c48141_10-q.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SvQkVmx+N4T86QllpCUQ0KeynzsrHxyuADKvna7l/3OLLEeW0UT3QHPkAWXZjhA6 MNqV5LrlZ/K5JGfEY+ebCg== 0000930413-07-003711.txt : 20070423 0000930413-07-003711.hdr.sgml : 20070423 20070423172250 ACCESSION NUMBER: 0000930413-07-003711 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20070228 FILED AS OF DATE: 20070423 DATE AS OF CHANGE: 20070423 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMTEC INC/NJ CENTRAL INDEX KEY: 0000005117 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 870273300 STATE OF INCORPORATION: UT FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-32789 FILM NUMBER: 07782348 BUSINESS ADDRESS: STREET 1: 817 EAST LAKE GATE DRIVE CITY: MT LAUREL STATE: UT ZIP: 08054 BUSINESS PHONE: 8013633283 MAIL ADDRESS: STREET 1: 817 EAST GATYE DRIVE CITY: MT LAUREL STATE: NJ ZIP: 08054 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN GEOLOGICAL ENTERPRISES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NUCLEAR PROCESSING CORP DATE OF NAME CHANGE: 19820318 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN GEOTHERMAL ENERGY INC DATE OF NAME CHANGE: 19681212 10-Q 1 c48141_10-q.htm c48141_10-q.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2007

Commission file number: 0-32789

EMTEC, INC.
(Exact name of registrant as specified in its charter)

Delaware		87-0273300
(State of incorporation or organization)		(I.R.S. Employer Identification
		No.)

525 Lincoln Drive
5 Greentree Center, Suite 117
Marlton, New Jersey 08053
(Address of principal executive offices, including zip code)

(856) 552-4204
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (see definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one)

Large accelerated filer o Accelerated filero Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of April 16, 2007, there were outstanding 14,385,286 shares of the registrant’s common stock.

EMTEC, INC.
FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 28, 2007

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

Consolidated Balance Sheets
February 28, 2007 (Unaudited) and August 31, 2006		1

Consolidated Statements of Operations
Three and Six months ended February 28, 2007 (Unaudited)
and 2006 (Unaudited)		2

Consolidated Statements of Cash Flows
Three and Six months ended February 28, 2007 (Unaudited)
and 2006 (Unaudited)		3

Notes to Consolidated Financial Statements (Unaudited)		4

Item 2 – Management’s Discussion and Analysis of Financial
Condition and Results of Operations		14

Item 3 – Quantitative and Qualitative Information About Market Risk		31

Item 4 – Controls and Procedures		32

PART II – OTHER INFORMATION

Item 1A – Risk Factors		33

Item 4 – Submission of Matters to a Vote by Securities Holders		34

Item 6 – Exhibits		35

SIGNATURES		36

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

EMTEC, INC.
CONSOLIDATED BALANCE SHEETS

	February 28, 2007
		(Unaudited)		August 31, 2006

Assets

Current Assets

Cash and cash equivalents	$	1,117,341		$	917,683
Receivables:
Trade, less allowance for doubtful accounts		25,947,723			27,424,737
Others		1,729,225			2,478,004
Inventories, net		1,988,251			1,295,364
Prepaid expenses		567,113			681,831
Deferred tax asset - current		782,909			636,183

Total current assets		32,132,562			33,433,802

Property and equipment, net		1,493,623			1,316,089
Customer relationships, net		7,722,952			8,013,127
Goodwill		9,014,055			9,014,055
Restricted cash		150,000			150,000
Other assets		474,638			97,751

Total assets	$	50,987,830		$	52,024,824

Liabilities and Stockholders' Equity

Current Liabilities

Line of credit	$	8,387,056		$	881,459
Accounts payable - trade		18,887,842			23,355,126
Accounts payable - related party		337,500			254,166
Current portion of long term debt - related party		1,151,283			719,356
Income taxes payable		70,465			85,732
Accrued liabilities		2,684,814			3,443,829
Due to former stockholders		631,415			631,415
Customer deposits		55,885			693,383
Deferred revenue		984,214			1,069,020

Total current liabilities		33,190,474			31,133,486

Accrued severance		-			272,332
Deferred tax liability		1,179,615			2,785,606
Long term debt - related party		3,547,774			2,290,862

Total liabilities		37,917,863			36,482,286

Stockholders' Equity
Common stock $0.01 par value; 25,000,000 shares authorized;
17,249,875 shares issued and 14,385,286 outstanding at
February 28, 2007 and August 31, 2006		172,499			172,499
Additional paid-in capital		20,111,821			19,921,699
Retained earnings (Accumulated deficit)		(1,618,306	)		1,044,387
		18,666,014			21,138,585
Less: treasury stock, at cost, 2,864,589 shares		(5,596,047	)		(5,596,047	)

Total stockholders' equity		13,069,967			15,542,538

Total liabilities and stockholders' equity	$	50,987,830		$	52,024,824

The accompanying notes are integral parts of these consolidated financial statements.

EMTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Three months ended						Six months ended
		February 28,						February 28,
		2007			2006			2007			2006
Revenues	$	41,154,373		$	41,419,415		$	106,093,516		$	126,200,100
Cost of revenues		36,802,405			36,297,550			95,682,901			112,856,068
Gross profit		4,351,968			5,121,865			10,410,615			13,344,032

Operating expenses:
Selling, general, and administrative
expenses		5,755,872			4,878,597			11,102,828			11,802,382
Management fee – related party		58,334			87,501			145,834			175,001
Amended employment agreements
and management agreement charges		2,329,800			-			2,329,800			-
Rent expense – related party		89,325			88,933			178,650			177,087
Depreciation and amortization		291,485			224,967			550,736			438,471
Total operating expenses		8,524,816			5,279,998			14,307,848			12,592,941

Operating (loss) income		(4,172,848	)		(158,133	)		(3,897,233	)		751,091

Other expense (income):
Interest income – other		(16,965	)		(14,743	)		(57,915	)		(24,067	)
Interest expense		354,880			337,530			563,598			593,765
Other		(163	)		(753	)		(413	)		(28,316	)

(Loss) income before income taxes		(4,510,600	)		(480,167	)		(4,402,503	)		209,709
Provision for income taxes (benefit)		(1,814,856	)		(91,631	)		(1,739,810	)		182,205
Net (loss) income	$	(2,695,744	)	$	(388,536	)	$	(2,662,693	)	$	27,504

Net loss per common share
Basic and diluted	$	(0.19	)	$	(0.03	)	$	(0.19	)	$	0.00

Weighted Average Shares Outstanding

Basic		14,385,286			14,381,286			14,385,286			15,039,273

Diluted		14,385,286			14,381,286			14,385,286			15,065,753

The accompanying notes are integral parts of these consolidated financial statements.

EMTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Six months ended
		February 28,
		2007			2006
Cash Flows From Operating Activities
Net (loss) income	$	(2,662,693	)	$	27,504

Adjustments to Reconcile Net (Loss) Income to Net
Cash Provided By Operating Activities
Depreciation and amortization		550,736			438,471
Deferred income tax (benefit) expense		(1,752,717	)		(26,346	)
Stock based compensation		190,122			-
Put option valuation		-			(11,500	)

Changes In Operating Assets and Liabilities
Receivables		2,225,793			9,431,424
Inventories		(692,887	)		962,057
Prepaid expenses and other assets		(262,169	)		47,900
Accounts payable		(4,383,950	)		(7,461,011	)
Customer deposits		(637,498	)		(1,031,541	)
Income taxes payable		(15,267	)		(828,659	)
Accrued liabilities		(759,015	)		(1,022,906	)
Deferred compensation		(272,332	)		(51,947	)
Deferred revenue		(84,806	)		(42,670	)
Net Cash Provided by (Used In) Operating Activities		(8,556,683	)		430,776

Cash Flows From Investing Activities
Purchases of property and equipment		(438,095	)		(426,311	)
Acquisition of businesses, net of cash acquired		-			(39,445	)
Net Cash Provided By (Used In) Investing Activities		(438,095	)		(465,756	)

Cash Flows From Financing Activities
Net increase in line of credit		7,505,597			(367,135	)
Proceeds from issuance of common stock		-			11,936
Decrease in restricted cash		-			5,500,000
Purchase of treasury stock		-			(5,596,047	)
New promissory notes		2,329,800			-
Repayment of debt		(640,961	)		(214,627	)
Net Cash Provided By (Used In) Financing Activities		9,194,436			(665,873	)

Net Increase (Decrease) in Cash and Cash Equivalents		199,658			(700,853	)
Beginning Cash and Cash Equivalents		917,683			1,021,237

Ending Cash and Cash Equivalents	$	1,117,341		$	320,384
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Income taxes	$	35,349		$	1,129,349
Interest	$	372,414		$	322,918

The accompanying notes are integral parts of these consolidated financial statements.

EMTEC, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements. Quarterly results are not necessarily indicative of results for the full year. For further information, refer to the annual financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended August 31, 2006.

2. General

Description of Business

Emtec, Inc. is an information technology company, providing consulting, services and products to commercial, federal, education, state and local verticals. The Company’s areas of specific practices include communications, data management, enterprise computing, managed services, storage and data center planning and development. The Company’s client base is comprised of departments of the United States Federal Government, U.S. state and local governments, schools and commercial businesses throughout the United States. The most significant portion of the Company’s revenue is derived from activities as a reseller of Information Technology (“IT”) products, such as workstations, servers, microcomputers, and application software and networking and communications equipment.

The Company considers all of its operating activity to be generated from a single operating segment.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Emtec, Inc. a New Jersey Corporation (“Emtec NJ”), Emtec Viasub LLC (“Emtec LLC”), and Emtec Viasub’s wholly owned subsidiary Westwood Computer Corporation (“Westwood”) and Emtec Global Services LLC (“EGS”). Significant intercompany account balances and transactions have been eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to prior years balances in order to conform to current presentations.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date

of financial statements and the reported amounts of revenues and expenses during the reporting period, including, but not limited to, receivable valuations, impairment of goodwill and other long lived assets, and income taxes. Management’s estimates are based on historical experience, facts and circumstances available at the time, and various other assumptions that are believed to be reasonable under the circumstances. The Company reviews these matters and reflects changes in estimates as appropriate. Actual results could differ from those estimates.

Inventory

Inventory is stated at the lower of average cost (specific identification) or market. Inventory is finished goods purchased for resale and consists of computer hardware, computer software, computer peripherals and related supplies.

Earnings Per Share

Basic earnings per share amounts are computed by dividing net income available to common stockholders (the numerator) by the weighted average shares outstanding (the denominator), during the period. Shares issued during the period are weighted for the portion of the period that they were outstanding.

Diluted earnings per share amounts are similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive options and warrants had been exercised. Diluted shares consisting of stock options and warrants totaling 20,789 and 45,792 shares have been excluded from the calculation of diluted net loss per share for the three months and six months ended February 28, 2007, respectively, since their effect is antidilutive.

3. Stock Options, Non-Vested Shares and Warrants

The Company’s 2006 Stock-Based Incentive Compensation Plan (the “2006 Plan”) was approved by the stockholders on May 8, 2006. The 2006 Plan authorizes the granting of stock options to directors and eligible employees. The Company has reserved 1,400,000 shares of its common stock for issuance under the 2006 Plan at prices not less than 100% of the fair value of the Company’s common stock on the date of grant (110% in the case of shareholders owning more than 10% of the Company’s common stock). Options under the 2006 Plan typically terminate after 10 years and may vest over a four year period. No options were granted or exercised during the year ended August 31, 2006.

During the three months ended November 30, 2006, the Company granted 70,000 fully-vested 10 year options to two members of the Company’s Board and recorded compensation expense of $ 68,996 based upon grant date valuations under the Black Scholes option pricing model.

During the three months ended February 28, 2007, the Company granted a total of 280,500 options with 7 year terms to various employees. These options vest over 4 years on their anniversary date in 25% increments each year.

The Company’s 1996 Stock Option Plan (amended in 1999) (the “1996 Plan”) authorizes the granting of stock options to directors and eligible employees. The Company has reserved 1,000,000 shares of its common stock for issuance under the 1996 Plan at prices not less than 100% of the fair value of the Company’s common stock on the date of grant (110% in the case of shareholders owning more than 10% of the Company’s common stock). Options under the 1996 Plan typically terminate after 5 years

and vest over a four year period. As of February 28, 2007, there are 2,000 outstanding options that were granted under the 1996 Plan. No other options have been granted by the Company under the 1996 Plan. Combined option activity for the 2006 and 1996 Plans is summarized as follows:

		Weighted	Weighted
		Average	Average	Aggregate
For the Six Months Ended February 28, 2007	Shares	Exercise Price	Remaining Life	Intrinsic Value
Options Outstanding— September 1, 2006	2,000	$0.29
Options Granted	350,500	$1.29
Options Exercised	-
Options Forfeited or Expired	-

Options Outstanding -February 28, 2007	352,500	$1.27	8 years	$1,320

Options Exercisable—February 28, 2007	72,000	$1.20	10 years	$1,320

The following assumptions were used to arrive at a $1.15 fair value per option under the Black Scholes model for option grants during the six months ended February 28, 2007:

Expected Volatility		109%
Expected term		4.75 years
Dividend Yield		0%
Risk Free Interest Rate		4.53%

The following table summarizes nonvested stock option activity for the six months ended February 28, 2007.

		Avg Grant
	Shares	Date Fair
Nonvested stock options at beginning of period	—		—
Granted	280,500		1.31
Excercised	-
Forfeited	-
Nonvested stock options - February 28, 2007	280,500	$	1.31

On November 3, 2006, the Company granted a total of 239,112 shares of non-vested Company common stock to three members of Company’s senior management team. These non-vested stock grants vest over 4 years at their November 3rd anniversary dates in 25% increments each year. The grant date fair value of the non-vested shares was determined to be $1.24 per share based upon the November 3, 2006 quoted closing price of Company stock on the Over-The-Counter Bulletin Board. Total compensation expense of $296,500 is expected to be recorded over the 4 year vesting period of these grants On December 8, 2006, the Company granted 17,250 shares of non-vested Company common stock to various employees. These shares vest on December 8, 2007. The grant date fair value of the non-vested shares was determined to be $1.44 per share based upon the December 8, 2006 quoted closing price of Company common stock on the Over-The-Counter Bulletin Board.

During the three months ended February 28, 2007, the Company executed new employment contracts with two executives and finalized grants of 201,612 shares of non-vested Company common stock in the aggregate to the two executives. These non-vested stock grants vest over 4 years at their anniversary date in 25% increments each year. The fair value of the non-vested shares was determined to be $1.24 per share based upon the grant date quoted closing price of Company stock on the Over-The-Counter Bulletin Board. Total compensation expense of $250,000 is expected to be recorded over the 4-year vesting period of these grants.

The following table represents the shares that were granted and outstanding as of February 28, 2007:

		February 28, 2007

Restricted Stock
Granted,during and as of the period ended		457,974
Outstanding, as of		457,974
Vested as of period ended		-

The Company recognized the following stock compensation expense during the three and six months ended February 28, 2007 of $109,281 and $190,122, respectively.

As of February 28, 2007, there was $655,966 of unrecognized compensation cost related to share based payments. Stock based compensation expense for future periods for non-vested share based payments outstanding as of February 28, 2007 is estimated as follows:

Six months ending August 31, 2007	$	203,492
Year ending August 31, 2008	$	247,029
Year ending August 31, 2009	$	128,940
Year ending August 31, 2010	$	60,195
Year ending August 31, 2011	$	16,310

The Company did not grant any share-based compensation awards during the year ended August 31, 2006 and all outstanding stock options as of September 1, 2005 were fully vested, thus no stock compensation expense was recognized in the August 2006 fiscal year of adoption of SFAS 123(R).

The Company has also issued stock warrants to certain stockholders that evidence the obligation of the Company to issue a variable number of shares, in the aggregate, equal to 10% of the total issued and outstanding shares of the Company’s common stock, measured on a post exercise basis, at any date during the 5 year term of the warrants, which ends August 5, 2010. The aggregate exercise price of these warrants is fixed at $3,695,752. The exercise price per warrant will vary based upon the number of shares issuable under the warrants. The number of shares issuable under the warrants totaled 1,598,365 shares with an exercise price of $2.31 per share as of February 28, 2007. The outstanding stock warrants were anti-dilutive for the three and six months ended February 28, 2007 and 2006.

4. Line of Credit

On December 7, 2006, the Company and its subsidiaries Emtec NJ, Emtec LLC, and Westwood (the Company, Emtec NJ, and Emtec LLC and Westwood, collectively, the “Borrower”), entered into a Loan and Security Agreement with De Lage Landen Financial Services, Inc. (the “Lender”) pursuant to which the Lender has agreed to provide the Borrower a revolving credit loan and floorplan loan (the “Credit Facility”). The Credit Facility provides for aggregate borrowings of the lesser of $32.0 million or 85% of Borrower’s eligible accounts receivable, plus 100% of unsold inventory financed by the Lender, minus $5.0 million reserve. The floor plan loan portion of the Credit Facility is for the purchase of inventory from approved vendors and for other business purposes. The Credit Facility subjects the Borrower to mandatory repayments upon the occurrence of certain events as set forth in the Credit Facility.

Borrowings under the Credit Facility will bear interest at an annual rate equal to the rate of interest published in the “Money Rates” section of the Wall Street Journal minus 0.5% (7.75% as of February 28, 2007) for revolving credit loans. Floorplan loans shall not bear interest until the Borrower is in default unless a floorplan loan is unsubsidized then such floorplan loan will accrue interest once made at the rate agreed to by the parties. Interest on outstanding floorplan loans accrues per annum at the rate of 2.5% in excess of the interest rate published in the “Money Rates” section of the Wall Street Journal (10.75% as of February 28, 2007).

To secure the payment of the obligations under the Credit Facility, the Borrower granted to the Lender a security interest in all of Borrower’s assets, including inventory, equipment, fixtures, accounts, chattel paper, instruments, deposit accounts, documents, general intangibles, letter of credits rights, and all judgments, claims and insurance policies.

Simultaneous with the execution of the Credit Facility, the Borrower terminated its prior Business Financing Agreement and Wholesale Financing Agreement with GE Commercial Distribution Finance Corporation and satisfied all outstanding obligations under those agreements.

In connection with its refinancing, Westwood paid the full amount due and owing under the 5% and 8% junior subordinated notes to former stockholders of Westwood and paid the remaining balance of $243,870 to Joyce Tischler under a Separation Agreement dated April 16, 2004 (see footnotes 10 and 11 for additional detail).

As of February 28, 2007, the Company had an $8.39 million outstanding balance under the revolving portion of the Credit Facility, and an $885,677 (included in the Company’s accounts payable) outstanding balance plus $860,300 in open approvals under the floor plan portion of the Credit Facility. Net availability of $4.71 million was available under the revolving portion of the Credit Facility, and $17.15 million was available under the floor plan portion of the Credit Facility as of February 28, 2007.

As of February 28, 2007, the Company determined that it was in compliance with its financial covenants with the Lender.

5. Concentration of Credit Risk and Significant Clients

Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of accounts receivable.

The Company’s revenues, by client type, are comprised of the following:

		For the Three Months Ended February 28,
		2007				2006
Departments of the United States Government	$	21,351,696	51.9	%	$	17,514,706	42.3	%
State and Local Governments		3,243,055	7.9	%		8,938,469	21.6	%
Commercial Companies		12,951,877	31.5	%		10,733,709	25.9	%
Education and other		3,607,745	8.8	%		4,232,530	10.2	%
Total Revenues	$	41,154,373	100.0	%	$	41,419,415	100.0	%



		For the Six Months Ended February 28,
		2007				2006
Departments of the United States Government	$	67,513,191	63.6	%	$	71,054,112	56.3	%
State and Local Governments		6,768,340	6.4	%		15,970,876	12.7	%
Commercial Companies		24,064,034	22.7	%		26,561,592	21.0	%
Education and other		7,747,951	7.3	%		12,613,520	10.0	%
Total Revenues	$	106,093,516	100.0	%	$	126,200,100	100.0	%

The Company does not require collateral or other security to support credit sales but provides an allowance for doubtful accounts based on historical experience and specifically identified risks. Trade receivable are considered delinquent when payment is not received within standard terms of sale and are charged off against the allowance for doubtful accounts when management determines that recovery is unlikely and the Company ceases its collection efforts.

The Company provides an allowance for losses on trade receivables based on a review of the current status of existing receivables and management’s evaluation of periodic aging of the accounts. The trade account receivables consist of the following:

	February 28,				August 31,
	2007				2006
Trade receivables	$	26,148,811		$	27,541,825
Allowance for doubtful accounts	$	(201,088	)		(117,088	)
Trade receivables, net	$	25,947,723		$	27,424,737

6. Property and Equipment

Property and equipment consisted of the following:

							Estimated Life
	February 28, 2007			August 31,2006			Years
Leasehold improvements	$	385,778		$	310,563		3.76
Computer equipment		924,877			797,246		3 to 5
Furniture and fixtures		138,970			123,194		3 to 5
Automobiles		64,146			69,062		3 to 5
Software		729,672			508,094		3 to 5
		2,243,444			1,808,159
Less accumulated depreciation		(749,821	)		(492,070	)
Property and Equipment, Net	$	1,493,623		$	1,316,089

7. Customer Relationships

Customer relationships represent the value ascribed to customer relationships purchased during the August 5, 2005 merger. Customer relationships acquired totaled $8,661,712 and are presented on the balance sheet, net of accumulated amortization of $938,760 and $648,585, as of February 28, 2007 and August 31, 2006, respectively.

8. Accrued Liabilities

Accrued liabilities consisted of the following:

	February 28, 2007		August 31, 2006

Accrued payroll	$	622,071	$	873,248
Accrued commissions		473,243		637,771
Accrued state sales taxes		132,935		211,710
Accrued third party service fees		395,831		130,933
Other accrued expenses		1,060,733		1,590,167
	$	2,684,814	$	3,443,829

9. Related Party Transactions

The Company accrues a monthly management fee of approximately $29,166 pursuant to the management services agreement between DARR Global Holdings, Inc. (“DARR Global”) and Westwood, dated April 16, 2004. On February 5, 2007, in connection with the issuance of the promissory note to DARR Global (see footnote 11), Westwood and DARR Global terminated the Management Services Agreement dated April 16, 2004. DARR Global is a management consulting company 100% owned by the Company’s Chief Executive Officer. For the six months ended February 28, 2007 and 2006, the Company recorded $145,834 and $175,001 for this management fee in the accompanying consolidated statements of operations.

One of the Company’s facilities is leased under a non-cancelable operating lease agreement with an entity that is owned by officers of the Company. Rent expense was $90,000 for each of the six month periods ended February 28, 2007 and 2006, respectively. The facilities consist of office and warehouse space totaling 43,000 square feet, located in Springfield, New Jersey. Management believes the lease payments are at or below market rate for similar facilities.

The Company is occupying approximately 21,000 square feet of office and warehouse space in a 70,000 square foot building in Suwannee, GA. This space is leased from GS&T Properties, LLC, in which certain officers of the Company are passive investors, owning approximately 20% of the equity interest. The lease term is for 5 years with monthly base rent of $12,500. During the three month periods ended February 28, 2007 and 2006, the Company recorded expense under this lease totaling $44,325 and $44,322, respectively. During the six month periods ended February 28, 2007 and 2006, the Company recorded expense under this lease totaling $88,650 and $87,476, respectively.

10. Accrued Severance

The Company was counterparty to deferred compensation arrangements with a spouse (as beneficiary) of a former officer and a former stockholder of Westwood. Commensurate with the acquisition of Westwood on April 16, 2004, the arrangement with the spouse was forfeited in exchange for a separation agreement. The severance agreement provided quarterly severance payments to the beneficiary of amounts between $22,000 and $33,900 through February 2009. As of August 31, 2006, the Company’s liability under the severance agreement was $272,332. The Company paid in full the remaining amounts owing under severance agreement during the six months ended February 28, 2007, in connection with the Company’s refinancing with the Lender.

11. Amended Employment Agreements and Management Agreement Charges

On February 5, 2007 in connection with the entry into amended and restated employment agreements with Keith Grabel and Mary Margaret Grabel, and in connection with the termination of the Management Services Agreement between Westwood and DARR Global, Westwood issued subordinated promissory notes to Mr. Grabel, Mrs. Grabel and DARR Global in the principal amount of $671,300, $655,600, and $1,002,900, respectively. The total principal amount of these notes, equaling $2,329,800, has been recorded as amended employment agreements and management agreement charges on the consolidated statements of operations for the three and six months ended February 28, 2007.

The Company amended and restated these employment agreements with Keith Grabel and Mary Margaret Grabel in effort to align their base compensation with other Company executives and their respective duties. At the same time, the Company reviewed DARR Global Management Services Agreement and determined that it was appropriate to terminate the agreement and restructure.

New Promissory Notes

Keith Grabel. On February 5, 2007, in connection with the entry into an amended and restated employment agreement with Mr. Grabel, Westwood issued a subordinated promissory note to Keith Grabel in the principal amount of $671,300. Interest on the unpaid principal balance of the note is payable at a rate of five percent (5%) per annum. The note reaches maturity on April 16, 2009. Until that date, Westwood must pay monthly to Mr. Grabel 3.70% of the principal amount and all interest then accrued and unpaid on the note. The Company has guaranteed payment of all amounts due under the note pursuant to a guaranty dated February 5, 2007.

Mary Margaret Grabel. On February 5, 2007, in connection with the entry into an amended and restated employment agreement with Ms. Grabel, Westwood issued a subordinated promissory note to Mary Margaret Grabel in the principal amount of $655,600. Interest on the unpaid principal balance of the note is payable at a rate of five percent (5%) per annum. The note reaches maturity on April 16, 2009. Until that date, Westwood must pay monthly to Ms. Grabel 3.70% of the principal amount and all interest then accrued and unpaid on the note. The Company has guaranteed payment of all amounts due under the note pursuant to a guaranty dated February 5, 2007.

DARR Global Holdings, Inc. On February 5, 2007 in connection with the termination of the Management Services Agreement between Westwood and DARR Global, Westwood issued a subordinated promissory note to DARR Global. The principal amount of the note is $1,002,900, and interest on the unpaid principal amount is payable at a rate of five percent (5%) per annum. Westwood must repay the note at a rate of $250,000 per annum in monthly principal payments of $20,833 and all interest then accrued and unpaid on the note. However, if either (i) the Company achieves a defined EBITDA target or (ii) all amounts due under the notes issued to Mr. Grabel, Ms. Grabel and Four Kings Management LLC are paid in full, then Westwood must repay the note at a rate of $350,000 per annum. The Company has guaranteed payment of all amounts due under the note pursuant to a guaranty dated February 5, 2007. DARR Global is a management consulting firm that is 100% owned by Mr. Dinesh Desai, the Company’s Chairman and Chief Executive Officer.

