EQUITY INCENTIVE AGREEMENT
AGREEMENT (this “Agreement”), entered
into as of this 22nd day of June, 2009, by and between COMVEST CAPITAL, LLC, a
Delaware limited liability company having its principal offices at Xxx Xxxxx
Xxxxxxxx, Xxxxx 000, Xxxx Xxxx Xxxxx, Xxxxxxx 00000 (“ComVest”), and BIOWAVE INNOVATIONS, LLC, a
Connecticut limited liability company having its principal offices at 000
Xxxxxxxxxx Xxxx, Xxxxxx, Xxxxxxxxxxx 00000 (“BioWave”);
W I T N E S S E T
H:
WHEREAS, on or about the date
hereof, (a) BioWave is purchasing from AFP Imaging Corporation, a New York
corporation (the “Company”), shares of
Series A Convertible Preferred Stock of the Company, the terms of which will
provide BioWave with ownership and managerial control of the Company, and (b)
ComVest is increasing, amending and restructuring its existing credit facilities
with the Company, and in connection therewith the Company is issuing to ComVest
a warrant to purchase up to 19,282,200 shares of common stock of the Company
(the “Warrant”);
and
WHEREAS, ComVest wishes to
incentivize BioWave to cause the Company to effect one or more Liquidity Events
(as such term is hereinafter defined) and utilize the proceeds thereof to
permanently reduce the Company’s loan obligations to ComVest, and BioWave is
desirous of increasing its ownership interest in the Company; and
WHEREAS, ComVest and BioWave
have determined that it is in their mutual best interests to grant each other
certain rights as more particularly set forth in this Agreement;
NOW, THEREFORE, in
consideration of the premises and the mutual covenants herein contained, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:
1. Definitions.
In
addition to the other capitalized terms defined elsewhere herein, the following
terms shall have the following meanings wherever used in this
Agreement:
“Advances” has the
meaning ascribed thereto in the Loan Agreement.
“Affiliate” means,
with respect to any Person, any other Person controlling, controlled by or under
common control with the first Person.
“Exercise Price” has
the meaning ascribed thereto in the Warrant.
“Liquidity Event” has
the meaning ascribed thereto in the Loan Agreement.
“Loan Agreement” means
the Amended and Restated Revolving Credit and Term Loan Agreement of even date
herewith by and between ComVest and the Company, as same may be amended,
modified, supplemented and/or restated from time to time.
“Maximum Revolver
Amount” has the meaning ascribed thereto in the Loan
Agreement.
“Person” means any
individual, corporation, partnership, limited liability company, unincorporated
association, business trust, governmental entity or agency, or other entity of
any kind.
“Preferred Stock”
shall mean the the shares of currently authorized Series A Convertible Preferred
Stock of the Company which are outstanding from time to time.
“Target Amount” means
$6,000,000.
“Term” means the
period from the date hereof until the earlier of (a) the date (if any) on which
BioWave and its Affiliates collectively cease to own a majority of the
outstanding Preferred Stock or otherwise cease to control the ownership or
management of the Company, or (b) June 30, 2011; provided, that to the
extent that proceeds of a Liquidity Event are promptly applied as provided in
Section 2 below, such proceeds shall be deemed to have been so applied during
the Term notwithstanding that the subject Liquidity Event caused the expiration
of the Term under the foregoing clause (a).
“Term Note” has the
meaning ascribed thereto in the Loan Agreement.
“Warrant” has the
meaning ascribed thereto in the First “WHEREAS” paragraph above.
“Warrant Shares” has
the meaning ascribed thereto in the Warrant.
2. Transfer(s) of
Warrant/Warrant Shares.
(a) In
the event that, at any time and from time to time during the Term, the Company
or any of its subsidiaries shall repay the principal of the Term Loan and/or the
Advances out of the net proceeds of any Liquidity Event, then, upon presentation
to ComVest of a reasonably detailed calculation of the net proceeds of the
subject Liquidity Event, ComVest shall assign to BioWave a portion of the
Warrant, such portion (on a percentage basis) to be equal to (i) 50%, multiplied
by (ii) the amount of net proceeds applied to repay the Term Loan and/or
Advances divided by the Target Amount; provided, however, that in no
event shall ComVest be obligated to assign, in the aggregate, more than 50% of
the total Warrant in respect of all Liquidity Events taken in the
aggregate. The foregoing notwithstanding, to the extent that any net
proceeds are applied to the repayment of the outstanding Advances, then such
repayment shall only entitle BioWave to an assignment under this Section 2 to
the extent that the Company, by written agreement simultaneously executed and
delivered to ComVest, effects an equal and corresponding permanent
reduction in the Maximum Revolver Amount.
