-----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, MugQJtDQrK5J6pd3qk0wnTCkcAo9ogHOu5mEifIAPiwlqBRExcNbJhMjYkX98SNV LNzcyQ70U4+vuKt4B2/yLg== 0000950117-05-004756.txt : 20051214 0000950117-05-004756.hdr.sgml : 20051214 20051214170921 ACCESSION NUMBER: 0000950117-05-004756 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 20050831 FILED AS OF DATE: 20051214 DATE AS OF CHANGE: 20051214 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-32789 FILM NUMBER: 051264537 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-K 1 a40994.htm EMTEC, INC.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

______________

FORM 10-K

(MARK ONE)

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

For the fiscal year ended August 31, 2005

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

For the transition period from……….to……………


		Commission file number: 0-32789

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

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

	572 Whitehead Road, Bldg#1 Trenton, New Jersey 08619 (Address of principal executive offices, including zip code)


	(609)-528-8500 (Registrant’s telephone number, including area code)

	Securities registered pursuant to Section 12(b) of the Act: None

	Securities registered pursuant to Section 12(g) of the Act:

	Common Stock, $0.01 par value
	Title of class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of February 28, 2005 was approximately $10,912,085 computed by reference to the closing price of the common stock for that date.

As of November 7, 2005, there were outstanding 14,381,286 shares of the registrant’s common stock.

DOCUMENTS INCORPORATED BY REFERENCE

None.

EMTEC, INC.
2005 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I

Item 1.	Business	1
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	19
Item 3.	Legal Proceedings	21
Item 4.	Submission of Matters to a Vote of Security Holders	22

PART II

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	46
Item 9A.	Controls and Procedures	47
Item 9B.	Other Information	48

PART III

Item 10.	Directors and Executive Officers of the Registrant	49
Item 11.	Executive Compensation	52
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	55
Item 13.	Certain Relationships and Related Transactions	57
Item 14.	Principal Accountant Fees and Services	59

PART IV

Item 15.	Exhibits, Financial Statement Schedules	61
	Signatures	89

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References in this Annual Report to “we,” “us,” or “our” are to Emtec, Inc. and its subsidiaries, unless the context specifies or requires otherwise.

Cautionary Statement Regarding Forward-Looking Statements

You should carefully review the information contained in this Annual Report and in other reports or documents that we file from time to time with the Securities and Exchange Commission (the “SEC”). In this Annual Report, we state 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. In evaluating those statements, you should specifically consider various factors, including the risks discussed in this Annual Report for the year ended August 31, 2005 and other reports or documents that we file from time to time with the SEC. Those factors may cause our actual results to differ materially from any of our forward-looking statements. 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.

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PART I

Item 1. Business

Introduction

Emtec, Inc. is an information technology company, providing services and products to commercial, federal, education, state and local verticals. Areas of specific practices include communications, data availability, enterprise computing, managed services, storage and data center planning and development. Emtec’s solutions are crafted to enable our customers to become more efficient and effective, thereby 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.

Named to the VARBusiness 500 list of top network integrators, value added resellers, and consultants in the U.S. every year since 1995, we combine extensive experience in systems integration with premier technology elements to provide our customers with sophisticated, streamlined, truly comprehensive solutions.

Over the past two decades, we have built strong relationships with leading manufacturers, such as Cisco, HP, IBM, Microsoft, Sun Microsystems, Dell, and Veritas, thereby enabling us to provide cutting-edge, scalable, reliable and secure solutions. This, along with our background in information technology, positions us as a premier, single-source provider of information systems, and network solutions.

Our clients are primarily large business organizations, federal, state and local government, local school districts, and other large and mid-sized companies located principally in the New York/New Jersey Metropolitan area and the southeastern United States. We service our client base from leased facilities in New Jersey, New York, Virginia, Georgia, and Florida as well as five regional offices in the South and western United States. We provide products to federal government civilian and military locations throughout the United States.

Prior to January 17, 2001, we were engaged in the oil and gas exploration and development business under the name American Geological Enterprises, Inc. At that time our principal asset, other than cash, was a 5.49% working interest in a geothermal power unit. On January 17, 2001, we completed a merger with Emtec, Inc., a privately held New Jersey corporation (“Emtec NJ”), which since 1980 had been engaged in the business of providing IT products and services to the computer industry. Upon the merger we retained all of our assets, subject to liabilities, and assumed all of the assets and liabilities of Emtec-NJ. In March 2005, we disposed of our geothermal investment through an assignment of our 5.49% working interest in the Roosevelt Hot Spring geothermal power unit as well as some other minor oil and gas rights to Energy Minerals, Inc., a Nevada corporation for $150,000 in cash.

Our executive offices are located at 572 Whitehead Road, Building #1, Trenton, New Jersey; telephone: (609) 528-8500. Our website is located at www.emtecinc.com. We have made available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such material was electronically filed with, or furnished to, the Securities and Exchange Commission. The information on our website is not part of this Annual Report.

Recent Developments

The Merger

On August 5, 2005, we completed our merger under the Agreement and Plan of Merger dated as of July 14, 2005 (the “Merger Agreement”), by and among us, Emtec Viasub LLC, a Delaware limited liability company and our wholly-owned subsidiary (“MergerCo”), and Darr Westwood Technology Corporation, a Delaware corporation (“Darr”). Pursuant to the terms of the Merger Agreement, Darr merged with and into MergerCo, with MergerCo remaining as the surviving company (the “Surviving Company”) and a wholly-owned subsidiary of Emtec (the “Merger”).

Upon completion of the Merger, all of the shares of Darr common stock issued and outstanding immediately prior to the merger were exchanged for 9,528,110 shares of our common stock and the former Darr shareholders were issued warrants to purchase an additional 10% of our common stock calculated on a fully diluted basis for an aggregate exercise price of $3,645,752, measured on a post exercise basis. Additional terms of the Merger included the following:

	Ÿ	Commencement of a self tender offer to repurchase up to 2,864,584 shares of our issued and outstanding common stock having an aggregate purchase price of up to $5.50 million at a price of $1.92 per share. Only pre-merger Emtec’s shareholders participated in the tender offer.

	Ÿ	Employment agreements dated as of July 14, 2005, were entered into between us and each of Messrs. John P. Howlett, and Ronald A. Seitz. Messrs. Howlett and Seitz are to serve as the President of Northeast Operations and President of Southeast Operations, respectively, for a period commencing on August 5, 2005 and terminating on August 31, 2008, although this term may be extended annually for additional one-year periods with the mutual consent of the parties.

	Ÿ	Our subsidiaries, Emtec Inc., a New Jersey corporation (“Emtec NJ”) and Westwood Computer Corporation (“Westwood” together with Emtec NJ , the “Borrower”), entered into a Business Financing Agreement with GE Commercial Distribution Finance Corporation (“Lender”) pursuant to which the Lender agreed to provide to Borrower an accounts receivable facility (the “Credit Facility”). The Credit Facility provides for maximum aggregate borrowings of the lesser of $35 million or 85% of eligible accounts receivable, plus 100% of unsold inventory financed by the lender, minus a $3.15 million reserve. The Credit Facility includes certain financial covenants that we must maintain on a quarterly basis and we are also subject to certain mandatory prepayments upon the occurrence of certain events.

