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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 16, 1998
AFP Imaging Corporation
(Exact name of registrant as specified in its charter)
New York
- ---------------------------- ------------------------ -------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Ident. No.)
250 Clearbrook Road, Elmsford, New York 10523
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(Address of Principal Executive Offices) (Zip Code)
(914) 592-6100
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Registrant's telephone number, including area code
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Item 5. Other Events.
Robert Rosen resigned his directorship of the Company effective October
16, 1998 and agreed to continue as a consultant as described below. The Company
and Mr. Rosen amended the terms of Mr. Rosen's existing consulting agreement and
modified his existing stock option agreement. The term of the consulting
agreement dated September 19, 1997, which became effective upon Mr. Rosen's
resignation as a director, was increased from one year to three years with an
increase in the aggregate cash compensation payable thereunder from $200,000 to
$300,000. The option agreement was modified by increasing the term from three
years to four years, the number of shares underlying the option from 150,000 to
300,000 common shares, and reducing the exercise price from $2.636545 to $0.75
per share. Additionally, the Company and Mr. Rosen agreed, among other things,
to covenants with respect to confidentiality and certain restrictions on stock
repurchases by Mr. Rosen. On October 19, 1998, the Company repurchased 496,895
shares of the Company's common stock owned by Robert Rosen for an aggregate
consideration of $372,671.75 or $0.75 per share (equal to the closing price of
the Company's common stock on the NASDAQ SmallCap Market at the date the parties
agreed in principle to the transaction).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements.
None.
(b) Pro Forma Financial Information.
None
(c) Exhibits.
4.1(a) Stock Option Agreement
(b) Consulting Agreement
(c) Settlement and Standstill Agreement
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFP IMAGING CORPORATION
(Registrant)
Date: October 28, 1998 /s/ Donald Rabinovitch
----------------------
Donald Rabinovitch,
President
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EXHIBIT INDEX
Exhibit No. Description
4.1(a) Stock Option Agreement
(b) Consulting Agreement
(c) Settlement and Standstill Agreement
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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 250
Clearbrook Road, Elmsford, New York 10533 (the "Company") and Robert L. Rosen,
with a business office at 825 Third Avenue, New York, New York 10022 (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
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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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CONSULTING AGREEMENT
CONSULTING AGREEMENT dated as of September 19, 1997 between
AFP IMAGING CORPORATION, a New York corporation with offices at 250 Clearbrook
Road, Elmsford, New York 10533 (the "Company") and Robert L. Rosen, with a
business office at 825 Third Avenue, New York, New York 10022 (the
"Consultant").
W I T N E S S E T H :
WHEREAS, the Company desires following the termination of
Robert L. Rosen's services as a director of the Company to receive advisory
services in connection with (a) assisting in determining the financial needs of
the Company, including evaluation of commercial and investment banking
activities, (b) evaluating future mergers and acquisitions, (c) long term
planning and (d) assessing different ventures which the Company may enter
(collectively, the "Objectives"); and
WHEREAS, the Consultant has established his expertise in the
areas comprising the Objectives and desires to provide advisory services as
provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements, and upon the terms and subject to the conditions hereinafter set
forth, the parties do hereby covenant and agree as follows:
Section 1. Retention of Consultant. The Company shall
engage the Consultant for the Term (as defined below), subject to the terms and
conditions of this Agreement.
Section 2. Services. (a) At such times as are mutually
convenient to the Consultant and the Company during the Term, the Consultant
shall provide such advisory services to the Company and its subsidiaries
(collectively hereinafter referred to as the "Company") as the Company shall
reasonably request in connection with the Objectives. The Consultant shall not
be obligated to spend any minimum hours of services per month. Notwithstanding
anything contained herein to the contrary, Consultant shall only perform such
services as the Company expressly directs Consultant to perform and in no event
shall the Consultant be required to identify merger or acquisition targets or
financing sources or assist in the structuring of such mergers, acquisitions or
financings.
