Third Amendment To Loan And Security Agreement

This Third Amendment to Loan and Security Agreement (this "Amendment"), dated as of July 14, 1997, is entered into by and among AFP IMAGING CORPORATION, a New York corporation, successor by merger to AFP Technologies Corporation, formerly known as Kenro Corporation, a New Jersey corporation ("AFP"), LOGETRONICS CORPORATION, a New York corporation ("LogE"), VISIPLEX INSTRUMENTS CORPORATION, a New York corporation formerly known as Xenon Industries, Inc. ("Visiplex") and REGAM MEDICAL SYSTEMS INTERNATIONAL AB, a Swedish corporation ("Regam") (AFP, LogE, Visiplex and Regam are hereinafter jointly and severally, referred to as "Borrower"), and FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender") formerly known as Greyhound Financial Corporation, successor-by-merger to Greyhound Financial Capital Corporation, an Oregon corporation ("Original Lender").


W I T N E S S E T H:


WHEREAS, Borrower, AFP Technologies Corporation, formerly known as Kenro Corporation, a New Jersey corporation and Original Lender are parties to that certain Loan and Security Agreement dated as of November 22, 1993, as the same was amended by (i) that certain First Amendment to Loan and Security Agreement dated as of December 7, 1993 and (ii) that certain Second Amendment to Loan and Security Agreement dated as of July 14, 1995 (as so amended, the "Loan Agreement") setting forth the terms and conditions under which Original Lender would make loans and other advances to Borrower; and


WHEREAS, effective as of December 31, 1994, Original Lender was merged with and into Lender (then known as Greyhound Financial Corporation), with Lender being the surviving corporation of such merger, and Lender succeeded to all the rights and obligations of Original Lender under the Loan Agreement and the Loan Documents; and


WHEREAS, effective on April 17, 1997 AFP acquired all of the issued and outstanding stock of Regam; and


WHEREAS, Borrower has requested that Lender make certain amendments to the Loan Agreement, which Lender is willing to do but only upon the terms and subject to the conditions herein set forth;


NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:


1. Definitions. Unless otherwise defined in this Amendment, all capitalized terms used herein shall have the same meaning as set forth in the Loan Agreement.


2. Amendments. The Loan Agreement is hereby amended as follows:


(a) Paragraph 1(A) is hereby amended by adding or substituting, as the case may be, the following definitions:


"this Agreement' shall mean this Loan and Security Agreement dated as
of November 22, 1993, as amended by the First Amendment, the Second
Amendment and the Third Amendment, and as the same may hereafter be
amended, restated, renewed, extended or modified from time to time."


"'Borrower' means, individually and collectively, jointly and
severally, each of AFP, LogE, Visiplex and Regam."


"'Collateral' shall have the meaning given to it in Section 3 of the
Third Amendment."


"'Eligible Backed Foreign Receivable' shall mean an otherwise Eligible
Receivable of an account debtor not located in the United States, where
such Receivable is fully supported by a letter of credit or other form of
guaranty or security, in each case in form and substance satisfactory to
Lender."


"'Eligible Named Foreign Receivable' shall mean an otherwise Eligible
Receivable of any of Siemens AG, Phillips Medical Systems, GE Belgium or
AGFA Gaevert."


"'Eligible Foreign Receivable' shall mean an Eligible Receivable of an
account debtor not located in the United States, but excluding (A) Eligible
Backed Foreign Receivables and (B) Eligible Named Foreign Receivables."


"'Loan Documents' means, collectively, this Agreement, the
Intellectual Property Security Agreement, the Subordination Agreement, the
Environmental Certificate, the Assignment of Contract, Term Note C, any
other note or notes executed by Borrower and payable to Lender, and any
other agreements entered into in connection with this Agreement, together
with all alterations, amendments, changes, extensions, modifications,
refinancings, refundings, renewals,


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replacements, restatements, or supplements, of or to any of the foregoing."


"'Regam' means Regam Medical Systems International AB, a Swedish
corporation."


