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Credit And Term Loan Agreement

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Sectors: Consumer Products (Durables)
Governing Law: Florida, View Florida State Laws
Effective Date: April 13, 2007
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Exhibit 10.2

Revolving Credit and Term Loan Agreement by and between ComVest Capital ,LLC and AFP Imaging Corporation.





REVOLVING CREDIT AND TERM LOAN AGREEMENT



AGREEMENT (this " Agreement ") is made and entered into as of the 13th day of April, 2007, by and between COMVEST CAPITAL, LLC , a Delaware limited liability company (the " Lender "), and AFP IMAGING CORPORATION , a New York corporation (the " Borrower ").



W I T N E S S E T H :



WHEREAS , the Borrower is engaged in the business of designing, developing, manufacturing and distributing equipment for generating, capturing and/or producing medical and dental diagnostic images through electronic technologies, and the chemical processing of photosensitive materials (collectively, the " Business Operations "); and



WHEREAS, QR-Italy (as such term is hereinafter defined) is party to the Acquisition Agreement (as such term hereinafter defined), and the Borrower seeks funds to [loan] [contribute] to QR-Italy to enable QR-Italy to pay the purchase price payable pursuant to the Acquisition Agreement; and



WHEREAS , in order to provide funds for (a) the repayment and retirement of the Borrower's existing loan facility with the Existing Lender (as such term is hereinafter defined), (b) the payment of a portion of the purchase price payable under the Acquisition Agreement, and (c) the Borrower's working capital and other general corporate purposes, the Borrower has requested the Lender to extend to the Borrower a revolving credit facility and a term loan on the terms and conditions of this Agreement; and



WHEREAS , the Lender is willing and able to provide such revolving credit facility and make such term loan to the Borrower on the terms and conditions of this Agreement;



NOW, THEREFORE , in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows:



I. DEFINITIONS



Section 1.01. Defined Terms . In addition to the other terms defined elsewhere in this Agreement, as used herein, the following terms shall have the following meanings:



" Accounts " shall mean "accounts" (as defined in the UCC) of the Borrower and its Domestic Subsidiaries from time to time.



" Account Debtor " shall mean any Person who is obligated on an Account.



" Acquisition Agreement " shall mean the Preliminary Contract for Share Transfer dated February 22, 2007 between NIM S.R.L., Gianmaria Tommasi, Mara Tacconi, Attilio Tacconi, Pierluigi Mozzo, and QR-Italy.



" Acquisition Documents " shall mean, collectively, the Acquisition Agreement and any and all agreements, instruments, certificates and other documents executed and/or delivered pursuant thereto.







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" Act " shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder.



" Advances " shall mean the principal amounts loaned to the Borrower from time to time pursuant to Section 2.01 below.



" Affiliate " shall mean, with respect to any Person, any other Person in Control of, Controlled by, or under common Control with the first Person, and any other Person who has a substantial interest, direct or indirect, in the first Person or any of its Affiliates, including, without limitation, any officer or director of the first Person or any of its Affiliates; provided , however , that neither the Lender nor any of its Affiliates shall be deemed an "Affiliate" of the Borrower for any purposes of this Agreement. For the purpose of this definition, a "substantial interest" shall mean the direct or indirect legal or beneficial ownership of more than ten (10%) percent of any class of stock or similar interest.



" Agreement " shall mean this Revolving Credit and Term Loan Agreement as it may from time to time be amended, modified, supplemented and/or restated.



" Applicable Law " shall mean all applicable provisions of all (a) constitutions, statutes, ordinances, rules, regulations and orders of all governmental and/or quasi-governmental bodies, (b) Government Approvals, and (c) order, judgments and decrees of all courts and arbitrators.



" Availability " shall mean the amount (if any) by which, at the time of determination, (a) the Revolving Credit Commitment exceeds (b) the outstanding principal amount of Advances.



" Borrowing Base " shall mean an amount, determined in accordance with the most recent borrowing base report provided to the Lender under Section 5.04(e) hereof, equal to (a) 85% of Eligible Accounts, plus (b) the lesser of (i) 50% of (A) Eligible Inventory minus (B) the Inventory Reserve, or (ii) $1,600,000, minus (c) such reserves as the Lender may establish from time to time in its Permitted Discretion (including, without limitation, to account for concentration and other risks of collection). In the event that the Borrower has not timely delivered a current Borrowing Base report in accordance with Section 5.04(e) below, then the applicable Borrowing Base shall be such amount as is established by the Lender, until such time as the Borrower has delivered a current Borrowing Base report.