Section 3. Compensation. For services rendered by the
Consultant pursuant to this Agreement, the Company shall pay Consultant the
following:
(a) $200,000, payable in 12 equal monthly payments of $16,667
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commencing on the first business day of the Term.
(b) a four-year option to purchase 150,000 common shares of
the Company equal to the average of the closing prices of the Company's common
shares during each of the ten trading days ending on October 12, 1997 and each
of the ten trading days commencing on the first trading day after October 12,
1997 (whether or not the Term has then commenced).
The parties hereto acknowledge that Consultant is not entitled to any other
compensation for any services rendered by Consultant in any capacity as at the
date hereof other than any fees that may be due Consultant in his capacity as a
director of the Company and is not and shall not be entitled to any other
additional compensation from the Company except as otherwise provided in a
writing executed by the parties hereto after the date hereof. In the event the
Consultant is requested during the Term to identify merger or acquisition
targets or financing sources or to assist in the structuring of such mergers,
acquisitions or financings, the Company and the Consultant shall first reach
written agreement on acceptable terms and conditions for such additional
services.
Section 4. Expenses. The Company shall pay the Consultant, on a
monthly basis, all reasonable costs and out-of-pocket expenses incurred by the
Consultants in connection with its obligations and duties under this Agreement;
provided, however, that the Consultant shall obtain the prior written consent of
the Company for any single item of expense in excess of $500.
Section 5. Non-Disclosure Covenant
The Consultant acknowledges that his position with the Company is one
of trust and confidence and that during the course of his engagement hereunder,
he may become acquainted with Confidential Information, as hereinafter defined.
The Consultant further acknowledges that the provisions of this Section 5 are
essential to the terms of its continued engagement hereunder, and that this
Section 5 shall be binding upon the Consultant during the Term and after the
termination of this Agreement, irrespective of whether this Agreement is
terminated by the Company or by the Consultant for any reason. The Consultant
covenants and agrees that he will not at any time during the Term or subsequent
to the termination of this Agreement, use, reveal, divulge, or make known to any
person, firm or corporation, any Confidential Information made known to him or
of which he has become aware, regardless of whether developed, prepared, devised
or otherwise created in whole or in part by the efforts of the Consultant. The
Consultant further covenants and agrees that he will retain all Confidential
Information in trust for the sole benefit of the Company and will not divulge or
deliver or show any Confidential Information to any unauthorized person,
including without limitation, any other employer or employee or affiliate of the
Consultant, and the Consultant will not make use of, or in any manner seek to
convert for his own use, any Confidential Information in an independent business
however
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unrelated to the business of the Company. The Consultant agrees to use his best
efforts to cause his employees who have any access to the Confidential
Information or third parties he may engage with respect to the Company or
otherwise discuss Company matters in connection with his services hereunder to
keep such information confidential, and if requested by the Company, have third
parties execute similar confidentiality agreements.
For purposes herein, the term "Confidential Information" shall mean any
information and material that the Company regards as confidential, including
without limitation, formulas, processes, ingredients, drawings, methods,
manufacturing, trade secrets, knowhow, inventions, product developments,
engineering, plans, notebooks, research, reports, memoranda, information and
material received by the Company in confidence from third parties, information
and material relating to charterers, vendors, suppliers, customers, costs,
prices, sources of supply, royalties or distribution and other commercial,
financial, business, technical and scientific information and material that is
not available to the general public. The foregoing provisions of this Section 5
shall not apply to information or material that:
(a) was known by the Consultant before the disclosure by the
Company and was not received or derived directly or indirectly
from the Company or in violation of any restrictions on
disclosure or use of such information; or
(b) was generally publicly known prior to the disclosure or after
the time of disclosure becomes generally publicly known
through no act or failure to act of the Consultant; or
(c) was made known to the Consultant by a third party entitled to
disclose the information to the Consultant, which third party
(i) did not derive it directly or indirectly from the Company
and (ii) was not subject to any restrictions on disclosure or
use of such information or material that benefit the Company;
(d) was specifically approved for disclosure by prior written
consent by the Company; or
(e) was disclosed pursuant to a Court Order or pursuant to any
other legal requirement.
