Exhibit 10.6
 
Convertible Term Note issued by AFP Imaging Corporation to ComVest Capital,
LLC,.
 
$5,000,000April 13, 2007
 
CONVERTIBLE TERM NOTE
 
This Note and the Common Stock issuable upon conversion hereof (until such time,
if any, as such Common Stock is registered with the Securities and Exchange
Commission pursuant to an effective registration statement) have not been
registered under the Securities Act of 1933, as amended (the “Act”), or any
state securities laws, and may not be sold, offered for sale of otherwise
transferred unless registered or qualified under the Act and applicable state
securities laws or unless the Maker receives an opinion, in form and from
counsel reasonably acceptable to the Maker, that registration, qualification or
other such actions are not required under any such laws.
 
FOR VALUE RECEIVED, AFP IMAGING CORPORATION, a New York corporation (the
“Maker”), hereby promises to pay to the order of ComVest Capital, LLC, a
Delaware limited liability company (together with any subsequent holder hereof,
the “Payee”), the sum of Five Million ($5,000,000) Dollars (the “Principal”),
with interest thereon, on the terms and conditions set forth herein and in the
Revolving Credit and Term Loan Agreement of even date herewith by and between
the Maker and the Payee (as same may be amended, modified, supplemented and/or
restated from time to time, the “Loan Agreement”). Terms defined in the Loan
Agreement and not otherwise defined herein shall have the meanings assigned
thereto in the Loan Agreement.
 
Payments of principal of, interest on and any other amounts with respect to this
Convertible Promissory Note (this “Note”) are to be made in lawful money of the
United States of America.
 
Principal and accrued interest of this Note may or shall be convertible into
common stock of the Maker as provided in Section 3 below.
 
1. Payments.
 
(a) Interest. This Note shall bear interest (“Interest”) on Principal amounts
outstanding from time to time from the date hereof at the rate of ten (10%)
percent per annum; provided, however, that during the continuance of any Event
of Default, the Interest rate hereunder shall be increased to fourteen (14%)
percent per annum. All Interest shall be computed on the daily unpaid Principal
balance of this Note based on a three hundred sixty (360) day year, and shall be
payable monthly in arrears on the last day of each calendar month commencing
April 30, 2007 and on the maturity hereof.
 
(b) Principal. The outstanding Principal of this Note shall be payable (i) in
fifty-three (53) consecutive equal monthly installments of $92,592.60 each, due
and payable on the last day of each calendar month commencing November 30, 2007
and continuing through and including March 31, 2012, and (ii) a final
installment due and payable on April 30, 2012, in an amount equal to the entire
remaining Principal balance of this Note.
 
 
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(c) Non-Business Day. If any scheduled payment date as aforesaid is not a
business day in either the State of Florida or the State of New York, then the
payment to be made on such scheduled payment date shall be due and payable on
the next succeeding business day, with additional interest on any Principal
amount so delayed for the period of such delay.
 
2. Prepayment.
 
(a) Optional Prepayment of Principal. The unpaid Principal balance of this Note
may, at the Maker’s option, be prepaid in whole or in part, at any time or from
time to time, upon fifteen (15) days’ prior written notice to the Payee,
provided that the Payee shall retain the right to convert all or any portion of
such Principal amount called for prepayment, together with any or all Interest
accrued thereon, at any time prior to the date fixed for prepayment, and
thereafter until such prepayment is actually made. Any optional prepayment of
Principal hereunder shall require the simultaneous payment of a prepayment
premium as provided in Section 2.03(c) of the Loan Agreement.
 
(b) Mandatory Prepayment of Principal. The Principal of this Note may be
required to be prepaid, in whole or in part, at any time and from time to time
in accordance with Section 2.02(b) of the Loan Agreement.
 
(c) Interest. Except to the extent that such Interest is converted as herein
provided, each prepayment of Principal shall be accompanied by payment of all
accrued Interest on the Principal amount prepaid or converted accrued to the
date of prepayment or conversion.
 
(d) Application of Payments. Any and all prepayments hereunder shall be applied
first to any prepayment premium required under Section 2(a) above, then to
unpaid accrued Interest on the Principal amount being prepaid, and finally to
the remaining Principal installments in inverse order of maturity.
 