" Borrowing Date " means the Business Day on which the Lender makes a Loan hereunder.



" Business Day " shall mean a day other than (a) a Saturday, (b) a Sunday, or (c) a day on which banking institutions in either the State of Florida or the State of New York are authorized or required by law or executive order to close.



" Capital Expenditures " shall mean with respect to any Person, all expenditures of such Person for tangible assets which are capitalized, and the fair value of any tangible assets leased by such Person under any lease which would be a Capitalized Lease, determined in accordance with GAAP, including all amounts paid or accrued by such Person in connection with the purchase (whether on a cash or deferred payment basis) or lease (including Capitalized Lease Obligations) of any machinery, equipment, real property, improvements to real property (including leasehold improvements), or any other tangible asset of such Person which is required, in accordance with GAAP, to be treated as a fixed asset on the consolidated balance sheet of such Person.







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" Capitalized Lease " shall mean any lease which is or should be capitalized on the balance sheet of the lessee thereunder in accordance with GAAP.



" Capitalized Lease Obligation " shall mean with respect to any Person, the amount of the liability which reflects the amount of future payments under all Capitalized Leases of such Person as at any date, determined in accordance with GAAP.



" Cash Equivalents " shall mean (a) marketable securities issued, or directly and fully guaranteed or insured, by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve (12) months from the date of acquisition; (b) time deposits, demand deposits, certificates of deposit, acceptances or prime commercial paper issued by, or repurchase obligations for underlying securities of the types described in clause (a) entered into with any commercial bank having a short-term deposit rating of at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investors Service, Inc.; (c) commercial paper with a rating of A-I or A-2 or the equivalent thereof by Standard & Poor's Corporation or P-1 or P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within twelve (12) months after the date of acquisition; (d) marketable direct obligations issued by any state in the United States or any agency or instrumentality thereof maturing within twelve (12) months from the date of acquisition thereof and, at the time of acquisition, have one of the two highest ratings generally obtainable from either Standard & Poor ?s Corporation or Moody's Investors Services, Inc.; (e) tax-exempt commercial paper of United States municipal, state or local governments rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investors Services, Inc. and maturing within twelve (12) months after the date of acquisition thereof; (f) any other items selected by the Borrower and approved by the Lender (which approval shall not be unreasonably withheld or delayed); or (g) any mutual fund or other pooled investment vehicle which invests principally in the foregoing obligations.



" Closing Date " shall mean the date on which the Term Loan is funded, which shall be simultaneous with the consummation of the transactions pursuant to the Acquisition Agreement.



" Closing Fees " shall mean (a) the sum of $30,000 in respect of the revolving credit facility hereunder, and (b) the sum of $150,000 with respect to the Term Loan, all of which shall be payable in accordance with Section 2.03(a) below.



" Code " shall mean the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder, as in effect from time to time.



" Collateral " shall mean all collateral pledged by the Borrower and/or any of the Subsidiaries as security for the payment and performance of the Obligations, whether pursuant to the Collateral Agreement or any other Security Document.



" Collateral Agreement " shall mean the Collateral Agreement, dated as of the Closing Date, by and between the Borrower and the Lender, as same may be amended, modified, supplemented and/or restated from time to time.



" Commitment Fees " shall mean the annual fees payable to the Lender pursuant to Section 2.03(b)(iii) below.







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" Common Stock " shall mean the authorized common stock of the Company, $.01 par value per share.



" Confidential Information " shall mean information that the Borrower furnishes to the Lender which is not generally available to the public or available to the Lender from a source other than the Borrower which is not, to the Lender's knowledge, bound by any confidentiality agreement in respect thereof.



" Contract " shall mean any indenture, agreement (other than this Agreement), other contractual restriction, lease in which the Borrower or any Subsidiary is a lessor or lessee, license or instrument.



" Control " shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms " Controlling " and " Controlled " shall have meanings correlative thereto.



" Control Agreement " shall mean, with respect to each bank account and/or securities account maintained by or in the name of the Borrower or any Domestic Subsidiary, an agreement executed and delivered by the Borrower (or the subject Domestic Subsidiary, as applicable) and the account intermediary, whereby the account intermediary acknowledges the Lender's Lien on such account and all funds or property therein, and "control" (within the meaning of the UCC) over such account is established in favor of the Lender.