Section 6. Remedies
The Consultant acknowledges that the restrictive covenants set forth in
Section 5 hereof are essential terms and conditions of its continued engagement
with the Company and that the Company will have no adequate remedy at law in the
event of any actual or threatened violation of any such covenants. The
Consultant, therefore, agrees that the Company shall be entitled to a decree or
order by any court located in
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White Plains, New York or New York City enjoining such threatened or actual
violation of any of such covenant. Such decree or order, to the extent
appropriate, shall specifically enforce the full performance of any such
covenant by the Consultant, and the Consultant hereby consents to the
jurisdiction of the aforementioned courts. Enforcement of any remedy under this
Section 6 shall not reduce or adversely affect any other remedy which may be
available to the Company in law or in equity, and nothing herein shall prevent
the Company from seeking injunctive or other relief hereunder, even if a
subsequent employer of the Consultant is joined as a party defendant or
co-defendant in any proceeding hereunder.
Section 7. Indemnification.
The Company shall indemnify and hold harmless the Consultant for
services as a consultant against any losses, claims, damages, liabilities and
expenses, including reasonable attorneys' fees, arising out of the Consultant's
services pursuant to this Agreement, performed during the term hereof. However,
the Company will not be liable under this Section to the extent that any loss,
claim, damage, liability or expense is found in a final judgment by a court of
competent jurisdiction to have resulted from the Consultant's (i) fraud, (ii)
gross negligence to the extent such is deemed to constitute bad faith, or (iii)
willful misconduct. It shall be deemed conclusively established that for
purposes of this Agreement, the Consultant is acting in good faith with respect
to actions taken by him on the advice of legal counsel. The Company agrees to
notify the Consultant promptly of the assertion of any claim or the commencement
of any action or proceeding relating to any matter which involved the Consultant
and the Company and the Consultant agrees to notify the Company promptly of the
assertion of any claim or the commencement of any action or proceeding relating
to any matter which involved the Company and the Consultant. The Company will
handle the defense of any matter which it may be required to indemnify
Consultant hereunder.
Section 8. Term. This Agreement shall be for a term
commencing on the first business day following the termination of Mr. Rosen's
services as a director of the Company and terminating on the first anniversary
of such date (the "Term").
Section 9. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the internal laws of the State of New
York. Any dispute between the parties hereto arising from or relating to the
terms of this Agreement shall be submitted to arbitration in New York, New York
under the auspices of the American Arbitration Association.
Section 10. Waiver of Breach.
The failure by the Company to exercise any rights or powers hereunder
shall not be construed as a waiver thereof. The waiver by the Company of a
breach of any provision of this Agreement by the Consultant shall not operate
nor be construed as a waiver of any subsequent breach by the Consultant.
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Section 11. Entire Agreement; Amendments. This Agreement
contains the entire agreement and understanding between the parties and
supersedes and preempts any prior understandings or agreements, whether written
or oral. The provisions of this Agreement may be amended or waived only with the
prior written consent of the Company and the Consultant.
Section 12. Successors and Assigns. This Agreement shall be
binding upon, inure to the benefit of, and shall be enforceable by the
Consultant and the Company and their respective successors and assigns;
provided, however, that the rights and obligations of the Consultant under this
Agreement shall not be assignable.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
AFP IMAGING CORPORATION
By:_________________________
Name:
Title:
.
:-------------------------
Robert L. Rosen
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SETTLEMENT AND STANDSTILL AGREEMENT
AGREEMENT dated as of October 19,1998 between AFP IMAGING CORPORATION,
a New York corporation with offices at 250 Clearbrook Road, Elmsford, New York
10523 (the "Company"), Donald Rabinovitch, with a business office at 250
Clearbrook Road, Elmsford, New York 10523 ("Rabinovitch"), David Vozick, with a
business office at 250 Clearbrook Road, Elmsford, New York 10523 ("Vozick"), and
Robert L. Rosen, with a business office at 825 Third Avenue, New York, New York
10022 ("Rosen").
