blocked Accounts").
(3) On each Business Day, the Borrower shall cause all proceeds of
the Collateral (including, without limitation, the proceeds in the Blocked
Accounts) and from any other assets or source to be directed to the
Lockbox to be applied against the then Outstanding principal balance of
the Revolving Credit Loans in accordance with ss.2.7(b) above.
-26-
<PAGE>
ss.6.14. Further Assurances. The Borrower will cooperate with, and will
cause each of its Subsidiaries to cooperate with the Lender and execute such
further instruments and documents as the Lender shall reasonably request to
carry out to their satisfaction the transactions contemplated by this Agreement
and the other Loan Documents.
7. CERTAIN NEGATIVE COVENANTS OF THE BORROWER AND ITS SUBSIDIARIES. The
Borrower covenants and agrees that, so long as any Liability is Outstanding or
the Lender has any obligation to make any Loans:
ss.7.1. Restrictions on Indebtedness. The Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(1) Indebtedness to the Lender arising under any of the Loan
Documents;
(2) current liabilities of the Borrower or its Subsidiaries incurred
in the ordinary course of business but not incurred through (i) the
borrowing of money, or (ii) the obtaining of credit except for credit on
an open account basis customarily extended and in fact extended in
connection with normal purchases of goods and services;
(3) Indebtedness in respect of taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies to the
extent that payment therefor shall not at the time be required to be made
in accordance with the provisions of ss.6.8;
(4) Indebtedness in respect of judgments or awards that have been in
force for less than the applicable period for taking an appeal so long as
execution is not levied thereunder or in respect of which the Borrower
shall at the time in good faith be prosecuting an appeal or proceedings
for review and in respect of which a stay of execution shall have been
obtained pending such appeal or review;
(5) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the ordinary
course of business; and
(6) Indebtedness existing on the date of this Agreement and listed
and described on Schedule 7.1 hereto; and
(7) Indebtedness or commitments to incur any Indebtedness not in
excess of $200,000.00 in any fiscal year for Capital Expenditures in
accordance with the provisions of ss.8.5 below; and
(8) Subordinated Indebtedness; and
-27-
<PAGE>
(9) Indebtedness to finance the acquisition of Equipment leases and
conditional sales contracts, provided that such Indebtedness shall not
exceed $50,000.00 in the aggregate outstanding at any time.
ss.7.2. Restrictions on Liens, Etc. The Borrower will not, and will not
permit any of its Subsidiaries to, (a) create or incur or suffer to be created
or incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (b) transfer any of its property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (c) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; (d) suffer to exist
for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against it that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise
transfer any accounts, contract rights, general intangibles, chattel paper or
instruments, with or without recourse; provided that the Borrower and any
Subsidiary of the Borrower may create or incur or suffer to be created or
incurred or to exist:
(1) liens on properties to secure taxes, assessments
and other government charges or claims for labor,
material or supplies in respect of obligations not
overdue;
(2) deposits or pledges made in connection with, or to
secure payment of, workmen's compensation,
unemployment insurance, old age pensions or other
social security obligations;
(3) liens on properties in respect of judgments or
awards, the Indebtedness with respect to which is
permitted by ss.7.1(d);
(4) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens on properties in
existence less than 40 days from the date of
creation thereof in respect of obligations not
overdue;
(5) encumbrances on properties consisting of
easements, rights of way, zoning restrictions,
restrictions on the use of real property and
defects and irregularities in the title thereto,
landlord's or lessor's liens under leases to which
the Borrower or a Subsidiary of the Borrower is a
party, and other minor liens or encumbrances none
of which interferes materially with the use of the
property affected in the ordinary conduct of the
business of the Borrower and its
-28-
<PAGE>
Subsidiaries, which defects do not individually or
in the aggregate have a materially adverse effect
on the business of the Borrower individually or of
the Borrower and its Subsidiaries on a
Consolidated basis.
(6) presently outstanding liens listed on Schedule 7.2
hereto;
(7) liens in favor of the Lender under the Loan
Documents;
(8) purchase money liens to secure Indebtedness
permitted by ss.7.1(g); provided that such liens
shall not extend to any Collateral other than the
property which is the subject of the Capital
Expenditure; and
(9) liens to secure the Indebtedness permitted by
ss.7.1(i); provided that such liens shall not
extend to any Collateral other than the property
which is being financed by such Indebtedness.
ss.7.3. Restrictions on Investments. The Borrower will not, and will not
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investments.
ss.7.4. Merger, Consolidation. Except as permitted by the Lender in
writing, the Borrower will not, and will not permit any of its Subsidiaries to,
become a party to any merger or consolidation, or agree to or effect any asset
acquisition or disposition or stock acquisition or disposition (other than the
acquisition or disposition of assets in the ordinary course of business
consistent with past practices) except (i) the merger or consolidation of one or
more of the Subsidiaries of the Borrower with and into the Borrower, or (ii) the
merger or consolidation of two or more Subsidiaries of the Borrower.
ss.7.5. Sale and Leaseback. The Borrower will not, and will not permit any
of its Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer
any property owned by it in order then or thereafter to lease such property or
lease other property that the Borrower or any Subsidiary of the Borrower intends
to use for substantially the same purpose as the property being sold or
transferred.
ss.7.6. Compliance with Environmental Laws. The Borrower will not, and
will not permit any of its Subsidiaries to, do any of the following: (a) use any
of the Real Estate or any portion thereof as a facility for the handling,
processing, storage or disposal of Hazardous Substances, (b) cause or permit to
be located on any of the Real Estate any underground tank or other underground
storage receptacle for Hazardous Substances except in full compliance with
Environmental Laws, (c) generate or dispose of any Hazardous Substances on any
of the Real Estate except in full compliance with Environmental Laws, or (d)
conduct any activity at any Real Estate or use any Real Estate in any manner so
as to cause a release.
-29-
<PAGE>
ss.7.7. Distributions. Corporation Action. The Borrower will not
(1) make any Distributions, except as permitted by the Lender in
writing;
(2) own, redeem, retire, purchase, or acquire any of the Borrower's
capital stock.
ss.7.8. Subsidiaries.
(1) The Borrower shall not acquire, form, or otherwise invest in any
Subsidiary, without the prior written consent of the Lenders, which shall
not be unreasonably withheld. Without limiting the foregoing, the Borrower
acknowledges that the Lender's consent may be conditioned upon, among
other things, the Lender's receipt of a guaranty by such Subsidiary of the
Borrower's Liabilities, and a security interest in the Subsidiary's
capital stock and assets in order to secure the Liabilities.
(2) Neither Microfluidics Corporation nor MediControl Corp. shall
(i) have any significant assets, nor shall the Borrower transfer any
assets to either of Microfluidics Corporation or MediControl Corp., and
(ii) engage in any business operations or activities, except that with
respect to MediControl Corp., MediControl Corp. may only engage in
activities related to its dissolution or winding-up. Notwithstanding the
provisions of subclause (i) above, to the extent that, as of the Closing
Date, Microfluidics Corporation shall possess any assets, the Borrower
shall cause all such assets to be transferred to the Borrower as soon as
practicable after the Closing Date.
ss.7.9. Fiscal Year. The fiscal year of the Borrower and its Subsidiaries
presently ends on December 31 of each year. The Borrower and its Subsidiaries
shall not change their fiscal year end without furnishing prior written notice
thereof to, and first obtaining the consent of, the Lenders, which consent shall
not be unreasonably withheld or delayed.
ss.7.10. Loans and Advances. The Borrower will not and will not permit any
of its Subsidiaries to, make any loans or advances to any Person. Without
limiting the generality of the foregoing, the Borrower will not make any loans
or advances to any Subsidiary, including, without limitation, Microfluidics
Corporation or MediControl Corp.
ss.7.11. Terms of Subordinated Indebtedness. Neither the Borrower nor its
Subsidiaries shall:
(1) effect or permit any changes in or amendment to (i) the terms by
which any Subordinated Indebtedness purports to be subordinated to the
payment and performance of the Liabilities or (ii) the terms relating to
the repayment of any Subordinated Indebtedness; or
(2) directly or indirectly make any payment of any principal of or
in redemption, retirement, or repurchase of any Subordinated Indebtedness,
except as
-30-
<PAGE>
permitted pursuant to the Subordination Agreement by and among the Lender,
the Borrower and Lake Shore Industries, Inc.
8. FINANCIAL COVENANTS OF THE BORROWER. The Borrower covenants and agrees
that, so long as any Liability is Outstanding or the Lender has any obligation
to make any Loans:
ss.8.1. Consolidated Tangible Net Worth. The Borrower shall maintain a
Consolidated Tangible Net Worth equal to or greater than the following as of the
dates indicated below:
----------------------------------------------------------------------------
Fiscal 2000 Fiscal 2001 Fiscal 2002
----------------------------------------------------------------------------
Quarter End $ Amount Quarter End $ Amount Quarter End $ Amount
----------------------------------------------------------------------------
3/31/00 2,750,000 3/31/01 3,300,000 3/31/02 3,850,000
----------------------------------------------------------------------------
6/30/00 2,850,000 6/30/01 3,400,000 6/30/02 3,950,000
----------------------------------------------------------------------------
9/30/00 2,950,000 9/30/01 3,500,000 9/30/02 4,050,000
----------------------------------------------------------------------------
12/31/00 3,200,000 12/31/01 3,750,000 12/31/02 4,300,000
----------------------------------------------------------------------------
ss.8.2. Liabilities to Worth (Leverage) Ratio. The Borrower shall not
permit the ratio of (a)(i) Consolidated Total Liabilities less (ii) Subordinated
Indebtedness, to (b) Consolidated Tangible Net Worth to be greater than the
following as of the dates indicated below:
--------------------------------------------------------------------------
Fiscal 2000 Fiscal 2001 Fiscal 2002
--------------------------------------------------------------------------
Quarter End Ratio Quarter Ratio Quarter End Ratio
End
--------------------------------------------------------------------------
3/31/00 2.0 : 1.0 3/31/01 1.75 : 1.0 3/31/02 1.50 : 1.0
--------------------------------------------------------------------------
6/30/00 2.0 : 1.0 6/30/01 1.75 : 1.0 6/30/02 1.50 : 1.0
--------------------------------------------------------------------------
9/30/00 2.0 : 1.0 9/30/01 1.75 : 1.0 9/30/02 1.50 : 1.0
--------------------------------------------------------------------------
12/31/00 1.75 : 1.0 12/31/01 1.50 : 1.0 12/31/02 1.50 : 1.0
--------------------------------------------------------------------------
ss.8.3. Consolidated Net Income. The Borrower shall achieve Consolidated
Net Income (or Deficit) measured annually, as follows:
--------------------------------------------------------------------------
December 31, 2000 December 31, 2001 December 31, 2002
--------------------------------------------------------------------------
$150,000 $150,000 $150,000
--------------------------------------------------------------------------
ss.8.4. Minimum Debt Service. The Borrower shall not permit the ratio of
Consolidated EBITDA to Debt Service Charges, measured quarterly on a rolling
four (4) quarter basis, to be less than the following on the following dates:
-31-
<PAGE>
--------------------------------------------------------------------------
Fiscal 2000 Fiscal 2001 Fiscal 2002
--------------------------------------------------------------------------
Quarter End Ratio Quarter Ratio Quarter Ratio
End End
--------------------------------------------------------------------------
3/31/00 1.5 : 1.0 3/31/01 1.75 : 1.0 3/31/02 2.0 : 1.0
--------------------------------------------------------------------------
6/30/00 1.5 : 1.0 6/30/01 1.75 : 1.0 6/30/02 2.0 : 1.0
--------------------------------------------------------------------------
9/30/00 1.5 : 1.0 9/30/01 2.0 : 1.0 9/30/02 2.0 : 1.0
--------------------------------------------------------------------------
12/31/00 1.75 : 1.0 12/31/01 2.0 : 1.0 12/31/02 2.0 : 1.0
--------------------------------------------------------------------------
ss.8.5. Maximum Capital Expenditures. The Borrower shall not make or incur
Capital Expenditures in any fiscal year in excess of $200,000.00 in the
aggregate.
ss.8.6. Minimum Availability Covenant. The Borrower shall at all times,
commencing on the first (1st) after the Closing Date, maintain excess
Availability of at least $100,000.00 until such time that the annual financial
statements which Borrower is required to provide to Lender in accordance with
the provisions of ss.6.4(a) hereof, reflect that the Borrower has achieved a net
profit for the previous fiscal year, commencing with the financial statements
required to be delivered as of the end of the Borrower's fiscal year 2000.
9. CLOSING CONDITIONS. The obligations of the Lender to make the Revolving
Credit Loan and the Term Loan shall be subject to satisfaction of the following
conditions precedent:
ss.9.1. No Material Adverse Change. There shall have occurred no material
adverse change in the assets, business, operations, properties, financial
condition or prospects of the Borrower or any of its Subsidiaries, including,
without limitation, no material changes to the Borrower's projected 1999 fiscal
year end results. The Lender and the Borrower acknowledge that the auditor's
opinion for fiscal year 1998 notes a "going concern" qualification which will
note constitute a material adverse change for the purposes of this section.
ss.9.2. Financial Statements. The Lender shall have received the
Borrower's most recent interim reviewed and unaudtited financial statements
which shall be acceptable to the Lender. The Lender shall have received
satisfactory evidence that as of the Closing Date, the Borrower and its
Subsidiaries are in compliance with the provisions of ss.ss.8.1 through 8.6 on a
pro forma basis.
ss.9.3. Landlord Waivers. Unless waived by the Lender, the Lender shall
have received waivers (each in form reasonably satisfactory to the Lender) by
each of the Borrower's landlords and warehouses.
-32-
<PAGE>
ss.9.4. Corporate Structure. The Lender shall be satisfied in all respects
with the legal structure and capitalization of the Borrower and its Subsidiaries
and all documentation relating thereto.
ss.9.5. No Default or Event of Default. No Default or Event of Default
shall then exist.
ss.9.6. Litigation. There shall be no material, pending or threatened
litigation or proceeding involving the Borrower or any of its Subsidiaries
which, in the judgment of the Lender, could have a material adverse effect on
the Borrower or any of its Subsidiaries or the ability of the Borrower or its
Subsidiaries to perform their obligations under the Loan Documents, and no
judgment, order, injunction or other similar injunction or other similar
restraint prohibiting any of the transactions contemplated hereby shall exist.
ss.9.7. Evidence of Insurance. The Lender shall have received evidence, in
form, scope and substance and with such insurance carriers, satisfactory to the
Lender, for all insurance policies required under any of the Loan Documents,
naming the Lender as loss payee or mortgagee, as applicable.
ss.9.8. Compliance with Law. The Lender shall be satisfied that (i) the
Borrower and each of its Subsidiaries has obtained all material and appropriate
authorizations and approvals of all governmental authorities required for the
due execution, delivery and performance by such Person of each of the Loan
Documents to which it is or will be a party and for the perfection of or the
exercise by the Lender of its respective rights and remedies under the Loan
Documents and (ii) the Loans as well as all other transactions contemplated
hereby, shall be in material compliance with, and shall have obtained all
material and appropriate approvals pertaining to, all applicable laws, rules,
regulations and orders, including, without limitation, all governmental,
environmental, corporate laws, ERISA laws, securities laws, retiree health
benefits, workers' compensation and other requirements, regulations and laws and
shall not contravene any charter, by-law, debt instrument or other material
agreement of Borrower and its Subsidiaries.
ss.9.9. Certified Copies of Organization Documents. The Lender shall have
received from the Borrower and each of its Subsidiaries, a copy, certified as of
a recent date by the appropriate officer of the State in which such Person is
organized to be true and complete, of the corporate charter and any other
organization documents of such Person as in effect on such date of
certification. The Borrower and each of its Subsidiaries shall furnish evidence
satisfactory to the Lender that they are each duly qualified and in good
standing in each jurisdiction in which it owns or leases property or in which
the conduct of its business requires it to so qualify.
ss.9.10. By-laws; Resolutions. All action on the part of the Borrower
necessary for the valid execution, delivery and performance by the Borrower of
this Agreement and the other Loan Documents to which it is or is to become a
party, and all action on the part of Microfluidics necessary for the valid
execution, delivery and performance by it of the other Loan Documents to which
it is a party, shall have been duly and effectively taken, and evidence thereof
satisfactory to the Lender shall have been provided to the Lender. The Lender
shall have received from the Borrower and Microfluidics a true copy of such
Person's by-laws and the resolutions adopted by
-33-
<PAGE>
such Person's board of directors authorizing the transactions described herein,
certified by its secretary as of a recent date to be true and complete.
ss.9.11. Incumbency Certificate; Authorized Signers. The Lender shall have
received from the Borrower and Microfluidics, an incumbency certificate, dated
as of the Closing Date, signed by a duly authorized officer of such Person and
giving the name and bearing a specimen signature of each individual who shall be
authorized: (a) to sign, in the name and on behalf of such Person, each of the
Loan Documents to which such Person is or is to become a party; (b) to make
requests for Loans; and (c) to give notices and to take other action on behalf
of the Person under the Loan Documents.
ss.9.12. Environmental Review. The Lender shall have received a
certificate from the Borrower that, to the best of its knowledge, Borrower and
its direct and indirect subsidiaries (a) are in compliance in all material
respects with all applicable environmental, health and safety statutes and
regulations, (b) are not subject to any federal or state investigation
evaluating whether any remedial action is needed to respond to a release of any
toxic or hazardous waste or substance into the environment, and (c) have no
material contingent liability in connection with any past or present treatment,
storage, recycling, disposal or release or threatened release, at any location,
of any toxic or hazardous waste or proposed environmental, health safety laws or
regulations.
ss.9.13. Employment; Product Liability. The Lender shall be satisfied with
the Borrower's and its Subsidiaries' product liability, labor and union matters.
ss.9.14. Validity of Liens. The Security Documents shall be effective to
create in favor of the Lender a legal, valid and enforceable first (except for
Permitted Liens entitled to priority under applicable law) security interest in
the Collateral. All filings, recordings, deliveries of instruments and other
actions necessary or desirable in the opinion of the Lender to protect and
preserve such security interests shall have been duly effected. The Lender shall
have received evidence thereof in form and substance satisfactory to the Lender.
ss.9.15. Officer's Certificates.