3. Conversion.
 
(a) Optional and Mandatory Conversion. The Payee may, at its option, upon
written notice to the Maker given at any time and from time to time, convert all
or any portion of the unpaid Principal balance of this Note, and/or any accrued
Interest thereon, into shares of common stock of the Maker (“Common Stock”), at
a price of Two and 37/100 ($2.37) Dollars per share of Common Stock (as same may
be adjusted from time to time in accordance herewith, the “Conversion Price”).
In addition, if (i) there is not then continuing any Default or Event of Default
under and as defined in the Loan Agreement, (ii) the Common Stock is then traded
or listed for trading on any national securities exchange or the NASDAQ National
Market, the NASDAQ Capital Market or the NASDAQ Global Market, (iii) there is
then in effect a valid registration statement under the Securities Act of 1933,
as amended, in respect of the Common Stock issued and issuable upon conversion
of this Note and upon exercise of the Warrants issued pursuant to the Loan
Agreement, such that all such shares of Common Stock will be freely tradable
immediately upon issuance at such time, (iv) the Maker is current in all of its
required filings with the Securities and Exchange Commission, (v) the reported
Trading Price (as hereinafter defined) of the Common Stock for each of the
twenty (20) consecutive trading days immediately prior thereto has been equal to
or greater than 175% of the Conversion Price in effect on each such trading day,
and (vi) the average daily trading volume of the Common Stock as reported by the
principal exchange or trading medium on which the Common Stock is listed or
quoted has been equal to or greater than 100,000 shares (such number to be
subject to adjustment on a proportionate basis in the event of each and every
stock split, stock dividend, combination of shares, recapitalization or other
such event respecting the Common Stock which may occur subsequent to the date
hereof) during the three (3) months immediately prior thereto, then the Maker
may, upon five (5) business days’ prior written notice to the Payee, require the
Payee to convert all or any portion of the Principal of this Note into shares of
Common Stock at the Conversion Price then in effect; and in the event of any
such conversion at the option of the Maker, the Maker shall give written notice
thereof to the Payee certifying as to the satisfaction of the foregoing
conditions (including a detailed schedule of Trading Prices and volumes for
purposes of the foregoing clauses (v) and (vi)), and shall pay to the Payee,
simultaneously with the delivery of stock certificates in accordance with
Section 3(c), all unpaid accrued Interest on the Principal amount so converted.
As used herein, the term “Trading Price” on any relevant date means the closing
sale price (or, if no closing sale price is reported, the last reported sale
price) of the Common Stock (regular way). The effective date of any conversion
hereunder is herein referred to as the “Conversion Date.” To the extent that
this Note is converted only in part, then such conversion shall be treated as a
prepayment of the Principal amount converted in accordance with Section 2(d)
above, provided that no prepayment premium shall be required in respect of any
conversion.
 
 
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(b) Mechanics of Conversion. Upon notice to the Maker of the Payee’s conversion
election as provided in Section 3(a), or upon notice to the Payee of the Maker’s
conversion election as provided in Section 3(a), the Maker shall, in accordance
with Section 3(c), issue to the Payee (or to the Payee’s designee(s) set forth
in the Payee’s conversion election, or in any direction given to the Maker in
response to the Maker’s conversion election) the number of shares of Common
Stock to which the Payee shall be entitled upon such conversion, and shall
deliver or cause to be delivered to the Payee or such designee(s) the
certificates representing such shares of Common Stock. All shares of Common
Stock issued or delivered upon any conversion hereunder shall, when issued or
delivered, be duly authorized, validly issued, fully paid and nonassessable. In
lieu of any fractional shares to which the Payee would otherwise be entitled,
the Maker shall pay cash equal to such fraction multiplied by the per share
Conversion Price.
 
(c) Issuance of Common Stock Upon Conversion. Within a reasonable time, not
exceeding five (5) Business Days after the Conversion Date, the Maker shall
deliver or cause to be delivered, to or upon the written order of the Payee of
this Note so converted, certificates representing the number of fully paid and
nonassessable shares of Common Stock into which this Note (or applicable portion
hereof) has been converted in accordance with the provisions of this Section 3.
If so requested by the Maker, the Payee shall, within a reasonable time (not
exceeding five (5) Business Days after receipt by the Payee of such
certificates), surrender this Note to the Maker for cancellation, against
delivery of a replacement Note representing the remaining balance (if any) of
this Note which has not been converted. Subject to the following provisions of
this Section 3, such conversion shall be deemed to have occurred on the
Conversion Date, so that the Payee or the Payee’s designee(s) shall be treated
for all purposes as having become the record holder of such shares of Common
Stock at such time.
 