WITNESSETH
WHEREAS, Rosen became a director of the Company in 1995;
WHEREAS, Rosen currently owns Four Hundred Ninety Six Thousand Eight
Hundred Ninety-Five (496,895) shares of the Company's common stock (the
"Shares"); and
WHEREAS, Rosen resigned as a director of the Company, effective October
16, 1998, and the Company, Vozick and Rabinovitch wish to purchase the Shares.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements, and upon the terms and subject to the conditions, hereinafter set
forth, the parties do hereby covenant and agree as follows:
Section 1. Resignation
Rosen hereby confirms his resignation as a director of the Company,
effective October 16,1998.
Section 2. Purchase and Sale of Shares
(a) Rosen hereby sells, and the Company, Vozick and Rabinovitch hereby
purchase all of the Shares (the purchase being allocated among the Company,
Vozick and Rabinovitch based on the portion of the purchase price paid) for a
consideration per Share of $0.75, or an aggregate consideration of $372,671.75,
such $0.75 being equal to the closing price of the Company's Common Stock on the
NASDAQ small market at the date the parties hereto agreed in principle to the
purchase and sale. The purchase price is being paid by Federal Funds wire to the
account of Rosen previously designated by Rosen in writing to Vozick and
Rabinovitch. Delivery of the Shares is being effected by delivery of the
certificates therefor, duly endorsed in blanks, without signature guarantees.
(b) Rosen represents and warrants to Vozick and Rabinovitch that the
Shares represent all of the shares of capital stock of the Company beneficially
owned by Rosen other
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than shares of Common Stock issuable upon exercise of the 1998 Options (as
hereinafter defined).
(c) Vozick and Rabinovitch each (i) acknowledge that the Shares are not
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
that the Shares must be held indefinitely by him unless they are subsequently
registered under the 1933 Act or an exemption from registration is available;
(ii) represents that he is acquiring Shares for his own account and not with a
view to resale or distribution within the meaning of the 1933 Act, and the rules
and regulations thereunder; and (iii) confirms that he has had full access to
all information concerning the Company as is necessary for him to make an
informed decision concerning the purchase of Shares.
Section 3. Standstill
Rosen covenants and agrees that, for a period of seven years from the
date of this Agreement, unless specifically invited in writing by the Company,
neither he, his affiliates (as such term is defined under the Securities Act of
1934 (the "Act")), nor investment entities with respect to which he has sole
investment control (including individual investment accounts with respect to
which he has discretionary control) shall, directly or indirectly, (i) acquire,
agree to acquire or make any proposal to acquire any securities (or beneficial
ownership thereof) or, material portion of the assets of the Company or any of
its subsidiaries, except for the exercise of the 1998 Options received by Rosen
pursuant to the Stock Option Agreement dated as of October 19, 1998 (the "Stock
Option Agreement") in consideration for entering into the Consulting Agreement
dated September 19, 1997, as amended pursuant to Section 9 hereof (the
"Consulting Agreement"), (ii) propose to enter into any tender or exchange
offer, merger or other business combination involving the Company or any of its
subsidiaries or to purchase, directly or indirectly, a material portion of the
assets of the Company or any of its subsidiaries, (iii) effect, offer or propose
(whether publicly or otherwise) to effect, or cause or participate in or in any
way assist any other person to effect, offer or propose (whether publicly or
otherwise) to effect, propose or participate in any recapitalization,
restructuring, liquidation, dissolution or other extraordinary transaction with
respect to the Company or any of its subsidiaries, (iv) make, or in any way
participate in, any "solicitation" of "proxies" (as such terms are used in the
proxy rules of the Securities and Exchange Commission) or consent to vote, or
advise or influence any person with respect to the voting of any voting
securities of the Company or any of its subsidiaries, (v) form, join or in any
way participate in a "group" (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) with respect to any voting
securities of the Company or any of its subsidiaries, (vi) otherwise act, alone
or in concert with others, to control or influence the management, Board of
Directors or policies of the Company, (vii) disclose any intention, plan or
arrangement inconsistent with the foregoing, (viii) request any item be placed
before the Company's stockholders for a vote thereof or (ix) advise, assist or
encourage any other persons in connection with any of the foregoing. Rosen also
agrees that during such period not to (x) request the Company (or any of its
directors, officers, employees or agents), directly or indirectly, to amend or
waive any provision of this Agreement (including this sentence) or (y) take any
action which might require the Company to make a public announcement regarding
any of the types of matters set forth in this paragraph.