Payment on 5% and 8% junior subordinated notes to former stockholders of Westwood

In connection with the Company’s refinancing with the Lender on December 7, 2006, Westwood paid the full amount due and owing under the 5% and 8% junior subordinated notes to former stockholders of Westwood.

12. Long-Term Debt

The Company’s long-term debt at February 28, 2007 consists of the following:

	February 28, 2007


8% junior subordinated notes payable to Darr Westwood LLC, a related entity		1,102,794
Subordinate note payable to Darr Westwood LLC, a related entity		750,000
Subordinate note payable to Four Kings Management		552,000
GMAC		13,607
5% subordinated note payable to Mr. Keith Grabel		646,437
5% subordinated note payable to Ms. Mary Margaret Grable		631,319
5% subordinated note payable to DARR Global Holdings, Inc.		1,002,900
Total debt		4,699,057
Less current portion		(1,151,283	)
Long-term debt, net of current portion	$	3,547,774

13. Subsequent Events

As previously reported on the company’s filed 8-K dated April 3, 2007, the Company, EGS, Configuration Management, Inc., a New Jersey corporation (“Configuration Management”), and William Anderson (the “Seller”) entered into a Stock Purchase Agreement dated December 20, 2006, pursuant to which EGS was to acquire all of the issued and outstanding capital stock of Configuration Management, Inc. for a purchase price of $10.7 million, subject to certain adjustments. Section 12.1 of the Purchase Agreement provided that if the closing of the transactions contemplated by the Purchase Agreement has not occurred by March 28, 2007, either EGS or the Seller could terminate the Purchase Agreement. On March 28, 2007, the Seller sent a notice to Emtec and EGS alleging a material default and breach of the Purchase Agreement and terminated the Purchase Agreement pursuant to Section 12.1. Neither the Company nor EGS believes it is in material default or breach of the Purchase Agreement. Pursuant to the terms of the Purchase Agreement, EGS has paid Seller $500,000 as an advance against the purchase price, which EGS anticipates it will be unable to recover. This $500,000 advance against the purchase price along with an additional $178,116 in expenses related to the potential acquisition has been recorded as an expense on the Company’s consolidated statement of operations as selling, general and administrative expense during the three months ended February 28, 2007.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, the unaudited financial statements, including the notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q.

Cautionary Statement Regarding Forward-Looking Statements

You should carefully review the information contained in this Quarterly Report on Form 10-Q and in other reports or documents that we file from time to time with the Securities and Exchange Commission (the “SEC”). In addition to historical information, this Quarterly Report on Form 10-Q contains our beliefs of future events and of our future financial performance. In some cases, you can identify those so-called “forward-looking statements” by words such as “may,” “will,” “should,” expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of those words and other comparable words. You should be aware that those statements are only our predictions. Actual events or results may differ materially. We undertake no obligation to publicly release any revisions to forward-looking statements after the date of this report. In evaluating those statements, you should specifically consider various factors, including the risk factors discussed in our Annual Report on Form 10-K for the year ended August 31, 2006 and other reports or documents that we file from time to time with the SEC. All forward-looking statements attributable to us or a person acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Assumptions relating to budgeting, marketing, and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure, or other budgets, which may in turn affect our business, financial position, results of operations, and cash flows.

Overview of Emtec

We are an information technology company, providing consulting, services and products to commercial, U.S. Federal Government, education, U.S. state and local clients. Our services and products address technology needs of our clients including communications, data management, enterprise computing, managed services, storage and data center planning and development. Our solutions are crafted to enable our clients to become more efficient and effective, thereby making them more profitable and giving them a competitive advantage. To date, the most significant portion of our revenues has been derived from our activities as a reseller of IT products, such as workstations, servers, microcomputers, application software and networking and communications equipment. However, we are actively endeavoring to increase the portion of our revenues that are derived from IT services.

Our primary business objective is to become a leading single-source provider of high quality and innovative IT consulting, services and products. With the merger of Westwood and the historic Emtec business in August 2005, we believe we have created a strong, stable platform for growth and management depth. Through our strategic partners, we have an expanded array of products and technology solutions to offer our clients.

Recent Events

On February 5, 2007, in connection with the entry into amended and restated employment agreements with Keith Grabel and Mary Margaret Grabel, and in connection with the termination of the Management Services Agreement between the Company and DARR Global, Westwood issued subordinated promissory notes to Mr. Grabel, Ms. Grabel and DARR Global in the principal amount of $671,300, $655,600, and $1,002,900, respectively. The aggregate principal amount of these notes, equal to $2,329,800 has been recorded as an amended employment agreements and management agreement charges expense on the consolidated statements of operations for the three months ended February 28, 2007.

During the quarter ended February 28, 2007, in connection with potential acquisition of Configuration Management, Inc., we incurred $678,116 of merger related costs, including $500,000 in advance purchase price payments, which have been recorded as an expense on our consolidated statement of operations as selling, general and administrative expense. As previously reported by us in a Current Report on 8-K dated April 3, 2007, this agreement was terminated by the Seller on March 28, 2007.

Results of Operations

Comparison of Three Months Ended February 28, 2007 and 2006

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our Results of Operations for each of the three months ended February 28, 2007 and 2006.

EMTEC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Februray 28,

	2007			2006			Change			%
Revenues	$	41,154,373		$	41,419,415		$	(265,042	)	-0.6	%
Cost of revenues		36,802,405			36,297,550			504,855		1.4	%
Gross profit		4,351,968			5,121,865			(769,897	)	-15.0	%
Percent of revenues		10.6	%		12.4	%

Operating expenses:
Selling, general, and administrative expenses		5,755,872			4,878,597			877,275		18.0	%
Management fee – related party		58,334			87,501			(29,167	)	-33.3	%
Amended employment agreements
and management agreement charges		2,329,800			-			2,329,800		N/A
Rent expense – related party		89,325			88,933			392		0.4	%
Depreciation and amortization		291,485			224,967			66,518		29.6	%
Total operating expenses		8,524,816			5,279,998			3,244,818		61.5	%
Pecent of revenues		20.7	%		12.7	%				0.0	%

Operating loss		(4,172,848	)		(158,133	)		(4,014,715	)	2538.8	%
Percent of revenues		-10.1	%		-0.4	%

Other expense (income):
Interest income – other		(16,965	)		(14,743	)		(2,222	)	15.1	%
Interest expense		354,880			337,530			17,350		5.1	%
Other expense (income)		(163	)		(753	)		590		N/A

(Loss) before income taxes		(4,510,600	)		(480,167	)		(4,030,433	)	839.4	%
Provision for income taxes		(1,814,856	)		(91,631	)		(1,723,225	)	1880.6	%
Net (loss)	$	(2,695,744	)	$	(388,536	)	$	(2,307,208	)	593.8	%
Percent of revenues		-6.6	%		-0.9	%

Total Revenues

Total revenues decreased by 0.6%, or $265,042, to $41.15 million for the three months ended February 28, 2007, compared to $41.42 million for the three months ended February 28, 2006. This decrease is mainly due to a continuous IT spending slow-down in various governmental agencies in the State of New Jersey, larger educational roll-out projects being pushed into future quarters and our inability to attract new major customers.

A large portion of our revenue is drawn from various civilian and military U.S. governmental departments and agencies. These clients include the Department of Defense, Department of Justice, Department of Homeland Security, Department of Health and Human Services, Department of Agriculture, Department of Commerce and the General Service Administration. During the three months ended February 28, 2007 and 2006, U.S. governmental department and agency related revenues represented approximately 51.9% and 42.3% of total revenues, respectively.

It is expected that federal government business revenues will continue to represent a large portion of our total revenues as we continue to strive to penetrate wider and deeper into various civilian and military agencies. We have broadened the number of multi-year contracts in which we are participating and we are one of nine recent awardees of a U.S. Army contract which contemplates the awardees participating in government purchases which may approximate $5.0 billion over 10 years. Additionally, we were recently awarded National Aeronautics and Space Administration – Solution for Enterprise Wide Procurement IV, (“NASA SEWP IV”) Contract, under which we will be able to patricipate in possible government purchases. In addition, we are currently bidding on several new contracts. As a result of our existing federal government contracts, as well as our ongoing focus on seeking new contracts, we feel that that our total future revenues derived from the federal government business will be similar to prior periods although our business may be subject to federal government budgetary pressures and constraints.

The education business is expected to be strong during the upcoming quarters. We anticipate participating in various computer roll-out projects for various school districts which we believe will increase our education revenues over prior quarters. Presently, we have received purchase orders in excess of $15.0 million to be fulfilled over the next several months.

Our revenues, by client types, are comprised of the following:

		For the Three Months Ended February 28,
		2007				2006
Departments of the United States Government	$	21,351,696	51.9	%	$	17,514,706	42.3	%
State and Local Governments		3,243,055	7.9	%		8,938,469	21.6	%
Commercial Companies		12,951,877	31.5	%		10,733,709	25.9	%
Education and other		3,607,745	8.8	%		4,232,530	10.2	%
Total Revenues	$	41,154,373	100.0	%	$	41,419,415	100.0	%

Gross Profit

Aggregate gross profit decreased by 15.0%, or $769,897, to $4.35 million for the three months ended February 28, 2007 as compared to $5.12 million for the three months ended February 28, 2006. This decrease is mainly due to a continuous IT spending slow-down in various governmental agencies in the State of New Jersey and larger educational roll-out projects being pushed into future quarters. These

decreases resulted in a reduction of our higher margin installation services which reduced our gross profit. Additionally, this quarter we received less manufacturer incentives and rebates.

Measured as a percentage of revenues, our gross profit margin decreased to 10.6% of total revenues for the three months ended February 28, 2007 from 12.4% for the three months ended February 28, 2006. This decrease is mainly due to competitive pressure, aggressive pricing strategies, decline in education and state and local revenues, and lower utilization of our technical engineers which lowered our margin percentages.

We believe that the education business will improve during the upcoming quarters. We anticipate participating in various computer roll-out projects for various school districts which we believe will increase our education revenues over prior quarters. Presently, we have received purchase orders in excess of $15.0 million to be fulfilled over the next several months. These computer roll-out projects should positively impact our technical employee utilization and thus we expect it to improve our gross margin percentages.

Factors that may affect gross profits in the future include changes in product margins, rebates and other incentives offered by various manufacturers, changes in technical employee utilization rates, the mix of products and services sold, and the decision to aggressively price certain products and services.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 18.0%, or $877,275, to $5.76 million for the three months ended February 28, 2007, compared to $4.88 million for the three months ended February 28, 2006. This increase in selling, general and administrative expenses is mainly due to the following:

	o	Merger related costs associated with the termination of the Stock Purchase Agreement with Configuration Management, Inc. totaled $678,116, which includes $500,000 in advance payments made against the purchase price and $178,116 in professional fees and other related expenses;

	o	Stock compensation expense related to the issuance of stock options and non-vested stock was $109,281 for the three months ended February 28, 2007;

	o	Severance costs paid during the quarter of approximately $150,000; and

	o	Approximately $125,000 in costs associated with office consolidation incurred during this quarter.

Most of the above listed selling, general and administrative expenses are non-recurring and we anticipate that these types of expenses should not be repeated in future quarters.

In addition, to improve operational efficiencies within the organization, we have made operational and management changes to our business for which we expect to see the impact in future quarters. We will continue to emphasize operating efficiencies through cost containment strategies, re-engineering efforts and improved service delivery techniques, particularly within selling, marketing, general and administrative expenses.

Factors that may in the future have a negative impact on our selling, general and administrative costs include costs associated with marketing and selling activities, potential merger related costs,

technological improvement costs, compliance costs associated with SEC rules and increases in our insurance costs.

Management Fee-Related Party

Management fees paid to a related party for the three months ended February 28, 2007 compared to the three months ended February 28, 2006 decreased by $29,167. This decrease is due to the termination of the Management Services Agreement dated April 16, 2004 between Westwood and DARR Global. Under the terms of the agreement, DARR Global charged Westwood a monthly management fee of $29,167.

On February 5, 2007 in connection with the termination of the Management Services Agreement between Westwood and DARR Global, Westwood issued a subordinated promissory note to DARR Global. The principal amount of the note is $1,002,900, and interest on the unpaid principal amount is payable at a rate of five percent (5%) per annum. Westwood must repay the note at a rate of $250,000 per annum in monthly principal payments of $20,833 and all interest then accrued and unpaid on the note. However, if either (i) the Company achieves a defined EBITDA target or (ii) all amounts due under the notes issued to Mr. Grabel, Ms. Grabel and Four Kings Management LLC are paid in full, then Westwood must repay the note at a rate of $350,000 per annum. The Company has guaranteed payment of all amounts due under the note pursuant to a guaranty dated February 5, 2007. DARR Global is a management consulting firm that is 100% owned by Mr. Dinesh Desai, the Company’s Chairman and Chief Executive Officer.

Amended Employment Agreements and Management Agreement Charges

On February 5, 2007 in connection with the entry into amended and restated employment agreements with Keith Grabel and Mary Margaret Grabel, and in connection with the termination of the Management Services Agreement between Westwood and DARR Global, Westwood issued subordinated promissory notes to Mr. Grabel, Mrs. Grabel and DARR Global in the principal amount of $671,300, $655,600, and $1,002,900, respectively. The total principal amount of these notes, equaling $2,329,800, has been recorded as an amended employment agreements and management agreement charges on the consolidated statements of operations for the three months ended February 28, 2007.

Rent Expense-Related Party

We occupy approximately 43,000 square feet of office and warehouse space in Springfield, New Jersey. This space is leased from Westwood Property Holdings, LLC, in which Keith Grabel, our director and an executive officer, Mary Margaret Grabel, spouse of our director and an executive officer, and David Micales, our Vice President of Operations, are members. The lease term is through April 2009 with monthly base rent of $15,000. During the three months ended February 28, 2007 and 2006, we recorded $45,000 in expense under this lease.

monthly base rent of $12,500. During the three months ended February 28, 2007 and 2006, we recorded $44,325 and $43,933 in expense under this lease, respectively.

Management believes the leases noted above are being leased at a rate consistent with the market rate.

Depreciation and Amortization

Depreciation and Amortization expense increased by 29.6%, or $66,518, to $291,485 for the three months ended February 28, 2007, compared to $224,967 for the three months ended February 28, 2006. This increase is primarily attributable to increased investment in property and equipment, which increased our depreciation expense. These capital assets acquisitions were primarily for computer equipment for internal use, the purchase of software licenses and integration related costs to upgrade our computer systems.

Intangible assets at February 28, 2007 and August 31, 2006 consisted of the value ascribed to customer relationships of $8,661,712 less accumulated amortization of $938,761 and $648,585, respectively. The assets ascribed to customer relationships are being amortized on a straight-line basis over 13 to 15 years. Amortization expense was $145,089 for each of the three month periods ended February 28, 2007 and 2006. Amortization expense of $580,356 is expected to be recorded each year through August 31, 2016, $573,085 for the year ended August 31, 2017, $558,544 for each of the years ended August 31, 2018 and 2019, and $518,755 for the year ended August 31, 2020.

Interest expense

Interest expense increased by 5.1%, or $17,350, to $354,880 for the three months ended February 28, 2007, compared to $337,530 for the three months ended February 28, 2006. This is mainly due to an average higher balance outstanding on our line of credit due to higher Days Sales Outstanding during the three months ended February 28, 2007 as compared with three months ended February 28, 2006.

Provision for Income Taxes

We recorded an income tax benefit of $1.81 million during the three months ended February 28, 2007. This income tax benefit is primarily due to recording deferred tax assets associated with net operating carry-forwards and amended employment agreements and management agreement charges associated with loss of $4.51 million. We estimate that it is more likely than not that the deferred tax and assets recorded as of February 28, 2007 will be realized in future periods, and accordingly no valuation allowance related to our deferred tax assets has been recorded.

Comparison of Six Months Ended February 28, 2007 and 2006

EMTEC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Six Months Ended February 28,

		2007			2006			Change		%
Revenues	$	106,093,516		$	126,200,100		$	(20,106,584	)	-15.9	%
Cost of revenues		95,682,901			112,856,068			(17,173,167	)	-15.2	%
Gross profit		10,410,615			13,344,032			(2,933,417	)	-22.0	%
Percent of revenues		9.8	%		10.6	%

Operating expenses:
Selling, general, and administrative expenses		11,102,828			11,802,382			(699,554	)	-5.9	%
Management fee – related party		145,834			175,001			(29,167	)	-16.7	%
Amended employment agreements
and management agreement charges		2,329,800			-			2,329,800		N/A
Rent expense – related party		178,650			177,087			1,563		0.9	%
Depreciation and amortization		550,736			438,471			112,265		25.6	%
Total operating expenses		14,307,848			12,592,941			1,714,907		13.6	%
Pecent of revenues		13.5	%		10.0	%				0.0	%

Operating (loss) income		(3,897,233	)		751,091			(4,648,324	)	-618.9	%
Percent of revenues		-3.7	%		0.6	%

Other expense (income):
Interest income – other		(57,915	)		(24,067	)		(33,848	)	140.6	%
Interest expense		563,598			593,765			(30,167	)	-5.1	%
Other expense (income)		(413	)		(28,316	)		27,903		N/A

(Loss) income before income taxes		(4,402,503	)		209,709			(4,612,212	)	-2199.3	%
Provision for income taxes		(1,739,810	)		182,205			(1,922,015	)	-1054.9	%
Net (loss) income	$	(2,662,693	)	$	27,504		$	(2,690,197	)	-9781.1	%
Percent of revenues		-2.5	%		0.0	%

Total Revenues

Total revenues decreased by 15.9%, or $20.11 million, to $106.10 million for the six months ended February 28, 2007, compared to $126.20 million for the six months ended February 28, 2006. This decrease is mainly due to an overall decrease in our customers’ IT spending, particularly various governmental agencies in the State of New Jersey, larger educational roll-out projects being pushed into future quarters, and our inability to attract new major customers.

A large portion of our revenue is drawn from various civilian and military U.S. governmental departments and agencies. These clients include the Department of Defense, Department of Justice, Department of Homeland Security, Department of Health and Human Services, Department of Agriculture, Department of Commerce and the General Service Administration. During the six months ended February 28, 2007 and 2006, U.S. governmental department and agency related revenues represented approximately 63.6% and 56.3% of total revenues, respectively.

It is expected that federal government business revenues will continue to represent a large portion of our total revenues as we continue to penetrate wider and deeper into various civilian and military agencies. We have broadened the number of multi-year contracts in which we are participating and we are one of nine recent awardees of a U.S. Army contract which contemplates the awardees participating in government purchases which may approximate $5.0 billion over 10 years. Additionally, we were recently awarded NASA SEWP IV Contract, under which we will be able to participate in possible government purchases. In addition, we are currently bidding on several new contracts. As a result of our existing federal government contracts, as well as our ongoing focus on seeking new contracts, we feel that that our total future revenues derived from the federal government business will be similar to prior periods although our business may be subject to federal government budgetary pressures and constraints.

Our revenues, by client types, are comprised of the following:

		For the Six Months Ended February 28,
		2007				2006
Departments of the United States Government	$	67,513,191	63.6	%	$	71,054,112	56.3	%
State and Local Governments		6,768,340	6.4	%		15,970,876	12.7	%
Commercial Companies		24,064,034	22.7	%		26,561,592	21.0	%
Education and other		7,747,951	7.3	%		12,613,520	10.0	%
Total Revenues	$	106,093,516	100.0	%	$	126,200,100	100.0	%

Gross Profit

Aggregate gross profit decreased by 22.0%, or $2.93 million, to $10.41 million for the six months ended February 28, 2007 as compared to $13.34 million for the six months ended February 28, 2006. This decrease is mainly due to a decrease in revenue as discussed in the total revenue section.

Measured as a percentage of revenues, our gross profit margin decreased to 9.8% of total revenues for the six months ended February 28, 2007 from 10.6% for the six months ended February 28, 2006. This

decrease is mainly due to competitive pressure, aggressive pricing strategies, decline in education and state and local revenues, and lower utilization of our technical engineers which lowered our margin percentages.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by 5.9%, or $699,554, to $11.10 million for the six months ended February 28, 2007, compared to $11.80 million for the six months ended February 28, 2006. Selling, general and administrative expense for the six months ended February 28, 2007 includes following expenses:

	o	Merger related costs associated with the termination of the Stock Purchase Agreement with Configuration Management, Inc. totaled to $678,116, which includes $500,000 in advance payments made against the purchase price and $178,116 in professional fees and other related expenses;

	o	Stock compensation expense related to the issuance of stock options and non-vested stock was $190,122 for the six months ended February 28, 2007;

	o	Severance costs paid during the period of approximately $210,000; and

	o	Approximately $125,000 in costs associated with office consolidation incurred during this quarter.

Excluding the above listed expenses, our selling, general and administrative expenses would have decreased by approximately $1.90 million to $9.90 million for the six months ended February 28, 2007 as compared with $11.80 million for the six months ended February 28, 2006. This decrease in selling, general and administrative expenses is mainly due to the following:

	o	Sales commission expense decreased by approximately $568,000, which is directly related to the decrease in our gross profit resulting from lower revenues;

	o	An overall decrease of approximately $800,000 in compensation and benefits expenses;

	o	A decrease of approximately $310,000 in professional fees due to reduced reliance on outside professionals and a full year with our current auditors;

	o	Approximately $192,000 of reduced costs resulting from decreases in a variety of areas including marketing, advertising, insurance, rent, utilities, building expense and others.

Factors that may in the future have a negative impact on our selling, general and administrative costs include costs associated with marketing and selling activities, potential merger related costs, technological improvement costs, compliance costs associated with SEC rules and increases in our insurance costs.

Management Fee-Related Party

Management fees paid to a related party for the six months ended February 28, 2007 compared to the six months ended February 28, 2006 decreased by $29,167. This decrease is due to the termination of the Management Services Agreement dated April 16, 2004 between Westwood and DARR Global. Under the terms of the agreement, DARR Global charged Westwood a monthly management fee of $29,167.

Amended Employment Agreements and Management Agreement Charges

On February 5, 2007 in connection with the entry into amended and restated employment agreements with Keith Grabel and Mary Margaret Grabel, and in connection with the termination of the Management Services Agreement between the Company and DARR Global, Westwood issued subordinated promissory notes to Mr. Grabel, Mrs. Grabel and DARR Global in the principal amount of $671,300, $655,600, and $1,002,900, respectively. Total of these notes equaling to $2,329,800 has been recorded as an amended employment agreements and management agreement charges on the consolidated statements of operations for the three months ended February 28, 2007.

Rent Expense-Related Party

We occupy approximately 43,000 square feet of office and warehouse space in Springfield, New Jersey. This space is leased from Westwood Property Holdings, LLC, in which Keith Grabel, our director and an executive officer, Mary Margaret Grabel, spouse of our director and an executive officer, and David Micales, our Vice President of Operations, are members. The lease term is through April 2009 with monthly base rent of $15,000. During the six months ended February 28, 2007 and 2006, we recorded $90,000 in expense under this lease.

We also occupy approximately 21,000 square feet of office and warehouse space in a 70,000 square foot building in Suwannee, GA from GS&T Properties, LLC, in which certain officers of our company are passive investors, owning approximately 20% equity interest. The lease term is for 5 years with monthly base rent of $12,500. During the six months ended February 28, 2007 and 2005, we recorded $88,650 and $87,087 in expense under this lease, respectively.

Management believes the leases noted above are being leased at a rate consistent with the market rate.

Depreciation and Amortization

Depreciation and Amortization expense increased by 25.6%, or $112,265, to $550,736 for the six months ended February 28, 2007, compared to $438,471 for the six months ended February 28, 2006. This increase is primarily attributable to increased investment in property and equipment, which increased our depreciation expense. These capital assets acquisitions were primarily for computer equipment for internal use, the purchase of software licenses and integration related costs to upgrade our accounting systems.

Intangible assets at February 28, 2007 and August 31, 2006 consisted of the value ascribed to customer relationships of $8,661,712 less accumulated amortization of $938,761 and $648,585, respectively. The assets ascribed to customer relationships are being amortized on a straight-line basis over 13 to 15 years. Amortization expense was $291,618 for each of the six months ended February 28, 2007 and 2006. Amortization expense of $580,356 is expected to be recorded each year through August 31, 2016, $573,085 for the year ended August 31, 2017, $558,544 for each of the years ended August 31, 2018 and 2019, and $518,755 for the year ended August 31, 2020.

Interest expense

Interest expense decreased by 5.1%, or $30,167, to $563,598 for the six months ended February 28, 2007, compared to $593,765 for the six months ended February 28, 2006. This is primarily attributable to an average lower balance outstanding on our line of credit during the six months ended February 28, 2007.

Provision for Income Taxes

We recorded an income tax benefit of $1.74 million during the six months ended February 28, 2007. This income tax benefit is primarily due to recording deferred tax assets associated with net operating loss carryforwards and amended employment agreements and management agreement charges associated with loss of $4.40 million for the six months ended February 28, 2007. We estimate that it is more likely than not that the deferred tax assets recorded as of February 28, 2007 will be realized in future periods, and accordingly no valuation allowance related to our deferred tax assets has been recorded.

Recently Issued Accounting Standards

In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in and enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return. If there are changes in net assets as a result of the application of FIN 48 these will be accounted for as an adjustment to retained earnings. Additional disclosures about the amounts of such liabilities will be required also. The Company is required to adopt FIN 48 beginning September 1 , 2007. Management is currently assessing the impact of FIN 48 on consolidated financial position and results of operations.

Liquidity and Capital Resources

Cash and cash equivalents at February 28, 2007 of $1.12 million represented an increase of $199,658 from $917,683 at August 31, 2006. We are a net borrower; consequently, we believe our cash and cash equivalents balance must be viewed along with the available balance on our line of credit. Borrowings under our line of credit at February 28, 2007 increased to $8.39 million from $881,459 on at August 31, 2006. As of February 28, 2007, our net working capital was approximately $3.36 million less than it was at August 31, 2006. The decrease in working capital is mainly due to following:

	o	Payment of $533,281 to former stockholders of Westwood, which paid in-full the amount due and owing under the 5% and 8% junior subordinated notes during the six months ended February 28, 2007;

	o	Payment of $272,332, which paid in full amounts due and owing to Joyce Tischler under a separation agreement dated April 16, 2004 during the six months ended February 28, 2007;

	o	On February 5, 2007 in connection with the entry into amended and restated employment agreements with Keith Grabel and Mary Margaret Grabel, and in connection with the termination of the Management Services Agreement between the Company and DARR Global, Westwood issued subordinated promissory notes to Mr. Grabel, Ms. Grabel and DARR Global in the principal amount of $671,300, $655,600, and $1,002,900, respectively. The current portion of these long-term notes, totaling to $839,729, decreased working capital;

	o	Investment in Property and Equipment of $438,095;

	o	Operating losses incurred during this quarter due to reasons discussed in our Results of Operations in sections above.