(d) Taxes on Conversion. The issuance of certificates for shares of Common Stock
upon the conversion of this Note shall be made without charge by the Maker to
the converting Payee for any tax in respect of the issuance of such certificates
and such certificates shall be issued in the name of, or in such names as may be
directed by, the Payee; provided, however, that the Maker shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance or delivery of any such certificate in a name other than that of the
Payee, and the Maker shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Maker the amount of any such tax or shall have established to the
satisfaction of the Maker that any such tax has been paid.
 
 
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(e) Adjustment of Shares.
 
(i) Stock Dividends, Distributions or Subdivisions. In the event that, at any
time and from time to time from and after the date of this Note, the Maker shall
issue additional shares of Common Stock (or securities convertible into Common
Stock) in a stock dividend, stock distribution or subdivision paid with respect
to Common Stock, or declare any dividend or other distribution payable in
additional shares of Common Stock (or securities convertible into Common Stock)
or effect a split or subdivision of the outstanding shares of Common Stock,
then, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, the then-effective Conversion Price shall be
proportionately decreased, and the number of shares of Common Stock issuable
upon conversion of this Note shall thus be proportionately increased.
 
(ii) Combinations or Consolidations. In the event that, at any time and from
time to time from and after the date of this Note, the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then, concurrently
with the effectiveness of such combination or consolidation, the then-effective
Conversion Price shall be proportionately increased, and the number of shares of
Common Stock issuable upon conversion of this Note shall thus be proportionately
decreased.
 
(iii) Other Dividends or Distributions. If the Maker, at any time or from time
to time after the issuance of this Note, makes a distribution to the holders of
Common Stock which is payable in securities of the Maker other than Common
Stock, then, in each such event, provision shall be made so that the Payee shall
receive upon conversion of this Note, in addition to the number of shares of
Common Stock, the amount of such securities of the Maker which would have been
received if the portion of this Note so converted had been exercised for Common
Stock on the date of such event, subject to adjustments subsequent to the date
of such event with respect to such distributed securities which shall be on
terms as nearly equivalent as practicable to the adjustments provided in this
Section 3(e)(iii) and all other adjustments under this Section 3(e). Nothing
contained in this Section 3(e)(iii) shall be deemed to permit the payment of any
distribution in violation of the Loan Agreement.
 
(iv) Merger, Consolidation or Exchange. If, at any time or from time to time
after the date of this Note, there occurs any merger, consolidation, arrangement
or statutory share exchange of the Maker with or into any other person or
entity, then, in each such event, provision shall be made so that the Payee
shall receive upon conversion of this Note the kind and amount of shares and
other securities and property (including cash) which would have been received
upon such merger, consolidation, arrangement or statutory share exchange by the
Payee if the portion of this Note so converted had been exercised for shares of
Common Stock immediately prior to such merger, consolidation, arrangement or
statutory share exchange, subject to adjustments for events subsequent to the
effective date of such merger, consolidation, arrangement or statutory share
exchange with respect to such shares and other securities which shall be on
terms as nearly equivalent as practicable to the adjustments provided in this
Section 3(e)(iv) and all other adjustments under this Section 3(e). Nothing
contained in this Section 3(e)(iv) shall be deemed to permit any such
transaction in violation of the Loan Agreement.
 
(v) Recapitalization or Reclassification. If, at any time or from time to time
after the date of this Note, the shares of Common Stock issuable upon conversion
of this Note are changed into the same or a different number of securities of
any class of the Maker, whether by recapitalization, reclassification or
otherwise (other than a merger, consolidation, arrangement or statutory share
exchange provided for elsewhere in this Section 3(e)), then, in each such event,
provision shall be made so that the Payee shall receive upon conversion of this
Note the kind and amount of securities or other property which would have been
received in connection with such recapitalization, reclassification or other
change by the Payee if the portion of this Note so converted had been converted
immediately prior to such recapitalization, reclassification or change, subject
to adjustments for events subsequent to the effective date of such
recapitalization, reclassification or other change with respect to such
securities which shall be on terms as nearly equivalent as practicable to the
adjustments provided in this Section 3(e)(v) and all other adjustments under
this Section 3(e).
 