	Ÿ	Emtec NJ and Westwood (together, the “Dealer”) also entered into the Agreement for Wholesale Financing with the Lender (the “Wholesale Agreement”). The Wholesale Agreement provides for an extension of credit subject to the maximum aggregate borrowings set forth in the Credit Facility by the Lender to the Dealer from time to time to purchase inventory from approved vendors and for other purposes.

	Ÿ	Each of John P. Howlett, Ronald A. Seitz, George Raymond, R. Frank Jerd resigned as our directors. Effective as of August 5, 2005, Dinesh Desai, Keith Grabel, Brian McAdams and Gregory Chandler were appointed as our directors.

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The Darr/Westwood Acquisition

Prior to the Merger, Darr was a holding company formed in April 2004 in order to effectuate the purchase of all of the outstanding capital stock of Westwood. Darr’s acquisition of Westwood’s capital stock was completed on April 16, 2004 (the “Westwood Acquisition”). Westwood is engaged in the sale and service of computers and peripherals to customers which include departments of the United States, state and local governments and commercial businesses throughout the United States.

Westwood is headquartered in Springfield, New Jersey and was established in 1964. It is a supplier of information technology products and services primarily to the Federal Government. It has been recognized as one of the top 20 General Services Administration vendors in the IT industry during each of the past eight years and was named in data compiled by the GSA as the ninth largest such vendor for the Federal Government’s 2004 fiscal year. Westwood has additional locations in New York and Virginia, as well as five regional offices in the South and Western United States.

The majority of Westwood’s sales are drawn from various civilian and military U.S. governmental departments and agencies. These customers 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 GSA. During the last three fiscal years ended on August 31, 2005, 2004, and 2003, U.S. governmental department and agency related accounts for approximately 76.1%, 75.6%, and 75.7%, respectively. The federal government business typically experiences increased activity during the months August through November.

The government utilizes a variety of contracting methods, including negotiated bids, pre-negotiated blanket purchase agreement contracts and open market procurements when purchasing from Westwood. We participate in formal government bids for all contract types, and also process orders received against existing contracts on an ongoing basis.

Substantially, all of these bids are awarded on a “best value” to the government basis (which depending on the bid can be a combination of price, technical expertise, past performance on other government and commercial contracts and other factors). Westwood seeks to use our partner contacts, purchasing power, distribution strength, value-added services and procurement expertise to compete successfully on these bids. These major procurements can generate millions of dollars in annual revenue, span multiple years and provide government personnel with an expedited method of purchasing from Westwood.

Westwood holds a GSA designated Schedule 70 contract for the sale of IT products and services. Schedule 70 contracts are multi-award schedule contracts managed by the GSA IT Acquisition Center. The current contract is valid through March 31, 2007 with two five-year renewals. Additionally, Westwood holds an Electronic Commodity Store III (ECS III) prime contract which also provides various governmental agencies with an efficient cost-effective means for buying commercial products. The ECS-III contract is valid through December 2011. GSA contracts provide all government agencies, and non governmental agencies authorized by GSA, with an efficient cost-effective means for buying commercial products. GSA and ECS III purchasers may place unlimited orders for products under GSA and ECS III contracts. These GSA contracts contain a most favored customer clause requiring us to provide GSA our best pricing.

Individual GSA eligible ordering agencies may enter into GSA-authorized Blanket Purchase Agreements (“BPAs”) with GSA contract holders. BPAs are similar to second-tier contracts under a

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contractor’s GSA contract. BPAs enable agencies to obtain better pricing based on volume ordering and they decrease an agency’s administrative costs by streamlining the ordering process.

Westwood maintains many Federal Supply Schedule BPAs that are authorized under its GSA Schedule 70 contract. GSA authorized BPAs typically include the same terms and conditions as those applied to standard GSA orders, with agency specific additions. The products offered on the BPAs are typically a subset of the products offered on Westwood’s GSA Schedule, often at prices which are pre-negotiated to be lower than those available on the standard GSA schedules, in return for volume purchasing commitments by the customer. Westwood normally enter into separate agreements with partners to offer reduced BPA prices to the government. The BPAs are agency specific and allow us to focus specific partner relationships on specific customers.

Westwood maintains a Small business designation with the Federal government under its GSA Schedule, ECS III and several BPAs held based upon our size status (headcount based) at the time of the contract’s original award date. As a small business, Westwood enjoys a number of benefits, including being able to compete for small business orders, qualifying as a small business subcontractor, bidding pursuant to small purchase procedures directed to non-manufacturer small business, and offering government agencies an avenue to meet their internal small business purchase goals.

In addition, Westwood owns a 100% of the membership interests in Westwood Solutions, LLC (“Solutions”). Prior to the Westwood Acquisition, Westwood owned an 80% membership interest in Solutions and Westwood’s President owned the remaining 20% interest. Concurrent with the Westwood Acquisition, Westwood acquired the remaining 20% membership interest in Solutions. Solutions has not engaged in any operating activity since 2003. Accordingly, the accompanying consolidated statements of income do not reflect any minority interest in earnings of the subsidiary. The Company considers all of its operating activity to be generated from a single operating segment.

Accounting Treatment

The issuance of our common stock in connection with the Merger gave the former Darr shareholders shares equal to approximately 55.7% of our total outstanding common stock post-merger and resulted in a change of control for us. Accordingly, for financial reporting purposes, the Merger was treated as an acquisition of Emtec by Darr and a recapitalization of Darr and the registrant’s historical financial statements for periods prior to the Merger become those of Darr. In addition, for financial accounting purposes, the Westwood Acquisition was treated as an acquisition of Darr by Westwood with the result that the pre-Westwood Acquisition financial statements of Darr, and therefore, the Registrant are those of Westwood. As a result, the consolidated financial statements included in this Form 10-K include (i) the accounts and transactions for Westwood for the year ended August 31, 2003, (ii) the accounts and transactions of Westwood for the period from September 1, 2003 to April 16, 2004 (Darr Predecessor Period) and for Westwood and Darr for the period from April 17, 2004 to August 31, 2004 (Darr Successor Period) and (iii) the accounts and transactions of Darr for the period from September 1, 2004 to August 31, 2005 and including the accounts and transactions of Emtec for the period from August 6, 2005 to August 31, 2005.

Industry Background

The broad market in which we compete is the provision of IT services and products. This marketplace consists of traditional IT services such as hardware and software procurement, life-cycle

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services, and network consulting, as well as internet services such as web enablement, remote network monitoring, help desk services, and information security.

As the market for IT products has matured over the past several years, price competition has intensified. That factor, combined with abbreviated product lifecycles, has forced IT product manufacturers to pursue lower cost manufacturing and distribution strategies. Resellers who were able to serve the needs of corporate end users requiring diverse brands of products and related IT services were initial beneficiaries of this heightened competition. More recently, however, continuing competition and manufacturers’ renewed efforts to improve their cost structures have led to both consolidations and business failures among resellers. Manufacturers have shifted from exclusive distribution partners to “open sourcing” and some have begun direct selling efforts with a view toward capturing market share from resellers.