On December 7, 2006, the Company and its subsidiaries Emtec NJ, Emtec LLC, and Westwood, (collectively, “the Borrower”), entered into a Loan and Security Agreement with De Lage Landen Financial Services, Inc. (the “Lender”) pursuant to which the Lender has agreed to provide the Borrower a revolving credit loan and floorplan loan (the “Credit Facility”). The Credit Facility provides for aggregate borrowings of the lesser of $32.0 million or 85% of Borrower’s eligible accounts receivable, plus 100% of unsold inventory financed by the Lender, minus $5.0 million reserve. The floor plan loan portion of the Credit Facility is for the purchase of inventory from approved vendors and for other business purposes. The Credit Facility subjects the Borrower to mandatory repayments upon the occurrence of certain events as set forth in the New Credit Facility. Borrowings under the Credit Facility will bear interest at an annual rate equal to the rate of interest published in the “Money Rates” section of the Wall Street Journal minus 0.5% for revolving credit loans. Floorplan loans shall not bear interest until the Borrower is in default unless a floorplan loan is unsubsidized then such floorplan loan will accrue interest once made at the rate agreed to by the parties. Interest on outstanding floorplan loans accrues per annum at the rate of 2.5% in excess of the interest rate published in the “Money Rates” section of the Wall Street Journal.

To secure the payment of the obligations under the Credit Facility, the Borrower granted to the Lender a security interest in all of Borrower’s interests in certain of its assets, including inventory, equipment, fixtures, accounts, chattel paper, instruments, deposit accounts, documents, general intangibles, letter of credits rights, and all judgments, claims and insurance policies.

In addition, the Lender and MRA Systems, Inc. (dba GE Access), one of our trade creditors, entered into an intercreditor agreement in which the Lender agreed to give GE Access a first lien position on all future unbilled service maintenance billings and which provide that, as regards to GE Access, all debt obligations to the Lender are accorded priority.

Simultaneous with the execution of the Credit Facility, the Borrower terminated its Business Financing Agreement and Wholesale Financing Agreement with GE Commercial Distribution Finance Corporation and satisfied all outstanding obligations under those agreements.

As of February 28, 2007, we had $8.39 million outstanding balance under the revolving portion of our Credit Facility, and an $885,677 outstanding (included in the Company’s accounts payable) outstanding balance plus $860,300 in open approvals under the floor plan portion of Credit Facility with the Lender. Net availability of $4.71 million was available under the accounts receivable Credit Facility, and $17.15 million was available under the floor plan portion Credit Facility as of February 28, 2007.

As of February 28, 2007, the Company determined that it was in compliance with its financial covenants with the Lender.

As of February 28, 2007, we had outstanding balances under our open term credit facilities with our primary trade vendors, including aggregators and manufacturers, of approximately $32.7 million with outstanding principal of approximately $15.1 million. Under these lines, we are typically obligated to pay each invoice within 30-45 days from the date of such invoice. These credit lines could be reduced or eliminated without notice and this action could have material adverse affect our business, result of operations, and financial condition.

Capital expenditures of $438,096 during the six months ended February 28, 2007 related primarily to the purchase of computer equipment for internal use, the purchase of software licenses and integration related costs to upgrade our accounting systems. We anticipate our capital expenditures for our fiscal year ending August 31, 2007 will be approximately $650,000, of which approximately $450,000 will be for the upgrade of our organizational computer system, including the implementation and data conversion costs, and the remaining $200,000 will primarily be for the purchase of computer equipment for internal use.

We anticipate that our primary sources of liquidity in fiscal year 2007 will be cash generated from operations, trade vendor credit and cash available to us under our Credit Facility. Our future financial performance will depend on our ability to continue to reduce and manage operating expenses as well as our ability to grow revenues. Any loss of clients, whether due to price competition or technological advances, will have an adverse affect on our revenues and gross profit. Our future financial performance could be negatively affected by unforeseen factors and unplanned expenses. See “Forward Looking Statements” and “Business – Risk Factors” discussed in our Annual Report on Form 10-K for the year ended August 31, 2006.

We have no arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of or requirements for capital resources.

We believe that funds generated from operations, trade vendor credit and bank borrowings should be sufficient to meet our current operating cash requirements through the next twelve months. However, there can be no assurance that all of the aforementioned sources of cash can be realized.

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The methods, estimates, and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The Securities and Exchange Commission has defined critical accounting policies as policies that involve critical accounting estimates that require (i) management to make assumptions that are highly uncertain at the time the estimate is made, and (ii) different estimates that could have been reasonably used for the current period, or changes in the estimates that are reasonably likely to occur from period to period, which would have a material impact on the presentation of our financial condition, changes in financial condition or in result of operations. Based on this definition, our most critical policies include: revenue recognition, allowance for doubtful accounts, inventory valuation reserve, the assessment of recoverability of long-lived assets, the assessment of recoverability of goodwill and intangible assets, rebates, and income taxes.

Revenue Recognition

We recognize revenue from the sales of products when risk of loss and title passes which is upon client acceptance.

Revenue from the sale of warranties and support service contracts is recognized on a straight-line basis over the term of the contract, in accordance with Financial Accounting Standards Board Technical Bulleting No. 90-1, Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts (“FTB 90-1”).

We may also enter into sales arrangements with clients that contain multiple elements. We recognize revenue from sale arrangements that contain both products and manufacturer warranties in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”, based on the relative fair value of the individual components. The relative fair value of individual components is based on historical sales of the components sold separately.

Product revenue represents sales of computer hardware and pre-packaged software. These arrangements often include software installations, configurations, and imaging, along with delivery and set-up of hardware. We follow the criteria contained in EITF 00-21 and Staff Accounting Bulletin (“SAB”) 104 in recognizing revenue associated with these transactions. We perform software installations, configurations and imaging services at our locations prior to the delivery of the product. Some client arrangements include “set-up” services performed at client locations where our personnel perform the routine tasks of removing the equipment from boxes, and setting up the equipment at client workstations by plugging in all necessary connections. This service is usually performed the same day as delivery. Revenue is recognized on the date of acceptance, except as follows:

	•	In some instances, the “set-up” service is performed after date of delivery. We recognize revenue for the “hardware” component at date of delivery when the amount of revenue allocable to this component is not contingent upon the completion of “set-up” services and, therefore, our client has agreed that the transaction is complete as to the “hardware”

		component. In instances where our client does not accept delivery until “set-up” services are completed, we defer all revenue in the transaction until client acceptance occurs.

	•	There are occasions when a client requests a transaction on a “bill & hold” basis. We follow the SAB 104 criteria and recognize revenue from these sales prior to date of physical delivery only when all the criteria of SAB 104 are met. We do not modify our normal billing and credit terms for these customers. The customer is invoiced at the date of revenue recognition when all of the criteria have been met.

We have experienced minimal customer returns. Since all eligible products must be returned to us within 30 days from the date of the invoice, we reduce the product revenue and cost of goods in each accounting period based on the actual returns that occurred in the next 30 days after the close of the accounting period.

Service and consulting revenue include time billings based upon billable hours charged to the clients, fixed price short-term projects, hardware maintenance contracts, and manufacturer support service contracts. These contracts generally are task specific and do not involve multiple deliverables. Revenues from time billings are recognized as services are delivered. Revenues from short-term fixed price projects are recognized using the proportionate performance method by determining the level of service performed based upon the amount of labor cost incurred on the project versus the total labor costs to perform the project because this is the most readily reliable measure of output. Revenues from hardware maintenance contracts are recognized ratably over the contract period.

Revenues from manufacturer support service contracts where the manufacturer is responsible for fulfilling the service requirements of the client are recognized immediately on their contract sale date. Manufacturer support service contracts contain cancellation privileges that allow our clients to terminate a contract with 90 days written notice. In this event, the client is entitled to a pro-rated refund based on the remaining term of the contract, and we would owe the manufacturer a pro-rated refund of the cost of the contract. However, we have experienced no client cancellations of any significance during our most recent 3-year history and do not expect cancellations of any significance in the future.

Trade Receivables

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our clients to make required payments. We base our estimates on the aging of our accounts receivable balances and our historical write-off experience, net of recoveries. If the financial condition of our clients were to deteriorate, additional allowances may be required. We believe the accounting estimate related to the allowance for doubtful accounts is a “critical accounting estimate” because changes in it can significantly affect net income.

Inventories

Inventory is stated at the lower of average cost (specific identification) or market. Inventory is entirely finished goods purchased for resale and consists of computer hardware, computer software, computer peripherals and related supplies. We provide an inventory reserve for products we determine are obsolete or where salability has deteriorated based on management’s review of products and sales.

Goodwill and Intangible Assets

We have adopted Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”). As a result, amortization of goodwill was discontinued. Goodwill is the excess of the purchase price over the fair value of the net assets acquired in a business combination accounted for under the purchase method. We test goodwill and indefinite-lived assets for impairment at least annually in accordance with SFAS 142.

Intangible assets at February 28, 2007 and August 31, 2006 consisted of the value ascribed to customer relationships. The assets ascribed to customer relationships are being amortized on a straight-line basis over 13 to 15 years. Intangible assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable in accordance with Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” Recoverability of long-lived assets is assessed by a comparison of the carrying amount to the estimated undiscounted future net cash flows expected to result from the use of the assets and their eventual disposition. If estimated undiscounted future net cash flows are less than the carrying amount, the asset is considered impaired and a loss would be recognized based on the amount by which the carrying value exceeds the fair value of the asset.

Rebates

Rebates are recorded in the accompanying consolidated statements of income as a reduction of the cost of revenues in accordance with Emerging Issues Task Force Abstract No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor (EITF 02-16).

Income Taxes

Income taxes are accounted for under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In estimating future tax consequences, we generally consider all expected future events other than the enactment of changes in tax laws or rates. A valuation allowance is recognized if, on weight of available evidence, it is more likely than not that some portion or all the deferred tax assets will not be realized.

Item 3. Quantitative and Qualitative Information About Market Risk

We do not engage in trading market risk sensitive instruments and do not purchase hedging instruments or “other than trading” instruments that are likely to expose us to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. We have issued no debt instruments, entered into no forward or future contracts, purchased no options and entered into no swaps. Our primary market risk exposures are those of interest rate fluctuations. A change in interest rates would affect the rate at which we could borrow funds under our revolving credit facility. Our balance on the line of credit at February 28, 2007 was approximately $8.39 million. Assuming no material increase or decrease in such balance, a one percent change in the interest rate would change our interest expense by approximately $83,900 annually.

Item 4. Controls and Procedures

(a) Our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13(a)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of February 28, 2007. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential future conditions, regardless of how remote.

(b) There has not been any change in our internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended February 28, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A. Risk Factors

Our 2006 Annual Report on Form 10-K includes a detailed discussion of our risk factors. The information presented below amends, updates and should be read in conjunction with the risk factors and information disclosed under Item 1A of our Form 10-K for the year ended August 31, 2006. .

We may not generate profits in the future and we had net loss in recent quarter.

For the three months ended February 28, 2007, we incurred operating loss of $4.17 million. Continuing net operating losses may limit our ability to service our debt and fund our operations and we may not generate net income from operations in the future. Factors contributing to operating loss in recent quarter included, but were not limited to, lower gross profits due to continuous IT spending slow-down in various governmental and educational entities; less manufacturer rebates and incentives; competitive pressure; aggressive pricing strategies; lower utilization of our technical engineers; potential merger related costs; and amended employment agreements and management agreement charges we incurred during this quarter. These and other factors may adversely affect our ability to generate profits in the future.

Continuous operating losses in future quarters could result in impairment of Goodwill.

Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired companies. Effective January 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets” and as a result, goodwill is not amortized but tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We have set an annual impairment testing date of June 1. An impairment charge will be recognized only when the implied fair value of a reporting unit, including goodwill, is less than its carrying amount.

Emtec has been designated as a single reporting unit for financial reporting purposes. We perform an impairment test based on a market approach that uses our market capitalization at that date as the fair value of the Company. Under this method, we compare the fair value of the reporting unit to its carrying value inclusive of goodwill. If the fair value exceeds the carrying value there is no impairment and no further analysis is necessary. If we continue to have operating losses and fail to have market acceptance, or the market conditions in the stock market causes our market valuation to decline, we may incur charges for impairment of goodwill.

Item 4. Submission of Matters to a vote by Securities Holders

The Annual Meeting of Shareholders of the Company (the “Meeting”) was held on January 22, 2007. There were present at the Meeting in person or by proxy shareholders holding an aggregate of 13,735,428 shares of Common Stock of a total number of 14,385,286 shares of Common Stock outstanding and entitled to vote at the Meeting.

1. Election of Directors.

The following directors were elected as Class A directors.

NOMINEE	FOR	AGAINST	ABSTENSIONS
Robert Mannarino	13,733,655	-	1,773

The following director was elected as a Class B director.

NOMINEE	FOR	AGAINST	ABSTENSIONS
Keith Grabel	13,632,015	-	103,413


2. The stockholders ratified the appointment of McGladrey & Pullen, LLP as the Company’s independent
registered public accounting firm for the fiscal year ending August 31, 2007 by the vote set forth below:

FOR	AGAINST	ABSTENSIONS
13,733,655	400	1,373

Item 6. Exhibits

Exhibit 10.1 – Amended and Restated Employment Agreement dated as of February 5, 2007 by and between Westwood Computer Corporation and Keith Grabel.

Exhibit 10.2 – Amended and Restated Employment Agreement dated as of February 5, 2007 by and between Westwood Computer Corporation and Mary Margaret Grabel.

Exhibit 10.3 – Amended and Restated Employment Agreement dated as of February 5, 2007 by and between Westwood Computer Corporation and Ronald A. Seitz.

Exhibit 10.4 –Subordinated Promissory Note dated February 5, 2007 issued by Westwood Computer Corporation in favor of Keith Grabel.

Exhibit 10.5 –Subordinated Promissory Note dated February 5, 2007 issued by Westwood Computer Corporation in favor of Mary Margaret Grabel.

Exhibit 10.6 –Subordinated Promissory Note dated February 5, 2007 issued by Westwood Computer Corporation in favor of DARR Global Holdings, Inc.

Exhibit 10.7 – Form of Guaranty issued by Emtec, Inc. in favor of Keith Grabel, Mary Margaret Grabel, and DARR Global Holdings, Inc. dated February 5, 2007.

Exhibit 31.1 - Rule 13a-14(a)/15 d-14(a) Certification of Dinesh R. Desai, Principal Executive Officer, of Emtec, Inc. dated April 23, 2007.

Exhibit 31.2 - Rule 13a-14(a)/15 d-14(a) Certification of Stephen C. Donnelly, Principal Financial Officer, of Emtec, Inc. dated April 23, 2007.

Exhibit 32.1 - Section 1350 Certificate of Dinesh R. Desai, Principal Executive Officer, of Emtec, Inc. dated April 23, 2007.

Exhibit 32.2 - Section 1350 Certificate of Stephen C. Donnelly, Principal Financial Officer, of Emtec, Inc. dated April 23, 2007.

SIGNATURES

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.

		EMTEC, INC.

		By: /s/ DINESH R. DESAI____
		Dinesh R. Desai
		Chairman and Chief
		Executive Officer
		(Principal Executive Officer)


		By: /s/ STEPHEN C. DONNELLY__
		Stephen C. Donnelly
		Chief Financial Officer
		(Principal Financial Officer)

Date: April 23, 2007

EX-10.1 2 c48141_ex10-1.htm

Exhibit 10.1

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AGREEMENT, made and entered into as of February 5, 2007 (the “Effective Date”), by and between KEITH GRABEL (the “Executive”) and WESTWOOD COMPUTER CORPORATION (the “Company”).

WITNESSETH THAT:

WHEREAS, the Company and the Executive previously entered into an Employment Agreement dated April 16, 2004 (the “Original Agreement”); and

WHEREAS, the Company and the Executive have agreed to execute a subordinated promissory note (the “Note”) in the form of Exhibit A hereto pursuant to which the Company has agreed to pay the Executive, in accordance with the terms of the Note, certain amounts owed under the terms of the Original Agreement; and

WHEREAS, the Company and the Executive now wish to revise the terms and conditions of the Executive’s employment.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Executive and the Company as follows:

1. Performance of Services. The Executive’s employment with the Company shall be subject to the following:

	(a)	During the Agreement Term (as defined below), and subject to the terms of this Agreement, the Executive shall be employed by the Company and shall occupy the position of President – Sales and Marketing of the Company. The Executive agrees to serve in that position or in such other offices or positions with the Company or a Subsidiary (as defined below), as shall, from time to time, be determined by the Board of Directors of the Company (the “Board”).

	(b)	During the Agreement Term, while employed by the Company, the Executive shall devote his full time, energies and talents to serving as its President or such other position determined in accordance with Paragraph (a) above. During the Agreement Term, the Executive’s main office shall be at 11 Diamond Road, Springfield, NJ 07081.

	(c)	The Executive agrees to perform his duties hereunder faithfully and efficiently subject to the directions of the Board. The Executive’s duties may include providing services for the Company, Parent and the Subsidiaries, as determined by the Board, provided, that the Executive shall not, without his consent, be assigned tasks that would be inconsistent with those of President or such other position determined in accordance with Paragraph (a) above.

	(d)	Notwithstanding the foregoing provisions of this Paragraph 1, during the Agreement Term, the Executive may devote reasonable time to activities other than those required under this Agreement, including activities involving professional, charitable, community, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other organizations, and similar types of activities, to the extent that such other activities do not, in the judgment of the Board, conflict with, inhibit or prohibit the performance of the Executive’s duties under this Agreement, or conflict in any material way with the business of the Company, Parent or any Subsidiary; provided, however, that the Executive shall not serve on the board of any business, or hold any other position with any business, without the consent of the Board. The Company acknowledges that Executive is a Manager and Member of Westwood Property Holdings LLC, the Company’s current landlord, and the Executive shall be entitled to devote reasonable time to the activities of Westwood Property Holdings LLC as may be needed; provided, however, that such devotion of time shall not hinder or interfere with the Executive’s duties to the Company.

	(e)	Subject to the terms of this Agreement, the Executive shall not be required to perform services under this Agreement during any period that the Executive is Disabled. The Executive shall be considered “Disabled” or under a “Disability” during any period in which a physical or mental disability renders the Executive incapable, after reasonable accommodation, of performing the duties under this Agreement. In the event of a dispute as to whether the Executive is Disabled, the Company may refer the same to a licensed practicing physician of the Company’s choice, and the Executive agrees to submit to such tests and examinations as such physician shall deem appropriate. At any time during the period in which the Executive is Disabled, the Company may appoint a temporary replacement to assume the Executive’s responsibilities.

	(f)	The Company shall employ the Executive for the period beginning on February 5, 2007 and ending on April 15, 2009 (the “Initial Term”); subject, however, to earlier termination as provided herein. The Executive’s employment hereunder automatically shall be extended for one (1) additional year at the end of the Initial Term, and again each successive year thereafter. However, such annual extensions may cease by either party delivering written notice of such cessation to the other party; provided that such notice is delivered at least 60 days prior to the date on which extension is otherwise to occur. The period during which the Executive is employed pursuant to this Agreement shall be referred to as the “Agreement Term.”

	(g)	For purposes of this Agreement, (i) the term “Parent” shall mean Emtec, Inc., a Delaware corporation, and (ii) the term “Subsidiary” shall mean any corporation, partnership, joint venture or other entity during any period in which at least a fifty

percent interest in such entity is owned, directly or indirectly, by Parent (or a successor to Parent).

2. Compensation. Subject to the terms of this Agreement, during the Agreement Term, while the Executive is employed by the Company, the Company shall compensate the Executive for his services as follows:

	(a)	The Executive shall receive an annual base salary, payable in regular installments in accordance with the Company’s usual payroll practices, as set forth on Schedule 2(a) (the “Salary”). The Executive’s Salary rate shall be reviewed by the Board each year during the Agreement Term, while the Executive is employed by the Company, to determine whether an increase in the amount of Salary is appropriate. Any increase in the amount of Salary shall be in the sole discretion of the Board. In no event shall the Salary of the Executive be reduced to an amount that is less than the amount specified in this Paragraph (a), or to an amount that is less than the amount that the Executive was previously receiving during the Agreement Term. In the event the Amended and Restated Employment Agreement dated February 5, 2007 by and between the Company and Mary Margaret Grabel (the “M. Grabel Employment Agreement”) is terminated, the Executive’s Salary beginning the first day of the month after such termination shall be as set forth on Schedule 2(a)(1) and shall be paid to the Executive on a pro rata basis for the number of months remaining in the year of such termination.

	(b)	Intentionally deleted.

	(c)	Except as otherwise specifically provided to the contrary in this Agreement, the Executive shall be provided with the welfare benefits and other fringe benefits to the same extent and on the same terms and in any event no less than those benefits that are currently provided by the Company to the Executive. The current benefits of the Executive are set forth on Schedule 2(c). However, the Company shall not be required to provide a benefit under this Paragraph (c) if such benefit would duplicate (or otherwise be of the same type as) a benefit specifically required to be provided under another provision of this Agreement. The Executive shall complete all forms and physical examinations, and otherwise take all other similar actions to secure coverage and benefits described in this Paragraph 2, to the extent determined to be necessary or appropriate by the Company.

	(d)	During any period while the Executive is Disabled and is otherwise entitled to receive Salary and any bonus payments under this Agreement any such Salary to the Executive shall be reduced by the amount of any benefits paid for the same period of time under the Company-provided disability income replacement coverage.

All payments and benefits to the Executive under this Agreement shall be subject to reduction for payroll and other applicable taxes.

(e)

During the first year of the Agreement Term, the Executive, together with Mary Margaret Grabel, shall be entitled to receive reimbursement from the Company for the joint reasonable expenses incurred by the Executive and Mary Margaret Grabel in providing the services hereunder and under the M. Grabel Employment Agreement (including travel) (the “Expenses”) up to $75,000 per year combined without any approval on the part of the Parent (the “Approved Expenses”); provided, that such amount shall be reduced pro rata based on the number of months remaining in the first year of the Agreement Term. Any Expenses in excess of the Approved Expenses must be approved in writing by the Parent, such approval not to be unreasonably withheld. The amount of Approved Expenses reimbursed by the Company for any years subsequent to the first year of the Agreement Term may be adjusted upward as agreed upon in writing by the Executive and the Parent, but in no event shall such amount be less than $75,000.

3. Termination. The Executive’s employment with the Company during the Agreement Term may be terminated by the Company or the Executive without any breach of this Agreement only under the circumstances described in Paragraphs 3(a) through 3(f):

(a)	Death. The Executive’s employment hereunder will terminate upon death, but bonus payments, if any, will inure to the benefit of his heirs and assigns for the full Agreement Term.

(b)	Disability. During the Agreement Term, the Company may terminate the Executive’s employment if Executive is Disabled for longer than twelve (12) consecutive months.

(c)	Cause. The Company may terminate the Executive’s employment hereunder at any time for Cause. For purposes of this Agreement, the term “Cause” shall mean:

	(i)	a willful act by the Executive against the interests of the Company or which causes or is intended to cause harm to the Company or its shareholders;

	(ii)	the Executive’s conviction, or plea of no contest or guilty, to a felony under the laws of the United States or any state thereof or of a lesser offense involving dishonesty as such dishonesty relates to the Company’s assets or business or the theft of Company property;

	(iii)	the Executive’s insobriety or use of illegal drugs, chemicals or controlled substances either (A) in the course of performing Executive’s duties and

		responsibilities under this Agreement, or (B) otherwise affecting the ability of Executive to perform the same; or

	(iv)	a material breach of the Agreement by the Executive which is not cured by the Executive within twenty (20) days (where the breach is curable) following written notice to the Executive by the Company of the nature of the breach.

For purposes of this Agreement, no act, or failure to act, on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s action or omission was in the best interest of the Company. Cause shall not exist under this Section 3 unless and until the Company has delivered to the Executive a copy of a resolution duly adopted by a majority of the Board (absent the Executive) at a meeting of the Board called and held for such purpose, or by written consent, finding that such Cause exists in the good faith opinion of the Board. This Section 3 shall not prevent the Executive from challenging in any arbitration proceeding the Board’s determination that Cause exists or that the Executive has failed to cure any act (or failure to act), to the extent permitted by this Agreement that purportedly formed the basis for the Board’s determination. The Company must provide written notice to the Executive that it is intending to terminate the Executive’s employment for Cause within one hundred and twenty (120) days after the Board has actual knowledge of the occurrence of the event it believes constitutes Cause.

(d)	Termination for Good Reason. The Executive may terminate his employment hereunder for Good Reason at any time during the Agreement Term. For purposes of the Agreement, “Good Reason” shall mean:

	(i)	a material breach of the terms of this Agreement by the Company;

	(ii)	the Company requiring the Executive to move his primary place of employment more than thirty-five (35) miles from the then current place of employment;

	(iii)	a material diminution of the Executive’s responsibilities or any material reduction in the general nature of the Executive’s duties or authority to a level inconsistent with President, unless previously agreed to in writing by the Executive;

	(iv)	the failure of the Executive to be elected to the Boards of Directors of the Company and the Parent (provided, that it shall not be deemed to be a termination for Good Reason if Executive elects not to seek reelection to the Board of Directors of the Company or Parent); or

	(v)	a Change of Control of the Company or the Parent;

provided that any of the foregoing is not cured by the Company within twenty (20) days following receipt of written notice by the Executive to the Company of the specific nature of the breach. No termination for Good Reason shall be permitted unless the Company shall have first received written notice from the Executive describing the basis of such termination for Good Reason. A termination of the Executive’s employment for Good Reason pursuant to this Section shall be treated for purposes of this Agreement as a termination by the Company without Cause and the provisions of this Section relating to the payment of compensation and benefits shall apply. The term “Change of Control” means (i) the acquisition by any person or group, or two or more such persons acting in concert, of beneficial ownership of more than 51% of the outstanding common stock of the Company or the Parent [(excluding the common stock of the Company or Parent owned by the Executive, Mary Margaret Grabel or their assigns)]; or (ii) the sale of all or substantially all of the assets of the Company or the Parent. The term Change of Control will expressly include, without limitation, any such acquisition or sale that is structured as a merger, consolidation, joint venture, tender offer, exchange offer, equity investment in the Company or the Parent.