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Section 4. Strategic Alternatives
The Company hereby confirms that it has retained the investment banking
firm of Barington Capital Group, L.P. pursuant to the engagement letter dated
September 18, 1998, a copy of which has been provided to Rosen to explore
strategic alternatives for the Company. Rosen has been afforded the opportunity
to meet with representatives of such investment banking firm.
Section 5. Non-Disparagement
(a) Rosen shall not make any negative or other disparaging statement
concerning the Company or the management (including, without limitation, Vozick
and Rabinovitch), the Board of Directors, management decisions, operating
policies or Board decisions or actions of the Company, whether or not libelous
or defamatory, and will use his best efforts not to permit any person to do so,
and (b) the Company, Vozick and Rabinovitch shall not make any negative or other
disparaging statement regarding Rosen or New Ballantrae Partners, LP or their
affiliates, whether libelous or defamatory, and will not permit any affiliate,
and will use its best efforts not to permit any person, to do so.
Section 6. Release by Rosen
Rosen personally and on behalf of his affiliates and the officers,
directors, employees, stockholders and advisors of such affiliates
(collectively, for the purposes of this Section 6, the "releasors"), hereby
releases and discharges the Company, Vozick and Rabinovitch and their affiliates
and the Company's, Vozick's and Rabinovitch's and such affiliates' respective
officers, directors, stockholders, and advisors and their affiliates and their
heirs, executors, administrators, successors and assigns (collectively, for the
purposes of this Section 6, the "releasees") from all actions, causes of action,
suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims, and
demands whatsoever, in law, admiralty or equity, which, against the releasees,
the releasors and releasors' heirs, executors, administrators, successors and
assigns ever had, now have or hereafter can, shall or may have for, upon or by
reason of any matter, cause or thing whatsoever from the beginning of the world
through and including the day of the date of this release in connection with,
arising out of or relating to the Company, the releasors' or the releasees'
positions as directors of or employment with or ownership of securities of the
Company, or transactions or relationships among the releasees, or any affiliate
of any thereof, other than for breach of obligations under this Agreement, or
the Consulting Agreement or the Stock Option Agreement.
Section 7. Releases by Company, Vozick and Rabinovitch
The Company, Vozick and Rabinovitch, for themselves and on behalf of
their affiliates and their officers, directors (collectively, the purposes of
this Section 7, the "releasors"), hereby release and discharge Rosen, New
Ballantrae Partners, L.P. and their affiliates and the officers,
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directors, employees, stockholders, direct and indirect general and limited
partners and advisors of such affiliates, and his and their heirs, executors,
administrators, successors and assigns (collectively, for the purposes of this
section 7, the "releasees") from all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
judgments, extents, executions, claims, and demands whatsoever, in law,
admiralty or equity, which, against the releasees, the releasors and releasors'
heirs, executors, administrators, successors and assigns ever had, now have or
hereafter can, shall or may have for, upon or by reason of any matter, cause or
thing whatsoever from the beginning of the world through and including the day
of the date of this release in connection with, arising out of or relating to
the Company, the releasors' or the releasees' positions as directors of,
employment with, or ownership of securities of the Company, or transactions or
relationships among the releasees or any affiliate of any thereof, other than
for breach of obligations under this Agreement, the Consulting Agreement or the
Stock Option Agreement.
