STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of the 19th day of October, 1998, by and
between AFP IMAGING CORPORATION, a New York corporation with offices at 000
Xxxxxxxxxx Xxxx, Xxxxxxxx, Xxx Xxxx 00000 (the "Company") and Xxxxxx X. Xxxxx,
with a business office at 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the
"Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee has this date entered into an amendment to his
Consulting Agreement with the Company ("Consulting Agreement") pursuant to
which the Optionee will provide advisory services for the Company for a three
(3) year term commencing October 19, 1998 (the "Term"); and
WHEREAS, as partial consideration for the services to be performed by
the Optionee under the Consulting Agreement, and in partial substitution of
options initially provided for in the Consulting Agreement prior to amendment,
which options are canceled simultaneously with the issuance hereof, an option
to purchase 300,000 common shares of the Company at a per share exercise
price of $0.75.
NOW, THEREFORE, in consideration of the Optionee entering into the
amended Consulting Agreement, and for other good and valuable consideration,
the Company hereby grants to the Optionee an option to purchase Common Shares,
$.01 par value per share ("Common Shares"), of the Company on the following
terms and conditions:
1. Option.
The Company hereby grants to the Optionee non qualified stock options
to purchase, until 5:00 p.m. New York City time, on October 19, 2002 (the
"Termination Date"), up to an aggregate of Three Hundred Thousand (300,000)
fully paid and non-assessable Common Shares (the "Shares").
2. Purchase Price.
The purchase price per Share shall be $0.75 (the "Exercise Price").
The Company shall pay all original issue or transfer taxes on the exercise of
the options and all other fees and
expenses necessarily incurred by the Company in connection therewith,
3. Exercise of Option.
(a) The Optionee shall notify the Company by registered or certified
mail, return receipt requested, addressed to its principal office as to the
number of Shares which Optionee desires to purchase under the options herein
granted. Payment (by cash or certified check) of the option price therefor as
specified in Paragraph 2 above shall be made within two (2) trading days of
delivery of such notice of exercise to the Company in the event the Company
does not deliver a Cash Settlement Notice, as defined in Section 11 of the
Settlement Agreement dated as of October 19, 1998 by and among the Company,
the Optionee, Vozick and Rabinovitch ("Settlement Agreement") within one (1)
trading date after the receipt of Optionee's notice of exercise. As soon as
practicable thereafter (and in any event within three (3) trading days of the
Company's receipt of the option price in cash or certified funds, the Company
shall cause to be sent to the Optionee certificates issued in the Optionee's
name evidencing the Shares purchased by the Optionee.
(b) The option granted hereunder may be exercised by the Optionee at
any time commencing on the first day of the Term and continuing through the
Termination Date.
4. Divisibility and Non-Assignability of the Option.
(a) The Optionee may exercise the option herein granted from time to
time subject to the provisions above with respect to any whole number of
Shares included therein, but in no event may an option be exercised as to less
than one hundred (100) Shares at any one time, or the remaining Shares covered
by the option if less than one hundred (100).
(b) The Optionee may not give, grant, sell, exchange, transfer legal
title, pledge, assign or otherwise encumber or dispose of the options herein
granted or any interest therein without subjecting the option to the rights of
the Company set forth in Section 11 of the Settlement Agreement.
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5. Stock as Investment.
(a) By accepting this option, the Optionee agrees for himself, his
heirs and legatees that any and all shares of Common Shares purchased
hereunder shall be acquired for investment purposes only and not for sale or
distribution, and upon the issuance of any or all of the Shares issuable under
the option granted hereunder, the Optionee, or his heirs or legatees receiving
such shares, shall deliver to the Company a representation in writing, that
such shares are being acquired in good faith for investment purposes only and
not for sale or distribution. Company may place a "stop transfer" order with
respect to such shares with its transfer agent and place an appropriate
restrictive legend on the stock certificate(s) evidencing such shares.