The Executive’s right to terminate employment pursuant to this Paragraph (d) shall not be affected by incapacity due to physical or mental illness.

	(e)	Voluntary Termination by Executive. The Executive shall provide the Company thirty (30) days’ advance written notice in the event the Executive terminates his employment, other than for Good Reason (as defined herein); provided that the Board may, in its sole discretion, terminate the Executive’s employment with the Company prior to the expiration of the thirty-day notice period. In such event and upon the expiration of such thirty day period (or such shorter time as the Board in its sole discretion may determine), the Executive’s employment under this Agreement shall immediately and automatically terminate.

	(f)	Termination by Company. The Company may terminate the Executive’s employment hereunder at any time for any reason, by giving the Executive prior written Notice of Termination, which Notice of Termination shall be effective immediately, or such later time as is specified in such notice; provided, however that as a condition to the Company’s ability to terminate the Executive’s employment under this Paragraph 3(f): (i) all amounts due and owning under this Agreement, including all salary payments shall have been paid in full; (ii) all amounts due and owing under the Subordinated Note in the amount of $750,000 made by Westwood Acquisition Corporation in favor of Four Kings Management LLC shall have been paid in full; (iii) all amounts due and owing under the 8% Junior Subordinated Note and the 5% Junior Subordinated Note made by the Company in the favor of the Executive shall have been paid in full and (iv) all amounts due and owing under the Note shall have been paid in full. The Company shall not be required to specify a reason for the termination under this Paragraph 3(f), provided that termination of the Executive’s employment by the Company shall be deemed to have occurred under this Paragraph 3(f) only if it is

		not for reasons described in Paragraph 3(b), 3(c), 3(d), or 3(e). Notwithstanding the foregoing provisions of this Paragraph (f), if the Executive’s employment is terminated by the Company in accordance with this Paragraph (f), and within a reasonable time period thereafter, it is determined by the Board that circumstances existed which would have constituted a basis for termination of the Executive’s employment for Cause in accordance with Paragraph 3(c), the Executive’s employment will be deemed to have been terminated for Cause in accordance with Paragraph 3(c) (provided, however, that termination for Cause shall not be determined to exist under this sentence solely by reason of circumstances which could have been remedied if notice had been given in accordance with Paragraph 3(c)).

	(g)	Notice of Termination. Any termination of the Executive’s employment by the Company or the Executive (other than a termination pursuant to Paragraphs 3(a) or (b)) must be communicated by a written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” means a dated notice which indicates the Date of Termination (not earlier than the date on which the notice is provided), and which indicates the specific termination provision in this Agreement relied on and which sets forth in reasonable detail the facts and circumstances, if any, claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

	(h)	Date of Termination. “Date of Termination” means the last day the Executive is employed by the Company, provided that the Executive’s employment is terminated in accordance with the foregoing provisions of this Paragraph 3.

	(i)	Effect of Termination. If, on the Date of Termination, the Executive is a member of the Board of the Company or a member of the Board of Directors or Board of Members of Parent or any of the Subsidiaries, or holds any other position with the Company, Parent and the Subsidiaries, the Executive shall resign from all such positions as of the Date of Termination.

4. Rights Upon Termination. The Executive’s right to payment and benefits under this Agreement for periods after the Date of Termination shall be determined in accordance with the following provisions of this Paragraph 4:

(a)	If the Executive’s Date of Termination occurs during the Agreement Term for any reason, other than for a Company termination under Section 3(f), the Company shall pay to the Executive (subject to the limitations in subsection (c) below):

	(i)	The Executive’s Salary for the period ending on the Executive’s Date of Termination.

	(ii)	A pro rata portion of the amount as set forth on Schedule 4(a)(ii) for the year of the Executive’s Date of Termination based on the number of

		remaining months in such year and the amount set forth on Schedule 4(a)(ii) for each subsequent year payable in equal quarterly installments during each subsequent year.

	(iii)	Payment for accrued vacation days, as determined in accordance with Company policy as in effect from time to time.

	(iv)	Payments as proscribed by the Note in accordance with the terms of the Note.

	(v)	Any other payments or benefits to be provided to the Executive by the Company pursuant to any employee benefit plans or arrangements adopted by the Company, to the extent such amounts are due from the Company.

Except as may otherwise be expressly provided to the contrary in this Agreement, nothing in this Agreement shall be construed as requiring the Executive to be treated as employed by the Company for purposes of any employee benefit plan or arrangement following the date of the Executive’s Date of Termination.

(b)	If the Executive’s Date of Termination occurs during the Agreement Term under circumstances described in any subsection of Paragraph 3 (other than as set forth in subsection (c) below) then the Executive or his estate will receive all payments in accordance with Paragraph 4(a).

(c)	Notwithstanding anything herein to the contrary, if the Executive voluntarily terminates as a result of a resignation pursuant to Paragraph 3(e), the Executive shall be limited to receiving only that Salary that is earned and unpaid for the period ending on the Date of Termination and shall, as of the Date of Termination, forfeit any right to receive payments under the Note, if any, regardless of whether any such Note payments have accrued but were not yet paid.

(d)	If the Executive is terminated by the Company pursuant to Section 3(f), the Executive shall be entitled to:

	(i)	The Executive’s Salary for the period ending on the Executive’s Date of Termination.

	(ii)	The Executive’s salary, as set forth on Schedule 2(a), for the balance of the Agreement Term, payable immediately upon termination.

	(iii)	Payment for accrued vacation days, as determined in accordance with Company policy as in effect from time to time.

	(iv)	Any other payments or benefits to be provided to the Executive by the Company pursuant to any employee benefit plans or arrangements adopted by the Company, to the extent such amounts are due from the Company.

	(v)	All amounts due and owing under the Note.

	(vi)	All amounts due and owing under the Subordinated Note in the amount of $750,000 made by Westwood Acquisition Corporation in favor of Four Kings Management LLC.

	(vii)	All amounts due and owing under the 8% Junior Subordinated Note and the 5% Junior Subordinated Note made by the Company in the favor of the Executive.

5. Duties on Termination. Subject to the terms and conditions of this Agreement, during the period beginning on the date of delivery of a Notice of Termination, and ending on the Date of Termination, the Executive shall continue to perform his duties as set forth in this Agreement, and shall also perform such services for the Company as are necessary and appropriate for a smooth transition to the Executive’s successor, if any. Notwithstanding the foregoing provisions of this Paragraph 5, the Company may suspend the Executive from performing his duties under this Agreement following the delivery of a Notice of Termination providing for the Executive’s resignation, or delivery by the Company of a Notice of Termination providing for the Executive’s termination of employment for any reason; provided, however, that during the period of suspension (which shall end on the Date of Termination), the Executive shall continue to be treated as employed by the Company for other purposes, and his rights to compensation or benefits shall not be reduced by reason of the suspension.

6. Mitigation and Set-Off. The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. The Company shall be entitled to set off against amounts payable to the Executive any amounts owed to the Company by the Executive, but the Company shall not be entitled to set off against the amounts payable to the Executive under this Agreement any amounts earned by the Executive in other employment after termination of employment with the Company, or any amounts which might have been earned by the Executive in other employment had such other employment been sought.

7. Noncompetition.

	(a)	While the Executive is employed by the Company, and for the later of (i) a period of two (2) years after the Executive terminates by resigning pursuant to Section 3(e), (ii) a period of one (1) year after the Company terminates the Executive pursuant to Section 3(f), or (iii) a period of three (3) years after the Effective Date:

	(i)	The Executive shall not, without the express written consent of the Board, be employed by, serve as a consultant to, or otherwise assist or directly or indirectly provide services to a Competitor (defined below) if: (A) such services are to be provided with respect to any location in which the Parent, the Company or a Subsidiary did business during the twelve (12) month period prior to the Date of Termination, or with respect to any location in which the Parent, the Company or a Subsidiary had devoted material resources to doing business during the twelve (12) month period prior to the Date of Termination; or (B) the trade secrets, confidential information, or proprietary information (including, without limitation, confidential or proprietary methods) of the Parent, the Company and the Subsidiaries to which the Executive had access could reasonably be expected to benefit the Competitor if the Competitor were to obtain access to such secrets or information.

	(ii)	The Executive shall not, without the express written consent of the Board, directly or indirectly own an equity interest in any Competitor (other than ownership of 5% or less of the outstanding stock of any corporation listed on a national stock exchange or included in the NASDAQ System).

(b)	While the Executive is employed by the Company, and for the later of (i) a period of three (3) years after termination of the Executive’s employment with the Company for any reason or (ii) a period of one (1) year after the Company terminates the Executive pursuant to Section 3(f):

	(i)	The Executive shall not, without the express written consent of the Board, solicit or attempt to solicit any party who is then or, during the twelve (12) month period prior to such solicitation or attempt by the Executive was (or was solicited to become), a customer or supplier of the Parent, the Company or a Subsidiary, or a user of the services provided by the Parent, the Company or a Subsidiary, provided that the restriction in this Paragraph (ii) shall not apply to any activity on behalf of a business that is not a Competitor.

	(ii)	The Executive shall not, without the express written consent of the Board, solicit, entice, persuade, induce or hire any individual who is employed by the Parent, the Company or any Subsidiary (or was so employed within 90 days prior to the Executive’s action) to terminate or refrain from renewing or extending such employment or to become employed by or enter into contractual relations with any other individual or entity other than the Parent, the Company or any Subsidiary, and the Executive shall not approach any such employee for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

	(c)	The term “Competitor” means any enterprise (including a person, entity, firm or business, whether or not incorporated) during any period in which it is materially competitive in any way with any business in which the Parent, the Company or any of the Subsidiaries was engaged during the twelve (12) month period prior to the Executive’s Date of Termination.

	(d)	Notwithstanding anything in this Section 7 to the contrary, if this Agreement is terminated by either party delivering notice of cessation in accordance with Section 1(f) at the end of the initial five year term or any successive term, the Executive’s obligations under paragraphs (a) and (b) of this Section 7 shall continue for one year after the end of such term.

Nothing in this Paragraph 7, Paragraph 8, or Paragraph 9 shall be construed as limiting the Executive’s duty of loyalty to the Company, or any other duty otherwise owed to the Company, while the Executive is employed by the Company.

8. Non-Disparagement. The Executive and the Company agree that each will not make any false, defamatory or disparaging statements about the other, the Parent, the Subsidiaries, or the officers or directors of the Parent, the Company or the Subsidiaries that are reasonably likely to cause material damage to the Executive, the Parent, the Company, the Subsidiaries, or the officers or directors of the Parent, the Company or the Subsidiaries.

9. Confidential Information. The Executive agrees that, during the Agreement Term, and at all times thereafter:

	(a)	The Executive agrees to keep secret all Confidential Information and Intellectual Property which may be obtained during the period of employment by the Company and that the Executive shall not reveal or disclose it, directly or indirectly, except with the Company’s prior written consent. The Executive shall not make use of the Confidential Information or Intellectual Property for the Executive’s own purposes or for the benefit of anyone other than the Company or Parent and shall protect it against disclosure, misuse, espionage, loss and theft.

	(b)	The Executive acknowledges and agrees that all Intellectual Property is and shall be owned by the Company, Parent or the Subsidiaries, as applicable. The Executive hereby assigns and shall assign to all ownership rights possessed in any Intellectual Property contributed, conceived or made by the Executive (whether alone or jointly with others) while employed by the Company, whether or not during work hours. The Executive shall promptly and fully disclose to the Company in writing all such Intellectual Property after such contribution, conception or other development. The Executive agrees to fully cooperate with the Company, at the Company’s expense, in securing, enforcing and otherwise protecting throughout the world the Company’s interests in such Intellectual Property, including, without limitation, by signing all documents reasonably requested by the Company.

(c)	Immediately following the Date of Termination, the Executive agrees to promptly deliver to the Company all memoranda, notes, manuals, lab notebooks, computer diskettes, passwords, encryption keys, electronic mail and other written or electronic records (and all copies thereof) constituting or relating to Confidential Information or Intellectual Property that the Executive may then possess or have control over. If the Company requests, the Executive shall provide written certification that all such materials have been returned .

(d)	For purposes of this Agreement, the following terms shall be defined as set forth below:

	(i)	“Employer Confidential Information” shall mean all information, in any form or medium, that relates to the business, marketing, costs, prices, products, processes, services, methods, computer programs and systems, personnel, customers, research or development of the Company and all other information related to the Company, Parent and the Subsidiaries which is not readily available to the public.

	(ii)	“Confidential Information” shall mean all information, in any form or medium, that relates to the business, marketing, costs, prices, products, processes, services, methods, computer programs and systems, personnel, customers, research or development of the Company, Parent and the Subsidiaries and all other information related to the Company, Parent and the Subsidiaries which is not readily available to the public.

	(iii)	“Intellectual Property” shall mean, with respect to the following which are created or existing during the period of the Executive’s employment by the Company, any: (A) idea, know-how, invention, discovery, design, development, software, device, technique, method or process (whether or not patentable or reduced to practice or including Confidential Information) and related patents and patent applications and reissues, re-examinations, renewals, continuations-in-part, continuations, and divisions thereof; (B) copyrightable and mask work (whether or not including Confidential Information) and related registrations and applications for registration; (C) trademarks, trade secrets and other proprietary rights; and (D) improvements, updates and modifications of the foregoing made from time to time.

promptly inform the Company upon becoming aware of any lawsuits involving such claims that may be filed against the Parent, the Company or any Subsidiary. The Company agrees to provide legal counsel to the Executive in connection with such assistance (to the extent legally permitted), and to reimburse the Executive for all of the Executive’s reasonable out-of-pocket expenses associated with such assistance, including travel expenses. For periods after the Executive’s employment with the Company terminates, the Company agrees to provide reasonable compensation to the Executive for such assistance. The Executive also agrees to promptly inform the Company upon being asked to assist in any investigation of the Parent, the Company or the Subsidiaries (or their actions) that may relate to services performed by the Executive for the Parent, the Company or the Subsidiaries, regardless of whether a lawsuit has then been filed against the Parent, the Company or the Subsidiaries with respect to such investigation.

11. Equitable Remedies. The Executive acknowledges that the Company would be irreparably injured by a violation of Paragraph 7, Paragraph 8 or Paragraph 9, and therefore, agrees that the Company, in addition to any other remedies available to it for such breach or threatened breach, shall be entitled to a preliminary injunction, temporary restraining order, or other equivalent relief, restraining the Executive from any actual or threatened breach of Paragraph 7, Paragraph 8, or Paragraph 9. The Company acknowledges that the Executive would be irreparably injured by a violation of Paragraph 8, and the Company agrees that the Executive, in addition to any other remedies available to the Executive for such breach or threatened breach, shall be entitled to a preliminary injunction, temporary restraining order, or other equivalent relief, restraining the Company from any actual or threatened breach of Paragraph 8. If a bond is required to be posted in order for the Company to secure an injunction or other equitable remedy, the parties agree that said bond need not be more than a nominal sum.

12. Nonalienation. The interests of the Executive under this Agreement are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive or the Executive’s beneficiary.

13. Amendment. This Agreement may be amended or cancelled only by mutual agreement of the parties in writing. So long as the Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof.

14. Applicable Law. The provisions of this Agreement shall be construed in accordance with the laws of the State of New Jersey, without regard to the conflict of law provisions of any state.

15. Severability. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, and this Agreement will be construed as if such invalid or unenforceable provision were omitted (but only to the extent that such provision cannot be appropriately reformed or modified).

16. Waiver of Breach. No waiver by any party hereto of a breach of any provision of this Agreement by any other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by such other party of any similar or dissimilar provisions and conditions at the same or any prior or subsequent time. The failure of any party hereto to take any action by reason of such breach will not deprive such party of the right to take action at any time while such breach continues.

17. Successors. This Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business, and the successor shall be substituted for the Company under this Agreement.

18. Notices. Notices and all other communications provided for in this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, or sent by facsimile or prepaid overnight courier to the parties at the addresses set forth below (or such other addresses as shall be specified by the parties by like notice). Such notices, demands, claims and other communications shall be deemed given:

	(a)	in the case of delivery by overnight service with guaranteed next day delivery, the next day or the day designated for delivery;

	(b)	in the case of certified or registered U.S. mail, five days after deposit in the U.S. mail; or

	(c)	in the case of facsimile, the date upon which the transmitting party received confirmation of receipt by facsimile, telephone or otherwise;

provided, however, that in no event shall any such communications be deemed to be given later than the date they are actually received. Communications that are to be delivered by the U.S. mail or by overnight service or two-day delivery service are to be delivered to the addresses set forth below:

to the Company:

                        Westwood Computer Corporation
                        11 Diamond Road
                        Springfield, NJ 07081

or to the Executive:

                        at address in Company’s records.

All notices to the Company shall be directed to the attention of Secretary of the Company, with a copy to the Board of Directors of the Company. Each party, by written notice furnished to the other party, may modify the applicable delivery address, except that notice of change of address shall be effective only upon receipt.

19. Arbitration of All Disputes. Any controversy or claim arising out of or relating to this Agreement (or the breach thereof) shall be settled by final, binding and non-appealable arbitration by three arbitrators. Except as otherwise expressly provided in this Paragraph 20, the arbitration shall be conducted in accordance with the rules of the American Arbitration Association (the “Association”) then in effect. One of the arbitrators shall be appointed by the Company, one shall be appointed by the Executive, and the third shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the third arbitrator within 30 days of the appointment of the second arbitrator, then the third arbitrator shall be appointed by the Association. This Paragraph 20 shall not be construed to limit the Company’s right to obtain relief under Paragraph 11 with respect to any matter or controversy subject to Paragraph 11, and, pending a final determination by the arbitrator with respect to any such matter or controversy, the Company shall be entitled to obtain any such relief by direct application to state, federal, or other applicable court, without being required to first arbitrate such matter or controversy. The losing party shall bear all expenses of the arbitrator incurred in any arbitration hereunder and shall reimburse the prevailing party for any related reasonable legal fees and expenses directly attributable to such arbitration; provided that such legal fees are calculated on an hourly, and not on a contingency fee, basis.

20. Survival of Agreement. Except as otherwise expressly provided in this Agreement, the rights and obligations of the parties to this Agreement shall survive the termination of the Executive’s employment with the Company.

21. Entire Agreement. Except as otherwise indicated herein, this Agreement, including any Exhibit(s) attached hereto, constitutes the entire agreement between the parties concerning the subject matter hereof and supersedes all prior and contemporaneous agreements, if any, between the parties relating to the subject matter hereof, including but not limited to the Original Agreement; provided, however, that nothing in this Agreement shall be construed to limit any policy or agreement that is otherwise applicable relating to confidentiality, rights to inventions, copyrightable material, business and/or technical information, trade secrets, solicitation of employees, interference with relationships with other businesses, competition, and other similar policies or agreement for the protection of the business and operations of the Company and the Subsidiaries.

[Signatures appear on the following page]

IN WITNESS THEREOF, the Executive has hereunto set his hand, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Effective Date.

KEITH GRABEL


/s/ Keith Grabel


WESTWOOD COMPUTER CORPORATION


/s/ Dinesh Desai

By:	Dinesh Desai
Its:	Chairman

Schedule 2(a)

Salary

Year 1	$250,000 [pro rated]

Year 2	$250,000

Year 3	$250,000

Schedule 2(a)(1)

Salary After Mary Margaret Grabel Termination

Year 1	$275,000 [pro rata]

Year 2	$275,000

Year 3	$275,000

Schedule 2(c)

Benefits

1.	Full time use of Company leased vehicle of choice, Currently BMW X5
2.	Company pays insurance and maintenance on vehicle
3.	Reimbursements for all travel and other expenses as per company policy
4.	Use of Company American Express Card for Company related expenses
5.	All American Express Award points flow to Keith Grabel’s account
6.	First Class Air travel, it is understood that whenever possible Award points will be used for upgrade to First Class
7.	Control and use of Company’s Jet’s Football package
8.	Control and use of Company’s Yankee’s Baseball package
9.	Membership to Fox Hollow Country Club and payment of all golf and related activities
10.	Company Health and Medical plan
11.	Three weeks vacation, Company approved holidays and 5 days personal time
12.	Benefits available generally to senior level executives of Company
13.	Access to 401k plan or any other Executive deferred compensation plan

Schedule 4(a)(ii)

Termination Salary

Year 1	$150,000

Year 2	$200,000

Year 3	$250,000

EX-10.2 3 c48141_ex10-2.htm

Exhibit 10.2

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AGREEMENT, made and entered into as of February 5, 2007 (the “Effective Date”), by and between MARY MARGARET GRABEL (the “Executive”) and WESTWOOD COMPUTER CORPORATION (the “Company”).

WITNESSETH THAT:

WHEREAS, the Company and the Executive previously entered into an Employment Agreement dated April 16, 2004 (the “Original Agreement”);

WHEREAS, the Company and the Executive now wish to revise the terms and conditions of the Executive’s employment.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Executive and the Company as follows:

1. Performance of Services. The Executive’s employment with the Company shall be subject to the following:

	(a)	During the Agreement Term (as defined below), and subject to the terms of this Agreement, the Executive shall be employed by the Company and shall occupy the position of Executive of the Company. The Executive agrees to serve in that position or in such other offices or positions with the Company or a Subsidiary (as defined below), as shall, from time to time, be determined by the Board of Directors of the Company (the “Board”).

	(b)	During the Agreement Term, while employed by the Company, the Executive shall devote her full time, energies and talents to serving as its Chief Executive Officer or such other position determined in accordance with Paragraph (a) above.

		During the Agreement Term, the Executive’s main office shall be at 11 Diamond Road, Springfield, NJ 07081.

	(c)	The Executive agrees to perform her duties hereunder faithfully and efficiently subject to the directions of the Board. The Executive’s duties may include providing services for both the Company and the Subsidiaries, as determined by the Board; provided, that the Executive shall not, without her consent, be assigned tasks that would be inconsistent with those of Chief Executive Officer or such other position determined in accordance with Paragraph (a) above.

	(d)	Notwithstanding the foregoing provisions of this Paragraph 1, during the Agreement Term, the Executive may devote reasonable time to activities other than those required under this Agreement, including activities involving professional, charitable, community, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other organizations, and similar types of activities, to the extent that such other activities do not, in the judgment of the Board, conflict with, inhibit or prohibit the performance of the Executive’s duties under this Agreement, or conflict in any material way with the business of the Company, Parent or any Subsidiary; provided, however, that the Executive shall not serve on the board of any business, or hold any other position with any business, without the consent of the Board.

	(e)	Subject to the terms of this Agreement, the Executive shall not be required to perform services under this Agreement during any period that the Executive is Disabled. The Executive shall be considered “Disabled” or under a “Disability” during any period in which a physical or mental disability renders the Executive incapable, after reasonable accommodation, of performing the duties under this Agreement. In the event of a dispute as to whether the Executive is Disabled, the Company may refer the same to a licensed practicing physician of the Company’s choice, and the Executive agrees to submit to such tests and examinations as such physician shall deem appropriate. At any time during the period in which the Executive is Disabled, the Company may appoint a temporary replacement to assume the Executive’s responsibilities.

	(f)	The Company shall employ the Executive for the period beginning on February 5, 2007 and ending on April 15, 2009 (the “Initial Term”); subject, however, to earlier termination as provided herein. The Executive’s employment hereunder automatically shall be extended for one (1) additional year at the end of the Initial Term, and again each successive year thereafter. However, such annual extensions may cease by either party delivering written notice of such cessation to the other party; provided that such notice is delivered at least 60 days prior to the date on which extension is otherwise to occur. The period during which the Executive is employed pursuant to this Agreement shall be referred to as the “Agreement Term.”

	(g)	For purposes of this Agreement, (i) the term “Parent” shall mean Emtec, Inc., a Delaware corporation, and (ii) the term “Subsidiary” shall mean any corporation, partnership, joint venture or other entity during any period in which at least a fifty percent interest in such entity is owned, directly or indirectly, by Parent (or a successor to Parent).

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	(a)	The Executive shall receive an annual base salary, payable in regular installments in accordance with the Company’s usual payroll practices, as set forth on Schedule 2(a) (the “Salary”). The Executive’s Salary rate shall be reviewed by the Board each year during the Agreement Term, while the Executive is employed by the Company, to determine whether an increase in the amount of Salary is appropriate. Any increase in the amount of Salary shall be in the sole discretion of the Board. In no event shall the Salary of the Executive be reduced to an amount that is less than the amount specified in this Paragraph (a), or to an amount that is less than the amount that the Executive was previously receiving during the Agreement Term.

	(b)	Except as otherwise specifically provided to the contrary in this Agreement, the Executive shall be provided with the welfare benefits and other fringe benefits to the same extent and on the same terms and in any event no less than those benefits that are currently provided by the Company to the Executive. The current benefits of the Executive are set forth on Schedule 2(b). However, the Company shall not be required to provide a benefit under this Paragraph (b) if such benefit would duplicate (or otherwise be of the same type as) a benefit specifically required to be provided under another provision of this Agreement. The Executive shall complete all forms and physical examinations, and otherwise take all other similar actions to secure coverage and benefits described in this Paragraph 2, to the extent determined to be necessary or appropriate by the Company.

	(c)	During any period while the Executive is Disabled and is otherwise entitled to receive Salary under this Agreement, any such Salary to the Executive shall be reduced by the amount of any benefits paid for the same period of time under the Company-provided disability income replacement coverage.

	(d)	During the first year of the Agreement Term, the Executive, together with Keith Grabel, shall be entitled to receive reimbursement from the Company for the joint reasonable expenses incurred by the Executive and Keith Grabel in providing the services hereunder and under the Amended and Restated Employment Agreement dated February 5, 2007 by and between the Company and Keith Grabel, dated the date hereof (including travel) (the “Expenses”) up to $75,000 per year combined without any approval on the part of the Parent (the “Approved Expenses”); provided that such amount shall be reduced pro rata based on the number of months remaining in the first year of the Agreement Term. Any Expenses in excess of the Approved Expenses must be approved in writing by the Parent, such approval not to be unreasonably withheld. The amount of Approved Expenses

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reimbursed by the Company for any years subsequent to the first year of the Agreement Term may be adjusted upward as agreed upon in writing by the Executive and the Parent, but in no event shall such amount be less than $75,000.

All payments and benefits to the Executive under this Agreement shall be subject to reduction for payroll and other applicable taxes.

(a)	Death. The Executive’s employment hereunder will terminate upon death.

(b)	Disability. During the Agreement Term, the Company may terminate the Executive’s employment if Executive is Disabled for longer than twelve (12) consecutive months.