At the same time that the market for IT products is consolidating, the market for IT services is expanding. Many companies have become increasingly dependent on the use of IT as a competitive tool in today’s business environment. The need to distribute and access data on a real-time basis throughout an organization and between organizations has led to the rapid growth in network computing infrastructures that connect numerous and geographically dispersed end users through local and wide area networks. This growth has been driven by the emergence of industry standard hardware, software, and communications tools, as well as the significant improvement in the performance, capacity, and utility of such network-based equipment and applications.

The decision-making process that confronts companies when planning, selecting, and implementing IT infrastructure and services continues to grow more complex. Organizations are continually faced with technology obsolescence and must design new networks, upgrade, and migrate to new systems. As a result of the rapid changes in IT products and the risks associated with the commitment of large capital expenditures for products and services whose features and perceived benefits are not within the day-to-day expertise of operating management, many businesses increasingly are outsourcing some or all of their network management and support functions and are seeking the expertise of independent providers of IT products and services.

Regarding the federal government business, the US federal government is the largest purchaser of IT products and services in the world and the largest user of outside contractors. The use of outside contractors is driven primarily by an effort to address specific skills needed by the federal government. There is high demand requirement for certain service capabilities such as security, storage, networking and integration. Engagements support mission specific goals rather than routine and deferrable office automation efforts. While the government will likely always support small and disadvantaged businesses, efforts toward shared data and IT functions across agencies should increase the need for vendors with scale as prime contractors. Federal IT spending growth is expected to outpace the growth of private sector spending. It is expected that federal IT spending will grow from $70 billion in FY 2005 to $87.7 billion in FY 2009.

Our Strategy

Our primary business objective is to become a leading single-source provider of high quality and innovative IT products, services, and support. We believe that by working with a single-source provider, organizations will be able to adapt more quickly to technological changes and reduce their overall IT costs. To this end, we are pursuing the following strategies:

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Pursuing Strategic Acquisitions

We are seeking to expand our service offerings, to add to or enhance our base of technical or sales personnel, and to nurture and expand client relationships by means of acquisitions of companies whose businesses complement our businesses and, in particular, our IT consulting services. We intend to focus on companies with management teams who are willing to commit to long-term participation in our organization and who share our vision of continued growth.

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Capitalizing on Existing Relationships

We have invested in training and committed resources to obtain company certifications from key industry manufacturers, and have entered into agreements with most of these manufacturers, such as Sun, IBM, HP, Dell, CISCO, Microsoft, Novell and Citrix. These agreements grant us a nonexclusive right to purchase the manufacturer’s hardware and license its software for our internal business use and for commercial integration and resale. Typically, our agreements with such manufacturers, such as those with Sun, IBM, CISCO, Microsoft, Novell and Citrix, provide for a one-year term, renewable by the parties for successive one-year terms and are terminable by either party on prior written notice ranging from 30 to 45 days. They generally do not contain financial terms for resale of the manufacturer’s products, which terms are separately governed by purchase orders.

Moreover, we believe that our history of satisfying the IT product requirements of our larger customers is facilitating the marketing of our broad range of services to this important segment of our clientele.

Our Business

Ÿ	IT Reseller

We are an authorized reseller of the products of many leading IT manufacturers, such as 3Com, CISCO, HP, IBM, Intel, Microsoft, NEC, Veritas, Novell, Dell, and Sun. Such products include workstations, servers, networking and communications equipment, enterprise computing products, and application software. Our business depends in large part upon our ongoing access to well established aggregators, as well as directly with manufacturers to enable us to acquire IT products at competitive prices and on reasonable terms for resale to our customers. Typically, we have not entered into any long-term supply contacts with any of our suppliers, as we purchase computers, computer systems, components, and parts on a purchase order basis. Typically, our agreements with any of our suppliers including manufacturers can be terminated by such companies at any time upon 30 days prior notice.

Through our vendor alliances, we provide our customers with competitive pricing and value-added services such as electronic product ordering, product configuration, testing, warehousing, and delivery. Our relationships with our suppliers allow us to minimize inventory risk by ordering products primarily on an as-needed basis. We believe that in most cases our ability to acquire products on a cost-plus basis affords us the opportunity to avail ourselves of prices lower than those that could be obtained independently from manufacturers or other vendors. We utilize electronic ordering and pricing systems that provide real-time status checks on the aggregators’ inventories and maintain electronic data interchange links to other suppliers. Our sales team is thereby able to schedule shipments more accurately and to provide electronically-generated client price lists.

We receive manufacturer rebates resulting from certain equipment sales. In addition, we receive volume discounts and other incentives from various suppliers. Our accounting policy is to reduce cost of revenues for rebates, discounts, and other incentives received from these suppliers. Except for products in transit or products awaiting configuration at our facility, we generally do not maintain large inventory balances. Our primary vendors limit price protection to that provided by the manufacturer (generally less than 30 days) and they restrict product returns, other than defective returns, to a percentage (the percentage varies depending on the vendor and when the return is made) of products purchased. Those returns must occur during a defined period, at the lower of the invoiced price or the current price, subject to the specific manufacturer’s requirements and restrictions.

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Our IT reseller activities accounted for approximately 89.9%, 93.0%, 96.0%, and 96.2% of our total revenues for the twelve months ended August 31, 2005, the period ending August 31, 2004 (successor period), the period ending April 16, 2004 (predecessor period), and the twelve months ended August 31, 2003, respectively.

Ÿ IT Services

Enterprise Computing Solutions: We offer a full spectrum of IT product acquisition and support services needed to support client/server environments, including product sourcing, network design and implementation, technical support, server consolidation, and clustering and load balancing for high availability.

Managed Services and Staff Augmentation Solutions: We manage and support customers’ networks through the utilization of help desk and network monitoring services as well as through our own on-site engineering resources. This allows organizations to focus the majority of their efforts on their businesses - not on managing their IT infrastructures.

Data Communications Solutions: We offer Local Area Network/Wide Area Network and data wireless connectivity, voice over IP and structured cabling solutions that are designed to enhance communication capabilities, while decreasing costs.

Data Access Solutions: We enable on-demand access to information from anywhere over any network; our mobility, messaging, and management solutions provide secure data access, increased business productivity, and reduced IT costs for any organization.

Data Storage Solutions: We offer storage needs assessments, solution recommendations with hardware, software and implementation project requirements, implementation and integration services, post-sales training, maintenance and support services.

Data Center: We consult and design a Data Center plan that addresses facility needs. We organize servers and workstations with modular universal racking systems that take into consideration long-term needs for air flow, security, power distribution and cable management.