Section 8. Non-Disclosure Covenant
Rosen acknowledges that his position with the Company, as a director,
was one of trust and confidence and that during the course of his service as
director, he became acquainted with Confidential Information, as hereinafter
defined. Rosen further acknowledges that the provisions of this Section 8 are
essential to the terms of this Agreement, and that this Section 8 shall be
binding upon Rosen during the Term. Rosen covenants and agrees that he will not
at any time during the Term of this Agreement and except as required during the
course of his services as a consultant pursuant to the Consulting Agreement,
use, reveal, divulge, or make known to any person, firm or corporation, any
Confidential Information made known to him or of which he has become aware,
regardless of whether developed, prepared, devised or otherwise created in whole
or in part by the efforts of Rosen. Rosen further covenants and agrees that he
will retain all Confidential Information in trust for the sole benefit of the
Company and will not divulge or deliver or show any Confidential Information to
any unauthorized person, including without limitation, any other employer or
employee or affiliate of Rosen, and Rosen will not make use of, or in any manner
seek to convert for his own use, any Confidential Information in an independent
business however unrelated to the business of the Company.
For purposes herein, the term "Confidential Information" shall mean any
information and material with respect to the Company and its businesses that the
Company treats as proprietary and confidential, including without limitation,
formulas, processes, ingredients, drawings, methods, manufacturing, trade
secrets, know-how, inventions, product developments, engineering, plans,
notebooks, research, reports, memoranda, information and material received by
the Company in confidence from third parties, information and material relating
to vendors, suppliers, customers, costs, prices, sources of supply, royalties or
distribution and other commercial, financial, business, technical and scientific
information.
The foregoing provisions of this Section 8 shall not apply to
information or material that (a) was known by Rosen before the disclosure by the
Company and was not received or derived
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directly or indirectly from the Company or in violation of any restrictions on
disclosure or use of such information known to Rosen, or (b) was generally
publicly known prior to the disclosure or after the time of disclosure becomes
generally publicly known through no fault of Rosen, or (c) was made known to
Rosen by a third party who was not known by Rosen to be subject to any
restrictions on disclosure or use of such information or material that benefit
the Company, or (d) was specifically approved for disclosure by prior written
consent by the Company.
Section 9. Limitations on Legal Actions
(a) Rosen hereby covenants and agrees not to initiate any legal action
against the Company, or any director, officer or employee of the Company
(including, without limitation Rabinovitch and Vozick), for actions or omissions
on or after the date hereof relating to the Company, except (i) to the extent
that such actions or omissions constitute gross negligence or willful misconduct
or (ii) to enforce Rosen's rights under this Agreement, the Consulting Agreement
and the Stock Option Agreement.
(b) The Company, Vozick and Rabinovitch each severally and not jointly
agrees not to initiate any legal action against Rosen for actions or omissions
on or after the date hereof relating to the Company, except (i) to the extent
such actions or omissions constitute gross negligence or willful misconduct or
(ii) to enforce such party's rights under this Agreement, the Consulting
Agreement and the Stock Option Agreement.
Section 10. Consulting Agreement Amendment
The Consulting Agreement is hereby amended as follows:
(a) Section 3 (a) of the Consulting Agreement is hereby amended
to read in its entirety as follows:
"$300,000, payable in 36 monthly installments of
$8,333.33 commencing on the first business day of
the Term";
(b) Section 3(b) of the Consulting Agreement is hereby amended to read
in its entirety as follows:
"a four-year option to purchase 300,000 common shares
of the Company at $.75 per share ("1998 Option"). The
1998 Option is partially given in substitution of the
Existing Options, which Existing Options shall be
delivered to the Company marked canceled prior to the
delivery of the 1998 Options. The 1998 Options shall
be granted pursuant to the Company's 1992 and amended
1995 Option plans and shall be in the form attached
hereto as Exhibit "B"."