(c)	Cause. The Company may terminate the Executive’s employment hereunder at any time for Cause. For purposes of this Agreement, the term “Cause” shall mean:

	(i)	a willful act by the Executive against the interests of the Company or which causes or is intended to cause harm to the Company or its shareholders;

	(ii)	the Executive’s conviction, or plea of no contest or guilty, to a felony under the laws of the United States or any state thereof or of a lesser offense involving dishonesty as such dishonesty relates to the Company’s assets or business or the theft of Company property;

	(iii)	the Executive’s insobriety or use of illegal drugs, chemicals or controlled substances either (A) in the course of performing Executive’s duties and responsibilities under this Agreement, or (B) otherwise affecting the ability of Executive to perform the same; or

	(iv)	a material breach of the Agreement by the Executive which is not cured by the Executive within twenty (20) days (where the breach is curable) following written notice to the Executive by the Company of the nature of the breach.

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delivered to the Executive a copy of a resolution duly adopted by a majority of the Board (absent the Executive) at a meeting of the Board called and held for such purpose, or by written consent, finding that such Cause exists in the good faith opinion of the Board. This Section 3 shall not prevent the Executive from challenging in any arbitration proceeding the Board’s determination that Cause exists or that the Executive has failed to cure any act (or failure to act), to the extent permitted by this Agreement that purportedly formed the basis for the Board’s determination. The Company must provide written notice to the Executive that it is intending to terminate the Executive’s employment for Cause within one hundred and twenty (120) days after the Board has actual knowledge of the occurrence of the event it believes constitutes Cause.

(d)	Termination for Good Reason. The Executive may terminate her employment hereunder for Good Reason at any time during the Agreement Term. For purposes of the Agreement, “Good Reason” shall mean

	(i)	a material breach of the terms of this Agreement by the Company,

	(ii)	the Company requiring the Executive to move her primary place of employment more than thirty-five (35) miles from the then current place of employment,

	(iii)	a material diminution of the Executive’s responsibilities or any material reduction in the general nature of the Executive’s duties or authority to a level inconsistent with Chief Executive Officer, unless previously agreed to in writing by the Executive,

	(iv)	the failure of the Executive or Keith Grabel to be elected to the Board of Directors of the Company; or

	(v)	a Change of Control of the Company or the Parent.

provided that any of the foregoing is not cured by the Company within twenty (20) days following receipt of written notice by the Executive to the Company of the specific nature of the breach. No termination for Good Reason shall be permitted unless the Company shall have first received written notice from the Executive describing the basis of such termination for Good Reason. A termination of the Executive’s employment for Good Reason pursuant to this Section shall be treated for purposes of this Agreement as a termination by the Company without Cause and the provisions of this Section relating to the payment of compensation and benefits shall apply. The term “Change of Control” means (i) the acquisition by any person or group, or two or more such persons acting in concert, of beneficial ownership of more than 51% of the outstanding common stock of the Company or the Parent (excluding the common stock of the Company or Parent owned by the Executive, Keith Grabel or their assigns); or (ii) the sale of all or substantially all of the assets of the Company or the Parent. The term Change of Control will expressly include, without limitation, any such acquisition or sale that is structured as a merger, consolidation, joint venture, tender offer, exchange offer, equity investment in the Company or the Parent.

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The Executive’s right to terminate employment pursuant to this Paragraph (d) shall not be affected by incapacity due to physical or mental illness.

	(e)	Voluntary Termination by Executive. The Executive shall provide the Company thirty (30) days’ advance written notice in the event the Executive terminates her employment, other than for Good Reason (as defined herein); provided that the Board may, in its sole discretion, terminate the Executive’s employment with the Company prior to the expiration of the thirty-day notice period. In such event and upon the expiration of such thirty day period (or such shorter time as the Board in its sole discretion may determine), the Executive’s employment under this Agreement shall immediately and automatically terminate.

	(f)	Termination by Company. The Company may terminate the Executive’s employment hereunder at any time for any reason, by giving the Executive prior written Notice of Termination, which Notice of Termination shall be effective immediately, or such later time as is specified in such notice. The Company shall not be required to specify a reason for the termination under this Paragraph 3(f), provided that termination of the Executive’s employment by the Company shall be deemed to have occurred under this Paragraph 3(f) only if it is not for reasons described in Paragraph 3(b), 3(c), 3(d), or 3(e). Notwithstanding the foregoing provisions of this Paragraph (f), if the Executive’s employment is terminated by the Company in accordance with this Paragraph (f), and within a reasonable time period thereafter, it is determined by the Board that circumstances existed which would have constituted a basis for termination of the Executive’s employment for Cause in accordance with Paragraph 3(c), the Executive’s employment will be deemed to have been terminated for Cause in accordance with Paragraph 3(c) (provided, however, that termination for Cause shall not be determined to exist under this sentence solely by reason of circumstances which could have been remedied if notice had been given in accordance with Paragraph 3(c)).

	(g)	Notice of Termination. Any termination of the Executive’s employment by the Company or the Executive (other than a termination pursuant to Paragraphs 3(a) or (b)) must be communicated by a written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” means a dated notice which indicates the Date of Termination (not earlier than the date on which the notice is provided), and which indicates the specific termination provision in this Agreement relied on and which sets forth in reasonable detail the facts and circumstances, if any, claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

	(h)	Date of Termination. “Date of Termination” means the last day the Executive is employed by the Company, provided that the Executive’s employment is terminated in accordance with the foregoing provisions of this Paragraph 3.

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(i)

Effect of Termination. If, on the Date of Termination, the Executive is a member of the Board of the Company or a member of the Board of Directors or Board of Members of any of the Subsidiaries, or holds any other position with the Company and the Subsidiaries, the Executive shall resign from all such positions as of the Date of Termination.

(a)	If the Executive’s Date of Termination occurs during the Agreement Term for any reason the Company shall pay to the Executive:

	(i)	The Executive’s Salary for the period ending on the Executive’s Date of Termination.

	(ii)	Payment for accrued vacation days, as determined in accordance with Company policy as in effect from time to time.

	(iii)	Any other payments or benefits to be provided to the Executive by the Company pursuant to any employee benefit plans or arrangements adopted by the Company, to the extent such amounts are due from the Company.

(b)

If the Executive’s Date of Termination occurs during the Agreement Term under any circumstances described in Paragraph 3, the Company shall have no obligation to make payments under the Agreement for periods after the Executive’s Date of Termination other than those payments in accordance with Paragraph 4(a) above.

5. Duties on Termination. Subject to the terms and conditions of this Agreement, during the period beginning on the date of delivery of a Notice of Termination, and ending on the Date of Termination, the Executive shall continue to perform her duties as set forth in this Agreement, and shall also perform such services for the Company as are necessary and appropriate for a smooth transition to the Executive’s successor, if any. Notwithstanding the foregoing provisions of this Paragraph 5, the Company may suspend the Executive from performing her duties under this Agreement following the delivery of a Notice of Termination providing for the Executive’s resignation, or delivery by the Company of a Notice of Termination providing for the Executive’s termination of employment for any reason; provided, however, that during the period of suspension (which shall end on the Date of Termination), the

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Executive shall continue to be treated as employed by the Company for other purposes, and her rights to compensation or benefits shall not be reduced by reason of the suspension.

7. Noncompetition.

(a)	While the Executive is employed by the Company, and for a period of two (2) years after termination of the Executive’s employment with the Company for any reason:

	(i)	The Executive shall not, without the express written consent of the Board, be employed by, serve as a consultant to, or otherwise assist or directly or indirectly provide services to a Competitor (defined below) if: (A) such services are to be provided with respect to any location in which Parent, the Company or a Subsidiary did business during the twelve (12) month period prior to the Date of Termination, or with respect to any location in which Parent, the Company or a Subsidiary had devoted material resources to doing business during the twelve (12) month period prior to the Date of Termination; or (B) the trade secrets, confidential information, or proprietary information (including, without limitation, confidential or proprietary methods) of Parent, the Company and the Subsidiaries to which the Executive had access could reasonably be expected to benefit the Competitor if the Competitor were to obtain access to such secrets or information.

	(ii)	The Executive shall not, without the express written consent of the Board, directly or indirectly own an equity interest in any Competitor (other than ownership of 1% or less of the outstanding stock of any corporation listed on a national stock exchange or included in the NASDAQ System).

(b)	While the Executive is employed by the Company, and for a period of three (3) years after termination of the Executive’s employment with the Company for any reason:

	(i)	The Executive shall not, without the express written consent of the Board, solicit or attempt to solicit any party who is then or, during the twelve (12) month period prior to such solicitation or attempt by the Executive was (or

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	was solicited to become), a customer or supplier of Parent, the Company or a Subsidiary, or a user of the services provided by Parent, the Company or a Subsidiary, provided that the restriction in this Paragraph (ii) shall not apply to any activity on behalf of a business that is not a Competitor.

	(ii)	The Executive shall not without the express written consent of the Board, solicit, entice, persuade, induce or hire any individual who is employed by Parent, the Company or any Subsidiary (or was so employed within 90 days prior to the Executive’s action) to terminate or refrain from renewing or extending such employment or to become employed by or enter into contractual relations with any other individual or entity other than Parent, the Company or any Subsidiary, and the Executive shall not approach any such employee for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(c)	The term “Competitor” means any enterprise (including a person, entity, firm or business, whether or not incorporated) during any period in which it is materially competitive in any way with any business in which Parent, the Company or any of the Subsidiaries was engaged during the twelve (12) month period prior to the Executive’s Date of Termination.

8. Non-Disparagement. The Executive and the Company agree that each will not make any false, defamatory or disparaging statements about the other, Parent, the Subsidiaries, or the officers or directors of Parent, the Company or the Subsidiaries that are reasonably likely to cause material damage to the Executive, Parent, the Company, the Subsidiaries, or the officers or directors of Parent, the Company or the Subsidiaries.

9. Confidential Information. The Executive agrees that, during the Agreement Term, and at all times thereafter:

	(a)	The Executive agrees to keep secret all Confidential Information and Intellectual Property which may be obtained during the period of employment by the Company and that the Executive shall not reveal or disclose it, directly or indirectly, except with the Company’s prior written consent. The Executive shall not make use of the Confidential Information or Intellectual Property for the Executive’s own purposes or for the benefit of anyone other than Parent or the Company and shall protect it against disclosure, misuse, espionage, loss and theft.

	(b)	The Executive acknowledges and agrees that all Intellectual Property is and shall be owned by the Company, Parent or the Subsidiaries, as applicable. The Executive hereby assigns and shall assign to all ownership rights possessed in any

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	Intellectual Property contributed, conceived or made by the Executive (whether alone or jointly with others) while employed by the Company, whether or not during work hours. The Executive shall promptly and fully disclose to the Company in writing all such Intellectual Property after such contribution, conception or other development. The Executive agrees to fully cooperate with the Company, at the Company’s expense, in securing, enforcing and otherwise protecting throughout the world the Company’s interests in such Intellectual Property, including, without limitation, by signing all documents reasonably requested by the Company.

(c)	Immediately following the Date of Termination, the Executive agrees to promptly deliver to the Company all memoranda, notes, manuals, lab notebooks, computer diskettes, passwords, encryption keys, electronic mail and other written or electronic records (and all copies thereof) constituting or relating to Confidential Information or Intellectual Property that the Executive may then possess or have control over. If the Company requests, the Executive shall provide written certification that all such materials have been returned .

(d)	For purposes of this Agreement, the following terms shall be defined as set forth below:

	(i)	“Employer Confidential Information” shall mean all information, in any form or medium, that relates to the business, marketing, costs, prices, products, processes, services, methods, computer programs and systems, personnel, customers, research or development of the Company and all other information related to Parent, the Company and the Subsidiaries which is not readily available to the public.

	(ii)	“Confidential Information” shall mean all information, in any form or medium, that relates to the business, marketing, costs, prices, products, processes, services, methods, computer programs and systems, personnel, customers, research or development of Parent, the Company and the Subsidiaries and all other information related to Parent, the Company and the Subsidiaries which is not readily available to the public.

	(iii)	“Intellectual Property” shall mean, with respect to the following which are created or existing during the period of the Executive’s employment by the Company, any: (A) idea, know-how, invention, discovery, design, development, software, device, technique, method or process (whether or not patentable or reduced to practice or including Confidential Information) and related patents and patent applications and reissues, re-examinations, renewals, continuations-in-part, continuations, and divisions thereof; (B) copyrightable and mask work (whether or not including Confidential Information) and related registrations and applications for registration; (C) trademarks, trade secrets and other proprietary rights; and

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(D) improvements, updates and modifications of the foregoing made from time to time.

10. Assistance with Claims. The Executive agrees that, during the Agreement Term, and continuing for a reasonable period after the Executive’s Date of Termination, the Executive will assist Parent, the Company and the Subsidiaries in defense of any claims that may be made against Parent, the Company and the Subsidiaries, and will assist Parent, the Company and the Subsidiaries in the prosecution of any claims that may be made by Parent, the Company or the Subsidiaries, to the extent that such claims may relate to services performed by the Executive for Parent, the Company and the Subsidiaries. The Executive agrees to promptly inform the Company upon becoming aware of any lawsuits involving such claims that may be filed against Parent, the Company or any Subsidiary. The Company agrees to provide legal counsel to the Executive in connection with such assistance (to the extent legally permitted), and to reimburse the Executive for all of the Executive’s reasonable out-of-pocket expenses associated with such assistance, including travel expenses. For periods after the Executive’s employment with the Company terminates, the Company agrees to provide reasonable compensation to the Executive for such assistance. The Executive also agrees to promptly inform the Company upon being asked to assist in any investigation of Parent, the Company or the Subsidiaries (or their actions) that may relate to services performed by the Executive for Parent, the Company or the Subsidiaries, regardless of whether a lawsuit has then been filed against Parent, the Company or the Subsidiaries with respect to such investigation.

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14. Applicable Law. The provisions of this Agreement shall be construed in accordance with the laws of the State of New Jersey, without regard to the conflict of law provisions of any state.

	(a)	in the case of delivery by overnight service with guaranteed next day delivery, the next day or the day designated for delivery;

	(b)	in the case of certified or registered U.S. mail, five days after deposit in the U.S. mail; or

	(c)	in the case of facsimile, the date upon which the transmitting party received confirmation of receipt by facsimile, telephone or otherwise;

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to the Company:

                      Westwood Computer Corporation
                        11 Diamond Road
                        Springfield, NJ 07081

or to the Executive:

at address in Company’s records.

19. Arbitration of All Disputes. Any controversy or claim arising out of or relating to this Agreement (or the breach thereof) shall be settled by final, binding and non-appealable arbitration by three arbitrators. Except as otherwise expressly provided in this Paragraph 19, the arbitration shall be conducted in accordance with the rules of the American Arbitration Association (the “Association”) then in effect. One of the arbitrators shall be appointed by the Company, one shall be appointed by the Executive, and the third shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the third arbitrator within 30 days of the appointment of the second arbitrator, then the third arbitrator shall be appointed by the Association. This Paragraph 19 shall not be construed to limit the Company’s right to obtain relief under Paragraph 11 with respect to any matter or controversy subject to Paragraph 11, and, pending a final determination by the arbitrator with respect to any such matter or controversy, the Company shall be entitled to obtain any such relief by direct application to state, federal, or other applicable court, without being required to first arbitrate such matter or controversy. The losing party shall bear all expenses of the arbitrator incurred in any arbitration hereunder and shall reimburse the prevailing party for any related reasonable legal fees and expenses directly attributable to such arbitration; provided that such legal fees are calculated on an hourly, and not on a contingency fee, basis.

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[Signatures appear on the following page]

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IN WITNESS THEREOF, the Executive has hereunto set her hand, and the Company has caused these presents to be executed in its name and on its behalf, all as of the Effective Date.

MARY MARGARET GRABEL


/s/ Mary Margaret Grabel


WESTWOOD COMPUTER CORPORATION


/s/ Dinesh Desai

By:	Dinesh Desai
Its:	Chairman

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Schedule 2(a)

Salary

Year 1	$25,000 (pro rated)

Year 2	$25,000

Year 3	$25,000

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Schedule 2(b)

Benefits

1.	Reimbursements for all travel and other expenses as per company policy
2.	First Class Air travel, it is understood that whenever possible Award points will be used for upgrade to First Class
3.	Company Health and Medical Plan
4.	Three weeks vacation, Company approved holidays and 5 days personal time
5.	Benefits available generally to senior level executives of Company
6.	Access to 401k plan or any other Executive deferred compensation plan

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EX-10.3 4 c48141_ex10-3.htm

Exhibit 10.3

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of the 5^th day of February, 2007 (the “Effective Date”), by and between Emtec, Inc., a Delaware corporation (the “Company”) and Ronald Seitz (the “Executive”).

WITNESSETH THAT:

WHEREAS, Executive is currently employed by the Company pursuant to the terms of the Employment Agreement dated July 13, 2005 (the “Original Agreement”);

WHEREAS, the Company desires to assure itself of the continued employment of the Executive and to encourage his continued attention and dedication to the best interests of the Company, by replacing the Original Agreement with this amended and restated Agreement;

WHEREAS, the Executive desires to remain and continue in the employment of the Company in accordance with the terms of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Executive and the Company as follows:

1. Employment; Position and Responsibilities; Term.

(a) During the Agreement Term (as defined below), and subject to the terms of this Agreement, the Executive shall be employed by the Company and shall occupy the position of President of Emtec Systems Group. The Executive agrees to serve in that position or in such other executive offices or positions with the Company or a Subsidiary (as defined below), as shall from time to time be determined by the Board of Directors (the “Board”). The Executive represents that his employment with the Company does not violate any other agreement to which he is a party.

(b) During the Agreement Term, the Executive shall report solely and directly to the Chief Executive Officer of the Company or his designee.

(c) During the Agreement Term, while employed by the Company, the Executive shall devote his full time and best efforts to the business of the Company and shall perform all duties and services for and on behalf of the Company as shall be reasonably requested by the Board in its sole and absolute discretion. The Executive’s duties may include providing executive services for both the Company and the Subsidiaries, as determined by the Board.

(d) During the Agreement Term, the Company shall use its reasonable best efforts to maintain an office within 15 miles of Suwanee, Georgia.

(e) The term of employment under this Agreement shall commence on the Effective Date and, unless earlier terminated under Section 3 below, shall terminate on August 31, 2008 (the “Agreement Term”). Thereafter, the Agreement Term may be extended annually for additional one-year periods with the mutual consent of the Company and the Executive.

(f) For purposes of this Agreement, the term “Subsidiary” shall mean any corporation, partnership, joint venture or other entity during any period in which at least a 50% interest in such entity is owned, directly or indirectly, by the Company (or a successor to the Company).

2. Compensation and Other Benefits.

(a) Base Salary. During the Agreement Term, the Executive shall receive an annual base salary (“Base Salary”), payable in accordance with the Company’s normal payroll practices, of $250,000. The Board shall increase such Base Salary by 5% as of each August 5 during the Agreement Term.

(b) Bonus. In respect of the fiscal year ending August 31, 2006, the Executive shall be eligible to receive a bonus in accordance with the terms of the Original Agreement. In respect of each fiscal year ending thereafter during the Agreement Term, beginning with the fiscal year ending August 31, 2007, the Executive shall participate in the Company’s Annual Incentive Plan (the “AIP”) as maintained by the Company for the benefit of senior executives, and shall be eligible to receive an annual bonus (the “Bonus”) if the Executive and/or the Company achieve performance goals established by the Board in good faith and consistent with the AIP. 75% of the Bonus (if any) shall be paid within 100 days after the end of the applicable fiscal year and the remaining 25% of the Bonus (if any) shall be paid within 10 business days after the Company’s audited (or if no audit is done for the fiscal year, the reviewed or compiled) financial statements for the applicable fiscal year are completed.

(c) Employee Benefits. During the Agreement Term, the Executive shall be entitled to participate on the same basis as the other executive employees of the Company, in any pension, retirement, savings, medical, disability or other welfare benefit plans maintained by the Company as of the Effective Date, in accordance with the terms thereof, and as the same may be amended and in effect from time to time.

(d) Expense Reimbursement. During the Agreement Term, the Company shall reimburse the Executive for all out-of-pocket travel, lodging, meal and other reasonable expenses incurred by him in connection with his performance of services

hereunder, upon submission of appropriate evidence, in accordance with the Company’s policy, of the incurrence and purpose of each such expense and otherwise in accordance with the Company’s business travel and expense reimbursement policy as in effect from time to time.

(e) Vacation. During the Agreement Term, Executive shall be entitled to four weeks of paid vacation on an annualized basis. Vacation shall be prorated for part of a year worked. Such vacation shall be taken at such times as shall be approved by the Company, in the reasonable exercise of its discretion.

(f) Automobile Allowance. During the Agreement Term, the Executive shall be entitled to an automobile allowance of $15,000 per year, payable in equal monthly installments. During the Agreement Term, the Company shall also reimburse the Executive, after receipt of appropriate documentation, for all reasonable costs of maintaining the automobile acquired by the Executive pursuant to such allowance, including, but not limited to, the costs of repair, maintenance, insurance, registration and fuel.

(g) Additional Cash Payment. During the Agreement Term, the Executive shall be entitled to an annual cash payment in the pre-tax amount of $12,000, which amount shall be payable to the Executive in equal monthly installments of $1,000.

(h) Other Perquisites. During the Agreement Term:

(i) The Company shall provide the Executive with a monthly cash allowance of $500.

(ii) The Executive shall be entitled to travel business class for all of his international business travel and coach class for all of his domestic business travel, and he shall be entitled to use any airline miles earned through his business travel to upgrade to first class.

3. Termination of Employment. The Executive’s employment with the Company during the Agreement Term may be terminated by the Company or the Executive without breach of this Agreement only as provided in this Section 3.

(a) Termination Due to Disability. The Executive’s employment hereunder may be terminated by the Company in the event of the Executive’s Disability (as defined below). For purposes of this Agreement, “Disability” shall mean a physical or mental disability that prevents or is reasonably expected to prevent the performance by the Executive of his duties hereunder for (x) a continuous period of 90 days or longer or (y) 120 days or more over any 365 day period whether or not continuous. The determination of the Executive’s Disability shall (i) be made by an independent physician selected by the Company and the Executive (provided that if the Executive and the Company cannot

agree as to such an independent physician, each shall appoint one physician and those two physicians shall appoint a third physician who shall make such determination), (ii) be final and binding on the parties hereto and (iii) be made taking into account such competent medical evidence as shall be presented to such independent physician by the Executive and/or the Company or by any physician or group of physicians or other competent medical experts employed by the Executive and/or the Company to advise such independent physician.

(b) Termination Due to Death. The Executive’s employment hereunder shall terminate upon the Executive’s death.

(c) Termination by the Company for Cause. The Company may immediately terminate the Executive’s employment hereunder at any time for Cause (as defined below). “Cause” shall mean (i) the continued failure of the Executive substantially to perform his duties hereunder or his negligent performance of such duties (other than any such failure due to the Executive’s physical or mental illness), (ii) the Executive having engaged in misconduct that has caused or is reasonably expected to result in material injury to the Company or any of its Subsidiaries, (iii) a material violation by the Executive of a Company policy, (iv) the breach by the Executive of any of his material obligations hereunder or under any other written agreement or covenant with the Company or any of its Subsidiaries, (v) a material failure by the Executive to timely comply with a lawful direction or instruction given to him by the Board or the Chief Executive Officer, (vi) the Executive having been convicted of, or entering a plea of guilty or nolo contendere to, a crime that constitutes a felony or a misdemeanor involving moral turpitude (or comparable crime in any jurisdiction that uses a different nomenclature), including any offense involving dishonesty as such dishonesty relates to the Company’s assets or business or the theft of Company property and (vii) the Executive’s insobriety or use of illegal drugs, chemicals or controlled substances either (A) in the course of performing the Executive’s duties and responsibilities under this Agreement, or (B) otherwise affecting the ability of the Executive to perform the same. In the event of litigation concerning the Company’s termination of Executive for Cause, the Company shall prove that it terminated the Executive for Cause by a standard of clear and convincing evidence. In the case of a termination for Cause as described in clauses (i), (ii), (iii), (iv) and (v) of this Section, the Board or the Chief Executive Officer, as applicable, shall give the Executive written notice of its or his intention to terminate him for Cause, such notice to state in detail the particular circumstances that constitute the grounds on which the proposed termination for Cause is based. The Executive shall have ten (10) days, after receiving such special notice, to cure such grounds, to the extent such cure is possible. If he fails to cure such grounds to the Board’s reasonable satisfaction, the Executive shall thereupon be terminated for Cause.

(d) Termination by Company Without Cause. The Company may terminate the Executive’s employment hereunder at any time Without Cause (as defined below) by

giving the Executive prior written Notice of Termination (as defined below), which notice shall be effective immediately, or at such later time as specified in such notice. A termination “Without Cause” shall mean a termination of the Executive’s employment by the Company other than as a result of his Disability or for Cause. Notwithstanding the foregoing provisions of this Section 3(d), if the Executive’s employment is terminated by the Company in accordance with this Section 3(d) and, within a reasonable time period thereafter, it is determined by the Board that circumstances existed which would have constituted a basis for termination of the Executive’s employment for Cause in accordance with Section 3(c), the Executive’s employment will be deemed to have been terminated for Cause in accordance with Paragraph 3(c).

(e) Voluntary Termination. The Executive may terminate his employment hereunder at any time by giving the Company prior written Notice of Termination at least 90 days prior to such termination; provided that the Board may, in its sole discretion, terminate the Executive’s employment hereunder prior to the expiration of the 90-day notice period. In such event and upon the expiration of such 90-day period (or such shorter time as the Board in its sole discretion may determine), the Executive’s employment hereunder shall immediately and automatically terminate.

(f) Notice of Termination. Any termination of the Executive’s employment by Company or the Executive, other than a termination due to the Executive’s death, shall be communicated by a written Notice of Termination addressed to the appropriate party. A “Notice of Termination” shall mean a notice that indicates the Date of Termination (as defined below), which shall not be earlier than the date on which the notice is provided, which indicates the specific termination provision in this Agreement relied on and which sets forth in reasonable detail the facts and circumstances, if any, claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

(g) For purposes of this Agreement, the “Date of Termination” is the last day that the Executive is employed by the Company, provided the Executive’s employment is terminated in accordance with the foregoing provisions of this Section 3.

(h) Resignation upon Termination. As of the Date of Termination, the Executive shall resign, in writing, from all positions then held by him with the Company and its Subsidiaries.

(i) Cessation of Professional Activity. Upon delivery of a Notice of Termination by any party, the Company may relieve the Executive of his responsibilities and require the Executive to immediately cease all professional activity on behalf of the Company. In addition, in the event that the Board determines that there is a reasonable basis for it to investigate whether circumstances exist that would, if true, permit the Board to terminate the Executive’s employment for Cause, the Board may relieve the Executive of his responsibilities during the pendency of such investigation.