(1) The Lender shall have received a solvency certificate from the
Borrower's Chief Financial Officer in form satisfactory to the Lender.
(2) The Lender shall have received a certificate from the Borrower's
Chief Financial Officer and stating that the representations and
warranties made by the Borrower to the Lender in the Loan Documents are
true and complete as of the date of such Certificate, and that no event
has occurred, or failed to occur, which occurrence or which failure
constitutes, or which, solely with the passage of time or the giving of
notice (or both) would constitute, an Event of Default.
-34-
<PAGE>
ss.9.16. Opinion of Counsel Concerning Organization and Loan Documents.
The Lender shall have received a favorable opinion addressed to the Lender and
dated as of the Closing Date, in form and substance satisfactory to the Lender
from Attorneys Gadsby & Hannah, LLP.
ss.9.17. Equity Infusion. The Lender shall have received evidence
satisfactory to the Lender that the Borrower has received at least $250,000.00
of equity capital on terms and conditions satisfactory to the Lender.
ss.9.18. Subordinated Debt. The Lender shall have received evidence
satisfactory to the Lender that (i) the Borrower has converted $500,000.00 of
existing subordinated Indebtedness in favor of Lake Shore Industries, Inc. into
equity of the Borrower, and (ii) the Lender, the Borrower and Lake Shore
Industries, Inc. shall have entered into a subordination agreement with respect
to the remaining Subordinated Debt in the amount of $300,000.00, which shall be
in form and substance satisfactory to the Lender.
ss.9.19. Loan Documents. Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto and, shall be in full
force and effect and shall be in form and substance satisfactory to the Lender.
ss.9.20. Borrowing Base Report. The Lender shall have received a Borrowing
Base Report as of the Business Day immediately preceding the Closing Date and
otherwise in compliance with the provisions of ss.6.4(e).
ss.9.21. Payment of Fees. The Borrower shall have paid to the Lender the
Commitment Fee pursuant to ss.3.1 as well as all costs and expenses incurred by
the Lender in connection with the establishment of the credit facilities
contemplated hereby (including the fees and expenses of counsel to the Lender).
ss.9.22. Minimum Day One Availability. After giving effect to the first
loan under the Revolving Credit, the Borrower shall have excess Availability of
at least $300,000.00.
ss.9.23. Cash Management. The Lender and the Borrower shall have
established a lockbox arrangement and other cash management procedures,
including establishment of blocked account agreements or controlled disbursement
accounts, all on terms and conditions satisfactory to the Lender.
ss.9.24. Additional Documents. The Borrower shall have provided such
additional instruments and documents to the Lender and the Lender's counsel may
have requested, including, without limitation, the Guaranty and Security
Agreement by Microfluidics and a pledge by the Borrower of its stock in
Microfluidics.
10. CONDITIONS TO ALL BORROWINGS. The obligations of the Lender to make
any Loan, whether on or after the Closing Date, shall also be subject to the
satisfaction of the following conditions precedent:"
-35-
<PAGE>
ss.10.1. Representations True; No Event of Default. Each of the
representations and warranties of the Borrower and its Subsidiaries, to the
extent applicable, contained in this Agreement, the other Loan Documents or in
any document or instrument delivered pursuant to or in connection with this
Agreement shall be true as of the date as of which they were made and shall also
be true at and as of the time of the making of such Loan, with the same effect
as if made at and as of that time (except to the extent of changes resulting
from transactions contemplated and permitted by this Agreement and the other
Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse, and except to the extent
that such representations and warranties relate expressly to an earlier date)
and no Default or Event of Default shall have occurred and be continuing. The
Lender shall have received a certificate of the Borrower signed by an authorized
officer of the Borrower to such effect.
ss.10.2. No Legal Impediment. No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of the Lender would make it illegal for the Lender to make such Loan.
ss.10.3. Governmental Regulation. The Lender shall have received such
statements in substance and form reasonably satisfactory to the Lender as the
Lender shall require for the purpose of compliance with any applicable
regulations of the Comptroller of the Currency or the Board of Governors of the
Federal Reserve System.
ss.10.4. Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Agreement, the other Loan Documents and all
other documents incident thereto shall be satisfactory in substance and in form
to the Lender's counsel, and the Lender and such counsel shall have received all
information and such counterpart originals or certified or other copies of such
documents as the Lender may reasonably request.
11. EVENTS OF DEFAULT; ACCELERATION; ETC.
ss.11.1. Events of Default and Acceleration. If any of the following
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:
(1) the Borrower shall fail to pay any principal of or interest on
any of the Loans or any other sums due hereunder or under any of the other
Loan Documents when the same shall become due and payable, whether at the
stated date of maturity or any accelerated date of maturity or at any
other date fixed for payment;
(2) the Borrower shall fail to promptly, punctually, faithfully
perform, discharge, or comply with any covenant or Liability not otherwise
described in ss.11(a) above and included in any of the following
provisions hereof: ss.6.7, ss.6.13, ss.7.10, ss.7.11; ss.ss.8.1 through
8.6, inclusive.
-36-
<PAGE>
(3) the Borrower or any of its Subsidiaries shall fail to promptly,
punctually, faithfully perform, discharge, or comply with any covenant or
Liability not otherwise described in ss.11(a) and ss.11(b) within thirty
(30) days from the date that the Borrower or any of its Subsidiaries was
required to perform, discharge, or comply with such covenant or Liability.
(4) any representation or warranty of the Borrower or any of its
Subsidiaries in this Agreement or any of the other Loan Documents or in
any other document or instrument delivered pursuant to or in connection
with this Agreement is determined by the Lender to have been false in any
material respect upon the date when made or deemed to have been made or
repeated;
(5) the Borrower or any of its Subsidiaries shall fail to pay at
maturity, or within any applicable period of grace, any obligation for
borrowed money or credit received or in respect of any Capitalized Leases,
or fail to observe or perform any term, covenant or agreement contained in
any agreement by which it is bound, evidencing or securing borrowed money
or credit received or in respect of any Capitalized Leases for such period
of time as would permit (assuming the giving of appropriate notice if
required) the holder or holders thereof or of any obligations issued
thereunder to accelerate the maturity thereof or the Borrower or any of
its Subsidiaries shall fail to observe or perform any term, covenant, or
agreement contained in any material contract to which the Borrower is a
party for such period of time as would permit any party to such material
contract (assuming the giving of appropriate notice if required) to
terminate such material contract;
(6) the Borrower or any of its Subsidiaries shall make an assignment
for the benefit of creditors, or admit in writing its inability to pay or
generally fail to pay its debts as they mature or become due, or shall
petition or apply for the appointment of a trustee or other custodian,
liquidator or receiver of the Borrower or any of its Subsidiaries or of
any substantial part of the assets of the Borrower or any of its
Subsidiaries or shall commence any case or other proceeding relating to
the Borrower or any of its Subsidiaries under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution
or liquidation or similar law of any jurisdiction, now or hereafter in
effect, or shall take any action to authorize or in furtherance of any of
the foregoing, or if any such petition or application shall be filed or
any such case or other proceeding shall be commenced against the Borrower
or any of its Subsidiaries and the Borrower or any of its Subsidiaries
shall indicate its approval thereof, consent thereto or acquiescence
therein;
(7) The filing of any case or other proceeding against the Borrower
or any of the Subsidiaries under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar law of any jurisdiction, now or hereafter in effect and such
case or proceeding is not discharged or dismissed within ninety (90) days
of its commencement; a decree or order is entered appointing any such
trustee, custodian, liquidator or receiver or adjudicating the Borrower or
any of its Subsidiaries bankrupt or insolvent, or approving a petition in
any such case or other
-37-
<PAGE>
proceeding, or a decree or order for relief is entered in respect of the
Borrower or any Subsidiary of the Borrower, in an involuntary case under
federal bankruptcy laws as now or hereafter constituted;
(8) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any
uninsured final judgment against the Borrower or any of its Subsidiaries
that, with other outstanding uninsured final judgments, undischarged,
against the Borrower or any of its Subsidiaries exceeds in the aggregate
$75,000.00;
(9) if any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded or any action at law, suit or in equity or other
legal proceeding to cancel, revoke or rescind any of the Loan Documents
shall be commenced by or on behalf of the Borrower or any of its
Subsidiaries, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a determination
that, or issue a judgment, order, decree or ruling to the effect that, any
one or more of the Loan Documents is illegal, invalid or unenforceable in
accordance with the terms thereof;
(10) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred and the Lender shall have determined
in its reasonable discretion that such event reasonably could be expected
to result in liability of the Borrower or any of its Subsidiaries to the
PBGC on such Guaranteed Pension Plan in an aggregate amount exceeding
$50,000.00 and (i) such event in the circumstances occurring reasonably
could constitute grounds for the termination of such Guaranteed Pension
Plan by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer such Guaranteed Pension Plan; or
(ii) a trustee shall have been appointed by the United States District
Court to administer such Plan; or (iii) the PBGC shall have instituted
proceedings to terminate such Guaranteed Pension Plan;
(11) the Borrower or any of its Subsidiaries shall be indicted for a
federal crime, a punishment for which could include the forfeiture of any
assets of the Borrower or such Subsidiaries;
(12) there shall have occurred any material adverse change, as
determined by the Lender in good faith, in or to the assets, liabilities,
financial condition, business operations, or prospects of the Borrower and
its Subsidiaries, taken as a whole, or to any industry in which the
Borrower and its Subsidiaries derives a substantial portion of their
revenues; or
(13) A Change in Control shall have occurred;
then, and in any such event, so long as the same may be continuing, the Lender
at its option may declare all amounts owing with respect to this Agreement, the
Notes and the other Loan Documents to be, and they shall thereupon forthwith
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby
-38-
<PAGE>
expressly waived by the Borrower; provided that in the event of any Event of
Default specified in ss.11.1(f) or 11.1(g), all such amounts shall become
immediately due and payable automatically and without any requirement of notice
from the Lender.
ss.11.2. Termination of Revolving Credit. If any one or more Events of
Default specified in ss.11.1(f) or ss.11.1(g) shall occur, the Lender shall be
relieved of all obligations to make Revolving Credit Loans to the Borrower. If
any other Event of Default shall have occurred and be continuing, or if on any
Drawdown Date the conditions precedent to the making of the Loans to be made on
such Drawdown Date are not satisfied, the Lender may by notice to the Borrower,
terminate its agreement to make Revolving Credit Loans, and upon such notice
being given the Lender's agreement to make Revolving Credit Loans shall
terminate immediately and the Lender shall be relieved of all further
obligations to make Revolving Credit Loans. No termination of the credit
hereunder shall relieve the Borrower of any of the Liabilities or any of its
existing obligations to the Lender arising under other agreements or
instruments.
ss.11.3. Remedies. In case any one or more of the Events of Default shall
have occurred and be continuing, and whether or not the Lender shall have
accelerated the maturity of the Loans pursuant to ss.11.1, the Lender, if owed
any amount with respect to the Loans may proceed, to protect and enforce its
rights and remedies under this Agreement, the Notes or any of the other Loan
Documents by suit in equity, action at law or other appropriate proceeding,
whether for the specific performance of any covenant or agreement contained in
this Agreement and the other Loan Documents or any instrument pursuant to which
the Liabilities to the Lender are evidenced, including to the full extent
permitted by applicable law the obtaining of the appointment of a receiver, and,
if such amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any other legal or equitable right of the Lender.
No remedy herein conferred upon the Lender or the holder of any Note is intended
to be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or any other provision
of law.
ss.11.4. Distribution of Collateral Proceeds. In the event that, following
the occurrence or during the continuance of any Default or Event of Default, the
Lender, as the case may be, receives any monies in connection with the
enforcement of any of the Security Documents, or otherwise with respect to the
realization upon any of the Collateral, such monies shall be turned over to the
Lender and distributed by the Lender for application as follows:
(1) First, to the payment of, or (as the case may be) the
reimbursement of, the Lender for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Lender in connection with the collection of such monies
by the Lender, for the exercise, protection or enforcement by the Lender
of all or any of the rights, remedies, powers and privileges of the Lender
under this Agreement or any of the other Loan Documents or in respect of
the Collateral or in support of any provision of adequate indemnity to the
Lender against any taxes or liens which by law shall have, or may have,
priority over the rights of the Lender to such monies;
-39-
<PAGE>
(2) Second, to all other Liabilities in such order or preference as
the Lender may determine;
(3) Third, upon payment and satisfaction in full or other provisions
for payment in full satisfactory to the Lender of all of the Liabilities,
to the payment of any obligations required to be paid pursuant to
ss.9-504(1)(c) of the Uniform Commercial Code of the Commonwealth of
Massachusetts; and
(4) Fourth, the excess, if any, shall be returned to the Borrower or
to such other Persons as are entitled thereto.
12. SETOFF. The Borrower and each of its Subsidiaries grant to the Lender,
as security for the full and punctual payment and performance of the
Liabilities, a continuing lien on and security interest in all securities or
other property belonging to the Borrower or any of its Subsidiaries now or
hereafter held by the Lender, or any of its affiliates, and in all deposits
(general or special, time or demand, provisional or final) and other sums
credited by or due from the Lender to the Borrower or any of its Subsidiaries or
subject to withdrawal by the Borrower or any of its Subsidiaries; and regardless
of the adequacy of any collateral or other means of obtaining repayment of the
Liabilities, the Lender or any of its affiliates are hereby authorized at any
time and from time to time, without notice to the Borrower or any of its
Subsidiaries (any such notice being expressly waived by each of them) and to the
fullest extent permitted by law, to set off and apply such deposits and other
sums against their respective Liabilities, whether or not the Lender shall have
accelerated the Liabilities as provided for herein and although such Liabilities
may be contingent or unmatured.
13. EXPENSES. The Borrower agrees to pay (a) the reasonable costs of
producing and reproducing this Agreement, the other Loan Documents and the other
agreements and instruments mentioned herein, (b) any taxes (including any
interest and penalties in respect thereto) payable by the Lender (other than
taxes based upon the Lender's net income), including any recording, mortgage,
documentary or intangibles taxes in connection with the Loan Documents, or other
taxes payable on or with respect to the transactions contemplated by this
Agreement, including any taxes payable by the Lender after the Closing Date (the
Borrower hereby agreeing to indemnify the Lender with respect thereto), (c) all
appraisal fees, engineer's fees, and the reasonable fees, expenses and
disbursements of the Lender's counsel or any local counsel to the Lender
incurred in connection with the preparation, administration or interpretation of
the Loan Documents and amendments, modifications, approvals, consents or waivers
hereto or hereunder, (d) the fees, expenses and disbursements of the Lender
incurred by the Lender in connection with the preparation, administration or
interpretation of the Loan Documents and other instruments mentioned herein, (e)
all reasonable out-of-pocket expenses (including reasonable attorneys' fees and
costs and the fees and costs of appraisers, engineers, investment bankers or
other experts retained by any Lender in connection with any such enforcement
proceedings) incurred by any Lender in connection with (i) the enforcement of or
preservation of rights under any of the Loan Documents against the Borrower or
any of its Subsidiaries or the administration thereof and (ii) any litigation,
proceeding or dispute whether
-40-
<PAGE>
arising hereunder or otherwise, in any way related to any Lender's relationship
with the Borrower or any of its Subsidiaries and (f) all reasonable fees,
expenses and disbursements of the Lender incurred in connection with UCC
searches, UCC filings or mortgage recordings. The covenants of this ss.13 shall
survive payment or satisfaction of payment of amounts owing with respect to the
Notes.
14. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless
the Lender from and against any and all claims, actions and suits whether
groundless or otherwise, and from and against any and all liabilities, losses,
damages and expenses of every nature and character arising out of this Agreement
or any of the other Loan Documents or the transactions contemplated hereby
including, without limitation, (a) any actual or proposed use by the Borrower or
any of its Subsidiaries of the proceeds of any of the Loans, (b) any actual or
alleged infringement of any patent, copyright, trademark, service mark or
similar right of the Borrower or any of its Subsidiaries comprised in the
Collateral, (c) the Borrower's or any of its Subsidiaries' entering into or
performing this Agreement or any of the other Loan Documents or (d) with respect
to the Borrower and its Subsidiaries and their respective properties and assets,
the violation of any Environmental Law, the Release or threatened Release of any
Hazardous Substances or any action, suit, proceeding or investigation brought or
threatened with respect to any Hazardous Substances (including, but not limited
to claims with respect to wrongful death, personal injury or damage to
property), in each case including, without limitation, the reasonable fees and
disbursements of counsel and allocated costs of internal counsel incurred in
connection with any such investigation, litigation or other proceeding; provided
however that the Lender shall not be entitled to indemnification if a court of
competent jurisdiction finally determines (all appeals having been exhausted or
waived) that the Lender acted in bad faith, with willful misconduct or gross
negligence. In litigation, or the preparation therefor, the Lender shall be
entitled to select their own counsel and, in addition to the foregoing
indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses
of such counsel. If, and to the extent that the obligations of the Borrower
under this ss.14 are unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment in satisfaction of such obligations
which is permissible under applicable law. The provisions of this ss.14 shall
survive the repayment of the Liabilities and the termination of the obligations
of the Lender hereunder.
15. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations
and warranties made herein, in the Notes, in any of the other Loan Documents or
in any documents or other papers delivered by or on behalf of the Borrower or
any of its Subsidiaries pursuant hereto shall be deemed to have been relied upon
by the Lender, notwithstanding any investigation heretofore or hereafter made by
any of them, and shall survive the making by the Lender of any of the Loans, as
herein contemplated, and shall continue in full force and effect so long as any
amount due under this Agreement or the Notes or any of the other Loan Documents
remains Outstanding or the Lender has any obligation to make any Loans. The
indemnification obligations of the Borrower provided herein and the other Loan
Documents shall survive the full repayment of amounts due and the termination of
the obligations of the Lenders hereunder and thereunder to the extent provided
herein and therein. All statements contained in any certificate or other paper
delivered to the Lender at any time by or on behalf of the Borrower
-41-
<PAGE>
or any of its Subsidiaries pursuant hereto or in connection with the
transactions contemplated hereby shall constitute representations and warranties
by the Borrower or such Subsidiary hereunder.
16. ASSIGNMENT AND PARTICIPATION.
ss.16.1. Assignments. This Agreement shall be binding upon the Borrower
and the Borrower's representatives, successors, and assigns and shall enure to
the benefit of the Lender and the Lender's successors and assigns provided,
however, no trustee or other fiduciary appointed with respect to the Borrower
shall have any rights hereunder. The Lender may in connection with any bulk sale
by any of (i) the Lender, (ii) its parent or (ii) any affiliate of the Lender,
of any loan portfolio of which the Facilities are a part, without the prior
written consent of the Borrower, assign and sell its rights with respect to and
delegate its obligations under this Agreement and the Facilities, in whole or in
part. In the event that the Lender assigns or transfers its rights under this
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.
ss.16.2. Participations. The Lender may assign and sell certain of its
rights to another Lender or to grant participations therein to any institutional
lender or institutional investor, without the prior written consent of the
Borrower, as long as the Lender remains the lead bank and continues to serve as
the relationship agent with the Borrower.
ss.16.3. Pledge by Lender. The Lender may at any time pledge all or any
portion of its interest and rights under this Agreement (including all or any
portion of its Note) to any of the twelve Federal Reserve Lenders organized
under ss.4 of the Federal Reserve Act, 12 U.S.C. ss.341. No such pledge or the
enforcement thereof shall release the pledgor Lender from its obligations
hereunder or under any of the other Loan Documents.
ss.16.4. No Assignment by Borrower. The Borrower shall not assign or
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of each of the Lenders.
ss.16.5. Disclosure. The Borrower agrees that in addition to disclosures
made in accordance with standard banking practices any Lender may disclose
information obtained by such Lender pursuant to this Agreement to assignees or
participants and potential assignees or participants hereunder.
17. NOTICES, ETC. Except as otherwise expressly provided in this
Agreement, all notices and other communications made or required to be given
pursuant to this Agreement, the Note or the other Loan Documents shall be in
writing and shall be delivered in hand, mailed by United States registered or
certified first class mail, postage prepaid, sent by overnight courier, or sent
by telegraph, telecopy, telefax or telex and confirmed by delivery via courier
or postal service, addressed as follows:
-42-
<PAGE>
(1) if to the Borrower, at 30 Ossipee Road, Newton, Massachusetts
02464, Attention: Mr. Irwin J. Gruverman, Chief Financial Officer
(Telecopier: 617- 965-1213), or at such other address for notice as the
Borrower shall last have furnished in writing to the Person giving the
notice, with a copy to Douglas A. Fineberg, Esquire, Gadsby & Hannah, LLP,
225 Franklin Street, Boston, Massachusetts 02110 (Telecopier:
617-345-7050); and
(2) if to the Lender, at One Federal Street, Boston, Massachusetts
02110, Attention: Mr. A. Keith Broyles, Vice President and Manager
(Telecopier: 617-350-7677), or such other address for notice as the Lender
shall last have furnished in writing to the Borrower, with a copy to Kevin
M. Murtagh, Esquire, Riemer & Braunstein, LLP, Three Center Plaza, Boston,
Massachusetts 02108 (Telecopier: 617-723-6831).
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
18. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE. THIS AGREEMENT AND
EACH OF THE OTHER LOAN DOCUMENTS (EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN) ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND
SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF SUCH COMMONWEALTH (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF
LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH
OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH
SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN ss.20. THE
BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
19. HEADINGS. The captions in this Agreement are for convenience of
reference only and shall not define or limit the provisions hereof.
20. COUNTERPARTS. This Agreement and any amendment hereof may be executed
in several counterparts and by each party on a separate counterpart, each of
which when so executed and delivered shall be an original, and all of which
together shall constitute one instrument. In proving this Agreement it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought.
-43-
<PAGE>
21. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents
executed in connection herewith or therewith express the entire understanding of
the parties with respect to the transactions contemplated hereby. Neither this
Agreement nor any term hereof may be changed, waived, discharged or terminated,
except as provided in ss.23.
22. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS. 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 OR ANY OF THE OTHER
LOAN DOCUMENTS, 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, LENDER 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 IT IS PARTY BY, AMONG OTHER THINGS, THE
WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
23. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly
provided in this Agreement, any consent or approval required or permitted by
this Agreement may be given, and any term of this Agreement or of any other
instrument related hereto or mentioned herein may be amended, and the
performance or observance by the Borrower of any terms of this Agreement or such
other instrument or the continuance of any Default or Event of Default may be
waived (either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Lender.
No waiver shall extend to or affect any obligation not expressly waived or
impair any right consequent thereon. No course of dealing or delay or omission
on the part of the Lender in exercising any right shall operate as a waiver
thereof or otherwise be prejudicial thereto. No notice to or demand upon the
Borrower shall entitle the Borrower to other or further notice or demand in
similar or other circumstances.
24. SEVERABILITY. The provisions of this Agreement are severable, and if
any one clause or provision hereof shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability
shall affect only such clause or provision, or part thereof, in such
jurisdiction, and shall not in any manner affect such clause or provision in any
other jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
-44-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a
sealed instrument as of the date first set forth above.
MFIC CORPORATION
By: /s/ Irwin J. Gruverman
-------------------------------
Name: Iwrin J. Gruverman
Title: Chairman and CEO
NATIONAL BANK OF CANADA, A Canadian
Chartered Bank
By: /s/ A. Keith Broyles
--------------------------------
Name: A. Keith Broyles
Title: Vice President
By: /s/ Leonard J. Pellecchia
--------------------------------
Name: Leonard J. Pellecchia
Title: Vice President
-45-
<PAGE>
EXHIBIT 10.27
REVOLVING CREDIT NOTE
$4,000,000.00 Boston, Massachusetts
February 28, 2000
FOR VALUE RECEIVED, the undersigned, MFIC Corporation, a Delaware
corporation with its principal office at 30 Ossipee Road, Newton, Massachusetts
02464 (the "Borrower") absolutely and unconditionally promises to pay to the
order of National Bank of Canada, a Canadian chartered bank (the "Lender") at
the head office of the Lender, One Federal Street, Boston, Massachusetts 02110
the principal sum of Four Million and 00/100 Dollars ($4,000,000.00), or if
less, the outstanding amount of Revolving Credit Loans made by the Lender under
the Loan Agreement (defined below), with interest at the rate, and payable in
the manner, stated in the Loan Agreement. In any event, the entire outstanding
principal balance of this Note, together with accrued and unpaid interest
hereon, shall be due and payable on the Maturity Date.
Capitalized terms used herein and not otherwise defined have the same
meaning herein as in a certain Revolving Credit and Term Loan Agreement dated
February 28, 2000 among the Borrower and the Lender (as hereafter modified,
amended, supplemented or restated, the "Loan Agreement").
This Revolving Credit Note is the Revolving Credit Note which has been
executed and delivered in accordance with Section 2.3 of the Loan Agreement.
Reference is made to the Loan Agreement for a description of the benefits to
which the Lender is entitled on account hereof and for reference to the security
interests which secure the Liabilities.
The within Note may be prepaid in whole and in part, and shall be prepaid,
all as provided in the Loan Agreement.
Upon the occurrence of any Event of Default, all of the Liabilities,
including, without limitation, the entire unpaid principal balance of the within
Note and all accrued and unpaid interest hereon, may become or be declared due
and payable as provided in the Loan Agreement.
The Borrower waives presentment, demand, notice, protest and all other
demands and notices in connection herewith; assents to any extension or
postponement of the time of payment or any other indulgence with respect hereto;
assents to the addition or release of any other party or person primarily or
secondarily liable on account of the within Note and/or said Liabilities; and
agrees to pay all costs and expenses at any time incurred by the Lender as set
forth in the Loan Agreement.
WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS. 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 NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, 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)
<PAGE>
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 WAIVER AND (B) ACKNOWLEDGES THAT THE
LENDER HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THE WAIVER AND
CERTIFICATIONS CONTAINED HEREIN.
This Note is intended to take effect as a sealed instrument and shall be
governed by, and construed in accordance with, the laws of The Commonwealth of
Massachusetts, without regard to its conflicts of laws rules. The Borrower
agrees that any suit for the enforcement of this Note may be brought in the
courts of The Commonwealth of Massachusetts or any Federal Court sitting in such
Commonwealth and consents to the non-exclusive jurisdiction of each such court
and to service of process in any such suit being made upon the Borrower by mail
at the address specified in the Loan Agreement. The Borrower hereby waives any
objection that it may now or hereafter have to the venue of any such suit or any
such court or that such suit was brought in an inconvenient court.
Witness: MFIC CORPORATION
- -------------------------
By: /s/ Irwin J. Gruverman
-------------------------------
Name: Irwin J. Gruverman
Title: Chairman and CEO
2
<PAGE>
EXHIBIT 10.28
TERM NOTE
$475,000.00 Boston, Massachusetts
February 28, 2000
FOR VALUE RECEIVED, the undersigned, MFIC Corporation, a Delaware
corporation with its principal office at 30 Ossipee Road, Newton, Massachusetts
02464 (the "Borrower") absolutely and unconditionally promises to pay to the
order of National Bank of Canada, a Canadian chartered bank (the "Lender"), at
the head office of the Lender, One Federal Street, Boston, Massachusetts 02110,
in immediately available funds, the principal sum of Four Hundred Seventy-Five
Thousand and 00/100 DOLLARS ($475,000.00), together with interest thereon,
payable as follows:
Principal: The Outstanding principal balance of this Note shall be
paid at the times, and in the manner, provided in the Loan Agreement
(defined below). In all events, the Outstanding principal balance of this
Note shall be due and payable in full on the Maturity Date.
INTEREST: Interest on the principal balance hereof from time to time
outstanding, which interest shall be paid at the times and rates, and in
the manner, provided in the Loan Agreement (defined below).
Capitalized terms used herein which are defined in the Revolving Credit
and Term Loan Agreement dated as of February __, 2000 among the Borrower and the
Lender (as hereafter modified, amended, supplemented or restated, the "Loan
Agreement") have the same meaning herein as in the Loan Agreement.
This Term Note is the Term Note which has been executed and delivered in
accordance with Section 2.9 of the Loan Agreement. Reference is made to the Loan
Agreement for a description of the benefits to which the Lender is entitled on
account hereof and for reference to the security interests which secure the
Liabilities.
The within Note may be prepaid in whole and in part, and shall be prepaid,
all as provided in the Loan Agreement.
Upon the occurrence of any Event of Default, all of the Liabilities,
including, without limitation, the entire unpaid principal balance of the within
Note and all accrued and unpaid interest hereon, may become or be declared due
and payable as provided in the Loan Agreement.
The Borrower waives presentment, demand, notice, protest and all other
demands and notices in connection herewith; assents to any extension or
postponement of the time of payment or any other indulgence with respect hereto;
assents to the addition or release of any other party or person primarily or
secondarily liable on account of the within Note and/or said Liabilities; and
agrees to pay all costs and expenses at any time incurred by the Lender as set
forth in the Loan Agreement.
WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS. 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 NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, 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
<PAGE>
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 WAIVER AND (B) ACKNOWLEDGES THAT THE
LENDER HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THE WAIVER AND
CERTIFICATIONS CONTAINED HEREIN.
This Note is intended to take effect as a sealed instrument and shall be
governed by, and construed in accordance with, the laws of The Commonwealth of
Massachusetts, without regard to its conflicts of laws rules. The Borrower
agrees that any suit for the enforcement of this Note may be brought in the
courts of The Commonwealth of Massachusetts or any Federal Court sitting in such
Commonwealth and consents to the non-exclusive jurisdiction of each such court
and to service of process in any such suit being made upon the Borrower by mail
at the address specified in the Loan Agreement. The Borrower hereby waives any
objection that it may now or hereafter have to the venue of any such suit or any
such court or that such suit was brought in an inconvenient court.
MFIC CORPORATION
Witness: By: /s/ Irwin J. Gruverman
-----------------------------
Name: Irwin J. Gruverman
- --------------------------
Name: Title: Chairman and CEO
-2-
<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-
<PAGE>
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-
<PAGE>
EXHIBIT 10.30
TRADEMARK AND TRADEMARK
APPLICATIONS SECURITY AGREEMENT
February 28, 2000
This Trademark and Trademark Application Security Agreement (the "TM
Security Agreement") is made as of the 28th day of February, 2000 by MFIC
Corporation, a Delaware corporation with its principal office at 30 Ossipee
Road, Newton, Massachusetts 02464 (the "Borrower"), and National Bank of Canada,
a Canadian chartered bank (the "Lender") with its principal office at One
Federal Street, Boston, Massachusetts 02110.
RECITALS
WHEREAS, pursuant to the Revolving Credit and Term Loan Agreement (as
amended from time to time, the "Loan Agreement") made between the Borrower and
the Lender, the Lender has agreed to make certain loans and advances (as defined
in the Loan Agreement, hereinafter, the "Loans") available to the Borrower;
WHEREAS, pursuant to a certain Security Agreement (Inventory, Accounts,
Equipment and Other Property) of even date herewith (as amended from time to
time, the "Security Agreement"), the Borrower has granted to the Lender a
security interest in the Borrower's Collateral (as defined in the Security
Agreement) to secure the Liabilities (as defined in the Security Agreement) of
the Borrower to the Lender;
WHEREAS, as a condition, among others, to the establishment of the credit
facilities contemplated by the Loan Agreement, and to further secure the
Liabilities and to more fully vest the security interest granted in the Security
Agreement, the Borrower has executed this TM Security Agreement.
NOW THEREFORE, For good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the Borrower and the Lender hereby agree
as follows:
1. All capitalized terms used herein and not otherwise defined have the
same meaning herein as in the Loan Agreement.
<PAGE>
2. To secure the Liabilities, the Borrower hereby grants a security
interest in favor of, and collaterally assigns to, the Lender with power of sale
in and to the following and all proceeds thereof:
(1) All of the Borrower's now owned or existing or hereafter
acquired or arising trademarks, trademark applications, service marks,
registered service marks and service mark applications including, without
limitation, those listed on EXHIBIT A annexed hereto and made a part
hereof, together with any goodwill connected with and symbolized by any
such trademarks, trademark applications, service marks, registered service
marks, and service mark applications.
(2) All renewals of any of the foregoing.
(3) All income, royalties, damages and payments now and hereafter
due and/or payable under and with respect to any of the foregoing,
including, without limitation, payments under all licenses entered into in
connection therewith and damages and payments for past or future
infringements or dilutions thereof.
(4) The right to sue for past, present and future infringements and
dilutions of any of the foregoing.
(5) All of Borrower's rights corresponding to any of the foregoing
throughout the world.
All of the foregoing trademarks, registered trademarks and trademark
applications, and service marks, registered service marks and service mark
applications described in Subsection 2.(a), together with the items respectively
described in Subsections 2.(b) through and including 2.(e) are hereinafter
individually and/or collectively referred to as the "Marks".
3. Until this TM Security Agreement is terminated in writing by a duly
authorized officer of the Lender, the Borrower shall undertake the following
with respect to each Mark:
(1) Pay all renewal fees and other fees and costs associated with
maintaining the Marks and with the processing of the Marks.
-2-
<PAGE>
(2) At Borrower's sole cost, expense, and risk, pursue the prompt,
diligent, processing of each Application for Registration which is the
subject of the foregoing assignment and not abandon or delay any such
efforts.
(3) At Borrower's sole cost, expense, and risk, take any and all
action which may be necessary or desirable to protect the Marks,
including, without limitation, the prosecution and defense of infringement
actions.
4. The Borrower represents and warrants that:
(1) EXHIBIT A includes all of the trademarks, registered trademarks,
trademark applications, service marks, registered service marks and
service mark applications now owned by the Borrower.
(2) No liens, claims or security interests have been granted in any
Mark by the Borrower to any Person other than to the Lender.
5. In order to further secure the Liabilities:
(1) The Borrower shall give the Lender written notice (with
reasonable detail) within ten (10) days following the occurrence of any of
the following:
(1) The Borrower obtains rights to, and files applications for
registration of, any new trademarks, or service marks, or otherwise
acquires ownership of any newly registered trademarks, registered
service marks, trademark applications, or service mark applications.
(2) The Borrower becomes entitled to the benefit of any
trademarks, registered trademarks, trademark applications, trademark
licenses, trademark license renewals, service marks, registered
service marks, service mark applications, service mark licenses or
service mark license renewals whether as licensee or licensor.
-3-
<PAGE>
(3) The Borrower enters into any new trademark license
agreement or service mark license agreement.
(2) The provisions of this TM Security Agreement shall
automatically apply to any such additional property or rights
described in Section 5(a) above, all of which shall be deemed to be
and treated as "Marks" within the meaning of this TM Security
Agreement.
(3) The Borrower hereby authorizes the Lender to modify this
agreement by amending EXHIBIT A to include any future trademarks,
registered trademarks, trademark applications, service marks,
registered service marks and service mark applications, written
notice of which is so given, provided, however, the modification of
said EXHIBIT shall not be a condition to the creation or perfection
of the security interest created hereby.