"'Subordinating Creditor' means ACG Nystromgruppen AB, a Swedish
corporation."


"'Subsidiary' means any of LogE, Visiplex or Regam."


"'Term Note C' shall mean that certain promissory note of Borrower,
payable to Lender's order, dated as of the Third Amendment Effective Date,
in the original principal amount of $1,450,000, and attached as Exhibit A
to the Third Amendment, as the same may hereafter be amended, restated,
renewed, extended or modified, or any new note issued in substitution
therefor, from time to time."


"'Third Amendment' shall mean that certain Third Amendment to Loan and
Security Agreement dated as of July 14, 1997, between Lender and Borrower."


"'Third Amendment Effective Date' shall mean July 14, 1997, the date
upon which the Third Amendment became effective."


(b) Clause (v) of the definition of "Eligible Receivables" is hereby amended in its entirety to read as follows:


"(v) [Reserved];"


(c) Paragraph 2(B)(i)(b) is hereby amended in its entirety to read as follows:


"(b) an amount equal to (1) eighty percent (80%) of the net amount of
Eligible Receivables other than Eligible Named Foreign Receivables or
Eligible Foreign Receivables, plus (2) the lesser of (A) eighty percent
(80%) of the net amount of Eligible Named Foreign Receivables or (B)
$500,000, plus (3) the lesser of (A) fifty percent (50%) of the net amount
of Eligible Foreign Receivables or (B) $500,000;"


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(d) Paragraph 2(B)(iii) is hereby amended in its entirety to read as follows:


"(iii) Fixed Asset Loan: a term loan in the outstanding principal
amount of One Million Four Hundred and Fifty Thousand Dollars and No/100
($1,450,000.00) (the "Fixed Asset Loan"); provided, that the Fixed Asset
Loan shall be subject to such terms and conditions as are set forth on Term
Note C.


Lender shall disburse the Fixed Asset Loan in a single advance in
accordance with the terms and subject to the conditions set forth in the
Loan Agreement."


(e) The first sentence of Paragraph 3(A) is hereby amended in its entirety to read as follows:


"Borrower shall pay Lender interest on the daily outstanding balance of
Borrower's loan account at a per annum rate of three-quarters of one
percent (0.750%) in excess of the rate of interest announced publicly by
Citibank, N.A., from time to time as its 'base rate' (or any successor
thereto), which may not be such institution's lowest rate (the 'Base
Rate')."


(f) The final sentence of Paragraph 3(A) is hereby amended in its entirety to read as follows:


"The foregoing notwithstanding, the principal balance of the Fixed Asset
Loan shall bear interest at a per annum rate as set forth in Term Note C."


(g) Paragraph 3(B), providing for a Minimum Interest Charge, is hereby deleted in its entirety.


(h) Paragraph 3(G) is hereby amended in its entirety to read as follows:


"(G) Examination Fees. Borrower agrees to pay to Lender an examination
fee in the amount of Five Hundred and No/100 Dollars ($500.00) per day per
auditor in connection with each audit or examination of Borrower performed
by Lender prior to or after the date hereof, plus all costs and expenses
incurred in connection therewith (the "Examination Fee"). Notwithstanding
the foregoing, so long as there exists no Event of Default or any act or
event which with notice, passage of time, or both would constitute an Event
of Default, Borrower shall pay only Lender's actual fees and expenses
incurred during Lender's field examinations and audits, based upon a cycle
of


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one hundred and eighty (180) days between such field examinations/audits
and a limit of five (5) business days per such field examination/audit;
provided, however, that nothing herein shall be deemed to limit the
frequency or the duration of Lender's field examinations/audits."


(i) Paragraph 17(A) is hereby amended and restated in its entirety to read as follows:


"Term. The initial term of this Agreement shall be for three (3) years
from the Third Amendment Effective Date (the 'Initial Term') and shall be
automatically renewed for successive periods of one (1) year (each, a
'Renewal Term'), at the discretion of Lender, unless earlier terminated as
provided herein. All loans and all credit facilities shall be coterminous."