" Default " shall mean any of the events specified in Article VII hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.



" Disclosure Schedule " shall mean the disclosure schedule, dated as of the Closing Date, executed and delivered by the Borrower to the Lender, the section numbers of which correspond to the Section numbers of this Agreement.



" Dollars " or " $ " shall mean United States Dollars, lawful currency for the payment of public and private debts.



" Domestic Subsidiary " shall mean any Subsidiary which is incorporated or formed under the laws of the United States, any State or Commonwealth in the United States, or the District of Columbia.



" Eligible Account " shall mean the face amount of each trade Account of the Borrower or a Domestic Subsidiary (if same has executed a Guaranty Agreement and become a party to the Collateral Agreement) for services rendered or goods and products sold in the ordinary course of the Business Operations which the Lender, in its Permitted Discretion, deems to be an Eligible Account; provided , however , that an Account shall not be deemed an Eligible Account unless it meets all of the following conditions:



(a) the subject services or products and goods have been rendered, shipped or delivered on an absolute sale basis to an Account Debtor which is not an Affiliate, vendor or supplier of the Borrower or a Subsidiary, with an invoice date contemporaneous with or within thirty (30) calendar days after the date of shipment or service, and which does not constitute a consignment sale, bill-and-hold sale, sale-and-return or other such arrangement and is not subject to any other repurchase, return or offset agreement binding upon the Borrower or a Domestic Subsidiary; the subject services or products and goods have been rendered, shipped and delivered (or shipped f.o.b.) to such Account Debtor on an open account basis (or with payment guaranteed by a domestic letter of credit, drawn on or by a domestic financial institution, acceptable to the Lender in all respects), and no part of the subject services, products or goods has been returned, rejected, lost or damaged; the Account is not evidenced by chattel paper or an instrument of any kind; and such Account Debtor, unless pre-approved in writing by the Lender, is not insolvent or the subject of any bankruptcy or insolvency proceeding of any kind in any jurisdiction;







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(b) if the Account Debtor is located outside the continental United States, payment for the subject services or goods shall be secured by an irrevocable letter of credit, which letter of credit shall have been confirmed by a financial institutional reasonably acceptable to the Lender payable in the full amount of the face value of the Account in lawful currency of the United States; provided , however , that the letter of credit requirement shall not be applicable to Accounts payable by Account Debtors whose principal place of business is located outside the continental United States to the extent that (i) the aggregate Accounts owed by such Account Debtors does not exceed the lesser of $500,000 or 25% of all Eligible Accounts, and (ii) each such Account would otherwise constitute an Eligible Account in accordance with the other criteria contained in this definition of "Eligible Account"; and further provided , that the Lender may, from time to time, in its sole and absolute discretion, waive any of the requirements of this subsection (b);



(c) it is a valid, legally enforceable obligation of the Account Debtor thereunder payable in Dollars and is not subject to any recoupment, offset or other defense or any discount or chargeback on the part of such Account Debtor (provided that prompt payment discounts granted in the ordinary course of business shall not cause an Account to be disqualified hereunder, so long as only the discounted amount of such Account, if not otherwise disqualified, is included in the calculation of the Borrowing Base) or to any claim on the part of such Account Debtor denying liability thereunder (provided that the undisputed portion may be considered to be an Eligible Account);



(d) it is subject to no Lien whatsoever, except for the Lien of the Lender;



(e) it has not remained unpaid in whole or in part for a period exceeding ninety (90) days after the original invoice date;



(f) it does not arise out of a transaction (whether direct or indirect) with an employee, officer, agent, director or Affiliate of the Borrower or any Subsidiary or with any entity controlled by any employee, officer, agent or director of the Borrower or any Subsidiary;



(g) it is not subject to any contract retainage or other withholding of any portion of payments on amounts invoiced, whether to secure the Borrower's or any Subsidiary's performance or otherwise;



(h) it does not represent the unpaid portion of an Account any portion of which was previously paid or agreed to be paid through the issuance or delivery of equity securities or other non-cash consideration;







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(i) if the Account Debtor is the United States, any State or Commonwealth therein, or any department, agency or instrumentality thereof, the Borrower or the applicable Domestic Subsidiary has duly assigned its rights to payment of such Account to the Lender pursuant to the federal Assignment of Claims Act and any comparable state statutes;