6. Upon the occurrence of any Event of Default, the Lender may exercise
all rights and remedies of a secured party upon default under the Uniform
Commercial Code as adopted in Massachusetts (Massachusetts General Laws, Chapter
106), with respect to the Marks, in addition to which the Lender, subject to the
terms of the Loan Agreement, may sell, license, assign, transfer, or otherwise
dispose of the Marks. Any person may conclusively rely upon an affidavit of an
officer of the Lender that an Event of Default has occurred and that the Lender
is authorized to exercise such rights and remedies.
7. The Borrower hereby irrevocably constitutes and designates the Lender
as and for the Borrower's attorney in fact, exercisable following the occurrence
of any Event of Default:
(1) To exercise any of the rights and powers referenced in
Section 3 hereof.
(2) To execute all and singular such instruments, documents,
and papers as the Lender determines to be appropriate in connection
with the exercise of such rights and remedies and to cause the sale,
license, assignment, transfer, or other disposition of the Marks.
The within grant of a power of attorney, being coupled with an interest, shall
be irrevocable until the within TM Security Agreement is terminated by a duly
authorized officer of the Lender.
-4-
<PAGE>
8. Any use by the Lender of the Marks as authorized hereunder in
connection with the exercise of the Lender's right and remedies under the within
TM Security Agreement and the Loan Agreement shall be coextensive with
Borrower's rights thereunder and with respect thereto and without any liability
for royalties or other related charges from the Lender to the Borrower.
9. Following the payment and satisfaction of all Liabilities, and the
termination of any obligation of the Lender to provide loans or financial
accommodations under the credit facility contemplated by the Loan Agreement,
this TM Security Agreement shall terminate and the Lender shall execute and
deliver to Borrower all such instruments as the Borrower reasonably may request
to release any encumbrance in favor of the Lender created hereby or pursuant
hereto, subject, however, to any disposition thereof which may have been made by
Lender pursuant hereto or pursuant to the Loan Agreement.
10. The Borrower shall, at the request of the Lender, do any and all acts
and execute any and all documents required by the Lender in connection with the
protection, preservation, and enforcement of the Lender's rights hereunder.
11. The Borrower shall, upon demand, reimburse the Lender for all
reasonable costs and expenses incurred by the Lender in the exercise of any
rights hereunder (including, without limitation, fees and expenses of counsel).
12. This TM Security Agreement is intended to be supplemental of the
Security Agreement. All provisions of the Security Agreement from the Borrower
to the Lender shall apply to the Marks and the Lender shall have the same rights
with respect to any and all Marks granted the Lender to secure the Liabilities
hereunder as thereunder. In the event of a conflict between this TM Security
Agreement and the Security Agreement, the terms of this TM Security Agreement
shall control with respect to the Marks.
-5-
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender respectively have caused
this TM Security Agreement to be executed by officers duly authorized so to do
on the date first above written.
MFIC CORPORATION NATIONAL BANK OF CANADA
(The "Borrower") (The "Lender")
By: /s/ Irwin J. Gruverman By: /s/ A. Keith Broyles
--------------------------- -------------------------------
Title: Chairman and CEO Title: Vice President
------------------------ ----------------------------
By: /s/ Leonard J. Pellecchia
-------------------------------
Title: Vice President
----------------------------
-6-
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
County of SUFFOLK, ss
Then personally appeared before me Irwin J. Gruverman who acknowledged
that such person is the duly authorized Chairman and CEO of MFIC Corporation.
and that such person had executed the foregoing instrument on its behalf and
that such is the free act and deed of MFIC Corporation.
Witness my hand and seal this ____ day of February, 2000.
--------------------------------------
, Notary Public
My Commission Expires:
COMMONWEALTH OF MASSACHUSETTS
County of SUFFOLK, ss
Then personally appeared before me A. Keith Broyles, who acknowledged that
such person is the duly authorized Vice President of National Bank of Canada,
and that such person executed the foregoing instrument on its behalf and such is
the free act and deed of National Bank of Canada.
Witness my hand and seal this _____ day of February, 2000.
--------------------------------------
, Notary Public
My Commission Expires:
COMMONWEALTH OF MASSACHUSETTS
County of SUFFOLK, ss
Then personally appeared before me Leonard J. Pellecchia, who acknowledged
that such person is the duly authorized Vice President of National Bank of
Canada, and that such person executed the foregoing instrument on its behalf and
such is the free act and deed of National Bank of Canada.
Witness my hand and seal this _____ day of February, 2000.
--------------------------------------
, Notary Public
My Commission Expires:
-7-
<PAGE>
EXHIBIT A
Borrower's now owned or existing or hereafter acquired or arising service marks,
registered service marks and service mark applications, trademarks, registered
trademarks, and trade mark applications:
-8-
<PAGE>
EXHIBIT 10.31
PATENT AND PATENT
APPLICATIONS SECURITY AGREEMENT
February 28, 2000
This Patent and Patent Application Security Agreement (the "PM Security
Agreement") is made as of the 28th day of February, 2000 by MFIC Corporation, a
Delaware corporation with its principal office at 30 Ossipee Road, Newton,
Massachusetts 02464 (the "Borrower"), and National Bank of Canada, a Canadian
chartered bank (the "Lender") with its principal office at One Federal Street,
Boston, Massachusetts 02110.
RECITALS
WHEREAS, pursuant to the Revolving Credit and Term Loan Agreement (as
amended from time to time, the "Loan Agreement") made between the Borrower and
the Lender, the Lender has agreed to make certain loans and advances (as defined
in the Loan Agreement, hereinafter, the "Loans") available to the Borrower;
WHEREAS, pursuant to a certain Security Agreement (Inventory, Accounts,
Equipment and Other Property) of even date herewith (as amended from time to
time, the "Security Agreement"), the Borrower has granted to the Lender a
security interest in the Borrower's Collateral (as defined in the Security
Agreement) to secure the Liabilities (as defined in the Security Agreement) of
the Borrower to the Lender;
WHEREAS, as a condition, among others, to the establishment of the credit
facilities contemplated by the Loan Agreement, and to further secure the
Liabilities and to more fully vest the security interest granted in the Security
Agreement, the Borrower has executed this PM Security Agreement.
NOW THEREFORE, For good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the Borrower and the Lender agree as
follows:
1. All capitalized terms used herein and not otherwise defined have the
same meaning herein as in the Loan Agreement.
2. To secure the Liabilities, the Borrower hereby grants a security
interest in favor of, and collaterally assigns to the Lender, with power of sale
in and to the following and all
<PAGE>
proceeds thereof:
(1) All of the Borrower's now owned or existing or hereafter
acquired or arising patents and patent applications including, without
limitation, those listed on EXHIBIT A annexed hereto and made a part
hereof, together with any goodwill connected with and symbolized by any
such patents and patent applications.
(2) All renewals of any of the foregoing.
(3) All income, royalties, damages and payments now and hereafter
due and/or payable under and with respect to any of the foregoing,
including, without limitation, payments under all licenses entered into in
connection therewith and damages and payments for past or future
infringements or dilutions thereof.
(4) The right to sue for past, present and future infringements and
dilutions of any of the foregoing.
(5) All of Borrower's rights corresponding to any of the foregoing
throughout the world.
All of the foregoing patents and patent applications described in Subsection
2.(a), together with the items respectively described in Subsections 2.(b)
through and including 2.(e) are hereinafter individually and/or collectively
referred to as the "Patents".
3. Until this PM Security Agreement is terminated in writing by a duly
authorized officer of the Lender, the Borrower shall undertake the following
with respect to each Patent
(1) Pay all renewal fees and other fees and costs associated with
maintaining the Patents and with the processing of the Patents.
(2) At Borrower's sole cost, expense, and risk, pursue the prompt,
diligent, processing of each Application for Registration which is the
subject of the foregoing assignment and not abandon or delay any such
efforts.
-2-
<PAGE>
(3) At Borrower's sole cost, expense, and risk, take any and all
action which may be necessary or desirable to protect the Patents,
including, without limitation, the prosecution and defense of infringement
actions.
4. The Borrower represents and warrants that:
(1) EXHIBIT A includes all of the patents and patent applications
now owned by the Borrower.
(2) No liens, claims or security interests have been granted in any
Patent by the Borrower to any Person other than to the Lender.
5. In order to further secure the Liabilities:
(1) The Borrower shall give the Lender written notice (with
reasonable detail) within ten (10) days following the occurrence of any of
the following:
(1) The Borrower obtains rights to, and files applications for
registration of, any new Patents or otherwise acquires ownership of
any newly registered Patents.
(2) The Borrower becomes entitled to the benefit of any
patents or patent applications, patent licenses, or patent license
renewals whether as licensee or licensor.
(3) The Borrower enters into any new patent license agreement.
(2) The provisions of this PM Security Agreement shall automatically
apply to any such additional property or rights described in Section 5(a)
above, all of which shall be deemed to be and treated as "Patents" within
the meaning of this PM Security Agreement.
(3) The Borrower hereby authorizes the Lender to modify this
agreement by amending EXHIBIT A to include any future patents or patent
applications, written notice
-3-
<PAGE>
of which is so given, provided, however, the modification of said EXHIBIT
shall not be a condition to the creation or perfection of the security
interest created hereby.
6. Upon the occurrence of any Event of Default, the Lender may exercise
all rights and remedies of a secured party upon default under the Uniform
Commercial Code as adopted in Massachusetts (Massachusetts General Laws, Chapter
106), with respect to the Patents, in addition to which the Lender, subject to
the terms of the Loan Agreement, may sell, license, assign, transfer, or
otherwise dispose of the Patents. Any person may conclusively rely upon an
affidavit of an officer of the Lender that an Event of Default has occurred and
that the Lender is authorized to exercise such rights and remedies.
7. The Borrower hereby irrevocably constitutes and designates the Lender
as and for the Borrower's attorney in fact, exercisable following the occurrence
of any Event of Default:
(1) To exercise any of the rights and powers referenced in Section 3
hereof.
(2) To execute all and singular such instruments, documents, and
papers as the Lender determines to be appropriate in connection with the
exercise of such rights and remedies and to cause the sale, license,
assignment, transfer, or other disposition of the Patents.
The within grant of a power of attorney, being coupled with an interest, shall
be irrevocable until the within PM Security Agreement is terminated by a duly
authorized officer of the Lender.
8. Any use by the Lender of the Patents as authorized hereunder in
connection with the exercise of the Lender's right and remedies under the within
PM Security Agreement and the Loan Agreement shall be coextensive with
Borrower's rights thereunder and with respect thereto and without any liability
for royalties or other related charges from the Lender to the Borrower.
9. Following the payment and satisfaction of all Liabilities, and the
termination of any obligation of the Lender to provide loans or financial
accommodations under the credit facility contemplated by the Loan Agreement,
this PM Security Agreement shall terminate and the Lender shall execute and
deliver to Borrower all such instruments as the Borrower reasonably may request
to release any encumbrance in favor of the Lender created hereby or pursuant
hereto,
-4-
<PAGE>
subject, however, to any disposition thereof which may have been made by
Lender pursuant hereto or pursuant to the Loan Agreement.
10. The Borrower shall, at the request of the Lender, do any and all acts
and execute any and all documents required by the Lender in connection with the
protection, preservation, and enforcement of the Lender's rights hereunder.
11. The Borrower shall, upon demand, reimburse the Lender for all
reasonable costs and expenses incurred by the Lender in the exercise of any
rights hereunder (including, without limitation, fees and expenses of counsel).
12. This PM Security Agreement is intended to be supplemental of the
Security Agreement. All provisions of the Security Agreement from the Borrower
to the Lender shall apply to the Patents and the Lender shall have the same
rights with respect to any and all Patents granted the Lender to secure the
Liabilities hereunder as thereunder. In the event of a conflict between this PM
Security Agreement and the Security Agreement, the terms of this PM Security
Agreement shall control with respect to the Patents.
IN WITNESS WHEREOF, the Borrower and the Lender respectively have caused
this PM Security Agreement to be executed by officers duly authorized so to do
on the date first above written.
MFIC CORPORATION NATIONAL BANK OF CANADA
(The "Borrower") (The "Lender")
By: /s/ Irwin J. Gruverman By: /s/ A. Keith Broyles
--------------------------- -------------------------------
Title: Chairman and CEO Title: Vice President
------------------------ ----------------------------
By: /s/ Leonard J. Pellecchia
-------------------------------
Title: Vice President
----------------------------
-5-
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
County of SUFFOLK, ss
Then personally appeared before me Irwin J. Gruverman who acknowledged
that such person is the duly authorized Chairman and CEO of MFIC Corporation.
and that such person had executed the foregoing instrument on its behalf and
that such is the free act and deed of MFIC Corporation.
Witness my hand and seal this ____ day of February, 2000.
--------------------------------------
, Notary Public
My Commission Expires:
COMMONWEALTH OF MASSACHUSETTS
County of SUFFOLK, ss
Then personally appeared before me A. Keith Broyles, who acknowledged that
such person is the duly authorized Vice President of National Bank of Canada,
and that such person executed the foregoing instrument on its behalf and such is
the free act and deed of National Bank of Canada.
Witness my hand and seal this _____ day of February, 2000.
--------------------------------------
, Notary Public
My Commission Expires:
COMMONWEALTH OF MASSACHUSETTS
County of SUFFOLK, ss
Then personally appeared before me Leonard J. Pellecchia, who acknowledged
that such person is the duly authorized Vice President of National Bank of
Canada, and that such person executed the foregoing instrument on its behalf and
such is the free act and deed of National Bank of Canada.
Witness my hand and seal this _____ day of February, 2000.
--------------------------------------
, Notary Public
My Commission Expires:
-6-
<PAGE>
EXHIBIT 10.32
UNLIMITED GUARANTY
GUARANTY, dated as of February 28, 2000 by Microfluidics Corporation, a
Delaware corporation with a place of business at 30 Ossipee Road, Newton,
Massachusetts 02464 (the "Guarantor"), in favor of National Bank of Canada, a
Canadian chartered bank with an office at One Federal Street, Boston,
Massachusetts 02110 (the "Lender"). In consideration of the Lender's giving, in
its discretion, time, credit or banking facilities or accommodations to MFIC
Corporation (together with its successors, the "Borrower"), the Guarantor agrees
as follows:
1. GUARANTY OF PAYMENT AND PERFORMANCE. The Guarantor hereby guarantees to
the Lender the full and punctual payment when due (whether at maturity, by
acceleration or otherwise), and the performance, of all Liabilities (as defined
in that certain Revolving Credit and Term Loan Agreement of even date herewith,
as the same may be modified, amended, supplemented or restated from time to
time, the "Loan Agreement") of the Borrower to the Lender. This Guaranty is an
absolute, unconditional and continuing guaranty of the full and punctual payment
and performance of the Liabilities and not of their collectibility only and is
in no way conditioned upon any requirement that the Lender first attempt to
collect any of the Liabilities from the Borrower or resort to any security or
other means of obtaining their payment. Should the Borrower default in the
payment or performance of any of the Liabilities, the obligations of the
Guarantor hereunder shall become immediately due and payable to the Lender,
without demand or notice of any nature, all of which are expressly waived by the
Guarantor. Payments by the Guarantor hereunder may be required by the Lender on
any number of occasions.
2. GUARANTOR'S AGREEMENT TO PAY. The Guarantor further agrees, as the
principal obligor and not as a guarantor only, to pay to the Lender, on demand,
all costs and expenses (including court costs and reasonable legal expenses)
incurred or expended by the Lender in connection with the Liabilities, this
Guaranty and the enforcement thereof, together with interest on amounts
recoverable under this Guaranty from the time such amounts become due until
payment at the default rate provided for in the Loan Agreement.
3. UNLIMITED GUARANTY. The liability of the Guarantor hereunder shall be
unlimited.
4. WAIVERS BY GUARANTOR; BANK'S FREEDOM TO ACT. The Guarantor agrees that
the Liabilities will be paid and performed strictly in accordance with their
respective terms regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Lender with respect thereto. The Guarantor waives presentment, demand, protest,
notice of acceptance, notice of Liabilities incurred and all other notices of
any kind, all defenses which may be available by virtue of any valuation, stay,
moratorium law or other similar law now or hereafter in effect, any right to
require the marshalling of assets of the Borrower, and all suretyship defenses
generally. Without limiting the generality of the foregoing, the Guarantor
agrees to the provisions of any instrument evidencing, securing or otherwise
executed in connection with any Obligation and agrees that the
<PAGE>
obligations of the Guarantor hereunder shall not be released or discharged, in
whole or in part, or otherwise affected by (i) the failure of the Lender to
assert any claim or demand or to enforce any right or remedy against the
Borrower; (ii) any extensions or renewals of any Obligation; (iii) any
rescissions, waivers, amendments or modifications of any of the terms or
provisions of any agreement evidencing, securing or otherwise executed in
connection with any Obligation; (iv) the substitution or release of any entity
primarily or secondarily liable for any Obligation; (v) the adequacy of any
rights the Lender may have against any collateral or other means of obtaining
repayment of the Liabilities; (vi) the impairment of any collateral securing the
Liabilities, including without limitation the failure to perfect or preserve any
rights the Lender might have in such collateral or the substitution, exchange,
surrender, release, loss or destruction of any such collateral; or (vii) any
other act or omission which might in any manner or to any extent vary the risk
of the Guarantor or otherwise operate as a release or discharge of the
Guarantor, all of which may be done without notice to the Guarantor.