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(c) Section 8 of the Consulting Agreement is hereby
amended to read in its entirety as follows:
"This Agreement shall be for a term
commencing on October 19, 1998 and
terminating on the third anniversary of such
date (the "Term")."
Section 11. Cash Settlement.
In the event Rosen delivers a notice of exercise of all or part
of the 1998 Options, the Company shall have the right, with respect to the
number of shares of Common Stock as to which the options are then being
exercised, to notify Rosen (by telephone confirmed by sameday facsimile
transmission) (the "Cash Settlement Notice") within one (1) trading day after
the receipt of Rosen's notice of exercise that the Company irrevocably agrees to
satisfy the exercise of such stock option by paying to Rosen an amount (the
"Cash Settlement Amount") equal to the difference between (x) the value of the
shares of Common Stock as to which the option is being exercised, such price to
be equal to the closing sale price of the Company's Common Stock on the
principal exchange or market on which it is traded on the last trading day
immediately preceding the date of exercise (or if there is no closing sale price
on such trading day, then the average of the closing bid and asked prices on
such principal market) and (y) the aggregate exercise price for the number of
shares of Common Stock as to which notice of exercise has been given. If the
Company shall not deliver the Cash Settlement Notice within such one trading day
period, then (i) Rosen shall within one trading day thereafter deliver to the
Company in accordance with the Stock Option Agreement payment of the exercise
price for the number of shares of Common Stock as to which notice of exercise
has been given; and (ii) the Company shall have no right to satisfy the exercise
of the 1998 Options by payment of cash (without prejudice to the Company's right
to deliver a Cash Settlement Notice with respect to subsequent exercises by
Rosen of the 1998 Options). If the Company shall deliver a Cash Settlement
Notice, the closing shall be held five (5) trading days after the receipt of
Rosen's notice of exercise, and the Cash Settlement amount shall be paid in cash
to Rosen. Notwithstanding the above, any Cash Settlement Notice shall be
ineffective if as a result of the payment of the Cash Settlement Payment to
Rosen, Rosen would be required to disgorge any profit to the Company.
Section 12. Remedies
The parties hereto acknowledge that the terms and provisions of
this Agreement are intended by the parties hereto to be complied with by them,
and that the Company, Vozick, Rabinovitch or Rosen may have no adequate remedy
at law in the event of any actual or threatened violation of any such covenants.
The parties hereto therefore agree that the Company, Vozick, Rabinovitch or
Rosen shall be entitled to a decree or order of the Supreme Court of the State
of New York located in New York, New York or the United States District Court
for the Southern District of New York enjoining such threatened or actual
violation of any provisions of this Agreement, without bond. Such decree or
order, to the extent appropriate, shall specifically enforce the full
performance of any such provision by Rosen, Vozick, Rabinovitch or the
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Company. Rosen, Vozick, Rabinovitch and the Company hereby consent to the
jurisdiction of the aforementioned courts. Enforcement of any remedy under this
Section 12 shall not diminish any other remedy which may be available to the
Company, Vozick, Rabinovitch or Rosen in law or in equity, and nothing herein
shall prevent the Company, Vozick, Rabinovitch or Rosen from seeking injunctive
or other relief hereunder.
Section 13. Term
This Agreement shall be for a term commencing on the date hereof and
terminating on the day before the seventh anniversary of such date (the "Term").
Section 14. Applicable Law
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of New York applicable to contracts executed and
to be performed wholly within such State. The Company, Rabinovitch, Vozick and
Rosen agree that any legal action or proceedings with respect to, or arising out
of, the negotiation, execution, performance or breach of, or the rights and
privileges provided by, or responsibilities and obligations under, this
Agreement must be brought in the Supreme Court of the State of New York for the
County of New York or the United States District Court for the Southern District
of New York and in no other jurisdiction. By execution and delivery of this
Agreement, each of the Company, Rabinovitch, Vozick and Rosen accept and submit
to the jurisdiction of such Court in any such legal action or proceeding and
irrevocably consent to service of process in any action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
each of the parties at the address set forth above, such service to become
effective thirty (30) days after such mailing. Nothing herein shall affect the
right to serve process in any other manner permitted by law. The parties hereby
agree to be bound by the determination of the aforesaid courts and hereby waive
any right which they may have to relitigate issues determined by the aforesaid
courts or to raise new issues not raised by it in the aforesaid courts.