 
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(vi) Extraordinary Dividends or Distributions. If, at any time or from time to
time after the date of this Note, the Maker shall declare a dividend or any
other distribution upon the Common Stock payable otherwise than out of current
earnings, retained earnings or earned surplus and otherwise than in shares of
Common Stock, then the Conversion Price in effect immediately prior to such
declaration shall be reduced by an amount equal, in the case of a dividend or
distribution in cash, to the amount thereof payable per share of Common Stock
or, in the case of any other dividend or distribution, to the value thereof per
share of Common Stock at the time such dividend or distribution was declared, as
determined by the Board of Directors of the Maker in good faith. Such reductions
shall take effect as of the date on which a record is taken for the purposes of
the subject dividend or distribution, or, if a record is not taken, the date as
of which the holders of record of Common Stock entitled to such dividend or
distribution are to be determined. Nothing contained in this Section 3(e)(vi)
shall be deemed to permit the payment of any dividend in violation of the Loan
Agreement.
 
(vii)  Dilutive Issuances. (A) If the Maker, at any time or from time to time,
issues or sells any Additional Shares of Common Stock (as defined below), other
than as provided in the foregoing subsections of this Section 3(e), for a price
per share (which, in the case of options, warrants, convertible securities or
other rights, includes the amounts paid therefor plus the exercise price,
conversion price or other such amounts payable thereunder) that is less than the
Conversion Price then in effect, then and in each such case, the then applicable
Conversion Price shall automatically be reduced as of the opening of business on
the date of such issue or sale, to a price determined by multiplying the
Conversion Price then in effect by a fraction (i) the numerator of which shall
be (A) the number of share of Common Stock deemed outstanding (as determined
below) immediately prior to such issue or sale, plus (B) the number of shares of
Common Stock which the aggregate consideration received by the Maker for the
total number of Additional Shares of Common Stock so issued would purchase at
such Conversion Price, and (ii) the denominator of which shall be the number of
shares of Common Stock deemed outstanding (as defined below) immediately prior
to such issue or sale plus the total number of Additional Shares of Common Stock
so issued; provided, however, that upon the expiration or other termination of
options, warrants or other rights to purchase or acquire Common Stock which
triggered any adjustment under this Section 3(e)(vii), and upon the expiration
or termination of the right to convert or exchange convertible or exchangeable
securities (whether by reason of redemption or otherwise) which triggered any
adjustment under this Section 3(e)(vii), if any thereof shall not have been
exercised, converted or exchanged, as applicable, the number of shares of Common
Stock deemed to be outstanding pursuant to this Section 3(e)(vii) shall be
reduced by the number of shares as to which options, warrants and rights to
purchase or acquire Common Stock shall have expired or terminated unexercised,
and as to which conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be
outstanding; and the Conversion Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares of Common Stock
actually issued. For purposes of the preceding sentence, the number of shares of
Common Stock deemed to be outstanding as of a given date shall be the sum of
(x) the number of shares of Common Stock actually outstanding, (y) the number of
shares of Common Stock into which this Note could be converted on the day
immediately preceding the given date, and (z) the number of shares of Common
Stock which could be obtained through the exercise or conversion of all other
rights, options and convertible securities outstanding on the day immediately
preceding the given date. “Additional Shares of Common Stock” shall mean all
shares of Common Stock, and all options, warrants, convertible securities or
other rights to purchase or acquire Common Stock, issued by the Maker other than
(i) shares of Common Stock issued pursuant to the exercise of options, warrants
or convertible securities outstanding on the date hereof (including, without
limitation, all of the Warrants issued pursuant to the Loan Agreement), or
hereafter issued from time to time pursuant to and in accordance with stock
purchase or stock option plans as in effect on the date hereof, and (ii) shares
of Common Stock and/or options, warrants or other Common Stock purchase rights
for up to an aggregate of 50,000 shares of Common Stock (such number to be
subject to adjustment in accordance with Sections 3(e)(i) and 3(e)(ii) above),
where such options, warrants or other rights are issued both (x) with exercise
prices per share of Common Stock equal to or greater than the then-current fair
market value of a share of Common Stock, as determined in good faith by the
Board of Directors of the Maker or the Compensation Committee thereof, and (B)
to employees, officers or directors of, or consultants to, the Maker or any
Subsidiary pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Maker’s Board of Directors or the
Compensation Committee thereof, and by the Maker’s stockholders.
 