5. UNENFORCEABILITY OF OBLIGATIONS AGAINST CUSTOMER. If for any reason the
Borrower has no legal existence or is under no legal obligation to discharge any
of the Liabilities, or if any of the Liabilities have become irrecoverable from
the Borrower by operation of law or for any other reason, this Guaranty shall
nevertheless be binding on the Guarantor to the same extent as if the Guarantor
at all times had been the principal obligor on all such Liabilities. In the
event that acceleration of the time for payment of the Liabilities is stayed
upon the insolvency, bankruptcy or reorganization of the Borrower, or for any
other reason, all such amounts otherwise subject to acceleration under the terms
of any agreement evidencing, securing or otherwise executed in connection with
any Obligation shall be immediately due and payable by the Guarantor.
6. SUBROGATION; SUBORDINATION. The Guarantor shall not exercise any rights
against the Borrower arising as a result of payment by the Guarantor hereunder,
by way of subrogation or otherwise, and will not prove any claim in competition
with the Lender or its affiliates in respect of any payment hereunder in
bankruptcy or insolvency proceedings of any nature; the Guarantor will not claim
any set-off or counterclaim against the Borrower in respect of any liability of
the Guarantor to the Borrower; and the Guarantor waives any benefit of and any
right to participate in any collateral which may be held by the Lender or any
such affiliate. The payment of any amounts due with respect to any indebtedness
of the Borrower now or hereafter held by the Guarantor is hereby subordinated to
the prior payment in full of the Liabilities, provided that so long as no
default in the payment or performance of the Liabilities has occurred and is
continuing, or no demand for payment of any of the Liabilities has been made
that remains unsatisfied, the Borrower may make, and the Guarantor may demand
and accept, any scheduled payments of principal of and interest on such
subordinated indebtedness in the amounts, at the rates and on the dates
specified in such instruments, securities or other writings as shall evidence
such subordinated indebtedness. The Guarantor agrees that after the occurrence
of any default in the payment or performance of the Liabilities, the Guarantor
will not demand, sue for or otherwise attempt to collect any such indebtedness
of the Borrower to the Guarantor until the Liabilities shall have been paid in
full. If, notwithstanding the foregoing sentence, the Guarantor shall collect,
enforce or receive any amounts in respect of such
-2-
<PAGE>
indebtedness, such amounts shall be collected, enforced and received by the
Guarantor as trustee for the Lender and be paid over to the Lender on account of
the Liabilities without affecting in any manner the liability of the Guarantor
under the other provisions of this Guaranty.
7. SECURITY; SET-OFF. The Guarantor grants to the Lender, as security for
the full and punctual payment and performance of the Guarantor's obligations
hereunder, a continuing lien on and security interest in all securities or other
property belonging to the Guarantor now or hereafter held by the Lender and in
all deposits (general or special, time or demand, provisional or final) and
other sums credited by or due from the Lender to the Guarantor or subject to
withdrawal by the Guarantor; and regardless of the adequacy of any collateral or
other means of obtaining repayment of the Liabilities, the Lender is hereby
authorized at any time and from time to time, without notice to the Guarantor
(any such notice being expressly waived by the Guarantor) and to the fullest
extent permitted by law, to set off and apply such deposits and other sums
against the obligations of the Guarantor under this Guaranty, whether or not the
Lender shall have made any demand under this Guaranty and although such
obligations may be contingent or unmatured.
8. FURTHER ASSURANCES. The Guarantor agrees that it will, from time to
time at the reasonable request of the Lender, provide to the Lender its most
recent audited and unaudited balance sheets and related statements of income and
changes in financial condition (prepared on a consolidated basis with the
Borrower or Guarantor's subsidiaries, if any) and such other information
relating to the business and affairs of the Guarantor as the Lender may
reasonably request. The Guarantor also agrees to do all such things and execute
all such documents, including financing statements, as the Lender may consider
necessary or desirable to give full effect to this Guaranty and to perfect and
preserve the rights and powers of the Lender hereunder.
9. TERMINATION; REINSTATEMENT. This Guaranty shall remain in full force
and effect until the Lender is given written notice of the Guarantor's intention
to discontinue this Guaranty, notwithstanding any intermediate or temporary
payment or settlement of the whole or any part of the Liabilities. No such
notice shall be effective unless received and acknowledged by an officer of the
Lender at its head office or at the branch of the Lender where this Guaranty is
given. No such notice shall affect any rights of the Lender or of any affiliate
hereunder including, without limitation, the rights set forth in Sections 4 and
6, with respect to Liabilities incurred prior to the receipt of such notice or
Liabilities incurred pursuant to any contract or commitment in existence prior
to such receipt, and all checks, drafts, notes, instruments (negotiable or
otherwise) and writings made by or for the account of the Borrower and drawn on
the Lender or any of its agents purporting to be dated on or before the date of
receipt of such notice, although presented to and paid or accepted by the Lender
after that date, shall form part of the Liabilities. This Guaranty shall
continue to be effective or be reinstated, notwithstanding any such notice, if
at any time any payment made or value received with respect to an Obligation is
rescinded or must otherwise be returned by the Lender upon the insolvency,
bankruptcy or reorganization of the Borrower, or otherwise, all as though such
payment had not been made or value received.
-3-
<PAGE>
10. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the
Guarantor, its successors and assigns, and shall inure to the benefit of and be
enforceable by the Lender and its successors, transferees and assigns. Without
limiting the generality of the foregoing sentence and as permitted in the Loan
Agreement, the Lender may assign or otherwise transfer any agreement or any note
held by it evidencing, securing or otherwise executed in connection with the
Liabilities, or sell participations in any interest therein, to any other person
or entity, and such other person or entity shall thereupon become vested, to the
extent set forth in the agreement evidencing such assignment, transfer or
participation, with all the rights in respect thereof granted to the Lender
herein.
11. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by the Guarantor therefrom shall be
effective unless the same shall be in writing and signed by the Lender. No
failure on the part of the Lender to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right.
12. NOTICES. All notices and other communications called for hereunder
shall be made in accordance with and shall be deemed to have been duly made or
given when delivered in accordance with the provisions of Section 17 of the Loan
Agreement.
13. GOVERNING LAW; CONSENT TO JURISDICTION. This Guaranty is intended to
take effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of The Commonwealth of Massachusetts. The Guarantor
agrees that any suit for the enforcement of this Guaranty may be brought in the
courts of The Commonwealth of Massachusetts or any Federal Court sitting therein
and consents to the non-exclusive jurisdiction of such court and to service of
process in any such suit being made upon the Guarantor by mail at the address
specified in Section 12 hereof. The Guarantor hereby waives any objection that
it may now or hereafter have to the venue of any such suit or any such court or
that such suit was brought in an inconvenient court.
14. MISCELLANEOUS. This Guaranty constitutes the entire agreement of the
Guarantor with respect to the matters set forth herein. The rights and remedies
herein provided are cumulative and not exclusive of any remedies provided by law
or any other agreement, and this Guaranty shall be in addition to any other
guaranty of the Liabilities. The invalidity or unenforceability of any one or
more sections of this Guaranty shall not affect the validity or enforceability
of its remaining provisions. Captions are for the ease of reference only and
shall not affect the meaning of the relevant provisions. The meanings of all
defined terms used in this Guaranty shall be equally applicable to the singular
and plural forms of the terms defined.
15. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS. THE GUARANTOR HEREBY
WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT
OF ANY DISPUTE IN CONNECTION WITH
-4-
<PAGE>
THIS AGREEMENT OR ANY OTHER OF THE LOAN DOCUMENTS TO WHICH THE GUARANTOR IS A
PARTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF
SUCH RIGHTS AND OBLIGATIONS. EXCEPT TO THE EXTENT EXPRESSLY PROHIBITED BY LAW,
THE GUARANTOR 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 GUARANTOR (A) CERTIFIES THAT NO REPRESENTATIVE, LENDER 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 IT IS PARTY BY, AMONG OTHER THINGS, THE WAIVERS AND
CERTIFICATIONS CONTAINED HEREIN.
IN WITNESS WHEREOF, the Guarantor has executed and delivered this
Guaranty, or caused this Guaranty to be executed and delivered by its duly
authorized officer, as of the date appearing on page one.
WITNESS: GUARANTOR:
MICROFLUIDICS CORPORATION
By: /s/ Irwin J. Gruverman
- ------------------------------ --------------------------------
Name: Irwin J. Gruverman
Title: Chairman and CEO
-5-
<PAGE>
EXHIBIT 10.33
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT is made as of this 28th day of February, 2000,
by and between MFIC Corporation, a Delaware corporation (the "Company"), with a
place of business at 30 Ossipee Road, Newton, Massachusetts 02464 and National
Bank of Canada, a Canadian chartered bank with a place of business at One
Federal Street, Boston, Massachusetts 02110 (the "Lender").
WHEREAS, the Company is the legal and beneficial owner of all of the
issued and outstanding shares of each class of the capital stock of each of the
corporations described on Annex A as the same may be amended from time to time
pursuant to the terms hereof (the "Subsidiaries"); and
WHEREAS, the Company has entered into a Revolving Credit and Term Loan
Agreement of even date herewith (as amended and in effect from time to time, the
"Credit Agreement"), with the Lender, pursuant to which the Lender, subject to
the terms and conditions contained herein, is to make loans to the Company; and
WHEREAS, pursuant to a certain Security Agreement (Inventory, Accounts,
Equipment and Other Property) of even date herewith (as amended from time to
time, the "Security Agreement"), the Borrower has granted to the Lender a
security interest in the Borrower's Collateral (as defined in the Security
Agreement) to secure the Liabilities (as defined in the Credit Agreement) of the
Borrower to the Lender;
WHEREAS, it is a condition precedent to the Lender making any loans to the
Company under the Credit Agreement and in order to more fully vest the security
interest granted in the Security Agreement, the Company execute and deliver to
the Lender a pledge agreement in substantially the form hereof; and
WHEREAS, the Company wishes to grant pledges and security interests in
favor of the Lender as herein provided;
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ss.1. Pledge of Stock, Etc.
(1) The Company hereby pledges, assigns, grants a security interest
in, and delivers to the Lender, all of the shares of capital stock of the
Subsidiaries of every class, as more fully described on Annex A hereto, to be
held by the Lender subject to the terms and conditions hereinafter set forth.
The certificates for such shares, accompanied by stock powers or other
appropriate instruments of assignment thereof duly executed in blank by the
Company, have been delivered to the Lender.
(2) In case the Company shall acquire any additional Stock of any
Subsidiary not set forth on Annex A or additional shares of the capital stock of
any Subsidiary or corporation which is the successor of any Subsidiary, or any
securities exchangeable for or convertible into shares of such capital stock of
any class of any Subsidiary, by purchase or otherwise, then the Company shall
forthwith deliver to and pledge such shares or other securities to the Lender
under this Agreement. The Company agrees that the Lender may from time to time
attach as Annex A hereto an updated list of the shares of capital stock or
securities at the time pledged with the Lender hereunder.
<PAGE>
ss.2. Definitions. The term "Liabilities" and all other capitalized terms
used herein without definition shall have the respective meanings provided
therefor in the Credit Agreement. Terms used herein and not defined in the
Credit Agreement or otherwise defined herein that are defined in the Uniform
Commercial Code of Massachusetts have such defined meanings herein, unless the
context otherwise indicated or requires, and the following terms shall have the
following meanings:
Stock. Includes the shares of stock described in Annex A attached (as
amended from time to time pursuant to the terms hereof) hereto and any
additional shares of stock at the time pledged with the Lender hereunder.
Stock Collateral. The property at any time pledged to the Lender hereunder
and all income therefrom, increases therein and proceeds thereof, but excluding
from the definition of "Stock Collateral" any income, increases or proceeds
thereof and any and all substitutions, replacements, and additions thereof.
ss.3. Security for Liabilities. This Agreement and the security interest
in and pledge of the Stock Collateral hereunder are made with and granted to the
Lender as security for the payment and performance in full of all the
Liabilities.
ss.4. Liquidation, Recapitalization, Etc.
Any sums or other property paid or distributed upon or with respect to any
of the Stock, whether by dividend or redemption or upon the liquidation or
dissolution of the issuer thereof or otherwise, shall be paid over and delivered
to the Lender to be held by the Lender as security for the payment and
performance in full of all of the Liabilities and shall be applied in reduction
of the Liabilities in accordance with the terms and conditions of the Credit
Agreement. In case, pursuant to the recapitalization or reclassification of the
capital of the issuer thereof or pursuant to the reorganization thereof, any
distribution of capital shall be made on or in respect of any of the Stock or
any property shall be distributed upon or with respect to any of the Stock, the
property so distributed shall be delivered to the Lender to be held by Lender as
security for the payment and performance in full of all of the Liabilities and
shall be applied in reduction of the Liabilities in accordance with the terms
and conditions of the Credit Agreement. All sums of money and property paid or
distributed in respect of the Stock, whether as a dividend or upon such a
liquidation, dissolution, recapitalization or reclassification or otherwise,
that are received by the Company shall, until paid or delivered to the Lender,
be held in trust for the Lender as security for the payment and performance in
full of all of the Liabilities.
ss.5. Warranty of Title; Authority. The Company hereby represents and
warrants that: (a) the Company has good and marketable title to the Stock
described in ss.1, subject to no pledges, liens, security interests, charges,
options, restrictions or other encumbrances except the pledge and security
interest created by this Agreement, (b) the Company has full power, authority
and legal right to execute, deliver and perform its obligations under this
Agreement and to pledge and grant a security interest in all of the Stock
Collateral pursuant to this Agreement, and the execution, delivery and
performance hereof and the pledge of and granting of a security interest in the
Stock Collateral hereunder have been duly authorized by all necessary corporate
or other action and do not contravene any law, rule or regulation or any
provision of the Company's charter documents or by-laws or of any judgment,
decree or order of any tribunal or of any agreement or instrument to which the
Company is a party or by which it or any of its property is bound or affected or
constitute a default; thereunder, and (c) the information set forth in Annex A
hereto relating to the Stock is true, correct and complete in all respects. The
Company covenants that it will defend the Lender's rights and security interest
in such Stock against the claims and demands of all persons whomsoever. The
Company further covenants that it will have the like title to and right to
pledge and grant a security
-2-
<PAGE>
interest in the Stock Collateral hereafter pledged or in which a security
interest is granted to the Lender hereunder and will likewise defend the
Lender's rights, pledge and security interest thereof and therein.
ss.6. Voting, Etc., Prior to Maturity. So long as no Default or Event of
Default shall have occurred and be continuing, the Company shall be entitled to
vote the Stock and to give consents, waivers and ratifications in respect of the
Stock; provided, however, that no vote shall be cast or consent waiver or
ratification given by the Company if the effect thereof would impair any of the
Stock Collateral or be inconsistent with or result in any violation of any of
the provisions of the Credit Agreement. All such rights of the Company to vote
and give consents, waivers and ratifications with respect to the Stock shall, at
the Lender's option, as evidenced by the Lender's notifying the Company of such
election, cease in case a Default or an Event of Default shall have occurred and
be continuing.
ss.7. Remedies
(1) If a Default or an Event of Default shall have occurred and be
continuing, the Lender shall thereafter have the following rights and remedies
(to the extent permitted by applicable law) in addition to the rights and
remedies of a secured party under the Uniform Commercial Code of Massachusetts,
all such rights and remedies being cumulative, not exclusive, and enforceable
alternatively, successively or concurrently, at such time or times as the Lender
deems expedient:
(1) if the Lender so elects and gives notice of such election
to the Company, the Lender may vote any or all shares of the Stock
(whether or not the same shall have been transferred into its name or the
name of its nominee or nominees) for any lawful purpose, including,
without limitation, if the Lender so elects, for the liquidation of the
assets of the issuer thereof, and give all consents, waivers and
ratifications in respect of the Stock and otherwise act with respect
thereto as though it were the outright owner thereof (the Company hereby
irrevocably constituting and appointing the Lender the proxy and
attorney-in-fact of the Company, with full power of substitution, to do
so);
(2) the Lender may demand, sue for, collect or make any
compromise or settlement the Lender deems suitable in respect of any Stock
Collateral;
(3) the Lender may sell, resell, assign and deliver, or
otherwise dispose of any or all of the Stock Collateral, for cash or
credit or both and upon such terms at such place or places, at such time
or times and to such entities or other persons as the Lender thinks
expedient, all without demand for performance by the Company or any notice
or advertisement whatsoever except as expressly provided herein or as may
otherwise be required by law;
(4) the Lender may cause all or any part of the Stock held by
it to be transferred into its name or the name of its nominee or nominees;
and
(5) the Lender may set off against the Liabilities any and all
sums deposited with it or held by it.
(2) In the event of any disposition of the Stock Collateral as
provided in clause (iii) of ss.7(a), the Lender shall give to the Company at
least ten (10) Business Days prior written notice of the time and place of any
public sale of the Stock Collateral or of the time after which any private sale
or any other intended disposition is to be made. The Company hereby acknowledges
that ten (10) Business Days prior written notice of such sale or sales shall be
reasonable notice. The Lender may enforce its rights hereunder without any other
notice and without compliance with any
-3-
<PAGE>
other condition precedent now or hereunder imposed by statute, rule of law or
otherwise (all of which are hereby expressly waived by the Company, to the
fullest extent permitted by law). The Lender may buy any part or all of the
Stock Collateral at any public sale and if any part or all of the Stock
Collateral is of a type customarily sold in a recognized market or is of the
type which is the subject of widely-distributed standard price quotations, the
Lender may buy at private sale and may make payments thereof by any means. The
Lender may apply the cash proceeds actually received from any sale or other
disposition to the reasonable expenses of retaking, holding, preparing for sale,
selling and the like, to reasonable attorneys fees, travel and all other
expenses which may be incurred by the Lender in attempting to collect the
Liabilities or to enforce this Agreement or in the prosecution or defense of any
action or proceeding related to the subject matter of this Agreement, and then
to the Liabilities in the order set forth in such order or preference as the
Lender may determine after proper allowance for Liabilities not then due. Only
after such applications, and after payment by the Lender of any amount required
by ss.9-504(1)(c) of the Uniform Commercial Code of the Commonwealth of
Massachusetts, need the Lender account to the Company for any surplus. To the
extent that any of the Liabilities are to be paid or performed by a person other
than the Company, the Company waives and agrees not to assert any rights or
privileges which it may have under ss.9-112 of the Uniform Commercial Code of
the Commonwealth of Massachusetts.
