Loan And Security Agreement

FOURTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT


This Fourth Amendment to Loan and Security Agreement (this "Amendment"), dated as of August 10, 1999, 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 thereinafter jointly and severally, referred to as "Original Borrowers"), DENT-X INTERNATIONAL, INC., a New York corporation ("DXI") 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.


W I T N E S S E T H:


WHEREAS, Original Borrowers, and 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 (ii) that certain Second Amendment to Loan and Security Agreement dated as of July 14, 1995 and (iii) that certain Third Amendment to Loan and Security Agreement dated as of July 14, 1997 (as so amended, the "Original Loan Agreement") setting forth the terms and conditions under which Lender would make loans and other advances to Borrower; and


WHEREAS, DXl is a wholly owned subsidiary of AFP;


WHEREAS, on December 23, 1997 DXI acquired certain specified assets of ProDen SYSTEMS, INC., a Washington corporation ("ProDen"), pursuant to the terms of a certain Asset Purchase Agreement, dated as of December 23, 1997, by and among AFP, DXI, ProDen and Cade Adams (the "ProDen Purchase Agreement"); and


WHEREAS, Original Borrowers have 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 therein set forth:


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


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


2. Amendments. On the Effective Date of this Amendment the Original Loan Agreement is thereby amended as follows:


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


"'ACG' shall refer to ACG Nystromgruppen AB, a Swedish
corporation


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


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


"'Collateral' shall have the meaning given to it in Section 7 of
the Fourth Amendment."


"'DXI Note' refers to those certain subordinated promissory
notes dated December 23, 1997 in the aggregate face amount of
$3,000,000 made by DXI, pursuant to the ProDen Purchase Agreement,
and delivered to ProDen and Cade Adams, as amended by that certain
mediation settlement evidenced by a


new Promissory Note dated August 10, 1999, which results in the
aggregate face amount of the DXI Note being $850,000, with interest
at 7.75% per annum, and provides for interest only payments
beginning January l, 2000 through December 31, 2001 and principal
payments beginning January 1, 2002 based on a 36-month
amortization."


"'Excess Cash Flow' means Operating Cash Flow/Permitted less
Total Contractual Debt Service."


"'Operating Cash Flow/Permitted' means, for any period,
Borrower's net income or loss (excluding the effect of any
extraordinary gains or losses), determined in accordance with GAAP,
~ each of the following items, to the extent deducted from the
revenue of Borrower in the calculation of net income or loss: (i)
depreciation; (ii) amortization and other non-cash charges; (iii)
interest expense paid or accrued; (iv)total federal and state income
tax expense determined as the accrued liability of Borrower in
respect of such period, regardless of what portion of such expense
has actually been paid by Borrower during such period; and (v)
management fees and other fees paid to Subordinating Creditors, to
the extent permitted thereunder, and after deduction for each of (a)
federal and state income taxes, to the extent actually paid during
such period; (b) any non-cash income (but only to the extent such
non-cash income was included in the revenues of Borrower in the
calculation of net income or loss); and (c) all permitted Capital
Expenditures (without regard to any waiver given by Lender with
respect to any limitation on such Capital Expenditures) actually
made during such period and not financed."


"'Subordinating Creditor' shall mean and collectively refer to
ProDen, ACG and the holder of the DXI Note."


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


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


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


(d) Paragraph 3(G) is thereby 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 and, from and after
the Effective Date of the Fourth Amendment, all costs and
expenses incurred by Lender in connection therewith (the
"Examination Fee").


(e) Paragraph 9 is thereby amended by adding the following:


"(g) Excess Cash Flow Prepayments. Within sixty (60) days
following receipt by Lender of Borrower's annual audited
financial statements, commencing with such financial statements
for Borrower's fiscal year ending June 30, 1999, Lender may
deliver a notice to Borrower requiring Borrower to prepay the
Term Loans in an amount up to Fifty Percent (50%) of Borrower's
Excess Cash Flow for such year. Any prepayments required under
this section are strictly at the sole option of Lender, and are
payable within thirty (30) days following the date of demand by
Lender. All amounts paid pursuant to this section shall be
applied to the Obligations in such order as Lender may elect. No
Termination Fee or other form of prepayment premium shall be
applied to any payment made under this Paragraph."


(f) The following new Section 13(A)(vi) is thereby added to read
as follows:


"(vi) DXI is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York, is
qualified and authorized to do business and is in good standing
in all jurisdictions in which such qualification and good
standing are necessary in order for it to conduct its business
and own its property (other than to the extent that such failure
to qualify would not have a material adverse effect on the
business or financial condition of DXI), and has all requisite
power and


authority to conduct its business as presently conducted, to own
its property and to execute and deliver each of the Loan
Documents to which it is a party and perform all of its
Obligations thereunder;"


(g) The following is added as a new Section 13(B)(v):


"(v) DXI has not, since its formation, been known by or used
any other corporate or fictitious name, including, but not
limited to names which were used by ProDen;"


(h) The following is added at the end of Section 13(P):


"In addition to the locations specified on Exhibit A, it is
acknowledged that DXI, until July 30, 1999, will have offices at
13915 NW Third Court, Vancouver, Washington (the "Vancouver
Location"). The Borrower represents and warrants that the
Vancouver Location is used only until June 30, 1999 for office
purposes and no Inventory is (or shall be) stored or located at
the Vancouver Location."


(i) Section l5(K) is deleted is in its entirety and replaced
with the


"(K) Indebtedness. Create, incur, assume or permit to exist
any Indebtedness (including Indebtedness in connection with
Capital Leases) in excess of $450,000 during any fiscal year,
determined on a consolidated basis, other than (i) the
Obligations, (ii) trade payables and other contractual
obligations to suppliers and customers incurred in the ordinary
course of business, (iii) other Indebtedness existing on the date
of this Agreement and reflected in the Prepared Financials (other
than Indebtedness paid on the date of this Agreement from
proceeds of the initial advances thereunder), (iv) the
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