(j) the Lender has a perfected first priority Lien in such Account;



(k) such Account is not payable by any person other than the Account Debtor (such as a beneficiary, recipient or subscriber individually), provided that the portion thereof which is payable by the Account Debtor may be considered to be an Eligible Domestic Account;



(l) at least sixty (60%) percent in dollar amount of the total Accounts owed by such Account Debtor and/or its Affiliates constitute Eligible Accounts;



(m) the total Accounts owed by the subject Account Debtor and/or its Affiliates constitute less than fifteen (15%) percent of the net collectible dollar value of all Eligible Accounts (provided that only the excess over fifteen (15%) percent shall be disqualified under this clause (m), unless the Lender has otherwise consented in writing to the inclusion of all or any portion of such excess);



(n) such Account is payable solely to the Borrower or a Domestic Subsidiary, and the Borrower or such Domestic Subsidiary is not aware of any dispute by the Account Debtor with respect to such Account; and



(o) it is not otherwise determined by the Lender, in the Lender's Permitted Discretion, to be difficult to collect, uncollectible or otherwise unacceptable for any reason.



" Eligible Inventory " shall mean the lower of the cost (on a first in-first out basis) or fair market value of that inventory consisting of raw materials or finished goods (but excluding work in process and product models or samples) of Borrower or any Subsidiary which is party to the Collateral Agreement which (a) is in good and merchantable condition, (b) meets all standards imposed by any governmental agency having regulatory authority over such goods and/or their use, manufacture and/or sale, (c) has been physically received in the continental United States by the Borrower or the subject Subsidiary, or has been shipped to the Borrower or the subject Subsidiary with title thereto having passed to the Borrower or such Subsidiary, (d) is currently usable or currently saleable in the normal course of the Business Operations, (e) is not on consignment to or from any Person (provided that goods on consignment to the Borrower's or the subject Subsidiary's sales representatives and distributors shall not be excluded to the extent that the aggregate value (determined at the lower of cost or fair market value as aforesaid) of such goods is less than $250,000), (f) is not subject to any Lien whatsoever, except for the Lien of the Lender, which shall be perfected with respect to such inventory, (g) has not been sold to any Person, and (h) is otherwise satisfactory to the Lender in its Permitted Discretion.



" ERISA " shall mean the Employee Retirement Income Security Act of 1974, as in effect from time to time.



" ERISA Affiliate " shall mean, with respect to any Person, any other Person which is under common control with the first Person within the meaning of Section 414(b) or 414(c) of the Code; provided , however , that with respect to the Borrower, no Person which is an Affiliate of the Lender (other than the Borrower and its Subsidiaries) shall be deemed an ERISA Affiliate for purposes of this Agreement







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" Event of Default " has the meaning set forth in Article VII below.



" Exchange Act " shall mean the Securities Exchange Act of 1934, as amended.



" Existing Lender " shall mean Keltic Financial Partners LP, as the lender under the outstanding line of credit facility by and between such lender and the Borrower.



" Financial Statements " has the meaning set forth in Section 3.01(a) below.



" Fiscal Year " shall mean the fiscal year of the Borrower which ends on June 30 of each year.



" Foreign Subsidiary " shall mean any Subsidiary which is not a Domestic Subsidiary.



" GAAP " shall mean generally accepted accounting principles in the United States of America, consistently applied, unless the context otherwise requires, with respect to any financial terms contained herein, as then in effect with respect to the preparation of financial statements.



" Government Approval " shall mean an authorization, consent, non-action, approval, license or exemption of, registration or filing with, or report to, any governmental or quasi-governmental department, agency, body or other unit.



" Guaranty ", " Guaranteed " or to " Guarantee ", as applied to any Indebtedness, liability or other obligation, shall mean (a) a guaranty, directly or indirectly, in any manner, including by way of endorsement (other than endorsements of negotiable instruments for collection in the ordinary course of business), of any part or all of such obligation, and (b) an agreement, contingent or otherwise, and whether or not constituting a guaranty, assuring, or intended to assure, the payment or performance (or payment of damages in the event of non-performance) of any part or all of such obligation by any means (including, without limitation, the purchase of securities or obligations, the purchase or sale of property or services, or the supplying of funds).



" Guaranty Agreement " shall mean a guaranty agreement, in form and substance satisfactory to the Lender, to be executed by each Domestic Subsidiary in favor of the Lender, pursuant to which such Domestic Subsidiary will guaranty the full and timely payment and performance of all of the Obligations.