(3) If the Lender shall determine to exercise its right to sell any
or all of the Stock pursuant to this ss.7, and if in the opinion of counsel for
the Lender it is necessary, or if in the reasonable opinion of the Lender it is
advisable, to have the Stock, or that portion thereof to be sold, registered
under the provisions of the Securities Act of 1933, as amended (the "Securities
Act"), the Company agrees to use its best efforts to cause the issuer or issuers
of the Stock contemplated to be sold, to execute and deliver, and cause the
directors and officers of such issuer to execute and deliver, all at the
Company's expense, all such instruments and documents, and to do or cause to be
done all such other acts and things as may be necessary or, in the reasonable
opinion of the Lender, advisable to register such Stock under the provisions of
the Securities Act and to cause the registration statement relating thereto to
become effective and to remain effective for a period of 9 months from the date
such registration statement became effective, and to make all amendments thereto
or to the related prospectus or both that, in the reasonable opinion of the
Lender, are necessary or advisable, all in conformity with the requirements of
the Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto. The Company agrees to use its best efforts to
cause such issuer or issuers to comply with the provisions of the securities or
"Blue Sky" laws of any jurisdiction which the Lender shall designate and to
cause such issuer or issuers to make available to its security holders, as soon
as practicable, an earnings statement (which need not be audited) which will
satisfy the provisions of Section 11(a) of the Securities Act.
(4) The Company recognizes that the Lender may be unable to effect a
public sale of the Stock by reason of certain prohibitions contained in the
Securities Act, federal banking laws, and other applicable laws, but may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers. The Company agrees that any such private sales may be at prices
and other terms less favorable to the seller than if sold at public sales and
that such private sales shall not by reason thereof be deemed not to have been
made in a commercially reasonable manner. The Lender shall be under no
obligation to delay a sale of any of the Stock for the period of time necessary
to permit the issuer of such securities to register such securities for public
sale under the Securities Act, or such other federal banking or other applicable
laws, even if the issuer would agree to do so. Subject to the foregoing, the
Lender agrees that any sale of the Stock shall be made in a commercially
reasonable manner, and the Company agrees to use its best efforts to cause the
issuer or issuers of the Stock contemplated to be sold, to execute and deliver,
and cause the directors and officers of such issuer to execute and deliver, all
at the Company's expense, all such instruments and documents, and to do or cause
to be done all such other acts and things as may be necessary or, in the
reasonable opinion of the Lender, advisable to exempt such Stock from
registration under the
-4-
<PAGE>
provisions of the Securities Act, and to make all amendments to such instruments
and documents which, in the opinion of the Lender, are necessary or advisable,
all in conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. The
Company further agrees to use its best efforts to cause such issuer or issuers
to comply with the provisions of the securities or "Blue Sky" laws of any
jurisdiction which the Lender shall designate and, if required, to cause such
issuer or issuers to make available to its security holders, as soon as
practicable, an earnings statement (which need not be audited) which will
satisfy the provisions of Section 11(a) of the Securities Act.
(5) The Company further agrees to do or cause to be done all such
other acts and things as may be reasonably necessary to make any sales of any
portion or all of the Stock pursuant to this ss.7 valid and binding and in
compliance with any and all applicable laws (including, without limitation, the
Securities Act, the Securities Exchange Act of 1934, as amended, the rules and
regulations of the Securities and Exchange Commission applicable thereto and all
applicable state securities or "Blue Sky" laws), regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at the Company's expense. The Company further agrees
that a breach of any of the covenants contained in this ss.7 will cause
irreparable injury to the Lender, that the Lender has no adequate remedy at law
in respect of such breach and, as a consequence, agrees that each and every
covenant contained in this ss.7 shall be specifically enforceable against the
Company and the Company hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants.
ss.8. Marshalling. The Lender shall not be required to marshal any present
or future security for (including but not limited to this Agreement and the
Stock Collateral), or other assurances of payment of, the Liabilities or any of
them, or to resort to such security or other assurances of payment in any
particular order. All of the Lender's rights hereunder and in respect of such
security and other assurances of payment shall be cumulative and in addition to
all other rights, however existing or arising. To the extent that it lawfully
may, the Company hereby agrees that it will not invoke any law relating to the
marshalling of collateral that might cause delay in or impede the enforcement of
the Lender's rights under this Agreement or under any other instrument
evidencing any of the Liabilities or under which any of the Liabilities is
outstanding or by which any of the Liabilities is secured or payment thereof is
otherwise assured, and to the extent that it lawfully may the Company hereby
irrevocably waives the benefits of all such laws.
ss.9. Company's Liabilities Not Affected. The obligations of the Company
hereunder shall remain in full force and effect without regard to, and shall not
be impaired by (a) any exercise or nonexercise, or any waiver, by the Lender of
any right, remedy, power or privilege under or in respect of any of the
Liabilities or any security thereof (including this Agreement); (b) any
amendment to or modification of the Credit Agreement, the other Loan Documents
or any of the Liabilities; (c) any amendment to or modification of any
instrument (other than this Agreement) securing any of the Liabilities; or (d)
the taking of additional security for, or any other assurances of payment of,
any of the Liabilities or the release or discharge or termination of any
security or other assurances of payment or performance for any of the
Liabilities; whether or not the Company shall have notice or knowledge of any of
the foregoing.
ss.10. Transfer, Etc., by Company. Without the prior written consent of
the Lender, the Company will not sell, assign, transfer or otherwise dispose of,
grant any option with respect to, or pledge or grant any security interest in or
otherwise encumber or restrict any of the Stock Collateral or any interest
therein, except for the pledge thereof and security interest therein provided
for in this Agreement.
-5-
<PAGE>
ss.11. Further Assurances. The Company will do all such acts, and will
furnish to the Lender all such financing statements, certificates, legal
opinions and other documents and will obtain all such governmental consents and
corporate approvals and will do or cause to be done all such other things as the
Lender may reasonably request from time to time in order to give full effect to
this Agreement and to secure the rights of the Lender hereunder, all without any
cost or expense to the Lender. If the Lender so elects, a photocopy of this
Agreement may at any time and from time to time be filed by the Lender as a
financing statement in any recording office in any jurisdiction.
ss.12. Lender's Exoneration. Under no circumstances shall the Lender be
deemed to assume any responsibility for or obligation or duty with respect to
any part or all of the Stock Collateral of any nature or kind or any matter or
proceedings arising out of or relating thereto, other than [ (a) ] to exercise
reasonable care in the physical custody of the Stock Collateral and (b) after [a
Default or an Event of Default shall have occurred and be continuing to act in a
commercially reasonable manner. The Lender shall not be required to take any
action of any kind to collect, preserve or protect its or the Company's rights
in the Stock Collateral or against other parties thereto. The Lender's prior
recourse to any part or all of the Stock Collateral shall not constitute a
condition of any demand, suit or proceeding for payment or collection of any of
the Liabilities.
ss.13. No Waiver, Etc.. Neither this Agreement nor any term hereof may be
changed, waived, discharged or terminated except by a written instrument
expressly referring to this Agreement and to the provisions so modified or
limited, and executed by the party to be charged. No act, failure or delay by
the Lender shall constitute a waiver of its rights and remedies hereunder or
otherwise. No single or partial waiver by the Lender of any default or right or
remedy that it may have shall operate as a waiver of any other default, right or
remedy or of the same default, right or remedy on a future occasion. The Company
hereby waives presentment, notice of dishonor and protest of all instruments,
included in or evidencing any of the Liabilities or the Stock Collateral, and
any and all other notices and demands whatsoever (except as expressly provided
herein or in the Credit Agreement).
ss.14. Notices, Etc. All notices, requests and other communications
hereunder shall be made in the manner set forth in Section 17 of the Credit
Agreement.
ss.15. Termination. Upon final payment and performance in full of the
Liabilities, and the termination of the Credit Agreement, this Agreement shall
terminate and the Lender shall, at the Company's request and expense, return
such Stock Collateral in the possession or control of the Lender as has not
theretofore been disposed of pursuant to the provisions hereof, together with
any moneys and other property at the time held by the Lender hereunder.
ss.16. Overdue Amounts. Until paid, all amounts due and payable by the
Company hereunder shall be a debt secured by the Stock Collateral and shall
bear, whether before or after judgment, interest at the rate of interest for
overdue principal set forth in the Credit Agreement.
ss.17. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS INTENDED
TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. The Company
agrees that any suit for the enforcement of this Agreement may be brought in the
courts of the Commonwealth of Massachusetts or any federal court sitting therein
and consents to the non-exclusive jurisdiction of such court and to service of
process in any such suit being made upon the Company by mail at the address
specified in Section 17 of the Credit Agreement. The Company hereby waives any
objection that it may now or hereafter have to the venue of any such suit or any
such court or that such suit is brought in an inconvenient court.
-6-
<PAGE>
ss.18. Waiver of Jury Trial. THE COMPANY WAIVES ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF
ANY SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law, the Company waives
any right which 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 Company (a)
certifies that neither the Lender nor any 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, in entering into the Credit Agreement [and the other Loan
Documents to which the Lender is a party], the Lender is relying upon, among
other things, the waivers and certifications contained in this ss.18.
ss.19. Miscellaneous. The headings of each section of this Agreement are
for convenience only and shall not define or limit the provisions thereof. This
Agreement and all rights and obligations hereunder shall be binding upon the
Company and its respective successors and assigns, and shall inure to the
benefit of the Lender and its successors and assigns. If any term of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity of
all other terms hereof shall be in no way affected thereby, and this Agreement
shall be construed and be enforceable as if such invalid, illegal or
unenforceable term had not been included herein. The Company acknowledges
receipt of a copy of this Agreement.
This Agreement is intended to be supplemental of the Security Agreement.
All provisions of the Security Agreement from the Borrower to the Lender shall
apply to the Stock Collateral and the Lender shall have the same rights with
respect to any and all Stock Collateral granted the Lender to secure the
Liabilities hereunder as thereunder. In the event of a conflict between this
Agreement and the Security Agreement, the terms of this Agreement shall control
with respect to the Security Agreement.
IN WITNESS WHEREOF, intending to be legally bound, the Company and the
Lender have caused this Agreement to be executed as of the date first above
written.
MFIC CORPORATION
By: /s/ Irwin J. Gruverman
---------------------------
Title: Chairman and CEO
------------------------
NATIONAL BANK OF CANADA
By: /s/ A. Keith Broyles
---------------------------
Title: Vice President
------------------------
By: /s/ Leonard J. Pellecchia
---------------------------
Title: Vice President
------------------------
-7-
<PAGE>
The undersigned Subsidiaries hereby join in the above Agreement for the
sole purpose of consenting to and being bound by the provisions of ss.ss.4, 6
and 7 thereof, the undersigned hereby agreeing to cooperate fully and in good
faith with the Lender and the Company in carrying out such provisions.
MICROFLUIDICS CORPORATION
By: /s/ Irwin J. Gruverman
-----------------------------
Title: Chairman and CEO
---------------------------
None of the issuers has any authorized, issued or outstanding shares of
its capital stock of any class or any commitments to issue any shares of its
capital stock of any class or any securities convertible into or exchangeable
for any shares of its capital stock of any class except as otherwise stated in
this Annex A.
Number of Number of Number of Par or
Record Class of Authorized Issued Outstanding Liquidation
Issuer Owner Shares Shares Shares Shares Value
------ ----- ------ ------ ------ ------ -----
-8-
<PAGE>
EXHIBIT 10.34
Subordination Agreement
- --------------------------------------------------------------------------------
Date: As of February 28, 2000
This Subordination Agreement is made amongst MFIC Corporation, a Delaware
corporation (hereinafter, the "Borrower"), with a place of business at 30
Ossipee Road, Newton, Massachusetts 02464; and
Lake Shore Industries, Inc. (hereinafter, the "Creditor"),
- ----------------------------------------------------------
Name
11323 Scogen Lane, Grand Haven, Michigan 49413
- ----------------------------------------------
Address
and National Bank of Canada, a Canadian chartered bank with offices at One
Federal Street, Boston, Massachusetts 02110 (hereinafter, the "Lender") for good
and valuable consideration and in consideration of the mutual covenants
contained herein and benefits to be derived herefrom.
1. Unless and until the within Agreement is terminated by written notice
from the Lender, the Creditor and the Borrower hereby agree with the Lender that
all Junior Debt (defined below) is and shall be subject and subordinate to the
Liabilities (defined below) of the Borrower to the Lender on the terms and
conditions set forth in this Agreement.
2. Unless and until the within Agreement is terminated by written notice
from the Lender, the Creditor shall not
(1) subject to the provisions of Paragraph 4 hereof, demand, accept,
or receive from the Borrower any payment or other value on account of the
Junior Debt; or
(2) set off, contra, or otherwise apply, all or any part of the
Junior Debt towards satisfaction of any obligation of the Creditor to the
Borrower; or
(3) exercise any of the Creditor's rights, remedies, powers,
privileges, and discretions with respect to the Junior Debt including,
without limitation, the acceleration of the time for payment of the Junior
Debt; or
(4) demand, accept, or receive any evidence of, or collateral for,
the Junior Debt; or
(5) modify or amend any of the terms of the Junior Debt, including,
without limitation, any provisions relating to the rate of interest,
principal amortization, maturity, or the dates upon which payment of
principal or interest are due.
3. Unless and until the within Agreement is terminated by written notice
from the Lender, the Borrower shall not
(1) subject to the provisions of Paragraph 4 hereof, make any
payment or give any value to the Creditor on account of the Junior Debt;
or
(2) set off, contra, or otherwise apply, all or any part of any
obligation of the Creditor to the Borrower towards satisfaction of the
Junior Debt; or
<PAGE>
(3) execute, give, or deliver any evidence of, or collateral for the
Junior Debt; or
(4) modify or amend any of the terms of the Junior Debt, including,
without limitation, any provisions relating to the rate of interest,
principal amortization, maturity, or the dates upon which payment of
principal or interest are due.
4. Until the Creditor and/or the Borrower receive notice from the Lender
(which notice may be furnished at any time after the occurrence of a default or
event of default (however defined) under any agreement between the Lender and
the Borrower (whether or not there are other parties thereto)), the Creditor may
receive, and the Borrower may make, payments on account of the Junior Debt as
follows: (a) Commencing May 31, 2000 and continuing through and including
February 28,2001, the Borrower may make, and the Creditor may receive, quarterly
payments of interest only at a rate not to exceed ten percent (10 %) per annum;
and (b) Commencing February 28, 2001 and continuing thereafter, the Borrower may
make, and the Creditor may receive, monthly payments of principal on account of
the Junior Debt, each of which shall not exceed the amount of Six Thousand Two
Hundred Fifty and 00/100 Dollars ($6,250.00) per month, plus interest at a rate
not to exceed ten percent (10 %) per annum. The Creditor may not, in any case,
receive payment of (i) interest which is accrued and past due or (ii) principal
which is past due, at the time of execution of this Subordination Agreement or
accelerate the time for payment of the Junior Debt, even if an event of default
arises thereunder.
5. The Creditor shall cause all instruments, documents and agreements
evidencing the Junior Debt to bear the following legend prominently on the first
page thereof:
PURSUANT TO A SUBORDINATION AGREEMENT DATED AS OF FEBRUARY 28, 2000,
AS AMENDED AND IN EFFECT BY AND AMONG MFIC CORPORATION, NATIONAL
BANK OF CANADA AND LAKE SHORE INDUSTRIES, INC. THE REPAYMENT THIS
NOTE AND ALL INDEBTEDNESS EVIDENCED HEREBY IS SUBJECT AND
SUBORDINATE TO THE LIABILITIES OF MFIC CORPORATION DUE OR TO BECOME
DUE TO NATIONAL BANK OF CANADA AND ITS SUCCESSORS AND ASSIGNS .
6. The Creditor and the Borrower shall each execute all such further
instruments and do such other and further acts as the Lender may request in
furtherance of the Lender's rights hereunder and/or the purposes of this
Agreement. The respective obligations of the Creditor and the Borrower hereunder
being unique, are specifically enforceable by the Lender.
7. The Creditor hereby designates the Lender as and for the
attorney-in-fact of the Creditor to exercise any and all rights, remedies,
powers, privileges, and discretions of the Creditor with respect to the Junior
Debt with respect to any bankruptcy proceeding including, without limitation, to
file a proof of claim or similar pleading in, participate in the place and stead
of the Creditor in, and receive any dividend or distribution on account of, any
bankruptcy or insolvency proceeding of the Borrower.
8. The Lender shall have no duty as to the collection or protection of the
Junior Debt or any income or distribution thereon, beyond the safe custody of
such of the Junior Debt as may come into the possession of the Lender and shall
have no duty as to the preservation of any rights pertaining thereto, including,
without limitation, any rights against prior parties.
9. In the event that notwithstanding the provisions of this Agreement, the
Creditor receives any payments or distribution of assets or securities of the
Borrower of any kind or character on account of the Junior Debt in violation of
this Agreement, the Creditor shall hold such payments, assets and /or securities
in trust for the Lender and shall not commingle such payments, assets and /or
securities with any other funds or property of the Creditor. The Creditor shall
deliver all such payments, assets and /or securities to the Lender immediately
upon the receipt thereof by the Creditor in the identical form received, duly
endorsed to the Lender for application toward the Liabilities as provided in
Paragraph 10, hereof.