Lifecycle Management Services: Our lifecycle management services are designed to provide customers with continuous availability of service and support throughout the lifecycle of their IT investments, including the full spectrum of IT product acquisition and support services needed to support server environments. Our services include:

	Ÿ	Evaluation and prioritization of business objectives to determine the best course of action for our customers;

	Ÿ	Consultation with customers to identify the right IT products and services for their needs;

	Ÿ	Leveraging our vendor relationships to quickly source the right combination of products;

	Ÿ	Providing logistical support needed to deploy a major technology roll out; and

	Ÿ	Providing continuous support to enable a client to improve end-user satisfaction, minimize downtime, and lower the total cost of ownership.

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K-12 Specialized Services for Student and Faculty Needs: We integrate top-quality curriculum software and computer products into the classroom. We have significant experience in building local area networks that link many campuses together. We also provide district-wide support and sustain Internet access to educational resources worldwide. We tailor our array of services to make the best use of limited funds.

Manufacturers Support Services Contracts: We offer manufacturer support service contracts that provide our clients with extended technical support, onsite hardware service and access to new software releases at a fixed price.

Backlog

Since the majority of our sales are on a purchase order basis, we do not have a significant backlog of business. Accordingly, backlog is not material to our business or indicative of future sales.

Distribution

Marketing

Our marketing efforts are focused on:

	Ÿ	Broadening our public image as an IT service provider;

	Ÿ	Promoting our offerings to current customers, prospects, partners, and investors;

	Ÿ	Maintaining a constant flow of marketing communications to increase and maintain our market presence;

	Ÿ	Driving prospects to our web site; and

	Ÿ	Increasing overall inquiries and sales from all sources.

Our marketing division is charged with sales lead generation. Through diverse efforts that include seminars, tradeshows, direct mail, telemarketing, a bi-monthly newsletter, and through our website we create multiple and frequent “touches” of our prospective customers. The primary goal – to increase the number of face to face meeting opportunities between our account team and prospective clients, and to drive additional opportunities through our sales pipeline.

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Customers

Our clients are primarily large business organizations, federal, state and local government, local school districts, and other large and mid-sized companies located principally in the New York/New Jersey Metropolitan area and the southeastern United States. The majority of our sales are drawn from various civilian and military U.S. governmental departments and agencies. We service our client base from leased facilities in New Jersey, New York, Virginia, Georgia, and Florida as well as five regional offices in the South and western United States. We provide products to federal government civilian and military locations throughout the United States.

Our governmental agency customers 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 GSA. During the last three fiscal years ended on August 31, 2005, 2004, and 2003, U.S. governmental departments and agencies accounts for approximately 76.1%, 75.6%, and 75.7% respectively. The federal government business typically experiences increased activity during the months August through November.

Our largest federal governmental agency, United States Department of Agriculture (USDA), accounted for approximately 13.4%, 1.2%, and 1.1% of our total revenues for the years ended August 31, 2005, 2004 and 2003, respectively.

Competition

The IT services industry is highly competitive. Our competitors include established computer product manufacturers (some of which supply products to us), distributors, computer resellers, systems integrators, and other IT service providers. In addition, many computer product manufacturers also sell to customers through their direct sales organizations and certain of them have announced their intention to enhance such direct sales efforts.

Many of our current and potential competitors have longer operating histories and financial, sales, marketing, technical, and other resources substantially greater than we do. As a result, our competitors may be able to adapt more quickly to changes in client needs or to devote greater resources than we can to the sales of IT products and the provision of IT services. Such competitors could also attempt to increase their presence in our markets by forming strategic alliances with our other competitors or with our customers, offering new or improved products and services to our customers or increasing their efforts to gain and retain market share through competitive pricing. Although, we hold a GSA designated Schedule 70 contract, an Electronic Commodity Store III (ECS III) prime contract and have contracts with the State of New Jersey, Gwinnett County School System, Duval County School System and Tiffany & Co., we typically have no ongoing written commitments from any customers to purchase products, and all product sales are made on a purchase-order basis.

We are also in direct competition with local, regional, and national distributors of microcomputer products and related services as well as with various IT consulting companies. These competitors run the gamut from consulting companies to the established consulting arms of nationwide accounting and auditing firms. Several of these competitors offer most of the same basic products as we do. We also encounter competition from microcomputer suppliers that sell their products through direct sales forces, rather than through resellers such as ourselves, and from manufacturers and distributors that emphasize mail order and telemarketing sales.

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Depending on the customer, the principal areas of competition may include price, pre-sale and post-sale technical support and service, availability of inventory, and breadth of product line. We have an insignificant market share of sales in the microcomputer industry and of the service markets that we serve. Most of our competitors at the regional and national levels are substantially larger, have more personnel, have materially greater financial, technological and marketing resources, and operate within a larger geographic area than we do.

Employees

As of November 18, 2005, we employed 230 individuals, including 85 sales, marketing and related support personnel, 85 service and support employees, 36 operations and administration personnel, and 24 employees in accounting, finance, and human resources. We believe that our ability to recruit and retain highly skilled technical and other management personnel will be critical to our ability to execute our business model and growth strategy. We believe that our relations with our employees are good.

Available Information

The public may read and copy any materials filed by us with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington D.C. 20549. The public may obtain information about the operation of the SEC’s public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information about issuers such as us that file electronically with the SEC.

In addition, we make available free of charge on our website at www.emtecinc.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) under the Exchange Act as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC.

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Item 1A. Risk Factors

We cannot assure you that we can successfully increase the portion of our revenues derived from IT services. If we are unsuccessful our future results may be adversely affected.

Our transition from an emphasis on reselling IT products to an emphasis on providing IT services has placed significant demands on our managerial, administrative, and operational resources. Our ability to manage this transition effectively is dependent upon our ability to develop and improve operational, financial, and other internal systems, as well as our business development capabilities, and to attract, train, retain, motivate, and manage our employees. If we are unable to do so, our ability to effectively deliver and support our services may be adversely affected. Further, our transitional efforts to access higher-margin services and consulting revenues may result in reduced IT product sales. If we successfully expand our IT services offerings, periods of variability in utilization may continue to occur. In addition, we are likely to incur greater technical training costs during such periods. Historically, our IT reseller activities accounted for approximately for 89.9%, 93.0%, 96.0%, and 96.2% of our total revenues for the twelve months ended August 31, 2005, the period ending August 31, 2004 (the Darr successor period), the period ending April 16, 2004 (the Darr predecessor period), and the twelve months ended August 31, 2003, respectively. In contrast, our IT services activities accounted for approximately for 10.1%, 7.0%, 4.0%, and 3.8% of our total revenues for the twelve months ended August 31, 2005, the period ending August 31, 2004 (the Darr successor period), the period ending April 16, 2004 (the Darr predecessor period), and the twelve months ended August 31, 2003, respectively.

Difficulties with the integration of the historical Darr business with the historical Emtec business may impose substantial costs and delays and cause other unanticipated problems for us.