" Indebtedness " shall mean (without duplication), with respect to any Person, (a) all obligations or liabilities, contingent or otherwise, for borrowed money, (b) any and all obligations represented by promissory notes, bonds, debentures or the like, or on which interest charges are customarily paid, (c) any liability secured by any mortgage, pledge, lien or security interest on property owned or acquired, whether or not such liability shall have been assumed, (d) obligations of such Person under conditional sale or other title retention agreements relating to property or assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade payables and accrued obligations incurred in the ordinary course of business), (f) any obligations (contingent or otherwise) of such Person as an account party or applicant in respect of letters of credit and/or bankers' acceptances, or in respect of financial or other hedging obligations, and (g) Guarantees, endorsements (other than for collection in the ordinary course of business) and other contingent obligations in respect of the obligations of others.







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" Intellectual Property " shall have the meaning ascribed thereto in the Collateral Agreement.



" Inventory Reserve " shall mean, as of any date of determination, an amount equal to the sum of (a) the lower of the cost (on a first in-first out basis) or fair market value of those parts or other inventory of the Borrower and/or the Subsidiaries which are party to the Collateral Agreement which has been returned by customers and is subject to the Borrower's or Subsidiary ?s quarantine procedures or manufacturer's review board policies as then in effect, plus (b) the greater of (i) $100,000, or (ii) the amount required to be recorded by the Borrower and the Subsidiaries party to the Collateral Agreement as obsolete inventory in accordance with GAAP, in each case calculated as of (A) the close of the current calendar month with respect to Borrowing Base reports rendered as of the close of a calendar month, and (B) the close of the immediately proceeding calendar month with respect to all other Borrowing Base reports.



" Investment ", as applied to the Borrower or any Subsidiary, shall mean: (a) any shares of capital stock, evidence of Indebtedness or other security issued by any other Person to the Borrower or any Subsidiary, (b) any loan, advance or extension of credit to, or contribution to the capital of, any other Person, other than credit terms extended to customers in the ordinary course of business, (c) any other investment by the Borrower or any Subsidiary in any assets or securities of any other Person, and (d) any commitment to make any Investment.



" Knowledge" or "Known " or words of similar import shall mean, with respect to the Borrower and/or any Subsidiary, the actual knowledge of David Vozick, Donald Rabinovitch and Elise Nissen (and/or their respective successors as officers of the Borrower) after reasonable inquiry of the appropriate employees of the Borrower and the Subsidiaries.



" Landlord Waiver " shall mean a landlord waiver, subordination and/or access agreement, in form and substance reasonably satisfactory to the Lender, executed in favor of the Lender by the Landlord of a Real Property leased or occupied by the Borrower or any Subsidiary.



" Liabilities and Contingencies " has the meaning set forth in Section 3.01(c) below.



" Lien ", as applied to the property or assets (or the income or profits therefrom) of the Borrower or any Subsidiary, shall mean (in each case, whether the same is consensual or nonconsensual or arises by contract, operation of law, legal process or otherwise): (a) any mortgage, lien, pledge, hypothecation, attachment, assignment, deposit arrangement, encumbrance, charge, lease constituting a Capitalized Lease Obligation, conditional sale or other title retention agreement, or other security interest or encumbrance of any kind in respect of any property (including, without limitation, stock of any Subsidiary) of the Borrower or any Subsidiary, or upon the income or profits therefrom; (b) any arrangement under which any property of the Borrower or any Subsidiary is transferred, sequestered or otherwise identified for the purpose of subjecting or making available the same for the payment of Indebtedness or the performance of any other liability in priority to the payment of the general, unsecured creditors of the Borrower or any Subsidiary; (c) any Indebtedness or liability which remains unpaid after the same shall become due and payable and which, if unpaid, by law or otherwise is given any priority whatsoever over the general unsecured creditors of the Borrower or any Subsidiary; and (d) any agreement (other than this Agreement) or other arrangement which, directly or indirectly, prohibits the Borrower or any Subsidiary from creating or incurring any lien on any of its properties or assets or which conditions the ability to do so on the security, on a pro rata or other basis, of Indebtedness other than Indebtedness outstanding under this Agreement.







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" Loan Documents " shall mean the collective reference to this Agreement, the Notes, the Security Documents, the Warr
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