4. Payments Upon Certain Terminations.

(a) General. If, during the Agreement Term, the Executive’s employment terminates for any reason, the Executive (or his estate, beneficiary or legal representative) shall be entitled to receive the following:

(i) any earned or accrued but unpaid Base Salary through the Date of Termination (including, except in the case of a termination for Cause, with respect to unused vacation time);

(ii) all amounts payable and benefits accrued under any otherwise applicable plan, policy, program or practice of the Company (other than relating to severance) in which the Executive was a participant during his employment with Company in accordance with the terms thereof; provided that the foregoing shall not be construed as requiring the Executive to be treated as employed by the Company for purposes of any employee benefit plan or arrangement following the date of the Executive’s Date of Termination except as otherwise expressly provided in this Agreement or required by law; and

(iii) in the case of any termination of employment Without Cause, (A) any earned but unpaid Bonus with respect to any fiscal year of the Company ending prior to the Date of Termination and (B) provided Executive executes and delivers a general release of all claims in form and substance satisfactory to the Company, (1) his Base Salary, at the rate in effect hereunder immediately prior to the Date of Termination, which shall be payable in installments on Company’s regular payroll dates, until August 31, 2008 and (2) a pro-rata Bonus payment for the fiscal year of the Executive’s Date of Termination, equal to the Bonus that the Executive would have been entitled to if he had remained employed by the Company at the end of such fiscal year multiplied by a fraction, th e numerator of which is the number of days transpired in the fiscal year up to and including the Date of Termination, and the denominator of which is 365, which shall be payable at the time provided in Section 2(b).

(b) Termination Due to Disability. If, during the Agreement Term, the Executive dies or the Company terminates the Executive’s employment hereunder due to his Disability, the Executive (or his estate, beneficiary or legal representative) shall be entitled to receive, in addition to the payments and benefits described in Section 4(a)(i) and Section 4(a)(ii) above, (A) any earned but unpaid Bonus with respect to any fiscal year of the Company ending prior to the Date of Termination, (B) his Base Salary, at the rate in effect hereunder immediately prior to the Date of Termination, which shall be payable in installments on Company’s regular payroll dates, until August 31, 2008 and (C) a pro-rata Bonus payment for the fiscal year of the Executive’s death or Disability, equal to the Bonus that the Executive would have been entitled to if he had remained

employed by the Company at the end of such fiscal year multiplied by a fraction, the numerator of which is the number of days transpired in the fiscal year up to and including the Date of Termination, and the denominator of which is 365, which shall be payable at the time provided in Section 2(b).

(c) No Other Obligations. If the Executive’s Date of Termination occurs during the Agreement Term under any circumstances described in Section 3, the Company shall have no obligation to make payments under the Agreement for periods after the Executive’s Date of Termination other than those payments in accordance with Sections 4(a) and 4(b) above.

(d) Payment. Except as otherwise provided in this Agreement, any payments to which the Executive shall be entitled under this Section 4, shall be made as soon as is administratively feasible following the Date of Termination.

5. Duties on Termination. Subject to the terms and conditions of this Agreement, to the extent that there is a period of time elapsing between the date of delivery of a Notice of Termination, and the Date of Termination, the Executive shall continue to perform his duties as set forth in this Agreement during such period, and shall also perform such services for the Company as are necessary and appropriate for a smooth transition to the Executive’s successor, if any. Notwithstanding the foregoing provisions of this Section 5, the Company may suspend the Executive from performing his duties under this Agreement following the delivery of a Notice of Termination providing for the Executive’s resignation, or delivery by the Company of a Notice of Termination providing for the Executive’s termination of employment for any reason; provided, however, that during the period of suspension (which shall end on the Date of Termination), the Executive shall continue to be treated as employed by the Company for other purposes, and his rights to compensation or benefits shall not be reduced by reason of the suspension.

6. Restrictive Covenants.

(a) Noncompetition.

(i) During the Agreement Term, and for a period ending on the later of (i) July 13, 2010 or (ii) two years after termination of the Executive’s employment with the Company (the “Restrictive Period”):

(A) The Executive shall not, without the express written consent of the Board, be employed by, serve as a consultant to, or otherwise assist or directly or indirectly provide services to a Competitor (as defined below) if: (1) such services are to be provided with respect to any location in which the Company or a Subsidiary does business, or with

respect to any location in which the Company or a Subsidiary has devoted material resources to doing business; or (2) the trade secrets, confidential information, or proprietary information (including, without limitation, confidential or proprietary methods) of the Company and the Subsidiaries to which the Executive had access could reasonably be expected to benefit the Competitor if the Competitor were to obtain access to such secrets or information.

(B) The Executive shall not, without the express written consent of the Board, directly or indirectly own an equity interest in any Competitor (other than ownership of 1% or less of the outstanding stock of any corporation listed on a national stock exchange or included in the NASDAQ System).

(C) The Executive shall not, without the express written consent of the Board, solicit or attempt to solicit any party who is then or, during the twelve-month period prior to such solicitation or attempt by the Executive was (or was solicited to become), a customer or supplier of the Company or a Subsidiary, or a user of the services provided by the Company or a Subsidiary.

(D) The Executive shall not without the express written consent of the Board, solicit, entice, persuade, induce or hire any individual who is employed by the Company or any Subsidiary (or was so employed within 90 days prior to the Executive’s action) to terminate or refrain from renewing or extending such employment or to become employed by or enter into contractual relations with any other individual or entity other than the Company or any Subsidiary, and the Executive shall not approach any such employee for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

(ii) The term “Competitor” means any enterprise (including a person, entity, firm or business, whether or not incorporated) during any period in which it is engaged in or aiding others to conduct business that engages in, or plans to engage in, any line of business that the Company or its Subsidiaries engages in or has made plans to engage in during the Agreement Term, or within the prior 12 months was engaged in, or otherwise competes, directly or indirectly, with the Company or any of its Subsidiaries, other than Southern Computer Repair (“SCR”) (a company owned by the Executive); provided that SCR limits its business to Apple product-re lated services and computer disposal services provided to or for the Company, or for a third party in connection with business conducted jointly by SCR and the Company.

(b) Non-Disparagement. The Executive and the Company agree that each will not make any false, defamatory or disparaging statements about the other, the Subsidiaries, or the officers or directors of the Company or the Subsidiaries that are reasonably likely to cause material damage to the Executive, the Company, the Subsidiaries, or the officers or directors of the Company or the Subsidiaries.

(i) The Executive agrees to keep secret all Confidential Information (as defined below) and Intellectual Property (as defined below) which may be obtained during the period of employment by the Company and that the Executive shall not reveal or disclose it, directly or indirectly, except with the Company’s prior written consent. The Executive shall not make use of the Confidential Information or Intellectual Property for the Executive’s own purposes or for the benefit of anyone other than the Company and shall protect it against disclosure, misuse, espionage, loss and theft.

(ii) The Executive acknowledges and agrees that all Intellectual Property is and shall be owned by the Company. The Executive hereby assigns and shall assign to all ownership rights possessed in any Intellectual Property contributed, conceived or made by the Executive (whether alone or jointly with others) while employed by the Company, whether or not during work hours. The Executive shall promptly and fully disclose to the Company in writing all such Intellectual Property after such contribution, conception or other development. The Executive agrees to fully cooperate with the Company, at the Company’s expense, in securing, enforcing and otherwise protecting throughout the world the Company’s interests in such Intellectual Property, including, without limit ation, by signing all documents reasonably requested by the Company.

(iii) Immediately following the Date of Termination, the Executive agrees to promptly deliver to the Company all memoranda, notes, manuals, lab notebooks, computer diskettes, passwords, encryption keys, electronic mail and other written or electronic records (and all copies thereof) constituting or relating to Confidential Information or Intellectual Property that the Executive may then possess or have control over. The Executive shall provide written certification that all such materials have been returned.

(iv) For purposes of this Agreement, the following terms shall be defined as set forth below:

(A) “Confidential Information” shall mean all information, in any form or medium, that relates to the business, suppliers and prospective

suppliers, existing and potential creditors and financial backers, marketing, costs, prices, products, processes, services, methods, computer programs and systems, personnel, customers, research or development of the Company and the Subsidiaries and all other information related to the Company and the Subsidiaries which is not readily available to the public. Confidential Information shall include any of the foregoing information that is created or developed by the Executive during the Agreement Term.

(B) “Intellectual Property” shall mean, with respect to the following which are created or existing during the period of the Executive’s employment by the Company, any: (1) idea, know-how, invention, discovery, design, development, software, device, technique, method or process (whether or not patentable or reduced to practice or including Confidential Information) and related patents and patent applications and reissues, re-examinations, renewals, continuations-in-part, continuations, and divisions thereof; (2) copyrightable and mask work (whether or not including Confidential Informa tion) and related registrations and applications for registration; (3) trademarks, trade secrets and other proprietary rights; and (4) improvements, updates and modifications of the foregoing made from time to time. Intellectual Property shall include any of the foregoing that is created or developed by the Executive during the Agreement Term.

(d) Duty of Loyalty to Company. Nothing in this Section 6 shall be construed as limiting the Executive’s duty of loyalty to the Company, or any other duty otherwise owed to the Company, while the Executive is employed by the Company.

7. Assistance with Claims. The Executive agrees that, during the Agreement Term, and continuing for a reasonable period after the Executive’s Date of Termination, the Executive will assist the Company and the Subsidiaries in defense of any claims that may be made against the Company and the Subsidiaries, and will assist the Company and the Subsidiaries in the prosecution of any claims that may be made by the Company or the Subsidiaries, to the extent that such claims may relate to services performed by the Executive for the Company and the Subsidiaries. The Executive agrees to promptly inform the Company upon becoming aware of any lawsuits involving such claims that may be filed against the Company or any Subsidiary. The Company agrees to provide legal counsel to the Executive in connection with such assistance (to the extent legally permitted), and to reimburse the Executive for all of the Executive’s reasonable out-of-pocket expenses associated with such assistance, including travel expenses. For periods after the Executive’s employment with the Company terminates, the Company agrees to provide reasonable compensation to the Executive for such assistance. To the extent permitted by law, the Executive also agrees to promptly inform the Company upon being asked to assist in any investigation of the Company or the Subsidiaries (or their actions)

that may relate to services performed by the Executive for the Company or the Subsidiaries, regardless of whether a lawsuit has then been filed against the Company or the Subsidiaries with respect to such investigation.

8. Disclosure of Agreement. The Executive shall provide each of his subsequent employers during the one-year period following the end of the Agreement Term with a copy of the restrictive covenants set forth in Section 6 of this Agreement in order to allow such subsequent employers to avoid inadvertently causing the violation of such covenants. The Executive shall advise the Company of the identity of each of his subsequent employers during the one-year period following the end of the Agreement Term.

9. Injunctive Relief with Respect to Covenants; Certain Acknowledgments; Etc.

(a) Injunctive Relief. The Executive acknowledges and agrees that the covenants, obligations and agreements of Executive contained in Section 6 relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants, obligations or agreements will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond unless required by applicable law) as a court of competent jurisdiction may deem necessary or appropriate to restrain the Executive from committing any violation of such covenants, obligations or agreements. These injunctive remedies are cumulative and in addition to any other rights and remedies the Company may have. The Company shall be entitled to collect from the Executive any costs of obtaining injunctive relief, including, without limitation, attorneys’ fees.

(b) Blue Pencil. If any court of competent jurisdiction shall at any time deem the Restrictive Period too lengthy, the other provisions of Section 6(a) shall nevertheless stand and the Restrictive Period herein shall be deemed to be the longest period permissible by law under the circumstances. The court shall reduce the time period to permissible duration or size.

(c) Certain Acknowledgements. The Executive acknowledges and agrees that the Executive will have a prominent role in the management of the business, and the development of the goodwill, of the Company and its Subsidiaries and will establish and develop relations and contacts with the principal customers and suppliers of the Company and its Subsidiaries in the United States of America and the rest of the world, all of which constitute valuable goodwill of, and could be used by the Executive to compete unfairly with, the Company and its Subsidiaries and that (i) in the course of his employment with the Company, the Executive will obtain confidential and proprietary information and trade secrets concerning the business and operations of the Company and its Subsidiaries in the United States of America and the rest of the world that could be used to compete

unfairly with the Company and its Subsidiaries; (ii) the covenants and restrictions contained in Section 6 are intended to protect the legitimate interests of the Company and its Subsidiaries in their respective goodwill, trade secrets and other confidential and proprietary information; (iii) the Executive desires and agrees to be bound by such covenants and restrictions; and (iv) the compensation to be provided to the Executive are adequate consideration for the restrictive covenants provided in Section 6.

10. Miscellaneous.

(a) Binding Effect; Assignment. This Agreement shall be binding on and inure to the benefit of the Company, and its respective successors and assigns. This Agreement shall also be binding on and inure to the benefit of the Executive and his heirs, executors, administrators and legal representatives. This Agreement shall not be assignable by the Executive without the prior written consent of the Company.

(b) Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto concerning the subject matter hereof and except as otherwise expressly provided herein, supercedes all prior and contemporaneous correspondence and proposals (including but not limited to summaries of proposed terms) and all prior and contemporaneous promises, representations, understandings, arrangements and agreements, if any, concerning such subject matter (including but not limited to those made to or with the Executive by any other person); provided, however, that nothing in this Agreement shall be construed to limit any policy or agreement that is otherwise applicable relating to confidentiality, rights to inventions, copyrightable material, business and/or technical information, trade secrets, solicitation of employees, interference with relationships with other businesses, competition, and other similar policies or agreement for the protection of the business and operations of the Company and the Subsidiaries.

(c) Applicable Law. This Agreement shall be governed in all respects, including as to validity, interpretation and effect, by the laws of the State of Delaware without giving effect to the conflict of laws rules of any state.

(d) Consent to Jurisdiction; Waiver of Jury Trial; Attorneys Fees.

(i) Consent to Jurisdiction. Each party hereby irrevocably submits to the jurisdiction of the courts of the State of Delaware and the federal courts of the United States of America located in the State of Delaware solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement, and in respect of the transactions contemplated hereby and thereby. Each party hereby waives and agrees not to assert, as a defense in any action, suit or proceeding for the interpretation and enforcement hereof, or any such document or in respect of any such transaction,

that such action, suit or proceeding may not be brought or is not maintainable in such courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts. Each party hereby consents to and grants any such court jurisdiction over the person of such parties and over the subject matter of any such dispute and agree that the mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 10(k) or in such other manner as may be permitted by law, shall be valid and sufficient service thereof.

(ii) Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT, OR THE TRANSACTIONS CONTE MPLATED BY THIS AGREEMENT. Each party certifies and acknowledges that (i) no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, (ii) each such party understands and has considered the implications of this waiver, (iii) each such party makes this waiver voluntarily, and (iv) each such party has been induced to enter into this agreement by, among other things, the mutual waivers and certifications in this Section 10(d)(ii).

(e) Taxes. The Company may withhold from any payments made under this Agreement all applicable taxes, including but not limited to income, employment and social insurance taxes, as shall be required by law.

(f) Key Man Insurance. The Executive acknowledges that the Company may purchase “key man” insurance on his life and hereby agrees to cooperate with the Company in obtaining such insurance, including without limitation, submitting to such medical examinations as may be required promptly upon request by the Company.

(g) Amendments. This Agreement may be amended or cancelled only by mutual agreement of the parties in writing. So long as the Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof.

(h) Severability. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, and this Agreement will be construed as if such invalid or unenforceable

provision were omitted (but only to the extent that such provision cannot be appropriately reformed or modified).

(i) Waiver of Breach. No waiver by any party hereto of a breach of any provision of this Agreement by any other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by such other party of any similar or dissimilar provisions and conditions at the same or any prior or subsequent time. The failure of any party hereto to take any action by reason of such breach will not deprive such party of the right to take action at any time while such breach continues.

(j) Survival of Agreement. Except as otherwise expressly provided in this Agreement, the rights and obligations of the parties to this Agreement shall survive the termination of the Executive’s employment with the Company.

(k) Notices. Notices and all other communications provided for in this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, or sent by facsimile or prepaid overnight courier to the parties at the addresses set forth below (or such other addresses as shall be specified by the parties by like notice). Such notices, demands, claims and other communications shall be deemed given:

(i) in the case of delivery by overnight service with guaranteed next day delivery, the next day or the day designated for delivery;

(ii) in the case of certified or registered U.S. mail, five days after deposit in the U.S. mail; or

(iii) in the case of facsimile, the date upon which the transmitting party received confirmation of receipt by facsimile, telephone or otherwise;

to the Company:

                        Emtec, Inc.
                        572 Whitehead Road, Bldg. #1
                        Trenton, NJ 08619
                        Facsimile number: 609.587.1930

or to the Executive:

at address in Company’s records.

All notices to the Company shall be directed to the attention of Secretary of the Company, with a copy to the Board. Each party, by written notice furnished to the other party, may modify the applicable delivery address, except that notice of change of address shall be effective only upon receipt.

(l) 409A Compliance. Notwithstanding any other provision of this Agreement to the contrary, any amount payable hereunder that is subject to the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) shall be paid in compliance with Section 409A of the Code and the regulations issued thereunder. It is specifically understood and agreed that the preceding sentence may cause a six month delay in the payment of severance benefits pursuant to Section 4 hereof. In addition, amounts payable hereunder upon Executive’s termination of employment that are subject to Section 409A of the Code shall only be paid upon her “separation from service” as defined under Section 409A of the Code. Furthermore, notwithstanding any other provision of this Agreement to the contrary, it is specifically understood and agreed that the Company may unilaterally amend this Agreement to the extent necessary to effect compliance with Section 409A of the Code.

(m) Headings. The section and other headings contained in this Agreement are for the convenience of the parties only and are not intended to be a part hereof or to affect the meaning or interpretation hereof.

(n) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized representative, and the Executive has hereunto set his hand, in each case effective as of the date first above written.

EMTEC, INC.

By: /s/ DINESH DESAI
Name: DINESH DESAI
Title: CHAIRMEN

EXECUTIVE

/s/ RONALD SEITZ
Ronald Seitz

EX-10.4 5 c48141_ex10-4.htm

Exhibit 10.4

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR STATE SECURITIES LAWS OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.

WESTWOOD COMPUTER CORPORATION

SUBORDINATED PROMISSORY NOTE

$671,300		Made as of: February 5, 2007
		Maturity Date: April 16, 2009

Westwood Computer Corporation, a New Jersey corporation (the “Company,” which term includes any successor corporation or other business entity), for value received, hereby promises to pay to Keith Grabel (the “Holder”), the principal sum of Six Hundred Seventy-One Thousand Three Hundred Dollars ($671,300) (the “Principal Amount”).

This Note is issued pursuant to the consummation of the transactions contemplated by the Amended and Restated Employment Agreement, dated as of the date hereof, by and among the Company and the Holder (the “Employment Agreement”).

The following is a statement of the rights of the Holder and the terms and conditions to which this Note is subject, and to which the Holder hereof, by acceptance of this Note, agrees:

1. Interest. The Company promises to pay interest (computed on the basis of actual days elapsed and a year of 360 days) on the unpaid Principal Amount of this Note at an interest rate equal to five percent (5%) per annum.

2. Prepayment. This Note may be prepaid at any time in whole or in part without premium or penalty.

3. Repayment. This Note shall be repaid in twenty-seven monthly principal payments, each such payment in the amount of 3.70% of the Principal Amount, with such payments beginning on the first day of the month immediately following issuance of this Note with the final principal payment coming on the third anniversary of the date of this Note. Each principal payment shall be accompanied by all interest then accrued and unpaid on this Note.

4. Method of Payment. The Company will pay the outstanding principal in currency of the United States that at the time of payment is legal tender for payment of public

and private debts. Payments shall be made to the Holder by delivering a check at the Holder’s address listed on the books of the Company or to such other address designated in writing by the Holder and provided to the Company at least ten (10) business days before the Maturity Date.

5. Events of Default.

(a) An “Event of Default” under this Note occurs if:

(i) the Company defaults in the payment of the principal of this Note when the same becomes due and payable on the Maturity Date or otherwise and such default continues for thirty (30) days;

(ii) the Company shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against the Company seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and in the case of any such proceeding instituted against the Company such proceeding shall not be stayed or dismissed within sixty (60) days from the date of institution thereof; or

(iii) the Company terminates Holder’s employment with the Company pursuant to Section 3(f) of the Employment Agreement.

(b) Acceleration. If an Event of Default occurs and is continuing, the Holder, by written notice to the Company, may declare the unpaid principal of this Note to be immediately due and payable. The Holder by written notice to the Company may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of principal of this Note which has become due solely because of the acceleration, have been cured or waived and (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction.

(c) Interest Rate Upon Default. If an Event of Default (other than an Event of Default specified in clauses (a)(ii) or (a)(iii) of Section 5) occurs and is continuing, the Interest Rate on this Note shall increase by five percent (5%) (the “Default Interest Rate”). The Default Interest Rate shall apply only to those periods during which an Event of Default is continuing. Upon the Company curing any Event of Default, the Default Interest Rate shall revert to the Interest Rate. Upon an Event of Default, the Company promises to pay all costs and expenses of collection of this Note and to pay all reasonable attorneys’ fees incurred in such collection.

(d) Waiver of Past Defaults. The Holder may waive an existing Default or Event of Default and its consequences. Upon any such waiver, such Default shall

- 2 -

cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Note; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.

6. Subordination.

(a) Definitions. The following terms have the following meanings:

“Affiliate” means any person or entity (“Person”), each of the Persons that directly or indirectly, through one or more intermediaries, owns or controls, is controlled by or is under common control with, such Person. For the purpose of this Agreement, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of management and policies, whether through the ownership of voting securities, by contract or otherwise.

“Credit Agreement” means any loan document entered into by the Company and the Lender (including agreements relating to any interest or exchange rate hedging agreement or other derivative obligation) and any guaranty of the Company’s or any of the Company’s subsidiaries’ obligations thereunder pursuant to the Senior Loan Documents, as such agreement may hereafter be amended, extended, supplemented, increased, renewed, refinanced or otherwise modified, and any loan, financing or credit agreement entered into with any Refinancing Lender.

“Holder” as used in this Section 6 means a holder or owner of this Note and any other holder or owner of Subordinated Debt.

“Indebtedness” means, without duplication, with respect to any person, (a) all indebtedness of such person for borrowed money; (b) all obligations of such person for the deferred purchase price of property or services; (c) all obligations of such person evidenced by notes, bonds, debentures or other similar instruments; (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property); (e) all obligations of such person as lessee under leases that have been or should be, in accordance w ith generally accepted accounting principles, recorded as capital leases; (f) all obligations, contingent or otherwise, of such person under acceptance, letter of credit or similar facilities; (g) all obligations of such person to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of such person or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; (h) all obligations of such person under interest rate protection agreements, foreign currency exchange agreements or other interest or exchange

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rate hedging agreements (i) all Indebtedness of the type referred to in clauses (a) through (h) above guaranteed directly or indirectly in any manner by such person, or in effect guaranteed directly or indirectly by such person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss; and (j) all Indebtedness of the type referred to in clauses (a) through (h) above secured by (or for which the hol der of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien on property (including, without limitation, accounts and contract rights) owned by such person, even though such person has not assumed or become liable for the payment of such Indebtedness, but excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for more than 90 days, or as to which a dispute exists and adequate reserves in conformity with United States generally accepted accounting principles have been established on the books of such person.

“Lender” means any bank or other independent financial institution providing Senior Debt to the Company.

“Loan Parties” shall mean the Company and any Subsidiary which is an obligor under the Credit Agreement or any other Senior Loan Document.

“Non-payment Default” means any default or event of default (other than a Payment Default) under any agreement or instrument relating to Senior Debt. For purposes of the immediately preceding sentence, an “event of default” shall exist when as a result thereof the holders of the pertinent Senior Debt are then permitted to cause such Senior Debt to become due prior to its scheduled maturity.

“Payment Default” means any default in the payment of principal of, premium, if any, interest on, or other amounts payable on, or in connection with Senior Debt, irrespective of whether such default in payment results from a failure to pay any amount when originally scheduled to be paid or upon acceleration or otherwise.

“Post Petition Interest” means interest payable on any Senior Debt following the filing of a case against any Loan Party under Title 11 of the United States Code or any other bankruptcy, insolvency or similar law.

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“Refinancing Lender” shall mean any lender which shall refinance in whole or part, the Senior Debt payable to the Lender or a successor lender thereto and any lender which shall provide additional financing to the Company and/or its Subsidiaries from time to time, subject to the limitations contained in this Note.

“Senior Creditors” means the Lender or any Refinancing Lender until the Senior Debt has been finally and indefeasibly paid in full and thereafter any other holders of Senior Debt as their interests may appear.

“Senior Debt” means all Indebtedness except (i) Indebtedness that by its terms is subordinated or pari passu in right of payment to this Note, (ii) Indebtedness of the Company to an Affiliate of the Company and (iii) any indebtedness of the Company or Emtec, Inc. to DARR Global Holdings, Inc. or any of its Affiliates. Senior Debt shall include, without limitation, (a) all Indebtedness of the Company and its Subsidiaries to De Lage Landen Financial Services, Inc. (“DLL”) under the credit agreement dated as of December 7, 2006, as amended, including principal, premium, if any, and interest on such Indebtedness and all other amounts due on or in connection with such Indebtedness, including all charges, fees, indemnities , and expenses (including reasonable fees and expenses of counsel), (b) any amendment, modification, extension or replacement of any of the Company’s existing credit facilities so long as the formula utilized to calculate the indebtedness permitted by such facilities does not exceed 100% of the Company’s cash, accounts receivable and inventory (including floor plan financing inventory) and all other amounts due on or in connection with such Indebtedness, including all charges, fees, indemnities, and expenses (including reasonable fees and expenses of counsel), (c) the Subordinated Note made in favor of Four Kings Management LLC in the amount of $750,000, including principal, fees and interest under such Note, and (d) all amendments, extensions, renewals, refinancings and deferrals of the Indebtedness referred to in clauses (a) through (c) above.

“Senior Default” means a Payment Default or a Non-payment Default.

“Senior Loan Documents” means all documents executed in connection with any financing provided by a Lender or Refinancing Lender.

“Significant Subsidiary” means any subsidiary of the Company that would be a “significant subsidiary” as defined in Rule 1.02(v) of Regulation S-X promulgated pursuant to the Securities Act.

“Subsidiary” means any entity more than 50% of the outstanding voting power of the voting stock or other voting interest of which is controlled, directly or indirectly, by the Company.