The Merger involves a number of risks relating to our ability to integrate the historical Darr and historical Emtec businesses into one combined operation. The process of integrating these operations, particularly their personnel, could cause interruptions to our business. Some of the risks we face include:

	Ÿ	retention of key personnel, customers and vendors of both businesses;

	Ÿ	the occurrence of a material adverse effect on the existing business relationships with customers or vendors, or both, could lead to a termination of or otherwise affect each businesses relationships with such customers or vendors;

	Ÿ	impairments of goodwill and other intangible assets; and

	Ÿ	contingent and latent risks associated with the past operations of, and other unanticipated costs and problems arising in either of the historical businesses.

If we are unable to successfully integrate, we could be required to undertake unanticipated charges. These charges could have a material adverse effect on our business.

Our new services have not achieved widespread client acceptance. If they do not achieve market acceptance, our profit potential may be adversely affected.

We have limited experience in developing, marketing, or providing these services. We cannot assure you that we will be able to successfully market such services to either new or existing customers, that our services will achieve market acceptance, or that we will be able to effectively hire, integrate, and manage additional technical personnel to enable us to perform these services to our customers’ expectations.

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Our revenues are derived from a few major customers, the loss of any of which could cause our results of operations to be adversely affected.

A large potion of Westwood’s revenues is drawn from various civilian and military U.S. governmental departments and agencies. These customers 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 GSA. During the last three fiscal years ended on August 31, 2005, 2004, and 2003, U.S. governmental department and agency related accounts represented approximately 79%, 78%, and 76%, respectively. The federal government business typically experiences increased activity during the months August through November.

Our inability to maintain high personnel utilization rates may adversely impact our profit potentiality.

The most significant cost relating to the services component of our business is personnel expense, which consists of salaries, benefits, and payroll related expenses. Thus, the financial performance of our service business is based primarily upon billing margins (billable hourly rates less the costs to us of service personnel on an hourly basis) and utilization rates (billable hours divided by paid hours). The future success of the services component of our business will depend in large part upon our ability to maintain high utilization rates at profitable billing margins. The competition for quality technical personnel has continued to intensify, resulting in increased personnel costs. This intense competition has caused our billing margins to be lower than they might otherwise have been. Our utilization rates for service personnel likely will also be adversely affected during periods of rapid and concentrated hiring.

Our revenues and expenses are unpredictable. A decrease in revenues or increase in expenses could materially adversely affect our operating results.

Our operating results have been, and will continue to be, impacted by changes in technical personnel billing and utilization rates. Moreover, we expect that downward pricing pressure will persist due to the continued commoditization of computer products. Further, there are numerous other factors, which are not within our control that can contribute to fluctuations in our operating results, including the following:

	patterns of capital spending by customers;

	the timing, size, and mix of product and service orders and deliveries;

	the timing and size of new projects, including projects for new customers; and

	changes in trends affecting outsourcing of IT services;

We also believe that, to a limited degree, our business is seasonal with a greater proportion of our product sales occurring in the first quarter of our fiscal year due to the capital budgeting and spending patterns of some of our larger customers. Operating results have been, and may in the future also be, affected by the cost, timing, and other effects of acquisitions, including the mix of product and service revenues of acquired companies.

Since our inception, we have funded our operations primarily from borrowings under our credit facility.

Our lending agreement with GE Commercial Distribution Finance Corporation contains financial covenants. As of August 31, 2005 we were in compliance with all our financial covenants and we had a $4.41 million outstanding balance under the working capital credit facility, $10.95 outstanding under wholesale financing credit facility and an unused line of $11.16 million. However, there can be no assurance that we will be in compliance will all of our financial covenants through November 2005 and GE CDF will not immediately call for repayment of the outstanding borrowings under the credit facility.

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In general, there are no ongoing commitments by customers to purchase products from us. All product sales we make are on a purchase order basis. Moreover, prior to the Merger, Emtec had a client base which was and continues to be highly concentrated, with Emtec’s three largest pre-Merger customers, Gwinnett County School System (Georgia), State of New Jersey, and Duval County School System, accounting, respectively, for approximately 24.2%, 15.2% and 10.6% of Emtec’s pre-Merger revenues for the year ended March 31, 2005. These same three customers accounted, respectively, for approximately 16.0%, 31.0% and 10.8% of Emtec’s pre-Merger revenues in fiscal year 2004 and approximately 22.7%, 17.3% and 10.5% of Emtec’s pre-Merger revenues in fiscal year 2003. The State of New Jersey computer supply and service contract was acquired in the August 12, 2002 asset acquisition from Acentra Technologies and is subject to annual renewals. In June 2005, the State of New Jersey extended the contract terms through June 2006. An additional seven customers, General Electric, Cingular Wireless, Cox Communications, Bell South, Tiffany & Co., MBNA America, and The Bank of New York, collectively accounted for 30.3% of our revenues for the year ended March 31, 2005. We anticipate that these customer concentrations will continue for the foreseeable future.

The loss of any one of these customers could result in a material adverse effect on our business.

A large portion of our sales are drawn from various civilian and military U.S. governmental departments and agencies. These customers 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 GSA.

During the last three fiscal years ended on August 31, 2005, 2004, and 2003, U.S. governmental departments and agencies related accounts for approximately 76.1%, 75.6%, and 75.7%, respectively. Any of the following additional risk factors could have a material negative impact on our business:

	Ÿ	Seasonality of federal government related business makes future financial results less predictable;
	Ÿ	Dependent on governments demand for IT products. A material decline in overall sales to the government as a whole, or to a certain key agency thereof, could have a material adverse effect on our results of operations. Amongst the key factors in maintaining our relationships with the federal government agencies are:

	Ÿ	Our performance on individual contracts and delivery orders
	Ÿ	The strength of our professional reputation
	Ÿ	The relationships of our key executives with customer personnel
	Ÿ	Our compliance with complex procurement laws and regulations related to the formation, administration and performance of federal government contracts;

	Ÿ	Adverse changes in federal government fiscal spending could have a negative effect on our business;
	Ÿ	Changes in federal government spending policies or budget priorities could directly affect our financial performance. Among the factors that could materially harm our business are:

	Ÿ	Significant decline in spending by the federal government in general or by specific departments or agencies in particular
	Ÿ	Changes in the structure, composition and/or buying patterns of the government
	Ÿ	The adoption of new laws or regulations changing procurement practices
	Ÿ	Delays in the payment of our invoices by government payment offices.

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We may not be able to compete effectively in the highly competitive IT services industry.

The IT services business is highly competitive. Our competitors include established computer product manufacturers, some of which supply products to us, distributors, computer resellers, systems integrators; and other IT service providers.

Many computer product manufacturers also sell to customers through their direct sales organizations and certain of them have announced their intentions to enhance such direct sales efforts. Many of our current and potential competitors have longer operating histories and financial, sales, marketing, technical, and other resources substantially greater than we do. As a result, our competitors may be able to adapt more quickly to changes in client needs or to devote greater resources than we can to the sales of IT products and the provision of IT services and we may not have the resources to compete effectively.

We must maintain our status as an authorized reseller/service of IT products. The loss on any one of such authorizations could have a material adverse effect on our business and operations.