(j) Paragraph 17(D) is hereby amended in its entirety to read as follows:


"(D) Early Termination; Termination Fee. In addition to the procedure
set forth in Paragraph 17(B), Borrower may terminate this Agreement at any
time upon sixty (60) days' prior written notice and prepay the Obligations.
Upon any such early termination by Borrower or any termination of this
Agreement by Lender upon the occurrence of an Event of Default under
Paragraph 18(A) hereof, then, and in any such event, Borrower shall pay to
Lender upon the effective date of such termination a fee (the 'Termination
Fee') in an amount equal to: (i) three percent (3%) of the average daily
outstanding balance of the Obligations for the 180 day period (or lesser
period if applicable) preceding the date of termination, if such early
termination occurs on or prior to the first anniversary of the Third
Amendment Effective Date; (i) two percent (2%) of the average daily
outstanding balance of the Obligations for the 180 day period (or lesser
period if applicable) preceding the date of termination, if such early
termination occurs after the first anniversary of the Third Amendment
Effective Date but on or prior to the second anniversary of the Third
Amendment Effective Date; or (ii) one percent (1%) of the average daily
outstanding balance of the Obligations for the 180-day period preceding the
date of termination, if such early termination occurs after the second
anniversary of the Third Amendment Effective Date. The Termination Fee
shall be presumed to be the amount of damages sustained by Lender as a
result of the early termination, and Borrower agrees that because it is
difficult to calculate such damages, the Termination Fee provided for
herein is reasonable under the circumstances."


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(k) Notwithstanding anything to the contrary contained in the Loan Agreement, as long as (i) Borrower shall maintain excess borrowing availability of at least Five Hundred Thousand Dollars ($500,000), after giving effect to any requested but unfunded advance and payment in full of Borrower's suppliers to within sixty (60) days of such suppliers' respective written or agreed-upon terms, and (ii) there shall not then exist an Event of Default or any act or event which with notice, passage of time, or both would constitute an Event of Default, (1) Borrower shall report to Lender Collateral information on a monthly basis (in the form of a Borrowing Base Certificate to be prescribed by Lender), and (2) Borrower shall maintain dominion over its cash.


(l) Lender's address for notice purposes in Exhibit B to the Loan Agreement is hereby amended in its entirety to read as follows:


Lender's address for notices: FINOVA Capital Corporation
311 South Wacker Drive
Suite 4400
Chicago, Illinois 60606
Att'n: Brian G. Rujawitz
Fax: (312) 322-7250


with a copy to: FINOVA Capital Corporation
1850 North Central Avenue
Phoenix, Arizona 85002
Attention: Joseph R. D'Amore, Esq.
Fax: (602) 207-5036


with a copy to: Gammage & Burnham
Two North Central Avenue
Eighteenth Floor
Phoenix, Arizona 85004
Att'n: Randall S. Dalton, Esq.
Fax: (602) 256-4475


(m) The Validity and Support Agreement is hereby terminated and deemed to be of no further force or effect.


(n) Within sixty (60) days after the Third Amendment Effective Date, Borrower shall cause to be delivered to Lender a Subordination Agreement from ACG Nystromgruppen AB (the Subordinating Creditor) with respect to that certain US$1,000,000 promissory note of AFP dated April 17, 1997.


(o) Notwithstanding anything to the contrary contained in the Loan Agreement, "Eligible Receivables" shall exclude Receivables of Regam unless and


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until Lender shall have satisfied itself in its sole determination that Lender has a first priority perfected security interest in such Receivables of Regam.


(p) Notwithstanding anything to the contrary contained in the Loan Agreement, "Eligible Inventory" shall exclude Inventory of Regam unless and until Lender shall have satisfied itself in its sole determination that Lender has a first priority perfected security interest in such Inventory.


(q) The following new Section 13(A)(v) is hereby added to read as follows:


"(v) Regam is a corporation duly organized, validly existing and in
good standing ...