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“Subordinated Debt” means all obligations of the Company now or hereafter existing (a) under this Note (whether created directly or acquired by assignment or otherwise), as it may hereafter be amended, extended, supplemented or otherwise modified from time to time, whether for principal, interest (including, without limitation, Post-Petition Interest), fees, expenses or otherwise, (b) all obligations of any of the Loan Parties in respect of (i) any Indebtedness incurred by any of the Loan Parties to extend, increase, refund or refinance, in whole or in part, the Subordinated Debt, including interest and premium on any such Indebtedness, (ii) any loan or credit agreement entered into by any of the Loan Parties in connection with any such Indebtedness, as such agreement may be amended, extended, supplemented or otherwise modified from time to time, and (iii) all other amounts payable in respect of any such Indebtedness or agreement, including, without limitation, amounts payable (A) in respect of any indemnity and (B) in respect of any breach of a representation or a warranty, (c) the Subordinated Note in favor of DARR Global Holdings, Inc. in the amount of $1,002,900, (d) the Subordinated Note in favor of DARR Westwood LLC in the amount of $750,000 and (e) the Promissory Note in favor of DARR Westwood LLC in the amount of $1,102,794.

(b) Subordinated Debt Subordinated to Senior Debt. The Company, for itself and its successors, and each Holder, by its acceptance thereof, agrees that the Subordinated Debt is and shall be subordinated in right of payment to the prior final and indefeasible payment in full of all Senior Debt. For the purposes of this Note, Senior Debt shall not be deemed to have been finally and indefeasibly paid in full until the holders or owners of the Senior Debt shall have indefeasibly received payment of all Senior Debt in cash and as long as the Lender or any Refinancing Lender shall have any obligation to lend or advance under the Senior Loan Documents. This Section 6 shall constitute a continuing offer to all persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Debt, and such provisions are made for the benefit of the holders of Senior Debt, and such holders are made obligees hereunder and any one or more of them may enforce such provisions.

(i) Upon the maturity of all or any part of any Senior Debt by lapse of time, acceleration (unless waived in writing) or otherwise, all Senior Debt then due shall first be finally and indefeasibly paid in full, or such payment duly provided for in cash or cash equivalents in a manner satisfactory to the holders of such Senior Debt, before any payment is made on account of the Subordinated Debt, and until the Senior Debt is finally and indefeasibly paid in full, any distribution to which the Holder would be entitled but for this Section 6 shall be made to holders of Senior Debt as their interests may appear.

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Default, then no payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to payment of the Subordinated Debt) shall be made by or on behalf of the Company for or on account of any Subordinated Debt (but not including any payment by accrual), and the Holder shall not take or receive from the Company or any Subsidiary, directly or indirectly, in cash or other property, or by set-off or in any other manner, including, without limitation, from or by way of collateral, payment of all or any of the Subordinated Debt. The Holder shall immediately deliver to the Lender or any Refinancing Lender (or the Representative (as defined below) of the Senior Creditors if the Senior Debt has been finally and indefeasibly paid in full) any monies, securities or other property received by the Holder or its equivalent in cash, with proper endorsement or assignment if necessary, and prior to such delivery shall hold in trust, such monies, securities or other properties solely as trustee for and for the benefit of the Senior Creditors as set forth in this sentence.

(iii) Upon written notice from the Lender or any Refinancing Lender (or, if the Senior Debt has been paid finally and indefeasibly in full, the representative selected by holders of 50% or more of the Senior Debt of the applicable Senior Creditor (the “Representative”)) to the Company and the Holder of a Non-payment Default and such Non-payment Default shall not have been cured or waived in writing, no payment (including any payment which may be payable by reason of the payment of any other Indebtedness of the Company being subordinated to payment of the Subordinated Debt) shall be made by or on behalf of the Company for or on account of any Subordinated Debt, and the Holder shall not take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, including, without limitation, from or by way of collateral, payment of all or any of the Subordinated Debt, during the period (the “Payment Blockage Period”) commencing on the date of receipt by the Company of such notice (which shall give prompt notice to the Holder), and ending (unless earlier terminated by notice from the Lender or any Refinancing Lender (or, if the Senior Debt has been paid finally and indefeasibly in full, the Representative of the Senior Creditors) on the earliest of (A) the date when such Non-payment Default shall have been cured or waived in writing (B) the date an Event of Default occurs under Section 5, and (C) the date on which the Senior Debt is accelerated and declared immediately due and payable.

(iv) Nothing contained in this Section 6 will limit the right of the Holder to take any action to accelerate the maturity of the securities pursuant to Section 5 or to pursue any rights or remedies hereunder; provided, that the Holder shall take no such action following any Senior Default until the earliest of (A) the date when such Senior Default shall have been cured or waived in writing, (B) the date an Event of Default occurs under Section 5, and (C) the date on which the Senior Debt or if the Senior Debt has been finally paid in full, any other Senior Debt held by the applicable Senior Creditor, is accelerated and declared immediately due and payable; provided, further, that in the event that any Subordinated Debt is declared due and payable before its stated maturity, the holders of all Senior Debt shall be entitled to receive final and indefeasible payment in full of all amounts due or to become due (whether or not accelerated) on or in respect of all Senior Debt before the Holder is entitled to receive any payment (including any payment which may be payable by reason of the payment of

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any other indebtedness of the Company being subordinated to the payment of the Subordinated Debt) by the Company on account of the Subordinated Debt. The Holder shall immediately deliver to the Lender or any Refinancing Lender (or the Representative of the Senior Creditors if the Senior Debt has been finally and indefeasibly paid in full) any monies, securities or other property received by the Holder or its equivalent in cash, with proper endorsement or assignment if necessary, and prior to such delivery shall hold in trust, such monies, securities or other properties solely as trustee for and for the benefit of the Senior Creditors as set forth in this sentence.

(v) Nothing contained in this Section 6 shall prevent interest from accruing to this Note as provided above until this Note paid in full.

(vi) Nothing contained in this Section 6(c) shall prevent the Company from making any scheduled payments of principal and interest under this Note so long as (i) no Payment Default has occurred and is continuing or (ii) no judicial proceeding is pending with respect to any such Payment Default.

(d) Subordinated Debt Subordinated to Prior Payment of Senior Debt on Dissolution. Upon any payment or distribution of all or any of the assets or securities of the Company of any kind or character upon any dissolution, winding up, liquidation, reorganization, arrangement, adjustment, protection, relief or other similar case or proceeding under any federal or state bankruptcy or similar law (whether voluntary or involuntary, in bankruptcy, insolvency, receivership, arrangement, reorganization or relief proceedings or upon any assignment for the benefit of creditors or any marshalling of the assets and liabilities of the Company or otherwise):

(i) all Senior Debt shall first be entitled to be finally and indefeasibly paid in full before the Holder is entitled to receive any payment on account of the Subordinated Debt; and

(ii) any payment or distribution in respect of the Subordinated Debt to which the Holder would be entitled except for the provisions of this Section 6 (including any payment that may be payable by reason of any other Indebtedness of the Company being subordinated to the payment of the Subordinated Debt), shall be paid by the Company, the liquidating trustee or agent or other person making such payment or distribution directly to the Lender or any Refinancing Lender (in the case of the Senior Debt) or if the Senior Debt has been indefeasibly paid in full, to the holders of the other Senior Debt or their Representative or to the trustee under any indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as the case may be, for application (in the case of cash), or as collateral (in the case of non-cash property or securities) for, the payment or prepayment in full of all Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution (in the case of cash) to the holders of such Senior Debt. Any such payment shall be made first to the Senior Debt owed to the Lender and following indefeasible payment in full of the Senior Debt such payment shall be made to other holders of Senior Debt or as otherwise directed by a court of competent jurisdiction.

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(e) Holder to be Subrogated to Rights of Holders of Senior Debt. Upon final and indefeasible payment in full of all Senior Debt, the Holder shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of assets of the Company applicable to the Senior Debt until all Subordinated Debt shall be paid in full, and for the purpose of such subrogation no such payments or distributions to the holders of Senior Debt by or on behalf of the Company or by or on behalf of the Holder by virtue of this Section 6 which otherwise would have been made to the Holder shall, as among the Company, its creditors other than the holders of Senior Debt and the Holder, be deemed to be payment by the Company to or on account of the Senior Debt, it being understood that the provisions of this Section 6 are and are intended solely for the purpose of defining the relative rights of the Holder, on the one hand, and the holders of Senior Debt, on the other hand.

If any payment or distribution to which the Holder would otherwise have been entitled but for the provisions of this Section 6 shall have been applied, pursuant to the provisions of this Section 6, to the indefeasible payment in full of all amounts payable under the Senior Debt, then and in such case, the Holder shall be entitled to receive from the holders of such Senior Debt at the time outstanding any payments or distributions received by such holders of Senior Debt in excess of the amount sufficient to pay holders of Senior Debt all amounts payable under or in respect of the Senior Debt in full unless the holders of Senior Debt are otherwise directed by an unstayed, final, nonappealable order or decree made by any court of competent jurisdiction.

(f) Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt. The Company agrees that it will not make any payment of any Subordinated Debt, or take any other action, in contravention of the provisions of this Section, and no right of any present or future holders of any Senior Debt to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Agreement, regardless of any knowledge thereof which any such holder may have or be otherwise charged with.

(g) In Furtherance of Subordination.

(i) All payments or distributions upon or with respect to the Subordinated Debt which are received by the Holder contrary to the provisions of this Section 6 shall be received and held by such Holder, in trust for the benefit of, shall be segregated from other funds and property held by such Holder, and shall be paid immediately over and delivered to the Senior Creditors in the same form as so received (with any necessary endorsement), for application (in the case of cash) to, or as collateral (in the case of non-cash property or securities) for, the payment or prepayment in full of all Senior Debt of the Senior Creditors remaining unpaid, after giving effect to any concurrent payment or distribution (in the case of cash) to the holders of Senior Debt and shall be applied (A) first to the final and indefeasible payment in full

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of all Senior Debt, and (B) next to the final and indefeasible payment of any other Senior Debt on a pro rata basis or as otherwise directed by a court of competent jurisdiction.

(ii) The Company shall give prompt written notice to the Holder of any Senior Default under any Senior Debt or under any agreement pursuant to which Senior Debt may have been issued of any dissolution, winding up, liquidation, reorganization or other event described in Section 6(d) relating to the Company; provided, that the failure to give any such notice shall in no way affect the obligations of the Holder under, or the terms of subordination set forth in, this Section 6.

(iii) The Company and each of the Holders (to the extent the Holders have knowledge thereof and the notice address therefor) shall promptly notify the Lender or any Refinancing Lender and any Representative of the holders of other Senior Debt of the occurrence of any default under this Note or otherwise with respect to the Subordinated Debt.

(iv) The Lender or any Refinancing Lender or the holders of Senior Debt, as the case may be, are hereby authorized to demand specific performance of the provisions of this Section 6, whether or not the Company shall have complied with any of the provisions hereof applicable to it, at any time when the Company or the Holder, as the case may be, shall have failed to comply with any of the provisions of this Section applicable to it. The Holder hereby irrevocably waives any defense based on the adequacy of a remedy at law that might be asserted as a bar to such remedy of specific performance. The Holder hereby acknowledges that the provisions of this Section 6 are intended to be enforceable at all times, whether before or after the commencement of a proceeding referred to in Section 6(d).

(h) Obligations of Company Unconditional. Nothing contained in this Section 6 is intended to or shall impair, as between the Company and the Holder, the obligations of the Company, which are absolute and unconditional, to pay to the Holder the principal of and interest on this Note as and when the same shall become due and payable in accordance with its terms or is intended to or shall affect the relative rights of the Holder and creditors of the Company other than the holders of the Senior Debt, and, except as otherwise expressly provided herein, nothing contained herein shall prevent the Holder from exercising all remedies otherwise permitted by applicable law upon Default (as hereinafter defined), subject to the rights, if any, under this Section 6 of the holders of such Senior Debt in respect of cash, property, security or securities of the Company received upon the exercise of any such remedy. Nothing contained in this Section 6 or in this Note shall, except during the pendency of any dissolution, winding-up, liquidation, reorganization, recapitalization or readjustment of the Company, affect the obligation of the Company to make, or prevent the Company from making, at any time (except under the circumstances described in Section 6(c)) payment of principal of or interest on this Note.

The failure to make a payment on account of principal of or interest on this Note by reason of any provision of this Section 6 shall not be construed as preventing the occurrence of an Event of Default under Section 5.

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Upon any payment or distribution of assets of the Company referred to in this Section 6, the Holder shall be entitled to rely upon any unstayed, final, nonappealable order or decree made by any court of competent jurisdiction or upon any certificate of any agent or other person for the purpose of ascertaining the persons entitled to participate in any distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 6.

(i) Holder Entitled to Assume Payments Not Prohibited in Absence of Notice. The Holder shall not at any time be charged with the knowledge of the existence of any facts which would prohibit the making of any payment to such Holder, unless and until the Holder shall have received written notice thereof from the Company or one or more holders of Senior Debt or a Representative therefor; and, prior to the receipt of any such written notice, the Holder shall be entitled to assume conclusively that no such facts exist. Nothing contained in this Section 6 shall limit the right of the holders of Senior Debt to recover payments as contemplated elsewhere in this Section 6. The Holder shall be entitled to rely on the delivery to it of a written notice by a person representing himself or itself to be a holder of such Senior Debt (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Senior Debt or a trustee on behalf of any such holder.

(j) Rights to Insolvency Proceedings. The Holder irrevocably authorizes and empowers the Lender or any Refinancing Lender (or if the Senior Debt shall have been finally and indefeasibly paid in full, the Representative) in any proceeding defined in Section 5(a)(2) (an “Insolvency Proceeding”) involving or relating to the Subordinated Debt to file a proof of claim on behalf of the Holder with respect to the Subordinated Debt if the Holder fails to file proof of its claims prior to 10 days before the expiration of the time period during which such claims must be submitted, to accept and receive any payment or distribution which may be payable or deliverable at any time upon or in respect of the Subordinated Debt in an amount not in excess of the Lender or any Refinancing Lender’s or if the Senior Debt has been indefeasibly paid in full or any other holder of Senior Debt’s portion of the Senior Debt then outstanding and to take such other action as may be reasonably necessary to effectuate the foregoing. The Holder shall provide to the Lender or any Refinancing Lender or any applicable Representative all information and documents reasonably necessary to present claims or seek enforcement as aforesaid. The Holder agrees that even though it shall retain the right to vote its claims and otherwise act in any such Insolvency Proceedings relative to the Company (including, without limitation, the right to vote to accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition or extension), the Holder shall not take any action or vote in any way so as to contest (i) the validity or the enforceability of the Credit Agreement, the Senior Loan Documents or the liens and security interests to the extent granted to the Lender or any Refinancing Lender by the Company with respect to the Senior Debt or any indebtedness held by a Refinancing Lender or any other Senior Debt, (ii) the rights of the Lender or any Refinancing Lender established in the Credit Agreement, the Senior Loan Documents or any security documents with respect to such liens and security interests, or (iii) the validity or enforceability of terms of subordination set forth herein or any agreement or instrument to the

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extent evidencing or relating to the Senior Debt or any indebtedness held by a Refinancing Lender or any other Senior Debt. The Lender, any Refinancing Lender or other holder of Senior Debt agrees that as a condition to Holder’s obligations in this paragraph while they shall retain the right to vote such Indebtedness and otherwise act in any such reorganization proceeding relative to the Company (including, without limitation, the right to vote or accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition or extension), it shall not take any action or vote in any way so as to contest the enforceability of this Note or any other agreement or instrument to the extent evidencing or relating to the Subordinated Debt.

(k) Waiver of Consolidation. The Holder agrees that it will not at any time insist upon, plead, or in any manner whatsoever, seek the entry of any order or judgment, any substantive consolidation, piercing of the corporate veil or any other order or judgment that causes an effective combination of the assets and liabilities of the Company and any other individual, Company, partnership or joint venture in any Insolvency Proceeding.

(l) Waiver. The making of loans, advances and extensions of credit or other financial accommodations to, and the incurring of any expenses by or in respect of the Company by the Lender, any Refinancing Lender or any other holder of Senior Debt, and presentment, demand, protest, notice of protest, notice of nonpayment or default and all other notices to which Holder and the Company are or may be entitled are hereby waived (except as expressly provided for herein or as to the Company, in the Senior Loan Documents). Holder also waives notice of, and hereby consents to, any amendment, modification, supplement, renewal, restatement or extensions of time of payment of or increase or decrease in the amount of any of the Senior Debt or to the Senior Loan Documents or any collateral therefor, the taking, exchange, surrender and releasing of collateral therefor or guarantees now or at any time held by or available to Lender, any Refinancing Lender or any other holder of Senior Debt for the Senior Debt or any other person at any time liable for or in respect of the Senior Debt, the exercise of, or refraining from the exercise of any rights against the Company or any other obligor or any collateral therefor, the settlement, compromise or release of, or the waiver of any default with respect to, any of the Senior Debt, and/or the Lender’s, any Refinancing Lender’s or any other holder of Senior Debt’s election, in any proceeding instituted under the U.S. Bankruptcy Code, of the application of Section 1111(b)(2) of the U.S. Bankruptcy Code. Any of the foregoing shall not, in any manner, affect the terms hereof or impair the obligations of Holder hereunder. All of the Senior Debt shall be deemed to have been made or incurred in reliance upon this Section 6 of this Note.

(m) Insolvency. The provisions of this Section 6 shall be applicable both before and after the filing of any petition by or against any Loan Party under the U.S. Bankruptcy Code and all converted or succeeding cases in respect thereof, and all references herein to the Company shall be deemed to apply to a trustee for such Loan Party and such Loan Party as the debtor-in-possession. The relative rights of the Lender, the Refinancing Lender or any other holder of Senior Debt and the Holder to repayment of the Senior Debt and Subordinated Debt, respectively, and in or to any distributions from or in respect of such Loan Party or any collateral or proceeds of collateral, shall continue after the filing thereof on the same

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basis as prior to the date of the petition, subject to any court order approving the financing of, or use of cash collateral by, such Loan Party as debtor-in-possession.

(n) Bankruptcy Financing. If any Loan Party shall become subject to a proceeding under the U.S. Bankruptcy Code and if Lender, the Refinancing Lender or any other holder of Senior Debt desires to permit the use of cash collateral or to provide financing to such Loan Party under either Section 363 or Section 364 of the U.S. Bankruptcy Code, the Holder agrees that it will not contest the entry of the order approving such financing or use of cash collateral.

(o) Miscellaneous.

(i) The Holder and the Company each will, at the Company’s expense and at any time and from time to time, promptly execute and deliver all further instruments and documents, and take all further action that may be reasonably necessary or desirable, or that the Lender or any Refinancing Lender or any Representative of the Senior Creditors may reasonably request, in order to protect any right or interest granted or purported to be granted by the provisions of this Section 6 or to enable the Lender or any Refinancing Lender to exercise and enforce its rights and remedies hereunder.

(ii) All rights and interests under this Section 6 of the holders of the Senior Debt, the Lender or any Refinancing Lender or any other holder of Senior Debt, and all agreements and obligations of the Holder and the Company under this Section 6, shall remain in full force and effect irrespective of:

(a) any lack of validity or enforceability of any Senior Loan Document or any other agreement or instrument relating thereto or to any Senior Debt;

(b) any extension, renewal, increase, supplement, refinancing or other change in the time, manner or place of payment of, or in any other term of, all or any of the Senior Debt or any other Senior Debt, or any other extension, renewal or other amendment or waiver of or any consent to any departure from any Senior Loan Document or any other agreement or instrument relating thereto or to any other Senior Debt, including, without limitation, any increase in obligations resulting from the extension of additional credit to any Loan Party or any of its subsidiaries or otherwise;

(c) any taking, exchange, release or non-perfection of any other collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Senior Debt or any other Senior Debt;

(d) any manner of application of collateral, or proceeds thereof, to all or any of the Senior Debt or any other Senior Debt, or any manner of sale or other disposition of any collateral for all or any of the Senior Debt or any other Senior Debt, or any other assets of any Loan Party or any of its subsidiaries;

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(e) any change, restructuring or termination of the corporate structure or existence of any Loan Party or any of its subsidiaries; or

(f) any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Loan Party or a subordinated creditor.

(iii) The provisions of this Section 6 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Senior Debt is rescinded or must otherwise be returned by the Lender or any Refinancing Lender or any other holder of Senior Debt upon the insolvency, bankruptcy or reorganization of any Loan Party or otherwise, all as though such payment had not been made.

(iv) The Holder and the Company each hereby waives (to the extent each may lawfully do so) promptness, diligence, notice of acceptance and any other notice with respect to any of the Senior Debt and this Section 6 and any requirement that the Lender or any Refinancing Lender or any other holder of Senior Debt protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Company or any other person or entity or any collateral.

(v) No failure on the part of the Lender or any Refinancing Lender or any other holder of Senior Debt to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies hereunder provided are cumulative and not exclusive of any remedies provided by law.

(vi) The provisions of this Section 6 constitute a continuing agreement and shall (A) remain in full force and effect, subject to the provisions and limitations contained in this Section 6, until all Senior Debt shall have been finally and indefeasibly paid in full and the Lender and any Refinancing Lender shall have no further obligation to lend or advance under the Senior Loan Documents, (B) be binding upon the Holder and the Company and their successors and assigns, and (C) inure to the benefit of and be enforceable by the Lender or any Refinancing Lender, any other holder of Senior Debt and their successors, and permitted transferees and assigns.

7. Amendment and Waiver.

(a) Consent Required. Any term, covenant, agreement or condition of this Note may, with the consent of the Company, be amended or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), if the Company shall have obtained the consent in writing of the Holder.

(b) Delay. No delay of the Company or the Holder, in exercising any right, power or privilege hereunder, shall affect such right, power or privilege, nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or privilege affect such a right, power or privilege.

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(c) Effect of Amendment or Waiver. Any amendment or waiver of this Note shall apply to the Holder and shall be binding upon the Holder, upon each future holder of the Note and upon the Company, whether or not this Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived or impair any right consequent thereon.

8. Replacement Notes.

If a mutilated Note is surrendered to the Company or if the Holder presents evidence to the reasonable satisfaction of the Company that this Note has been lost, destroyed or wrongfully taken, the Company shall issue a replacement Note of like tenor if the requirements of the Company for such transactions are met. An indemnity agreement may be required that is sufficient in the reasonable judgment of the Company to protect the Company from any loss which it may suffer. The Company may charge the Holder for its out-of-pocket expenses incurred in replacing this Note.

9. Reduction; Set-Off.

(a) This Note is being delivered in connection with the Employment Agreement and, subject to the terms and conditions set forth in the Employment Agreement, all or a portion of this Note may be surrendered or forfeited by the Holder upon the Holder’s voluntary termination or resignation of employment as described in Section 4(c) of the Employment Agreement.

(b) The Company shall be entitled to set off against amounts payable to the Holder any amounts owed to the Company by the Holder, but the Company shall not be entitled to set off against the amounts payable to Holder under this Note any amounts earned by the Holder in other employment after termination of the Holder’s employment with the Company, or any amounts which might have been earned by the Holder in other employment had such other employment been sought.

10. No Recourse Against Others.

No director, officer, employee or stockholder, as such, of the Company shall have any liability for any obligations of the Company under this Note or for any claim based on, in respect or by reason of, such obligations or their creation. The Holder by accepting this Note waives and releases all such liability. This waiver and release are part of the consideration for the issue of this Note.

11. Notices.

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such other address as may be furnished in writing to the Holder, and if to the Holder, to the address listed on the books of the Company or to such other address as may be furnished in writing to the Company at the Company’s address set forth above. Notices hereunder shall be effective when delivered, if delivered personally, or, if sent by mail, when sent.

12. Governing Law. This Note shall be deemed a contract under, and shall be governed by and construed in accordance with, the laws of the State of New Jersey without giving effect to principles of conflicts of laws.

13. Successors; Entire Agreement; Assignment.

This Note shall be binding upon and shall inure to the benefit of the Holder and the Company and their respective successors and permitted assigns. This Note constitutes the entire agreement between the parties hereto, superseding all prior understandings and writings, with respect to the indebtedness represented hereby. The Holder may not assign or transfer this Note without the prior written consent of the Company. Any such assignment shall be null and void.

14. Severability.

If any provision of this Note or application thereof is held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall not be affected thereby, and each provision of this Note shall be valid and enforceable to the fullest extent permitted by law.

15. Headings.

The section headings of this Note are for convenience only and shall not affect the meaning or interpretation of this Note or any provision hereof.

[The remainder of this page left blank intentionally.]

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Exhibit 10.4

IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer as of the date first written above.

WESTWOOD COMPUTER CORPORATION


By:	/s/ DINESH DESAI_____________
	Name: DINESH DESAI
	Title: CHAIRMEN

EX-10.5 6 c48141_ex10-5.htm

Exhibit 10.5

WESTWOOD COMPUTER CORPORATION

SUBORDINATED PROMISSORY NOTE

$655,600		Made as of: February 5, 2007
		Maturity Date: April 16, 2009

Westwood Computer Corporation, a New Jersey corporation (the “Company,” which term includes any successor corporation or other business entity), for value received, hereby promises to pay to Mary Margaret Grabel (the “Holder”), the principal sum of Six Hundred Fifty-Five Thousand Six Hundred Dollars ($655,600) (the “Principal Amount”).

The following is a statement of the rights of the Holder and the terms and conditions to which this Note is subject, and to which the Holder hereof, by acceptance of this Note, agrees:

2. Prepayment. This Note may be prepaid at any time in whole or in part without premium or penalty.

4. Method of Payment. The Company will pay the outstanding principal in currency of the United States that at the time of payment is legal tender for payment of public

5. Events of Default.

(a) An “Event of Default” under this Note occurs if:

(i) the Company defaults in the payment of the principal of this Note when the same becomes due and payable on the Maturity Date or otherwise and such default continues for thirty (30) days;

(iii) the Company terminates Holder’s employment with the Company pursuant to Section 3(f) of the Employment Agreement.

(d) Waiver of Past Defaults. The Holder may waive an existing Default or Event of Default and its consequences. Upon any such waiver, such Default shall

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6. Subordination.

(a) Definitions. The following terms have the following meanings:

“Holder” as used in this Section 6 means a holder or owner of this Note and any other holder or owner of Subordinated Debt.

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“Lender” means any bank or other independent financial institution providing Senior Debt to the Company.

“Loan Parties” shall mean the Company and any Subsidiary which is an obligor under the Credit Agreement or any other Senior Loan Document.

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“Senior Default” means a Payment Default or a Non-payment Default.

“Senior Loan Documents” means all documents executed in connection with any financing provided by a Lender or Refinancing Lender.