We are materially dependent on our continued status as an approved reseller of IT products and our continued authorization as an IT service provider. Without such authorizations, we would be unable to provide the range of products and services we currently offer, including warranty services, and manufacturers support services contracts. Our resale agreements with manufacturers generally are terminable by manufacturers upon 30 days’ prior written notice. The loss of one or more of such authorizations could have a material adverse effect on our business and results of operations.

We have no long-term sales commitments from any of our suppliers. A loss of any of our principal supplier would material adversely affect our IT reseller business.

Our IT reseller business depends on large part upon our access to aggregators and manufacturers, to supply us with products at competitive prices and on reasonable terms for resale by us to our customers. Certain agreements may be terminated by such companies upon 30 days prior written notice. We cannot assure you that we will be able to continue to obtain products from the aggregators and manufacturers at prices or on terms acceptable to us, if at all.

Reduction in or elimination of our credit facilities with our primary trade vendors could have a material adverse effect on our business and operations.

As of August 31, 2005, our open terms credit lines with our primary trade vendors, including aggregators and manufacturers was $20.75 million. Under these credit lines, we are obligated to pay each invoice within 30-45 days from the date of such invoice. These credit lines could be reduced or eliminated without a notice, and this action could have a material adversely affect our business, result of operations, and financial condition.

Our client engagements entail significant risks; a failure to meet a client’s expectations could materially adversely affect our reputation and business.

Many of our engagements involve projects that are critical to the operations of our customers’ businesses and provide benefits that may be difficult to quantify. Our failure or inability to meet a client’s expectations in the performance of our services could result in a material adverse change to the client’s operations and therefore could give rise to claims against us or damage our reputation, adversely affecting our business, results of operations, and financial condition.

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We intend to expand our business through acquisitions of complementary businesses. There is no certainty, however, that we will be successful in acquiring any new businesses or that any such acquisitions will help us achieve our strategic objectives.

As a part of our business development strategy, we intend to pursue acquisitions of IT product and service businesses in order to expand our service offerings, to add to or enhance our base of technical or sales personnel, or to provide desirable client relationships. The success of this strategy depends not only upon our ability to acquire complementary businesses on a cost-effective basis, but also upon our ability to integrate acquired operations into our organization effectively, to retain and motivate key personnel, and to retain customers of acquired firms. We cannot assure you that we will be able to acquire or integrate such businesses successfully. Furthermore, we cannot assure you that financing for any such acquisitions will be available on satisfactory terms, or that we will be able to accomplish our strategic objectives as a result of any such transaction or transactions. In addition, we expect to compete for attractive acquisition candidates with other companies or investors in the IT industry, which could have the effect of increasing the cost of pursuing our acquisition strategy, or it could reduce the number of attractive candidates to be acquired. Acquisitions also may involve a number of specific risks, including:

	possible adverse short-term effects on our operating results;

	dependence on retaining key customers and personnel;

	diversion of management’s attention;

	amortization or impairment of acquired intangible assets; and

	risks associated with unanticipated problems, liabilities, or contingencies.

	Acquisitions may also cause us to:

	Ÿ	issue common stock or preferred stock or assume stock option plans that would dilute current shareholders’ percentage ownership;

	Ÿ	use cash, which may result in reduction of our liquidity

	Ÿ	assume liabilities;

	Ÿ	record goodwill and non-amortizable intangible assets that would be subject to impairment testing and potential periodic impairment charges;

	Ÿ	incur amortization expenses related to certain intangible assets;

	Ÿ	incur large and immediate write-offs; and

	Ÿ	become subject to litigation.

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Shareholders of our common stock may face a lack of liquidity.

Our common stock is currently traded on the Over the Counter Bulletin Board. Given the fact that our common stock is thinly traded, there can be no assurance that the desirable characteristics of an active trading market for such securities will ever develop or be maintained. Therefore, each investor’s ability to control the timing of the liquidation of the investment in our common stock will be restricted and an investor may be required to retain his investment in our common stock indefinitely.

The market price of our common stock has been and is likely to continue to be volatile, which may make it difficult for shareholders to resell common stock when they want to and at prices they find attractive.

Our share price has been volatile due, in part, to the general volatile securities market. Factors other than our operating results may affect our share price may include the level of perceived growth of the industries in which we participate, market expectations of our performance success of the partners, and the sale or purchase of large amounts of our common stock.

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Item 1B. Unresolved Staff Comments

Not applicable.

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Item 2. Properties

We lease space in eleven locations. Our corporate headquarters and principal operational facilities are currently located in Trenton, New Jersey. The following table contains certain information about each of our leased facilities:

Address	Size (in square feet)	Monthly Rent	Expiration Date

572 Whitehead Road, Bldg. #1 Trenton, NJ 08619	16,000	$11,600	May 31, 2006

354 North Avenue East Cranford, NJ 07016	1,500	$3,000	May 31, 2007

500 Satellite Blvd. Suwanee, GA 30024	21,284	$12,416	November 30, 2009

7843 Bayberry Road, Jacksonville, FL 32256	3,340	$2,218	February 28, 2006

880 Third Avenue, 12^th floor New York, NY 10022	7,635	$24,777	June 30, 2008⁽¹⁾

116 West 23^rd Street Suite 500 New York, NY 10011	N/A	$2,730	February 29, 2006

572 Whitehead Road, Bldg. #5 Trenton, NJ 08619	9,582	$4,432	November 14, 2003⁽²⁾

11 Diamond Road Springfield, NJ 07081	42,480	$15,000	April 30, 2009

14121 Parke Long Court Suite 200 Chantilly, VA 20151	5,837	$8,610.	August 31, 2010

352 Seventh Avenue, 17^th floor New York, NY 10001	1,600	$7,000	May 31, 2007

20 Keyland Court Bohemia, NY 11716	3,500	$1,833	February 28, 2006

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⁽¹⁾ We assumed this lease on January 9, 2002 in connection with our acquisition of Devise Associates, Inc. We have sub-leased this office space though June 30, 2008 for an approximate monthly rental payment of $15,700.

⁽²⁾ This space is strictly a warehouse facility, currently on a month to month lease term.

We believe these facilities will satisfy our anticipated needs for the foreseeable future.

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Item 3. Legal Proceedings

In March 2002, Logical Business Solutions, Inc., one of our competitors, instituted an action in the Circuit Court, Fourth Judicial Circuit, in Duval County, Florida, against us and Cheryl Pullen, one of our employees, alleging that we wrongfully interfered with its contractual relationship with one of its customers. The amount of damages was not specified. The litigation is currently in the discovery stage. We believe that the claim is without merit and intend to vigorously defend against the claim.

In addition we are subject to legal proceedings that arise in the ordinary course of business, but we do not believe these claims will have a material adverse impact on our financial position or results of operations.