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(b) In
the event that, at the time of any required assignment hereunder, ComVest shall
have exercised the Warrant to such an extent that it no longer holds a
sufficient portion of the Warrant to satisfy such assignment obligations
hereunder, then ComVest may satisfy that portion of its assignment obligations
for which it does not hold the Warrant by assigning to BioWave a number of
Warrant Shares equivalent to such Warrant deficiency; and, in connection
therewith, as a condition to such assignment of Warrant Shares, BioWave shall
pay to ComVest an amount equal to the Exercise Price paid by ComVest under the
Warrant for the subject Warrant Shares.
(c) Any
and all Warrants and/or Warrant Shares assigned hereunder shall be assigned free
and clear of all liens, security interests, pledges, encumbrances and other
adverse interests.
3. Covenants.
ComVest
shall, throughout the Term, retain ownership of a sufficient portion of the
Warrant and/or a sufficient number of Warrant Shares as needed in order to
satisfy its obligations (or, if applicable, its maximum remaining obligations)
under Section 2 above. In the event that ComVest wishes to sell,
assign (other than a pledge to secure loans or indebtedness), transfer or
otherwise dispose of a portion of the Warrant and/or Warrant Shares such as
would cause its remaining holdings not to satisfy the requirements of the
preceding sentence, ComVest shall first obtain the prior written consent of
BioWave with respect to such sale, assignment, transfer or disposition, which
consent may be expressly conditioned upon the written agreement of the
purchaser, assignee or transferee to be bound by and to comply with this
Agreement with respect to a sufficient portion of the Warrant and/or Warrant
Shares so as to enable BioWave (assuming compliance by ComVest with its
remaining obligations hereunder) to receive the intended benefits of this
Agreement.
4. Board
Designee.
In order
to induce ComVest to enter into this Agreement, BioWave shall notify ComVest in
writing reasonably in advance of any and all meetings of the shareholders of the
Company for the election of directors, and of any action proposed to be taken by
written consent of shareholders of the Company with respect to the election of
directors; and at any such meeting or in any such written consent, BioWave shall
vote all of its shares of capital stock in the Company in favor of one (1)
designee of ComVest (who shall be reasonably satisfactory to BioWave) to serve
on the Board of Directors of the Company. This Section 4 shall be of
no further force or effect from and after such time (if any) as ComVest and/or
its Affiliates collectively own less than 35% of the Warrant and/or the Warrant
Shares underlying the Warrant.
5. Assignment.
(a) ComVest
shall not assign any of its obligations under this Agreement except with the
prior written consent of BioWave, provided that such consent shall not be
required in connection with (i) any pledge of this Agreement as collateral for
loans or indebtedness, and/or (ii) the sale or assignment of all or
substantially all of ComVest’s interests (loans and equity securities) in the
Company if the purchaser or assignee agrees in writing to be bound by and to
comply with this Agreement. Transfers, assignments or dispositions of
the Warrant and/or Warrant Shares may, under the circumstances described in
Section 3 above, also require the prior written consent of
BioWave.
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(b) BioWave
may not assign any of its rights under this Agreement without the prior written
consent of ComVest. In the event that, at any time and from time to
time, BioWave sells, assigns, transfers or otherwise disposes of any of its
capital stock in the Company, BioWave shall cause the purchaser, assignee or
transferee to agree to be bound by the provisions of Section 4 above as respects
the voting of the subject shares of capital stock in the Company.
6. Tag-Along
Rights.