 
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(B) In the event that the exercise price, conversion price, purchase price or
other price at which shares of Common Stock are purchasable pursuant to any
options, warrants, convertible securities or other rights to purchase or acquire
Common Stock is reduced at any time or from time to time (other than under or by
reason of provisions designed to protect against dilution), then, upon such
reduction becoming effective, the Conversion Price then in effect hereunder
shall forthwith be decreased to such Conversion Price as would have been
obtained had the adjustments made and required under this Section 3(e)(vii) upon
the issuance of such options, warrants, convertible securities or other rights
been made upon the basis of (and the total consideration received therefor) (i)
the issuance of the number of shares of Common Stock theretofore actually
delivered upon the exercise, conversion or exchange of such options, warrants,
convertible securities or other rights, (ii) the issuance of all of the Common
Stock and all other options, warrants, convertible securities and other rights
to purchase or acquire Common Stock issued after the issuance of the modified
options, warrants, convertible securities or other rights, and (iii) the
original issuance at the time of the reduction of any such options, warrants,
convertible securities or other rights then still outstanding.
 
(C) In no event shall an adjustment under this Section 3(e)(vii) be made if it
would result in an increase in the then applicable Conversion Price.
 
(viii) Certificate of Adjustment. Whenever the Conversion Price and/or the
number of share of Common Stock receivable upon conversion of this Note is
adjusted, the Maker shall promptly deliver to the Payee a certificate of
adjustment, setting forth the Conversion Price and/or shares of Common Stock
issuable after adjustment, a brief statement of the facts requiring the
adjustment and the computation by which the adjustment was made. The certificate
of adjustment shall be prima facie evidence of the correctness of the
adjustment.
 
(ix) Successive Application. The provisions of this Section 3(e) shall be
applicable successively to each event described herein which may occur
subsequent to the date of this Note and prior to the conversion in full of this
Note.
 
(x) Fractional Shares. No fractional shares of Common Stock shall be issuable by
reason of any adjustments made pursuant to this Section 3(e); and in lieu of any
such fractional shares, the Maker shall pay cash therefor in accordance with
Section 3(b) above.
 
(f) No Impairment. The Maker will not, by amendment of its incorporation
documents or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder but will at all times in good faith assist in
the carrying out of all the provisions of this Section 3 and in the taking of
all such action as may be necessary or appropriate in order to protect the
conversion rights of the Payee against impairment. In the event of any merger or
consolidation in which the Maker is not the surviving entity, the Maker shall
make appropriate arrangements in order that, upon any subsequent conversion of
this Note, the Payee shall become entitled to receive the same securities or
other consideration that the Payee would have received had such conversion been
made immediately prior to the consummation of such merger or consolidation,
subject to further adjustments, of the type provided in this Note, with respect
to any events relating to any such securities occurring subsequent to the
consummation of such merger or consolidation.
 
(g) Common Stock Reserved. The Maker shall at all times reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect the full
conversion of this Note into Common Stock.
 
(h) Restricted Securities. The shares of Common Stock issuable to the Payee
hereunder (the “Shares”) may not, at the time of issuance, have been registered
under any federal or state securities laws, and may constitute “restricted
securities” within the meaning of federal and state securities laws. By its
receipt of Shares, if the Shares are not then the subject of an effective
registration statement under the Securities Act, the Payee will be deemed to
acknowledge and confirm that it is receiving such Shares for its own account for
investment, and not with a view to the resale or distribution thereof in
violation of any federal or state securities laws.
 
4. Events of Default. The occurrence and continuance of an Event of Default
under the Loan Agreement shall constitute a default under this Note and shall
entitle the Payee to accelerate the entire indebtedness hereunder and take such
other action as may be provided for in the Loan Agreement and/or in any and all
other instruments evidencing and/or securing the indebtedness under this Note,
or as may be provided under the law.
 