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Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on the Over The Counter Bulletin Board under the symbol “ETEC.” The following table sets forth the high and low closing prices of our common stock for the periods indicated:


Three Months Ended	High	Low
August 31, 2005	$ 2.85	$ 1.60
May 31, 2005	$ 2.00	$ 1.32
February 28, 2005	$ 3.04	$ 1.70
November 30, 2004	$ 2.25	$ 0.88

August 31, 2004	$ 1.15	$ 0.91

May 31, 2004	$ 1.45	$ 0.99
February 29, 2004	$ 1.25	$ 0.82
November 30, 2003	$ 1.20	$ 0.77

The above quotations represent prices between dealers and do not include retail mark-ups, markdowns or commissions. They do not necessarily represent actual transactions.

As of November 7, 2005, there were 612 record holders of our common stock, although we believe that beneficial holders approximate 850.

We have not previously declared any dividends. It is not likely that dividends on the shares will be declared in the forseeable future. Under our current loan agreement, we may not declare any dividends without the consent of our lenders. However, even if our lenders consented, the determination and payment of dividends with respect to the shares in the future will be within the discretion of our board of directors and will depend on our earnings, capital requirements and operating and financial condition, among other factors.

Equity Compensation Plan Information

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))

	(a)	(b)	(c)

Equity compensation plans approved by security holders	—	—	—

Equity compensation plans not approved by security holders ⁽¹⁾	92,453	$1.22	639,058

Total	92,453	$1.22	639,058

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⁽¹⁾ Our 1996 Stock Option Plan (the “Plan”) (amended in 1999) authorizes the granting of stock options to directors and eligible employees. We have reserved 1,000,000 shares of our common stock for issuance under the Plan at prices not less than 100% of the fair value of our common stock on the date of grants (110% in the case of shareholders owning more than 10% of our common stock). As of August 31, 2005, 268,489 options have been exercised under the Plan. Because we are not including a consent of an independent registered accounting firm with respect to our audited financial statements, we will not be able to incorporate those reports by reference to our current registration statement on Form S-8. As a result, we will not be granting any options to purchase our common stock until the receipt of a consent and the Form S-8 is complete.

Recent Sales of Unregistered Securities

In connection with the Merger, all of the shares of Darr common stock issued and outstanding were exchanged for 9,528,110 shares of our common stock and warrants to purchase an additional 10% of our common stock, measured on a post exercise basis. Neither the shares issued nor the shares underlying the warrant were registered in connection with the closing of the Merger. The new issuance of common stock represented approximately 55.7% of the issuer’s total outstanding common stock post-merger and resulted in a change of control of the registrant.

The warrants to purchase our common stock issued to Darr’s former shareholders evidences our obligation to issue a variable number of shares, in the aggregate, equal to 10% of the total issued and outstanding shares of the Company’s stock, measured on a post exercise basis, at any date during the 5 year term of the warrants ending August 5, 2010. The aggregate exercise price of these warrants is fixed at $3,645,752. The exercise price per warrant shall vary based upon the number of shares issuable under the warrants. As of August 31, 2005, the aggregate number of shares issuable under these warrants totaled 1,914,682 with an exercise price per share of $1.90. In addition, Darr issued a promissory note with a face value of $1,102,794 at an 8% annual interest rate in full redemption of its outstanding $1 million of preferred stock previously issued by Darr in connection with the Westwood Acquisition and in payment of $102,794 of dividends payable on preferred stock at the merger date.

Pursuant to the Merger, we initiated a self tender offer on September 7, 2005. When the tender offer closed on October 4, 2005, 4,984,185 shares had been properly tendered and not withdrawn. Because the number of shares of common stock tendered exceeded the number of shares that we offered to purchase, 57.473 percent of the shares that were tendered were repurchased. We funded the payment for the shares of our common stock from borrowings of $5.5 million under our revolving credit facility.

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Item 6. Selected Financial Data

The following selected consolidated financial data below should be read in conjunction with our consolidated financial statements including the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both elsewhere in this Report. The data as of August 31, 2005 and 2004 and for the year ended August 31, 2005, and for the periods from September 1, 2003 to April 16, 2004 (Darr Predecessor Period) and from April 17, 2004 to August 31, 2004 (Darr Successor Period) have been derived from, and should be read in conjunction with, our audited consolidated financial statements and accompanying notes, which are contained elsewhere in this Report. The data as of August 31, 2003 and for the year ended August 31, 2003 have been derived from and should be read in conjunction with our unaudited consolidated financial statements and accompanying notes, which are contained elsewhere in this Report. The data as of August 31, 2002, and 2001 and for each of the two years in the period ended August 31, 2002 have been derived from our unaudited financial statements, which are not contained in this Report.

	YEAR ENDED AUGUST 31,
			(Successor Period)		(Predecessor Period)
	2005		2004		2004		2003		2002		2001
							(unaudited)		(unaudited)		(unaudited)

Net revenues	$	162,632,042	$	41,641,604	$	88,229,719	$	97,449,611	$	94,165,222	$	80,184,220

Net Income (loss)	$	826,985	$	122,281	$	885,837	$	467,390	$	549,605	$	612,757

Net Income (loss) per common share (basic & diluted)	$	0.08	$	0.01	$	0.09	$	0.05	$	0.06	$	0.06


	AT AUGUST 31,
	2005		2004		2003		2002		2001
					(unaudited)		(unaudited)		(unaudited)

Total assets	$	70,009,919	$	21,737,638	$	22,984,079	$	23,060,145	$	14,038,416

Total long-term debt	$	3,010,219	$	2,405,084			$	351,112	$	404,445

Total preferred stock *			$	1,030,000

Total redeemable common stock	$	5,500,000	$	0	$	0	$	0	$	0

*Liquidation value of $1,030,00.00

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There was a dividend in the form of the distribution of a note receivable in the amount of $399,958 paid to the shareholders of Westwood on April 15, 2004. There were no other dividends paid to common stockholders during the five year period ended on August 31, 2005.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Reference is made to the “Risk Factors” outlined in Item 1A for a discussion of important factors that could cause actual results to differ from expectations and any of our forward-looking statements contained herein. The following discussion as of August 31, 2005 and 2004 and the corresponding data for (i) the year ended August 31, 2005, and (ii) for the periods from (a) September 1, 2003 to April 16, 2004 (Darr Predecessor Period) and (b) from April 17, 2004 to August 31, 2004 (Darr Successor Period) have been derived from, and should be read in conjunction with, our audited consolidated financial statements and accompanying notes, which are contained elsewhere in this Report. The data as of August 31, 2003 and for the year ended August 31, 2003 have been derived from and should be read in conjunction with our unaudited consolidated financial statements and accompanying notes, which are contained elsewhere in this Report.

Overview

We are an information technology company, providing services and products to commercial, federal, education, state and local verticals. Areas of specific practices include communications, data availability, enterprise computing, managed services, storage and data center planning and development. Our solutions are crafted to enable our customers to become more efficient and effective, thereby 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.

Merger with Darr

The Merger has been accounted for as a capital transaction followed by a recapitalization. Our management concluded that the transaction resulted in a change in control of the Company and that the Merger should be accounted for as a reverse acquisition. Accordingly, Darr is deemed to be the acquiring company for financial reporting purposes in the reverse acquisition. The reverse merger was treated as an acquisition of Emtec by Darr and a recapitalization of Darr. Consequently, Emtec’s historical financial statements for periods prior to the Merger become those of Darr.