In the
event that, at any time or from time hereafter, BioWave shall make or wish to
accept any offer for the purchase and sale of any capital stock of the Company
owned or held by BioWave, BioWave shall give written notice of such proposed
transaction not less than twenty (20) days prior to the proposed commitment date
or closing date (as the case may be) thereof, which notice shall set forth the
name, address, telephone number and principal line of business of the proposed
transferee(s), the material terms and conditions of the proposed transaction,
and a copy of any and all relevant writings between the proposed transferee(s)
and BioWave. ComVest shall have the right, exercisable upon written
notice to BioWave given not less than five (5) days prior to the proposed date
for the commitment or consummation of the transaction (as set forth in BioWave’s
notice described in this Section 6), to elect to participate in such transaction
and sell to the proprosed transferee(s) a portion of the Warrant and/or Warrant
Shares (as such term is defined in the Warrant) equal, on a percentage basis, to
the percentage of BioWave’s capital stock in the Company (counting preferred
shares on an “as converted” basis) included in the proposed transaction,
provided that ComVest shall not be required to make any representations or
warranties or provide any indemnification to the transferee(s) other than with
respect to ComVest’s unencumbered ownership of the subject Warrant and/or
Warrant Shares; and otherwise, the terms and conditions of ComVest’s sale of
Warrant and/or Warrant Shares shall be equivalent, on a per common share basis,
to the terms and conditions under which BioWave sells its capital
stock. In the event of any material modification of the terms and
conditions of any proposed transaction described in this Section 6, BioWave
shall give written notice thereof to ComVest, and ComVest shall have ten (10)
days after receipt of such notice to determine whether to participate in or
withdraw from the modified transaction. Anything elsewhere contained
in this Section 6 to the contrary notwithstanding, this Section 6 shall not be
applicable to any transfer of capital stock to any Affiliate of BioWave,
provided that, as a condition to such transfer, such Affiliate shall agree in
writing with ComVest to be bound by and to comply with this Section 6 in the
same manner and to the same extent as BioWave.
7. Notices.
Any
notices, requests, demands or other communications required or permitted under
this Agreement shall be in writing and shall be deemed to have been given when
delivered personally or three (3) days after being mailed, addressed to the
party being notified at the address of such party first set forth above, or at
such other address as such party may hereafter have designated by notice; provided, however, that any
notice of change of address shall not be effective until its receipt by the
party to be charged therewith.
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8. General.
(a) Neither
this Agreement nor any of the terms or conditions hereof may be waived, amended
or modified except by means of a written instrument duly executed by the party
to be charged therewith. Any waiver or amendment shall only be
applicable in the specific instance, and shall not constitute or be construed as
a waiver or amendment in any other or subsequent instance. No failure
or delay on the part of either party in respect of any enforcement of
obligations hereunder shall in any manner affect such party’s right to seek or
effect enforcement at any other time or in respect of any other required
performance.
(b) The
captions and paragraph headings used in this Agreement are for convenience of
reference only, and shall not affect the construction or interpretation of this
Agreement or any of the provisions hereof.
(c) This
Agreement, and all matters or disputes relating to the validity, construction,
performance or enforcement hereof, shall be governed by and construed in
accordance with the laws of the State of New York.
(d) This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
(e) This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original hereof, but all of which together shall constitute one
and the same instrument.
(f) In
the event of any dispute under or arising out of this Agreement, the prevailing
party in such dispute shall be entitled to recover from the non-prevailing
party, in addition to any damages and/or other relief that may be awarded, its
reasonable costs and expenses (including reasonable attorneys’ fees) incurred in
connection with prosecuting or defending the subject dispute.
(g) This
Agreement constitutes the sole and entire agreement and understanding between
the parties hereto as to the subject matter hereof, and supersedes all prior
discussions, agreements and understandings of every kind and nature between them
as to such subject matter.
(h) This
Agreement is intended for the sole and exclusive benefit of the parties hereto
and their respective successors and permitted assigns, and no other person or
entity shall have any right to rely on this Agreement or to claim or derive any
benefit herefrom absent the express written consent of the party to be charged
with such reliance or benefit.
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(i) If
any provision of this Agreement is held invalid or unenforceable, either in its
entirety or by virtue of its scope or application to given circumstances, such
provision shall thereupon be deemed modified only to the extent necessary to
render same valid, or not applicable to given circumstances, or excised from
this Agreement, as the situation may require; and this Agreement shall be
construed and enforced as if such provision had been included herein as so
modified in scope or application, or had not been included herein, as the case
may be.
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IN WITNESS WHEREOF, the
parties hereto have executed this Agreement on and as of the date first set
forth above.
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By:
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Name:
Xxxx X. Xxxxxxx
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Title:
Managing Director
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BIOWAVE
INNOVATIONS, LLC
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By:
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Name:
R. Xxxxx Xxxxx
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Title:
Managing Director
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