<PAGE>
10. The proceeds (if any) received by the Lender on account of the Junior
Debt shall be applied towards the Liabilities in such order and manner as the
Lender determines in its sole discretion (whether or not any default exists
under the Borrower's loan arrangement with the Lender). Any such proceeds
received by the Lender in excess of the amounts necessary to satisfy the
Liabilities shall be paid to the Creditor.
11. The Creditor
(1) waives notice of non-payment, presentment, demand, notice, and
protest with respect to the Liabilities and/or the Junior Debt;
(2) waives notice of the acceptance of this agreement by the Lender;
(3) assents to any extension, renewal, indulgence or waiver,
permitted the Borrower and/or any other person liable or obligated to the
Lender for or on the Liabilities;
(4) authorizes the Lender to alter, amend, cancel, waive, or modify
any term or condition of the Liabilities and of the obligations of any
other person liable or obligated to the Lender for or on the Liabilities
without notice to, or consent from, the Creditor;
(5) if entitled thereto, waives the right to notice and/or hearing
prior to the Lender's exercising of the Lender's rights and remedies
hereunder. No action by the Lender which has been assented to herein shall
affect the obligations of the Creditor to the Lender hereunder.
12. The subordination effected hereby shall not be affected by any
fraudulent, illegal, or improper act by the Borrower, the Creditor, or any
person liable or obligated to the Lender for or on the Liabilities, nor by any
release, discharge or invalidation, by operation of law or otherwise, of the
Liabilities or by the legal incapacity of the Borrower, the Creditor, or any
other person liable or obligated to the Lender for or on the Liabilities. All
interest and costs of collection with respect to the Liabilities for which the
Borrower has agreed to be liable shall continue to accrue and shall continue to
be Liabilities for purposes of the subordination effected hereby notwithstanding
any stay to the enforcement thereof against the Borrower or disallowance
therefor against the Borrower.
13. The books and records of the Lender showing the account between the
Lender and the Borrower or the Lender and the Creditor shall be admissible in
any action or proceeding to enforce the within agreement and shall constitute
prima facie evidence and proof of the items contained therein.
14. In the event (a) the Lender determines that any representation made by
the Borrower or the Creditor to the Lender herein was not true or accurate when
given and/or (b) the Borrower or the Creditor (or both) fails to promptly,
punctually, and faithfully perform or discharge any obligation hereunder or an
event of default occurs under any other instrument, document, or agreement
between the Borrower or the Creditor and the Lender, all Liabilities, and any
and all liabilities, obligations, and indebtedness of the Creditor to the
Lender, whether arising hereunder or under any other document, instrument, or
agreement to the Lender (whether now existing or hereafter arising), shall
become immediately due and payable, at the Lender's option and without notice or
demand.
15. The Borrower will pay on demand all attorneys' fees and out-of-pocket
expenses incurred by the Lender's attorneys and all costs incurred by the
Lender, including, without limitation, costs associated with travel on behalf of
the Lender, which costs and expenses are directly or indirectly related to the
Lender's efforts to preserve, protect, collect, or enforce any of the
obligations of the Creditor and/or any of the obligations of the Borrower and/or
any of the Lender's Rights and Remedies hereunder (whether or not suit is
instituted by or against the Lender).
-3-
<PAGE>
16. The Creditor will pay on demand all attorneys' fees and out-of-pocket
expenses incurred by the Lender's attorneys and all costs incurred by the
Lender, including, without limitation, costs associated with travel on behalf of
the Lender, which costs and expenses are directly or indirectly related to the
Lender's efforts to preserve, protect, collect, or enforce any of the
obligations of the Creditor and/or any of the Lender's Rights and Remedies
hereunder (whether or not suit is instituted by or against the Lender).
17. The within Agreement incorporates all discussions and negotiations
amongst and between the Borrower, the Creditor, and the Lender concerning the
subordination effected hereby. No such discussions or negotiations shall limit,
modify, or otherwise affect the provisions hereof. No provisions hereof may be
altered, amended, waived, cancelled, or modified, except by a written instrument
executed, sealed, and acknowledged by a duly authorized officer of the Lender.
18. The Lender may continue to rely upon the within Agreement and the
subordination effected hereby with respect to all Liabilities which may arise
hereafter. The repayment and satisfaction of all of such Liabilities shall not
terminate the within Agreement and the subordination effected hereby as to
Liabilities which arise thereafter.
19. The rights, remedies, powers, privileges, and discretions of the
Lender hereunder (hereinafter, 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 of the Lender's Rights and Remedies or of any
default or remedy under any other agreement with the Borrower or the Creditor
shall operate as a waiver of any other default hereunder or thereunder. No
exercise of the Lender's Rights and Remedies and no other agreement or
transaction, of whatever nature, entered into between the Lender and the
Creditor and/or between the Lender and the Borrower at any time shall preclude
any other or further exercise of the Lender's Rights and Remedies. No waiver by
the Lender of any of the Lenders' Rights and Remedies on any one occasion shall
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 with the Creditor and/or the Borrower shall be 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 may proceed with respect to the Junior Debt and the Junior
Collateral without resort or regard to other collateral or sources of
satisfaction of the Liabilities or the liabilities, obligations and indebtedness
of the Creditor to the Lender.
20. As used herein, the following terms have the following meanings:
"Liability" and "Liabilities" shall have the meaning set forth in that
certain Revolving Credit and Term Loan Agreement dated February 28, 2000 by and
between the Borrower and the Lender, as the same may be modified, amended and/or
restated.
The Lender's books and records shall be prima facie evidence of the
Borrower's Liabilities.
"Junior Debt" includes all liabilities, obligations, and indebtedness now
or hereafter owed by the Borrower to the Creditor pursuant to that certain
promissory note dated February 28, 2000 in the original principal amount of
Three Hundred Thousand and 00/100 Dollars made payable by the Borrower to the
Creditor.
21. The within Agreement shall be binding upon the Creditor, the Borrower
and their respective heirs, executors, administrators, representatives,
successors, and assigns, and shall inure to the benefit of the Lender, and the
Lender's successors and assigns. Without limiting the foregoing, any assignee of
the Creditor shall be bound by the terms and conditions of this Agreement, and
such assignee shall, at the Lender's option, execute and deliver to the Lender
such documents as the Lender may reasonably require
-4-
<PAGE>
to confirm such assignee's acknowledgment of the same. However, the failure of
such assignee to execute any such document shall in no way modify or impair the
terms and conditions of this Agreement.
22. It is intended that this Agreement take effect as a sealed instrument
and be governed by the laws of The Commonwealth of Massachusetts. The Creditor
and the Borrower each submit to the jurisdiction of the courts of said
Commonwealth for all purposes in connection with the within Agreement and their
respective relationships with the Lender.
23. The Borrower makes the following waiver 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.
THE BORROWER, TO THE EXTENT ENTITLED THERETO, WAIVES ANY PRESENT OR FUTURE RIGHT
OF THE BORROWER, OR OF ANY GUARANTOR OR ENDORSER OF THE BORROWER OR OF ANY OTHER
PERSON LIABLE TO THE LENDER ON ACCOUNT OF OR IN RESPECT TO THE LIABILITIES, TO A
TRIAL BY JURY IN ANY CASE OR CONTROVERSY IN WHICH THE LENDER IS OR BECOMES A
PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR
IN WHICH THE LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY
ARISES OUT OF, OR IS IN RESPECT TO, ANY RELATIONSHIP AMONGST OR BETWEEN THE
BORROWER, ANY SUCH PERSON, AND THE LENDER.
The undersigned certify that the undersigned read this Agreement prior to
its execution.
Witness LAKE SHORE INDUSTRIES, INC.
("Creditor")
_______________________________ By: /s/ Bret A. Lewis
----------------------------------
Print Name: Bret A. Lewis
Title: President
Witness: MFIC CORPORATION
("Borrower")
_______________________________ By: /s/ Irwin J. Gruverman
----------------------------------
Print Name: Irwin J. Gruverman
Title: Chairman and C.E.O.
Witness: NATIONAL BANK OF CANADA
("Lender")
_________________________________ By: /s/ A. Keith Broyles
----------------------------------
Print Name: A Keith Broyles
Title: Vice President
By: /s/ Leonard J. Pellecchia
----------------------------------
Print Name: Leonard J. Pellecchia
Title: Vice President
-5-
<PAGE>
EXHIBIT 10.35
PURSUANT TO A SUBORDINATION AGREEMENT DATED AS OF FEBRUARY 28, 2000, AND IN
EFFECT BY AND AMONG MFIC CORPORATION, NATIONAL BANK OF CANADA AND LAKE SHORE
INDUSTRIES, INC. THE REPAYMENT OF THIS NOTE AND ALL INDEBTEDNESS EVIDENCED
HEREBY IS SUBJECT AND SUBORDINATE TO THE LIABILITIES OF MFIC CORPORATION DUE OR
TO BECOME DUE TO NATIONAL BANK OF CANADA AND ITS SUCCESSORS AND ASSIGNS.
SUBORDINATED PROMISSORY NOTE
$300,000.00 FEBRUARY 28, 2000
FOR VALUE RECEIVED, MFIC Corporation, a Delaware corporation (the
"Company"), hereby promises to pay to the order of Lake Shore Industries, Inc.,
a Michigan corporation, (the "Payee"), subject to the conditions set forth
herein, the principal sum of Three Hundred Thousand Dollars ($300,000.00) in
lawful money of the United States, together with interest accruing from the date
hereof on the outstanding principal balance (and on any interest installment not
paid when due) at a rate per annum equal to ten (10%) percent per annum.
Principal shall be paid in forty-eight (48) equal monthly consecutive
installments, and the first payment shall be due on the Principal Repayment Date
(as defined in the succeeding sentence) and subsequent payments shall be due on
the last day of each month thereafter until the principal balance is paid in
full. The Principal Repayment Date shall be February 28, 2001.
Interest shall be payable quarterly in arrears and the first payment shall
be due on May 31, 2000, and subsequent payments shall be due on the last day of
each August, November, February and May thereafter. Interest shall be calculated
on the basis of actual days elapsed over a 365 or 366-day year, as the case may
be. Any payments hereunder will be applied in the following order of priority:
first to any accrued and unpaid interest due and owing by the Company to the
Payee and then to the unpaid principal balance of this Note. The Company may
prepay the principal amount outstanding on this Note (together with any accrued
but unpaid interest) in whole or in part without premium, penalty or fee at any
time.
Payments of principal and interest will be made by check or by wire
transfer of funds, in immediately available United Stated funds, sent to the
holder at the address furnished to the Company for that purpose.
1. Subordination. The Payee's rights to payment of principal and interest
hereunder shall be subject to the rights of the holders of Senior Debt pursuant
to and as defined in the Subordination Agreement with The National Bank of
Canada dated as of the date hereof (the "Subordination Agreement"), consistent
with the provisions of the Settlement Agreement dated January 17, 2000, by and
among the Company, the Payee and others.
2. Events of Default. The outstanding principal of and accrued interest on
this Note shall, at the option of the holder hereof, become immediately due and
payable without notice or demand, subject to the terms of the Subordination
Agreement, upon the happening of any one of the following specified events (such
events referred to herein as an "Event of Default"):
(a) failure to pay any amount as herein set forth within fifteen
(15) days following the due date thereof, which failure remains uncured
for thirty (30) days,
<PAGE>
-2-
provided that an Event of Default will not be deemed to have occurred if,
in accordance with the terms of the Subordination Agreement, the Company
is precluded from making any payments when due hereunder.
(b) the making of a general assignment for the benefit of creditors.
(c) the filing of any petition or the commencement of any proceeding
by the Company for any relief under any bankruptcy or insolvency laws, or
any laws relating to the relief of debtors, readjustment of indebtedness,
reorganizations, compositions, or extensions; or
(d) the filing of any petition or the commencement of any proceeding
against the Company for any relief under any bankruptcy or insolvency
laws, or any laws relating to the relief of debtors, readjustment or
indebtedness, reorganizations, compositions, or extensions, which
proceeding is not dismissed within sixty (60) days.
3. Waiver of Holder. No waiver of any obligation of the Company under this
Note shall be effective unless it is in a writing signed by the holder. A waiver
by the holder of any right or remedy under this Note on any occasion shall not
be a bar to exercise of the same right or remedy on any subsequent occasion or
of any other right or remedy at any time.
4. Notice. Any notice required or permitted under this Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the fifth
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed as follows:
if to the Company, at
MFIC Corporation
30 Ossipee Road
Newton, Massachusetts 02464-9101; or
at such other address which the Company may provide to the Payee in
writing from time to time; and
If to the holder, at the most recent address provided to the Company
by the holder for such purpose; or , in each case, to the most recent address,
specified by written notice, given to the Company pursuant to this paragraph.
5. Waiver by Company. The Company hereby expressly waives presentment,
demand, and protest, notice of demand, dishonor and nonpayment of this Note, and
all other notices or demands of any kind in connection with the delivery,
acceptance, performance, default or enforcement hereof, and hereby consents to
any delays, extensions of time, renewals, waivers or modifications that may be
granted or consented to by the holder hereof with respect to the time of payment
of any other provision hereof.
6. Severability. In the event any one or more of the provisions of this
Note shall for any reason be held to be invalid, illegal or unenforceable, in
whole or in part or in any respect, or
<PAGE>
-3-
in the event that any one or more of the provisions of this Note operate or
would prospectively operate to invalidate this Note, then and in any such event,
such provision(s) only shall be deemed null and void and shall not affect any
other provision of this Note and the remaining provisions of this Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
7. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
8. Prohibition on Certain Transfers.
(a) Company's Consent. This Note shall not be transferred, assigned,
encumbered, pledged or hypothecated by the Payee during its term, nor shall it
dispose of any right, claim, title or interest in this Note without the express
written approval of the Company as evidenced solely by the Company's Chairman or
Board of Directors. The Payee grants unconditionally to the Company a first
right of refusal (of not less then ten (10) business days) to purchase this Note
under the same terms and conditions as those offered by or to any qualified
purchaser. The Payee warrants and agrees that should the Company grant it the
right to sell this Note to a third party (where such agreement to sell shall not
be unreasonably withheld by the Company), then the terms and conditions of such
sale shall clearly require that the purchaser be a qualified investor under the
Securities Act of 1933, that such purchaser execute an investment representation
letter under terms which are acceptable to the Company and the terms of the
Senior Debt and that the purchaser execute a letter of assent, agreeing to be
bound by the conditions as set forth in the Subordination Agreement and all
succeeding documents, including the terms and conditions of the Senior Debt.
(b) Legend. THIS NOTE MAY BE DEEMED A SECURITY AND, AS SUCH, HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. IF THIS NOTE IS DEEMED A SECURITY, IT MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO MFIC CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
Signed the day and year first above written.
MFIC CORPORATION
By: /s/ Irwin J. Gruverman
---------------------------------------
Irwin J. Gruverman, Chief Executive
Officer
ATTESTED:
By: /s/ Jack M. Swig
--------------------------------------
Jack M. Swig, General Counsel
<PAGE>
EXHIBIT 10.37
SETTLEMENT AGREEMENT
This Agreement which is executed on this 17th day of January, 2000 is by and
among:
MFIC Corporation, formerly Microfluidics International Corporation, a
corporation organized under the laws of Delaware ("MFIC" or the "Company"); and
J.B. Jennings and Bret A. Lewis ("Jennings & Lewis") in their individual
capacities and Bret Lewis' in his capacity as the President of JLJ Properties,
Inc. ("JLJ Inc.") and Lake Shore Industries, Inc., formerly Epworth
Manufacturing Company ("Lake Shore").
WHEREAS: On or about August 14, 1998 MFIC purchased the assets and selected
liabilities of Epworth Manufacturing Company, a corporation organized under the
laws of Michigan ("Epworth") and the purchased the assets and selected
liabilities of Morehouse-COWLES, Inc., a corporation organized under the laws of
California ("MC");
WHEREAS: The beneficial owners of Epworth and MC were Jennings & Lewis, each of
whom held 50% of the outstanding shares of Epworth and MC;
WHEREAS: As a result of the August 14, 1998 purchase of the assets and selected
liabilities of Epworth and MC by MFIC, said MFIC issued two promissory notes to
Lake Shore in the aggregate amount of Eight Hundred Thousand Dollars ($800,000)
(the "Subordinated Loans") where said notes were subordinated to a loan to MFIC
from Comerica Bank ("Comerica").
WHEREAS: MFIC, Lakeshore and Jennings & Lewis have indicated their intention to
restate the Subordinated Notes and to settle other pending disputes between them
through this Agreement;
WHEREAS: MFIC and JLJ Inc. have been involved in litigation pertaining to a
dispute relating to a lease executed by MFIC in favor of JLJ Inc. (the "M-43
lease"), which the parties now agree to settle, and
WHEREAS: MFIC, Jennings & Lewis, Lake Shore, and JLJ Inc. have executed a letter
of understanding dated December 20, - 1999, which agreement is herein
incorporated by reference and a copy of which is attached hereto as EXHIBIT A.
THEREFORE: the parties warrant and agree as follows:
1. MFIC and JLJ Inc. warrant and agree to settle all disputes relating to
the M-43 litigation, including the - withdrawal by MFIC of all pending
litigation, with prejudice, in exchange for MFIC tendering JLJ Inc.
payment totaling Fifty Eight Thousand Dollars ($58,000) under the
following terms and conditions:
A. MFIC shall, upon execution of: (i) this Agreement and (ii) the
Termination of Lease agreement attached hereto as EXHIBIT B,
tender to JLJ Inc. a check in the amount of Thirty Thousand
Dollars ($30,000) - based upon approval of a letter of
understanding dated December 20, 1999 by JLJ Inc., Lake Shore,
and Jennings & Lewis.