5. Communications and Notices. Except as otherwise specifically provided herein,
all communications and notices provided for in this Note shall be sent by
post-paid first class mail, reputable overnight courier or facsimile to the
Payee at the Payee’s address as provided to the Secretary of the Maker from time
to time and, if to the Maker, at 250 Clearbrook Road, Elmsford, New York 10523,
Attention: Chief Financial Officer. Any first-class mail notice provided
pursuant to this Section 5 shall be deemed given three (3) Business Days after
being sent by first-class mail. Any notice sent by overnight courier shall be
deemed given on the next Business Day after being deposited with the courier
with all charges prepaid or billed to the account of the sender. Notices sent by
facsimile shall be deemed received upon delivery. The Maker and the Payee may
from time to time change their respective addresses, for purposes of this
Section 5, by written notice to the other parties; provided, however, that
notice of such change shall be effective only upon receipt.
 
6. Governing Law. This Note shall be construed in accordance with and governed
by the laws of the State of New York, except to the extent superseded by Federal
enactments.
 
7. Assignment. This Note shall be binding upon and shall inure to the benefit of
the respective successors and permitted assigns of the parties hereto, provided
that the Maker may not assign any of its rights or obligations hereunder without
the prior written consent of the Payee.
 
 
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8. Waiver and Amendment. No waiver of a right in any instance shall constitute a
continuing waiver of successive rights, and any one waiver shall govern only the
particular matters waived. Neither any provision of this Note nor any
performance hereunder may be amended or waived except pursuant to an agreement
in writing signed by the party against whom enforcement thereof is sought.
Except as otherwise expressly provided in this Note, the Maker hereby waives
diligence, demand, presentment for payment, protest, dishonor, nonpayment,
default, notice of any and all of the foregoing, and any other notice or action
otherwise required to be given or taken under the law in connection with the
delivery, acceptance, performance, default, enforcement or collection of this
Note, and expressly agrees that this Note, or any payment hereunder, may be
extended, modified or subordinated (by forbearance or otherwise) from time to
time, without in any way affecting the liability of the Maker. The Maker further
waives the benefit of any exemption under the homestead exemption laws, if any,
or any other exemption, appraisal or insolvency laws, and consents that the
Payee may release or surrender, exchange or substitute any personal property or
other collateral security now held or which may hereafter be held as security
for the payment of this Note.
 
9. Usury Savings Clause. All agreements between the Maker and the Payee are
hereby expressly limited to provide that in no contingency or event whatsoever,
whether by reason of acceleration of maturity of the indebtedness evidenced
hereby or otherwise, shall the amount paid or agreed to be paid to the Payee for
the use, forbearance or detention of the indebtedness evidenced hereby exceed
the maximum amount which the Payee is permitted to receive under applicable law.
If, from any circumstances whatsoever, fulfillment of any provision hereof or of
the Loan Agreement or any Loan Document thereunder, at the time performance of
such provision shall be due, shall involve transcending the limit of validity
prescribed by law, then, ipso facto, the obligation to be fulfilled shall
automatically be reduced to the limit of such validity, and if from any
circumstance the Payee shall ever receive as interest an amount which would
exceed the highest lawful rate, such amount which would be excessive interest
shall be applied to the reduction of the principal balance of any of the Maker’s
Obligations (as such term is defined in the Loan Agreement) to the Payee, and
not to the payment of interest hereunder. To the extent permitted by applicable
law, all sums paid or agreed to be paid for the use, forbearance or detention of
the indebtedness evidenced by this Note shall be amortized, prorated, allocated
and spread throughout the full term of such indebtedness until payment in full,
to the end that the rate or amount of interest on account of such indebtedness
does not exceed any applicable usury ceiling. As used herein, the term
“applicable law” shall mean the law in effect as of the date hereof, provided,
however, that in the event there is a change in the law which results in a
higher permissible rate of interest, then this Note shall be governed by such
new law as of its effective date. This provision shall control every other
provision of all agreements between the Maker and the Payee.
 
10. Collection Costs. In the event that the Payee shall place this Note in the
hands of an attorney for collection during the continuance of any Event of
Default, the Maker shall further be liable to the Payee for all costs and
expenses (including reasonable attorneys’ fees) which may be incurred by the
Payee in enforcing this Note, all of which costs and expenses shall be
obligations under and part of this Note; and the Payee may take judgment for all
such amounts in addition to all other sums due hereunder.
 
 
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IN WITNESS WHEREOF, the Maker has executed this Note on the date first above
written.
 
AFP IMAGING CORPORATION
 
By: /s/ David Vozick
Name: David Vozick
Title: Chairman of the Board
 
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