(b) Unless a registration statement covering the shares issuable upon
the exercise of the Option is current, such shares will be restricted
securities. Sales of such restricted securities may be made only in compliance
with an available exemption from such registration. The Company represents and
warrants that the shares of Common Stock issuable upon exercise hereof are
registered under the Securities Act of 1933, as amended, under Registration
Statement on Form S-8, File No. 333-43601 and the Company undertakes to use
its best efforts to keep such Form S-8 Registration Statement current.
6. Restriction on Issuance of Shares.
The Company shall not be required to issue or deliver any certificate
for Shares purchased upon the exercise of any option granted hereunder unless
(a) the issuance of such shares has been registered with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, or counsel
to the Company shall have given an opinion that such registration is not
required; (b) approval, to the extent required, shall have been obtained from
any state regulatory body having jurisdiction thereof; and (c) permission for
the listing of such shares, if required, shall have been given by any national
securities exchange on which the Common Shares of the Company are at the time
of issuance listed.
7. Withholding. To the extent the Company is required to withhold
taxes upon the Optionee's exercise of this option under
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law or regulation then in effect, Optionee agrees to cooperate with the
Company to take all steps necessary or appropriate for any such required
withholding of taxes.
8. Recapitalization.
In the event of changes in the outstanding Common Shares by reason of
stock dividends, stock splits, recapitalizations, or reorganizations, the
number and class of Shares as to which the option may be exercised shall be
correspondingly increased to reflect an increase in the outstanding Common
Shares or decreased to reflect a decrease in the outstanding Common Shares,
and the exercise price shall be inversely adjusted by the Company so that the
aggregate option price for all shares covered after the change in outstanding
Common Shares shall be the same as the aggregate Exercise Price for the Common
Shares remaining subject to such option immediately prior to the change in the
outstanding shares of Common Shares. No adjustment shall be made with respect
to stock dividends or splits which do not exceed 2% in any fiscal year, cash
dividends or the issuance to shareholders of the Company of rights to
subscribe for additional Common Shares or other securities, or rights of
preferred stockholders to receive shares of Common Shares in lieu of cash
dividends. Neither the issuance of convertible securities, other than as a
dividend, nor the conversion or exercise of any security which may be
outstanding from time to time shall be characterized as a recapitalization or
a reorganization.
Any adjustment in the number of shares shall apply proportionately to
only the unexercised portion of the option granted hereunder. If fractions of
a share would result from any such adjustment, the adjustment shall be revised
to the next higher whole number of shares so long as such increase does not
result in the holder of the option being deemed to own more than 5% of the
total combined voting power or value of all classes of stock of the Company or
its subsidiaries.
9. Effect of Mergers, Consolidations or Sales of Assets.
In the event of any consolidation or merger of the Grantor with or
into another company not a wholly owned subsidiary of Grantor, or the
conveyance of all or substantially all of the
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assets of the Grantor to another company, each then outstanding option shall
upon exercise thereafter entitle the holder thereof to such number of shares
of Common Stock or other securities or property to which a holder of shares of
Common Stock of the Grantor would have been entitled to upon such
consolidation, merger or conveyance; and in any such case appropriate
adjustment, as determined by the Board of Directors of the Grantor (or
successor entity) shall be made as set forth above with respect to any future
changes in the capitalization of Grantor or its successor entity.
10. Binding Effect.
Except as herein otherwise expressly provided, this Agreement shall
be binding upon and inure to the benefit of the parties hereto, their
successors, legal representatives and assigns.
11. No Rights in Option Stock.
Optionee shall have no rights as a shareholder in respect of Common
Shares as to which the option granted hereunder shall not have been exercised
and payment made as herein provided.
12. Miscellaneous.
This Agreement shall be construed under the laws of the State of New
York, without application to the principles of conflicts of law. Headings have
been included herein for convenience of reference only, and shall not be
deemed a part of this Agreement. References in this Agreement to the pronouns
"him," "he" and "his" are not intended to convey the masculine gender alone
and are employed in a generic sense and apply equally to the feminine gender
or to an entity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
AFP IMAGING CORPORATION
By:
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ACCEPTED AND AGREED TO:
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