1
<PAGE>
The balance due to JLJ Inc. in the amount of Twenty Eight
Thousand Dollars ($28,000) shall be paid to JLJ Inc. not later
than one business day after the closing by MFIC of a new credit
facility of up to Four Million Five Hundred Thousand Dollars
($4,500,000) which shall replace the current facility with
Comerica (the "2000 Credit Facility"). However, JLJ Inc.
acknowledges and agrees that should MFIC be unable to close on
the 2000 Credit Facility on or before June 30, 2000 then the
balance due shall be added to the balance of any then outstanding
subordinated promissory note(s) due Lake Shore or such notes as
shall be contemplated hereby or entered into herein after.
2. The subordinated loans ("Subordinated Loans") as set forth in the
August 14, 1998 Acquisition of the Assets and Assumption of Selected
Liabilities Agreement (the "August 14 Agreements") will be restated as
of the date of the closing of the 2000 Credit Facility and will
reflect that at such closing, the total obligation to Jennings & Lewis
will be Eight Hundred Thousand Dollars ($800,000) (the "Subordinated
Loan Balance") which will specifically include any and all interest
which has accrued and is then currently unpaid and any other
deductions or set-off to which either MFIC, Lake Shore, or Jennings &
Lewis may have or be entitled to under any rights or agreements.
3. Jennings & Lewis, individually and on behalf of Lake Shore, warrant
and agree that they will accept as payment in full for Five Hundred
Thousand Dollars ($500,000) of the Subordinated Loan Balance, Five
Hundred Thousand (500,000) shares of MFIC Common Stock (the "Shares").
The Shares shall be issued to Jennings & Lewis, without registration,
at a price of One Dollar ($1.00) per share (the "Issue Price").
Jennings & Lewis acknowledge that they are currently shareholders in
MFIC and that they fully understand that MFIC shares are traded solely
on the NASDAQ - Over The Counter Bulletin Board ("OTC-BB") and that as
such, the per share value determined herein above has been set solely
by agreement of MFIC and Jennings & Lewis and is not necessarily
reflective of the book, current or future value of MFIC stock.
Jennings & Lewis further acknowledge that as of the date of execution
of this Agreement, MFIC stock is trading on the OTC-BB at a price
which is substantially less then the agreed Issue Price and that MFIC
has not represented or otherwise warranted to them that the value of
the stock is expected or will rise to or above the price set forth
herein above.
4. Jennings & Lewis warrant and agree that under the terms of their
acceptance of the Shares as payment for $500,000 of the Subordinated
Loan Balance, that they shall grant to MFIC, an unconditional right to
purchase back from them the 500,000 shares of MFIC stock, as described
herein above, for a term not to exceed three (3) years from the date
of the issuance of the Shares for a fixed price of One Dollar and
seventy five cents ($1.75) per share. Jennings & Lewis further warrant
and agree that MFIC shall have a first right of refusal to purchase
the Shares during the three-year period.
5. Lake Shore agrees to convert the remaining portion of the Subordinated
Loan Balance into a five (5) year promissory note which will become a
general corporate obligation of MFIC and which will be subordinated
under terms and conditions similar to those set forth in an
2
<PAGE>
agreement of subordination between Jennings & Lewis and Comerica,
executed and effective as of August 12, 1998 and which may also
include those terms and conditions of subordination as set forth in a
"Position Statement Regarding Subordinated Debt and Requirements of a
Subordination Agreement with a Replacement Lender", which is attached
hereto as a portion of EXHIBIT A.. This note would be executed by MFIC
in favor of Lake Shore in the amount Three Hundred Thousand Dollars
($300,000), at a per annum interest of 10% for a five (5) year term
and subject to the terms and conditions which are set forth below (the
"2000 Subordinated Loan").
A. The execution of the 2000 Subordinated Loan shall not be effected
until MFIC has executed the 2000 Credit Facility. Jennings &
Lewis and Lake Shore acknowledge and agree that MFIC shall be
bound to execute the 2000 Subordinated Loan documents (under the
terms and conditions as set forth in this Agreement) not later
then two (2) business days after the closing of the 2000 Credit
Facility.
B. The 2000 Subordinated Loan shall be subordinated to the interests
of the lender(s) under the 2000 Credit Facility without regard to
any provisions contained in the August 14 Agreements. Any
provisions regarding acceleration of the subordinated debt or its
collection thereof which are contained in the 2000 Credit
Facility shall be considered to be binding on the 2000
Subordinated Loan and Lake Shore warrants and agrees that it will
not attempt to collect or otherwise accelerate the payment of the
2000 Subordinated Loan except under those provisions which will
be contained in the 2000 Subordinated Loan agreement or in the
2000 Credit Facility.
C. Lake Shore further warrants and agrees that the 2000 Subordinated
Loan shall not be transferred, assigned, encumbered, pledged or
hypothecated by it during its term, nor shall it dispose of any
right, claim, title or interest in the 2000 Subordinated Loan
without the express written approval of MFIC as evidenced solely
by the Company's Chairman or Board of Directors. Lake Shore
grants unconditionally to MFIC a first right of refusal (of not
less then ten (10) business days) to purchase the 2000
Subordinated Loan under the same terms and conditions as those
offered by or to any qualified purchaser. Lake Shore warrants and
agrees that should MFIC grant it the right to sell the 2000
Subordinated Loan to a third party (where such agreement to sell
shall not be unreasonably withheld by MFIC), then the terms and
conditions of such sale shall clearly require that the purchaser
be a qualified investor under the Securities Act of 1933, that
such purchaser execute an investment representation letter under
terms which are acceptable to MFIC and the terms of the 2000
Credit Facility and that the purchaser execute a letter of
assent, agreeing to be bound by the conditions as set forth in
this Agreement and all succeeding documents, including the terms
and conditions of the 2000 Credit Facility which specifically
relate to the subordination of other MFIC obligations and the
2000 Subordinated Loan.
3
<PAGE>
D. Lake Shore and MFIC each agree that the terms of the 2000
Subordinated Loan shall provide that MFIC shall be required to
pay Lake Shore interest only on a quarterly basis, interest in
arrears, during the first year of the 2000 Subordinated Loan.
Thereafter principal and interest shall be calculated into 48
equal payments payable on the 15th day of each month following
the one year anniversary of the 2000 Subordinated Loan agreement.
E. Lake Shore agrees that the terms of 2000 Subordinated Loan shall
provide that neither it, nor the 2000 Subordinated Loan agreement
shall restrict or take any action intended to limit or otherwise
preclude the 2000 Credit Facility from being transferred or sold
from one lender to another for any reason what so ever. Lake
Shore further warrants and agrees that it will execute any
additional subordination documents or agreements which may be
required by each or any lender of the 2000 Credit Facility, or
any subsequent borrowing which replaces the 2000 Credit Facility,
so long as the terms of such additional subordination documents
or agreements are not materially different from the terms as set
forth in this document or where in fact they do not impose any
restrictions or other conditions which would be considered a
substantive change from the rights, duties and obligations of
Lake Shore under this Agreement.
F. Lake Shore grants to MFIC, or a replacement senior lender
participating in the 2000 Credit Facility, an unconditional right
to purchase the 2000 Subordinated Loan for a discount of Twenty
Percent (20%) where such purchase is completed prior to or
simultaneous with the closing of the 2000 Credit Facility, as set
forth herein above.
6. Except as noted herein after, the parties do hereby release, remise and
forever discharge the other of and from any and all claims, causes of
action, costs and liabilities of any nature, known or unknown, to the
fullest extent permitted by law, arising from or as a result of the August
14 Agreements. Notwithstanding the foregoing, MFIC's obligations: (a) to
Jennings & Lewis under their respective employment agreements dated August
14, 1998, (b) to B2 Enterprises, Inc under a lease dated August 14, 1998,
and to Lake Shore pursuant to the Subordinated Loans, are not affected by
such release and discharge except under the terms and conditions and as
anticipated by this Agreement.
Executed by the parties effective at the date first set forth herein above.
/s/ J. B. Jennings
MFIC Corporation ------------------------------
J. B. Jennings
/s/ Irwin J. Gruverman
- -------------------------------------
Irwin J. Gruverman, Chairman & C.E.O.
/s/ Bret A. Lewis
------------------------------
Bret A. Lewis
JLJ Properties, Inc. Lake Shore Industries, Inc.
/s/ Bret A. Lewis /s/ Bret A. Lewis
- ------------------------------------- ------------------------------
Bret A. Lewis, President Bret A. Lewis, President
4
<PAGE>
EXHIBIT 10.38
December 31, 1999
Irwin J. Gruverman
16 Tanglewood Road
Needham, MA 02494
Dear Mr. Gruverman:
This will confirm our Agreement concerning charges you will incur in connection
with your activities for G & G Diagnostics Corporation , and other arrangements.
You may maintain an office in our premises at 30 Ossipee Road and will pay MFIC
$900.00 per month for space, incidental administrative support, minor supplies
useage, and limited use of telephone and copying resources. You will reimburse
MFIC for express charges, accounting help and materials and services purchased
through our system.
MFIC CORP.
/s/ Michael Lento /s/ Irwin Gruverman
- ------------------------------ ----------------------------------
Michael Lento, President Irwin Gruverman
for myself and as
President, G&G
Diagnostics Corp.
/s/ Irwin Gruverman
- ------------------------------
Irwin Gruverman, CEO, Chairman
<PAGE>
EXHIBIT 10.39
December 31, 1999
Irwin J. Gruverman
16 Tanglewood Road
Needham, MA 02194
Dear Mr. Gruverman:
This will confirm our Agreement concerning your compensation as Chairman and CEO
of MFIC.
Subject to approval by the Board, we will pay you at a base rate of $95,000 per
year, beginning January 1,2000. You will participate in a bonus pool, if any,
for management employees. You agree that MFIC will withhold money from your
compensation to pay appropriate taxes. You will be included in MFIC's insurance
and medical programs as in past years, at no cost to you, as part of your
compensation.
MFIC CORPORATION
/s/ Irwin Gruverman /s/ Irwin Gruverman
- ------------------------------ ----------------------------------
Irwin Gruverman, CEO, Chairman Irwin Gruverman, for myself
<PAGE>
EXHIBIT 10.40
FIRST AMENDMENT TO REVOLVING CREDIT AND TERM
--------------------------------------------
LOAN AGREEMENT
- --------------
This First Amendment to Revolving Credit and Term Loan Agreement (the
"Amendment") is made as of the 30th day of March, 2000 by and among
MFIC Corporation (the "Borrower"), a Delaware corporation with its
principal executive offices at 30 Ossipee Road, Newton, Massachusetts
02464; and
National Bank of Canada, a Canadian chartered bank (the "Lender") with a
place of business at One Federal Street, Boston, Massachusetts 02110;
in consideration of the mutual covenants herein contained and benefits to be
derived herefrom.
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender entered into a certain Revolving
Credit and Term Loan Agreement dated as of February 28, 2000 (the "Loan
Agreement"); and
WHEREAS, the Borrower and the Lender desire to modify and amend the Loan
Agreement as provided herein.
NOW, THEREFORE, it is hereby agreed as follows:
1. Definitions. All capitalized terms used herein and not otherwise
defined shall have the same meanings herein as in the Loan Agreement.
2. Amendments to Section 8.
(1) Section 8.1 of the Loan Agreement (Consolidated Tangible Net Worth)
is hereby amended by deleting the table therefrom and substituting
the following table in its stead:
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 2001 Fiscal 2002
- ------------------------------------------------------------------------------------------------------
Quarter End $ Amount Quarter End $ Amount Quarter End $ Amount
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/31/00 2,400,000 3/31/01 2,950,000 3/31/02 3,500,000
- ------------------------------------------------------------------------------------------------------
6/30/00 2,500,000 6/30/01 3,050,000 6/30/02 3,600,000
- ------------------------------------------------------------------------------------------------------
9/30/00 2,600,000 9/30/01 3,150,000 9/30/02 3,700,000
- ------------------------------------------------------------------------------------------------------
12/31/00 2,850,000 12/31/01 3,400,000 12/31/02 3,950,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(2) Section 8.2 of the Loan Agreement (Liabilities to Worth
(Leverage) Ratio) is hereby amended by deleting the table
therefrom and substituting the following table in its stead:
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 2001 Fiscal 2002
- ---------------------------------------------------------------------------------------------------
Quarter End Ratio Quarter Ratio Quarter End Ratio
End
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/31/00 2.25 : 1.0 3/31/01 2.00 : 1.0 3/31/02 1.75 : 1.0
- ---------------------------------------------------------------------------------------------------
6/30/00 2.25 : 1.0 6/30/01 2.00 : 1.0 6/30/02 1.75 : 1.0
- ---------------------------------------------------------------------------------------------------
9/30/00 2.25 : 1.0 9/30/01 2.00 : 1.0 9/30/02 1.75 : 1.0
- ---------------------------------------------------------------------------------------------------
12/31/00 2.00 : 1.0 12/31/01 1.75 : 1.0 12/31/02 1.50 : 1.0
- ---------------------------------------------------------------------------------------------------
</TABLE>
(3) Section 8.4 of the Loan Agreement (Minimum Debt Service) is
hereby amended by deleting the table therefrom and substituting
the following table in its stead:
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 2001 Fiscal 2002
- ---------------------------------------------------------------------------------------------------
Quarter End Ratio Quarter Ratio Quarter Ratio
End End
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/31/01 1.50 : 1.0 3/31/02 1.75 : 1.0
- ---------------------------------------------------------------------------------------------------
6/30/01 1.50 : 1.0 6/30/02 1.75 : 1.0
- ---------------------------------------------------------------------------------------------------
9/30/01 1.50 : 1.0 9/30/02 1.75 : 1.0
- ---------------------------------------------------------------------------------------------------
12/31/00 1.50 : 1.0 12/31/01 1.75: 1.0 12/31/02 2.00 : 1.0
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
3. Conditions to Effectiveness. This Amendment shall not be effective
until each of the following conditions precedent have been fulfilled
to the satisfaction of the Lender:
(1) This Amendment shall have been duly executed and delivered by the
respective parties hereto and, shall be in full force and effect
and shall be in form and substance satisfactory to the Lender.
(2) All action on the part of the Borrower necessary for the valid
execution, delivery and performance by the Borrower of this
Amendment shall have been duly and effectively taken and evidence
thereof satisfactory to the Lender shall have been provided to the
Lender. The Lender shall have received from the Borrower true
copies of the resolutions adopted by its board of directors
authorizing the transactions described herein, certified by the
Borrower's secretary to be true and complete.
(3) The Borrower shall have paid an amendment fee to the Lender in the
amount of Ten Thousand and 00/100 ($10,000.00) Dollars.
(4) The Borrower shall have paid to the Lender all fees and expenses
then due and owing pursuant to the Agreement, including, without
limitation, the Lender's attorneys' fees and expenses.
(5) No Default or Event of Default shall have occurred and be
continuing.
(6) The Borrower shall have provided such additional instruments and
documents to the Lender as the Lender and the Lender's counsel may
have reasonably requested.
4. Ratification of Loan Documents. Except as provided herein, all terms
and conditions of the Loan Agreement and the other Loan Documents
remain in full force and effect. The Borrower hereby ratifies,
confirms, and reaffirms all representations, warranties, and covenants
contained therein and acknowledges and agrees that the Liabilities,
are and continue to be secured by the Collateral. The Borrower further
acknowledges and agrees that Borrower does not have any offsets,
defenses, or counterclaims against the Lender thereunder, and to the
extent that any such offsets, defenses, or counterclaims may exist, the
Borrower hereby waives and releases the Lender therefrom.
5. Miscellaneous.
(1) This Amendment may be executed in several counterparts and by each
party on a separate counterpart, each of which when so executed and
<PAGE>
delivered shall be an original, and all of which together shall
constitute one instrument.
(2) This Amendment expresses the entire understanding of the parties
with respect to the transactions contemplated hereby. No prior
negotiations or discussions shall limit, modify, or otherwise
affect the provisions hereof.
IN WITNESS WHEREOF, the undersigned have hereunto executed this Amendment
as a sealed instrument as of the date first above written.
MFIC CORPORATION
By: /s/ IRWIN J. GRUVERMAN
-------------------------
Name: Irwin J. Gruverman
Title: CEO
NATIONAL BANK OF CANADA,
a Canadian Chartered Bank
By: /s/ A. KEITH BROYLES
-------------------------
Name: A. Keith Broyles
Title: Vice President
By: /s/ LEONARD J. PELLECCHIA
-------------------------
Name: Leonard J. Pellecchia
Title: Vice President
<PAGE>
Exhibit 23(a.)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-6300, 33-19372, 33-38928, 33-38925, 33-86726, 333-14607, and 333-29949 of
MFIC Corporation (the "Company") on Form S-8 of our report dated March 28, 2000,
appearing in this Annual Report on Form 10-K of MFIC Corporation for the year
ended December 31, 1999.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 196,172
<SECURITIES> 0
<RECEIVABLES> 2,819,291
<ALLOWANCES> 0
<INVENTORY> 3,477,123
<CURRENT-ASSETS> 6,696,025
<PP&E> 1,707,745
<DEPRECIATION> 859,875
<TOTAL-ASSETS> 13,227,316
<CURRENT-LIABILITIES> 5,291,205
<BONDS> 0
0
0
<COMMON> 60,613
<OTHER-SE> 7,100,498
<TOTAL-LIABILITY-AND-EQUITY> 13,227,316
<SALES> 14,024,369
<TOTAL-REVENUES> 14,024,369
<CGS> 7,990,398
<TOTAL-COSTS> 14,417,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 542,045
<INCOME-PRETAX> (854,434)
<INCOME-TAX> 0
<INCOME-CONTINUING> (854,434)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (854,434)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