Section 15. Severability; Enforcement
The invalidity of any section or paragraph hereof shall not affect the
validity, force or effect of the remaining paragraphs or sections hereof nor
shall the invalidity of any part of any paragraph affect the validity of any
other part of any paragraph or section hereof. If it is ever held that any
restriction hereunder is too broad to permit enforcement of such restriction to
its fullest extent, each party agrees that a court of competent jurisdiction may
enforce such restriction to the maximum extent permitted by law, and each party
hereby consents and agrees that such scope may be judicially modified
accordingly in any proceeding brought to enforce such restriction.
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Section 16. Waiver of Breach
The failure of the Company, Rabinovitch, Vozick or Rosen to exercise
any rights or powers hereunder shall not be construed as a waiver thereof. The
waiver by the Company, Rabinovitch or Vozick of a breach of any provision of
this Agreement by Rosen or the waiver by Rosen of a breach of any applicable
provision hereof by the Company, Rabinovitch or Vozick shall not operate nor be
construed as a waiver of any subsequent breach by such party or parties.
Section 17. Limitations on Disclosure/Confidentiality
The obligations set forth in Section 8 above shall not in any way
restrict or impair the right of Rosen, Rabinovitch, Vozick or the Company to
comply with any information requested by subpoena, interrogatory, request for
information or documents, civil investigative demands or similar legal process
or required disclosures that Rosen, Rabinovitch, Vozick or the Company
reasonably believes must be made to governmental bodies or as they may
reasonably believe to be otherwise required by law. Notwithstanding the above,
in the event that Rosen, Rabinovitch, Vozick or the Company receives any request
or process to disclose Confidential Information or make comments which would
otherwise be in violation of Section 8 hereof, Rosen, Rabinovitch, Vozick or the
Company, respectively, shall notify the other party or parties of such request
as far in advance as practicable so that such party or parties may seek at his
or its own expense an appropriate protective order or other assurances in order
for the provisions of this Agreement, without giving effect to this Section 17,
are complied with.
Section 18. Entire Agreement: Amendments
This Agreement contains the entire agreement and understanding between
the parties and supersedes and preempts any prior understandings or agreements,
whether written or oral.
Section 19. Successors and Assigns
This Agreement shall be binding upon, inure to the benefit of, and
shall be enforceable by Rosen, Rabinovitch, Vozick and the Company and their
respective successors and permitted assigns; provided, however, that the rights
and obligations of Rosen, Rabinovitch, Vozick and the Company under this
Agreement shall not be assignable except that (i) the provisions of Section 3
hereof shall be assignable by the Company in favor of (x) any person or entity
that acquires substantially all of the assets of the Company for so long as
Rabinovitch or Vozick control such acquiror or (y) any acquiror of the Company's
capital stock for so long as Rabinovitch or Vozick control such acquiror, and
(ii) the rights of the Company under Sections 5, 6, 7 and 8 and under the
Consulting Agreement may be assigned by the Company to any acquiror of
substantially all of its assets provided that the corresponding obligations of
the Company under such Sections are assumed by the acquiror.
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Section 20. Expenses
Each of the parties shall bear their own expenses in connection with
the negotiation, execution and delivery of this Agreement, except that the
Company shall pay Rosen's legal fees and expenses of up to $7,500.
Section 21. Headings
The headings contained herein are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
AFP IMAGING CORPORATION
By: ______________________________
Name:
Title
___________________________________
David Vozick
___________________________________
Donald Rabinovitch
___________________________________
Robert L. Rosen
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