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
X.X. Xxxxxxxx and Xxxx X. Xxxxx ("Xxxxxxxx & Xxxxx") in their individual
capacities and Xxxx Xxxxx' 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 Xxxxxxxxx-XXXXXX, Inc., a corporation organized under the laws of
California ("MC");
WHEREAS: The beneficial owners of Epworth and MC were Xxxxxxxx & Xxxxx, 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 Xxxxxxxx & Xxxxx 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, Xxxxxxxx & Xxxxx, 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 Xxxxxxxx & Xxxxx.
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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 Xxxxxxxx & Xxxxx
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 Xxxxxxxx &
Xxxxx may have or be entitled to under any rights or agreements.
3. Xxxxxxxx & Xxxxx, 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 Xxxxxxxx & Xxxxx, without registration,
at a price of One Dollar ($1.00) per share (the "Issue Price").
Xxxxxxxx & Xxxxx 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 Xxxxxxxx & Xxxxx and is not necessarily
reflective of the book, current or future value of MFIC stock.
Xxxxxxxx & Xxxxx 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. Xxxxxxxx & Xxxxx 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. Xxxxxxxx & Xxxxx 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
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agreement of subordination between Xxxxxxxx & Xxxxx 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. Xxxxxxxx &
Xxxxx 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.
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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
Xxxxxxxx & Xxxxx under their respective employment agreements dated Xxxxxx
00, 0000, (x) 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/ X. X. Xxxxxxxx
MFIC Corporation ------------------------------
X. X. Xxxxxxxx
/s/ Xxxxx X. Xxxxxxxxx
-------------------------------------
Xxxxx X. Xxxxxxxxx, Chairman & C.E.O.
/s/ Xxxx X. Xxxxx
------------------------------
Xxxx X. Xxxxx
JLJ Properties, Inc. Lake Shore Industries, Inc.
/s/ Xxxx X. Xxxxx /s/ Xxxx X. Xxxxx
------------------------------------- ------------------------------
Xxxx X. Xxxxx, President Xxxx X. Xxxxx, President
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