“Significant Subsidiary” means any subsidiary of the Company that would be a “significant subsidiary” as defined in Rule 1.02(v) of Regulation S-X promulgated pursuant to the Securities Act.

“Subsidiary” means any entity more than 50% of the outstanding voting power of the voting stock or other voting interest of which is controlled, directly or indirectly, by the Company.

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(v) Nothing contained in this Section 6 shall prevent interest from accruing to this Note as provided above until this Note paid in full.

(i) all Senior Debt shall first be entitled to be finally and indefeasibly paid in full before the Holder is entitled to receive any payment on account of the Subordinated Debt; and

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(g) In Furtherance of Subordination.

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of all Senior Debt, and (B) next to the final and indefeasible payment of any other Senior Debt on a pro rata basis or as otherwise directed by a court of competent jurisdiction.

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basis as prior to the date of the petition, subject to any court order approving the financing of, or use of cash collateral by, such Loan Party as debtor-in-possession.

(o) Miscellaneous.

(a) any lack of validity or enforceability of any Senior Loan Document or any other agreement or instrument relating thereto or to any Senior Debt;

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(e) any change, restructuring or termination of the corporate structure or existence of any Loan Party or any of its subsidiaries; or

(f) any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Loan Party or a subordinated creditor.

7. Amendment and Waiver.

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8. Replacement Notes.

9. Reduction; Set-Off.

10. No Recourse Against Others.

11. Notices.

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19104 or to such other address as may be furnished in writing to the Holder, and if to the Holder, to the address listed on the books of the Company or to such other address as may be furnished in writing to the Company at the Company’s address set forth above. Notices hereunder shall be effective when delivered, if delivered personally, or, if sent by mail, when sent.

13. Successors; Entire Agreement; Assignment.

14. Severability.

15. Headings.

The section headings of this Note are for convenience only and shall not affect the meaning or interpretation of this Note or any provision hereof.

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Exhibit 10.5

IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer as of the date first written above.

WESTWOOD COMPUTER CORPORATION


By:	/s/ DINESH DESAI__________
	Name: DINESH DESAI
	Title: CHAIRMEN

EX-10.6 7 c48141_ex10-6.htm

Exhibit 10.6

WESTWOOD COMPUTER CORPORATION

SUBORDINATED PROMISSORY NOTE

$1,002,900

Made as of: February 5, 2007

Westwood Computer Corporation, a New Jersey corporation (the “Company,” which term includes any successor corporation or other business entity), for value received, hereby promises to pay to DARR Global Holdings, Inc. (the “Holder”), the principal sum of One Million Two Thousand Nine Hundred Dollars ($1,002,900) (the “Principal Amount”).

This Note is issued in connection with the execution of a termination agreement dated as of the date hereof, by and among the Company and the Holder (the “Termination Agreement”) pursuant to which the Company’s obligations under that certain management services agreement by and between the Company and the Holder are being terminated.

The following is a statement of the rights of the Holder and the terms and conditions to which this Note is subject, and to which the Holder hereof, by acceptance of this Note, agrees:

2. Prepayment. This Note may be prepaid at any time in whole or in part without premium or penalty.

3. Repayment.

(a) This Note shall be repaid at a rate of $250,000 per annum in equal monthly principal payments of $20,833 per month, with such payments beginning on the first day of the month immediately following issuance of this Note until the Note is paid in full. Each principal payment shall be accompanied by all interest then accrued and unpaid on this Note.

(b) Notwithstanding the provisions of Section 3(a) above, in the event that either (i) Emtec, Inc., a Delaware corporation (the “Parent”), achieves EBITDA (as defined below) of $8,000,000 for the preceding twelve month period or (ii) all amounts due and owing under the Grabel Notes (as defined in Section 6) are paid in full, then this Note shall be repaid at a rate of $350,000 per annum in equal monthly principal payments of $29,166 per month, with such payments beginning on the first day of the month immediately following issuance of this Note until the Note is paid in full. Each principal payment shall be accompanied by all interest then accrued and unpaid on this Note. For purposes of this Note, “EBITDA” means, for any period, the sum of Parent’s earnings before interest and taxes on a consolidated basis for such period plus depreciation expenses of Parent on a consolidated basis for such period plus amortization expenses of Parent on a consolidated basis for such period

4. Method of Payment. The Company will pay the outstanding principal in currency of the United States that at the time of payment is legal tender for payment of public and private debts. Payments shall be made to the Holder by delivering a check at the Holder’s address listed on the books of the Company or to such other address designated in writing by the Holder and provided to the Company at least ten (10) business days before the Maturity Date.

5. Events of Default.

(a) An “Event of Default” under this Note occurs if:

(i) the Company defaults in the payment of the principal of this Note when the same becomes due and payable on the Maturity Date or otherwise and such default continues for thirty (30) days; or

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(d) Waiver of Past Defaults. The Holder may waive an existing Default or Event of Default and its consequences. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Note; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.

6. Subordination.

(a) Definitions. The following terms have the following meanings:

“Holder” as used in this Section 6 means a holder or owner of this Note and any other holder or owner of Subordinated Debt.

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agreement in the event of default are limited to repossession or sale of such property); (e) all obligations of such person as lessee under leases that have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases; (f) all obligations, contingent or otherwise, of such person under acceptance, letter of credit or similar facilities; (g) all obligations of such person to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of such person or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; (h) all obligations of such person under interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging agreements (i) all Indebtedness of the type referred to in clauses (a) through (h) abo ve guaranteed directly or indirectly in any manner by such person, or in effect guaranteed directly or indirectly by such person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss; and (j) all Indebtedness of the type referred to in clauses (a) through (h) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien on property (including, without limi tation, accounts and contract rights) owned by such person, even though such person has not assumed or become liable for the payment of such Indebtedness, but excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue for more than 90 days, or as to which a dispute exists and adequate reserves in conformity with United States generally accepted accounting principles have been established on the books of such person.

“Lender” means any bank or other independent financial institution providing Senior Debt to the Company.

“Loan Parties” shall mean the Company and any Subsidiary which is an obligor under the Credit Agreement or any other Senior Loan Document.

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“Senior Debt” means all Indebtedness except Indebtedness that by its terms is subordinated or pari passu in right of payment to this Note. Senior Debt shall include, without limitation, (a) all Indebtedness of the Company and its Subsidiaries to De Lage Landen Financial Services, Inc. (“DLL”) under the credit agreement dated as of December 7, 2006, as amended, including principal, premium, if any, and interest on such Indebtedness and all other amounts due on or in connection with such Indebtedness, including all charges, fees, indemnities, and expenses (including reasonable fees and expenses of counsel), (b) any amendment, modification, extension or replacement of any of the Company’s existing credit facilities so long as the formula utilized to calculate the indebtedness permitted by such facilities does not exceed 100% of the Company’s cash, accounts receivable and inventory (including floor plan financing inventory) and all other amounts due on or in connection with such Indebtedness, including all charges, fees, indemnities, and expenses (including reasonable fees and expenses of counsel), (c) the Subordinated Note made in favor of Four Kings Management LLC in the amount of $750,000, including principal, fees and interest under such Note, (d) the Subordinated Notes made in favor or each of Keith Grabel and Mary Grabel dated February 5, 2007 in the amounts of $671,300 and $655,600, respectively (together with the Four Kings Note, the “Grabel Notes”), and (e) all amendments, extensions, renewals, refinancings and deferrals of the Indebtedness referred to in clauses (a) through (d) above.

“Senior Default” means a Payment Default or a Non-payment Default.

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“Senior Loan Documents” means all documents executed in connection with any financing provided by a Lender or Refinancing Lender.

“Significant Subsidiary” means any subsidiary of the Company that would be a “significant subsidiary” as defined in Rule 1.02(v) of Regulation S-X promulgated pursuant to the Securities Act.

“Subsidiary” means any entity more than 50% of the outstanding voting power of the voting stock or other voting interest of which is controlled, directly or indirectly, by the Company.

“Subordinated Debt” means all obligations of the Company now or hereafter existing (a) under this Note (whether created directly or acquired by assignment or otherwise), as it may hereafter be amended, extended, supplemented or otherwise modified from time to time, whether for principal, interest (including, without limitation, Post-Petition Interest), fees, expenses or otherwise, (b) all obligations of any of the Loan Parties in respect of (i) any Indebtedness incurred by any of the Loan Parties to extend, increase, refund or refinance, in whole or in part, the Subordinated Debt, including interest and premium on any such Indebtedness, (ii) any loan or credit agreement entered into by any of the Loan Parties in connection wit h any such Indebtedness, as such agreement may be amended, extended, supplemented or otherwise modified from time to time, and (iii) all other amounts payable in respect of any such Indebtedness or agreement, including, without limitation, amounts payable (A) in respect of any indemnity and (B) in respect of any breach of a representation or a warranty, (c) the Subordinated Note in favor of DARR Westwood LLC in the amount of $750,000 and (d) the Promissory Note in favor of DARR Westwood LLC in the amount of $1,102,794.

(i) Upon the maturity of all or any part of any Senior Debt by lapse of time, acceleration (unless waived in writing) or otherwise, all Senior Debt then due shall

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first be finally and indefeasibly paid in full, or such payment duly provided for in cash or cash equivalents in a manner satisfactory to the holders of such Senior Debt, before any payment is made on account of the Subordinated Debt, and until the Senior Debt is finally and indefeasibly paid in full, any distribution to which the Holder would be entitled but for this Section 6 shall be made to holders of Senior Debt as their interests may appear.

(ii) In the event that (i) any Payment Default shall have occurred and be continuing, unless and until such default shall have been cured or waived in writing, or (ii) any judicial proceeding shall be pending with respect to any such Payment Default, then no payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to payment of the Subordinated Debt) shall be made by or on behalf of the Company for or on account of any Subordinated Debt (but not including any payment by accrual), and the Holder shall not take or receive from the Company or any Subsidiary, directly or indirectly, in cash or other property, or by set-off or in any other manner, including, without limitation, from or by way of collateral, payment of all or any of the Subordinated Debt. The Holder shall immediately deliver to the Lender or any Refinancing Lender (or the Representative (as defined below) of the Senior Creditors if the Senior Debt has been finally and indefeasibly paid in full) any monies, securities or other property received by the Holder or its equivalent in cash, with proper endorsement or assignment if necessary, and prior to such delivery shall hold in trust, such monies, securities or other properties solely as trustee for and for the benefit of the Senior Creditors as set forth in this sentence.

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following any Senior Default until the earliest of (A) the date when such Senior Default shall have been cured or waived in writing, (B) the date an Event of Default occurs under Section 5, and (C) the date on which the Senior Debt or if the Senior Debt has been finally paid in full, any other Senior Debt held by the applicable Senior Creditor, is accelerated and declared immediately due and payable; provided, further, that in the event that any Subordinated Debt is declared due and payable before its stated maturity, the holders of all Senior Debt shall be entitled to receive final and indefeasible payment in full of all amounts due or to become due (whether or not accelerated) on or in respect of all Senior Debt before the Holder is entitled to receive any payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Subordinated Debt) by the Company on account of the Subordinated Debt. The Holder shall immediately deliver to the Lender or any Refinancing Lender (or the Representative of the Senior Creditors if the Senior Debt has been finally and indefeasibly paid in full) any monies, securities or other property received by the Holder or its equivalent in cash, with proper endorsement or assignment if necessary, and prior to such delivery shall hold in trust, such monies, securities or other properties solely as trustee for and for the benefit of the Senior Creditors as set forth in this sentence.

(v) Nothing contained in this Section 6 shall prevent interest from accruing to this Note as provided above until this Note paid in full.

(i) all Senior Debt shall first be entitled to be finally and indefeasibly paid in full before the Holder is entitled to receive any payment on account of the Subordinated Debt; and

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trustee under any indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as the case may be, for application (in the case of cash), or as collateral (in the case of non-cash property or securities) for, the payment or prepayment in full of all Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution (in the case of cash) to the holders of such Senior Debt. Any such payment shall be made first to the Senior Debt owed to the Lender and following indefeasible payment in full of the Senior Debt such payment shall be made to other holders of Senior Debt or as otherwise directed by a court of competent jurisdiction.

(g) In Furtherance of Subordination.

(i) All payments or distributions upon or with respect to the Subordinated Debt which are received by the Holder contrary to the provisions of this Section 6

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shall be received and held by such Holder, in trust for the benefit of, shall be segregated from other funds and property held by such Holder, and shall be paid immediately over and delivered to the Senior Creditors in the same form as so received (with any necessary endorsement), for application (in the case of cash) to, or as collateral (in the case of non-cash property or securities) for, the payment or prepayment in full of all Senior Debt of the Senior Creditors remaining unpaid, after giving effect to any concurrent payment or distribution (in the case of cash) to the holders of Senior Debt and shall be applied (A) first to the final and indefeasible payment in full of all Senior Debt, and (B) next to the final and indefeasible payment of any other Senior Debt on a pro rata basis or as otherwise directed by a court of competent jurisdiction.

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obligation of the Company to make, or prevent the Company from making, at any time (except under the circumstances described in Section 6(c)) payment of principal of or interest on this Note.

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reorganization, arrangement, composition or extension), the Holder shall not take any action or vote in any way so as to contest (i) the validity or the enforceability of the Credit Agreement, the Senior Loan Documents or the liens and security interests to the extent granted to the Lender or any Refinancing Lender by the Company with respect to the Senior Debt or any indebtedness held by a Refinancing Lender or any other Senior Debt, (ii) the rights of the Lender or any Refinancing Lender established in the Credit Agreement, the Senior Loan Documents or any security documents with respect to such liens and security interests, or (iii) the validity or enforceability of terms of subordination set forth herein or any agreement or instrument to the extent evidencing or relating to the Senior Debt or any indebtedness held by a Refinancing Lender or any other Senior Debt. The Lender, any Refinancing Lender or other holder of Senior Debt agrees that as a condition to Holder’s obligations in this paragraph while they shall retain the right to vote such Indebtedness and otherwise act in any such reorganization proceeding relative to the Company (including, without limitation, the right to vote or accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition or extension), it shall not take any action or vote in any way so as to contest the enforceability of this Note or any other agreement or instrument to the extent evidencing or relating to the Subordinated Debt.

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(o) Miscellaneous.

(a) any lack of validity or enforceability of any Senior Loan Document or any other agreement or instrument relating thereto or to any Senior Debt;

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(e) any change, restructuring or termination of the corporate structure or existence of any Loan Party or any of its subsidiaries; or

(f) any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Loan Party or a subordinated creditor.

7. Amendment and Waiver.

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8. Replacement Notes.

9. No Recourse Against Others.

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10. Notices.

All notices, requests, consents and demands shall be made in writing and shall be given by registered or certified mail postage prepaid to the following addresses: if to the Company, at Westwood Computer Corporation, 11 Diamond Road, Springfield, NJ 07081, with a copy to Scott K. Baker, Esq., Dechert LLP, Cira Centre, 2929 Arch Street, Philadelphia, PA 19104 or to such other address as may be furnished in writing to the Holder, and if to the Holder, to the address listed on the books of the Company or to such other address as may be furnished in writing to the Company at the Company’s address set forth above. Notices hereunder shall be effective when delivered, if delivered personally, or, if sent by mail, when sent.

11. Governing Law. This Note shall be deemed a contract under, and shall be governed by and construed in accordance with, the laws of the State of Delaware without giving effect to principles of conflicts of laws.

12. Successors; Entire Agreement; Assignment.

13. Severability.

14. Headings.

The section headings of this Note are for convenience only and shall not affect the meaning or interpretation of this Note or any provision hereof.

[The remainder of this page left blank intentionally.]

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Exhibit 10.6

IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer as of the date first written above.

WESTWOOD COMPUTER CORPORATION


By:	/s/ BRIAM Mc ADAMS
	Name: BRIAN Mc ADAMS
	Title: VICE CHAIRMAN

EX-10.7 8 c48141_ex10-7.htm

Exhibit 10.7

GUARANTY

THIS GUARANTY (this “Guaranty”), dated as of February 5, 2007, is made by Emtec, Inc., a Delaware corporation (the “Guarantor”) in favor of________________________. (the “Holder”).

Background

WHEREAS, the Guarantor is a Delaware corporation and indirect holder of all outstanding capital stock of Westwood Computer Corporation (the “Company”).

WHEREAS, the Company and the Holder have entered into the Termination Agreement dated as of the date hereof and, in connection with such Termination Agreement, the Company and the Holder have agreed to enter into that certain Subordinated Promissory Note, dated as of February 5, 2007 (the “Promissory Note”); and

WHEREAS, pursuant to the Promissory Note, the Company agrees to pay to the Holder the principal amount of $1,002,900; and

WHEREAS, in connection with the delivery of the Promissory Note, the Guarantor has agreed to execute and deliver to the Holder a guaranty guaranteeing the obligations of the Holder under the Promissory Note.

NOW, THEREFORE, in consideration of the mutual covenants hereinafter contained and intending to be legally bound, the Guarantor hereby agrees with the Holder as follows:

1. Definitions. All terms used in this Guaranty which are not otherwise defined herein shall have the meanings set forth in the Promissory Note.

2. Guaranty.

a. The Guarantor hereby irrevocably, absolutely and unconditionally, becomes surety for and guarantees the prompt payment, as and when due and payable, of all amounts now or hereafter owing in respect of the Promissory Note, whether for principal, interest, fees or otherwise, and the due performance and observance by the Company of its obligations now or hereafter existing in respect of the Promissory Note (the “Indebtedness”).

b. Payment by the Guarantor is due upon demand by the Holder and is payable in immediately available funds in lawful money of the United States of America after the expiration of any available grace period provided herein or in the Promissory Note.

3. Guarantor’s Indebtedness Unconditional.

a. Subject to the terms hereof, the Guarantor hereby guarantees that the Indebtedness will be paid strictly in accordance with the terms of the Promissory Note, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Holder with respect thereto. The liability of the Guarantor to the extent herein set forth shall be absolute and unconditional, irrespective of: (i) any lack of validity or enforceability of the Promissory Note; (ii) any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Indebtedness, or any other amendment or waiver of or consent to any departure from the Promissory Note; (iii) the absence of any action on the part of the Holder to obtain payment of the Indebtedness from the Company; (iv) any insolvency, bankruptcy, reorganization or dissolution, or any proceeding in respect thereof of the Company or the Guarantor; or (v) the absence of notice or the absence of or any delay in any action to enforce any Indebtedness.

b. This Guaranty (i) is a continuing limited guarantee and shall remain in full force and effect until the satisfaction in full of the Indebtedness; and (ii) shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment of any of the Indebtedness is rescinded or must otherwise be returned by the Holder upon the insolvency, bankruptcy or reorganization of the Company, or otherwise, all as though such payment had not been made.

4. Waivers. The Guarantor hereby waives (a) promptness and diligence; (b) notice of any actions taken by the Holder or the Company under the Promissory Note; and (c) all other notices, demands and protests, and all other formalities of every kind in connection with the enforcement of the Indebtedness or of the obligations of the Guarantor to the extent herein set forth, the omissions of or delay in which, but for the provisions of this Section 4, might constitute grounds for relieving the Guarantor of its obligations to the extent herein set forth.

5. Subrogation. The Guarantor will not exercise any rights which it may acquire by way of subrogation hereunder, by any payment made by it hereunder or otherwise, until such date on which all of the Indebtedness shall have been satisfied in full. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all of the Indebtedness and all other expenses guaranteed pursuant hereto shall not have been paid in full, such amount shall be held in trust for the benefit of the Holder, shall be segregated from the other funds of the Guarantor and shall forthwith be paid over to the Holder to be applied in whole of in part by the Holder against the Indebtedness, whether matured or unmatured, in accordance with the terms of the Promissory Note or any other agreement relating thereto. If the Guarantor shall make payment to the Holder of all or any portion of the Indebtedness and all of the Indebtedness shall be paid in full, the Holder will, at the Guarantor’s request, execute and deliver to the Guarantor (without recourse, representation or warranty) appropriate documents necessary to evidence the transfer by subrogation to the Guarantor of an interest in the Indebtedness resulting from such payment by the Guarantor, such subrogation to be fully subject

and subordinate, however, to the collection by the Holder of all other amounts due to the Holder by the Company under the Promissory Note.

6. Notices, Etc. Except as may be otherwise provided herein, any demand, notice, request or communication required or permitted hereunder upon or to the Guarantor or the Holder shall be deemed to have been sufficiently given or served for all purposes hereof if personally delivered, mailed by private overnight courier service, with postage prepaid, or mailed by certified mail, postage prepaid, return receipt requested, if to the Guarantor, Emtec, Inc., 11 Diamond Road, Springfield, NJ 07081, and if to the Holder, at its address specified in the Promissory Note. Any such notice shall be deemed given on the date delivered, if personally delivered, three (3) business days after mailing, if sent by certified mail, or the next business day after mailing, if sent by private overnight courier service with confirmed delivery.

7. Representations and Warranties. The Guarantor hereby represents and warrants to the Company and Holder (which representations and warranties shall survive the delivery of this Guaranty) that:

a. The Guarantor (i) is a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware and is duly qualified to transact business in each jurisdiction where because of the nature of its business or property such qualification is required except where the failure to be so qualified would not have a Material Adverse Effect (as defined below), (ii) has full power and authority to own its properties and assets and to carry on its business as now being conducted and as presently contemplated, and (iii) has full power and authority to execute and deliver, and perform its obligations under, this Guaranty.

b. The execution and delivery of, and performance by the Guarantor of its obligations under, the Guaranty are within its corporate power, have been duly authorized by all requisite action and do not and will not violate any provision of law, any order, judgment or decree of any court or other agency of government, the corporate charter or by-laws of the Guarantor or any indenture, agreement or other instrument to which the Guarantor is a party, or by which the Guarantor is bound, or be in conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Guarantor pursuant to, any such indenture, agreement or instrument, except where such violation, conflict or default would not have a material adverse effect on the properties, assets or condition (financial or otherwise) of the Guarantor (hereinafter, a “Material Adverse Effect”). The Guaranty constitutes the valid and binding obligation of the Guarantor, enforceable against it in accordance with its terms, subject, however, to bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights and remedies of creditors generally or the application of principles of equity, whether in any action in law or proceeding in equity, and subject to the availability of the remedy of specific performance or of any other equitable remedy or relief to enforce any right under any such agreement.

c. The Guarantor is not required to obtain any consent, approval or authorization from, or to file any declaration or statement with, any governmental instrumentality or other agency, or any other person or entity, in connection with or as a condition to the execution, delivery or performance of any of the Guaranty.

d. There is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency, including any arbitration board or tribunal, now pending or, to the knowledge of the Guarantor, threatened (nor is any basis therefor known to the Guarantor), (i) which questions the validity of any of the Guaranty, or any action taken or to be taken pursuant hereto or thereto, or (ii) against or affecting the Guarantor which, if adversely determined, either in any case or in the aggregate, would have a Material Adverse Effect.

e. The Guarantor is not a party to any agreement or instrument or subject to any corporate, partnership or other restriction which could have a Material Adverse Effect. The Guarantor is not in violation of any provision of its corporate charter or by-laws or any material indenture, agreement or instrument to which it is a party or by which it is bound or, to the best of the Guarantor’s knowledge and belief, of any provision of law or any order, judgment or decree of any court or other governmental authority.

f. The Guarantor is solvent and, as of the date hereof, (i) able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the ordinary course of business, (ii) does not intend to, and does not believe that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities mature in their ordinary course, (iii) is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which the Guarantor would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which the Guarantor is engaged or is to engage, (iv) of the reasonable understanding that the fair value of its property is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of the Guarantor and (v) of the reasonable understanding that the present fair saleable value of the assets of the Guarantor is not less than the amount that will be required to pay the probable liability of the Guarantor on its debts as they become absolute and matured (collectively, the foregoing conditions being hereinafter referred to as “Solvent”). The Guarantor’s obligations under this Guaranty do not prevent the Guarantor from being Solvent; the Guarantor is not contemplating either the filing of a petition by the Guarantor under any state or federal bankruptcy or insolvency laws or the liquidating of all or a major portion of the Guarantor’s property; and the Guarantor has no knowledge of any person contemplating the filing of any such petition against the Guarantor.

8. Miscellaneous.

a. No amendment of any provision of this Guaranty shall be effective as to the Guarantor unless it is in writing and signed by the Guarantor and consented to by the Holder, and no waiver of any provision of this Guaranty and no consent to any departure by the Guarantor therefrom, shall be effective unless it is in writing and signed by the Holder, and then

such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

b. No failure on the part of the Holder to exercise, and no delay in exercising any right hereunder or under the Promissory Note shall operate as a waiver thereof nor shall any single or partial exercise of any right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Holder provided herein and in the Promissory Note are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law.

c. Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction.

d. This Guaranty is a contract of suretyship and shall not be construed to be only a guaranty of collection and shall (i) be binding on the Guarantor and its successors and assigns, and (ii) inure, together will all rights and remedies of the Holder, to the benefit of the Holder and its respective successors, transferees and assigns.

e. This Guaranty is intended by the Guarantor and the Holder as a final expression of the Guarantor’s agreement to guarantee the Indebtedness and is intended also as a complete and exclusive statement of the terms of such agreement. No course of prior dealings between the parties, no usage of trade and no parole or extrinsic evidence of any nature shall be used or relevant to supplement or explain or modify any term used in this Guaranty.

f. This Guaranty shall be governed by and construed in accordance with the laws of the State of New Jersey.

IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed as of the date first written above.

EMTEC, INC.

By: /s/ DINESH DESAI __________
Name: DINESH DESAI
Title: CHAIRMEN

EX-31.1 9 c48141_ex31-1.htm

EXHIBIT 31.1

I, Dinesh R. Desai, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Emtec, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter ( the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 23, 2007

/s/ DINESH R. DESAI
Dinesh R. Desai
Chairman, and Chief
Executive Officer
(Principal Executive Officer)

EX-31.2 10 c48141_ex31-2.htm

EXHIBIT 31.2

I, Stephen C. Donnelly, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Emtec, Inc.;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: April 23, 2007

/s/ Stephen C. Donnelly
Stephen C. Donnelly
Chief Financial Officer
(Principal Financial Officer)

EX-32.1 11 c48141_ex32-1.htm

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Emtec, Inc. (the “Company”) on Form 10-Q for the period ending February 28 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dinesh R. Desai, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Dinesh R. Desai
Chief Executive Officer
April 23, 2007

EX-32.2 12 c48141_ex32-2.htm

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Emtec, Inc. (the “Company”) on Form 10-Q for the period ending February 28 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen C. Donnelly, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Stephen C. Donnelly
Chief Financial Officer
April 23, 2007

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