Furthermore, in connection with the closing of the Merger, Emtec changed its fiscal year end from March 31 to August 31, effective as of August 5, 2005.

Darr and Its 2004 Merger with Westwood

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peripherals to customers which include departments of the United States, state and local governments and commercial businesses throughout the United States.

We refer to Darr’s acquisition of Westwood as the “Westwood Acquisition.” Darr is referred to as “Darr Predecessor” for the periods prior to the Westwood Acquisition and “Darr” for the periods following the Westwood Acquisition. Similarly to the Emtec-Darr Merger, in the Westwood Acquisition, Westwood was deemed to be the acquiring company for financial reporting purposes in the reverse acquisition. Consequently, Westwood’s historical financial statements for periods prior to the Westwood Acquisition become those of Darr. For the discussion and analysis in this Report we have combined Westwood’s period from September 1, 2003 to April 16, 2004 (Darr Predecessor Period) and Darr’s period from April 17, 2004 to August 31, 2004 (Darr Successor Period).

Westwood is engaged in the sale and service of computers and peripherals to customers which include departments of the United States, state and local governments and commercial businesses throughout the United States. Westwood is a supplier of information technology products and services primarily to the Federal Government. It has been recognized as one of the top 20 General Services Administration vendors in the IT industry during each of the past eight years and was named in data compiled by the GSA as the ninth largest such vendor for the Federal Government’s 2004 fiscal year. Westwood has additional locations in New York and Virginia, as well as five regional offices in the South and western United States.

The majority of Westwood’s sales are drawn from various civilian and military U.S. governmental departments and agencies. These customers 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 GSA. During the last three fiscal years ended on August 31, 2005, 2004, and 2003, U.S. governmental departments and agencies accounts for approximately 76.1%, 75.6%, and 75.7%, respectively. The federal government business typically experiences increased activity during the months August through November.

Overview of Financial Statements Presented Herein

As previously noted, the Merger was treated as an acquisition of Emtec by Darr and a recapitalization of Darr and the registrant. Darr is deemed to be the acquiring company for financial reporting purposes and Emtec’s historical financial statements for periods prior to the Merger become those of Darr.

In evaluating our results of operations and financial performance, our management has used combined results for the fiscal year ended August 31, 2005 as a single measurement period. Due to the Merger, we believe that comparisons between the eleven months ended August 5, 2004 and either Darr’s results for the period from September 1, 2004 to August 5, 2005 or Emtec’s results for the period from August 6, 2005 through August 31, 2005 may impede the ability of users of our financial information to understand our operating and cash flow performance. Consequently, in order to enhance an analysis of our operating results and cash flows, we have presented our operating results and cash flows on a combined basis for the fiscal year ended August 31, 2005. This combined presentation for the fiscal year ended August 31, 2005 simply represents the mathematical addition of the pre-acquisition results of operations of Darr for the period from September 1, 2004 through August 5, 2005 and the results of operations of Emtec, following the Merger, for the period from August 6, 2005 through August 31, 2005.

Therefore, the financial statements presented in this Report consist of the following financial statements:

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1. Westwood for the fiscal year ended August 31, 2003;

2. Westwood for the period from September 1, 2003 to April 16, 2004 (the Darr Predecessor Period);

3. Darr (following the Westwood Merger on April 16, 2004) for the period from April 17, 2004 to August 31, 2004 (Darr Successor Period);

4. Darr for the fiscal year ended August 31, 2005 (including Emtec, following the Merger, for the period from August 6, 2005 to August 31, 2005).

As mentioned above, for the discussion and analysis in this Report we have combined Westwood’s period from September 1, 2003 to April 16, 2004 (Darr Predecessor Period) and Darr’s period from April 17, 2004 to August 31, 2004 (Darr Successor Period) and our period from September 1, 2004 to August 31, 2005 represents the financial statements of Darr for the 2005 fiscal year plus the financial statements of Emtec for the period from August 6, 2005 to August 31, 2005.

Results of Operations

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our Results of Operations for the fiscal years ended August 31, 2005 and 2004. For this discussion and analysis we have combined the periods from September 1, 2003 to April 16, 2004 (Darr Predecessor Period) and from April 17, 2004 to August 31, 2004 (Darr Successor Period and our period from September 1, 2004 to August 31, 2005 represents the results of operations of Darr for the 2005 fiscal year plus the financial statements of Emtec for the period from August 6, 2005 to August 31, 2005.

Our Report on Form 10-Q that will be filed for the quarter ended November 30, 2005, will be our first quarterly report that will include full three months of results of operations of the combined company.

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Comparison of Years Ended August 31, 2005 and 2004


EMTEC, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended August 31,
	2005			2004			Change			%

Revenues	$	162,632,042		$	129,871,323		$	32,760,719		25.2	%
Cost of revenues		148,587,442		$	117,214,228			31,373,214		26.8	%

Gross profit		14,044,600			12,657,095			1,387,505		11.0	%
Percent of revenues		8.6	%		9.7	%


Operating expenses:
Selling, general, and administrative expenses		11,872,766		$	10,711,020			1,161,746		10.8	%
Management fee – related party		350,000			116,664			233,336		200.0	%
Rent expense – related party		180,000		$	215,333			(35,333	)	-16.4	%
Depreciation and amortization		174,944		$	75,005			99,939		133.2	%

Total operating expenses		12,577,710			11,118,022			1,459,688		13.1	%

Pecent of revenues		7.7	%		8.6	%				0.0	%


Operating income		1,466,890			1,539,073			(72,183	)	-4.7	%
Percent of revenues		0.9	%		1.2	%


Other expense (income):
Forgiveness of debt	—			($405,652)			405,652			-100.0	%
Interest income – related party	—			($21,483)			21,483			-100.0	%
Interest income – other		(120,520	)		($ 70,262	)		(50,258	)	71.5	%
Interest expense		611,479		$	257,484			353,995		137.5	%
Other expense (income)	(303,604		)	—			(303,604		)	N/A
Loss on sales of land and building	—			—			—			N/A



Income before income taxes		1,279,535			1,778,986			(499,451	)	28.1	%
Provision for income taxes		452,550		$	770,868			(318,318	)	-41.3	%

Net income	$	826,985		$	1,008,118		$	(181,133	)	-18.0	%

Percent of revenues		0.5	%		0.8	%

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Total Revenues

Total revenues increased by 25.2% or $32.76 million to $162.63 million for the year ended August 31, 2005, compared to $129.87 million for the year ended August 31, 2004. This increase is primarily attributable to an increase in the federal government business including significant one-time sale to a federal government customer - the United States Department of Agriculture (USDA) of approximately $21.79 million which represented approximately 66% of our total increase in revenue. Additionally, our revenue increased as a result of our merger with Emtec on August 5, 2005. Revenues associated with this merger equaled $6.26 million for the year ended August 31, 2005 which represents approximately 19% of the total revenue increase. Other factors which increased revenue include increased service revenue and higher selling efforts.

The federal government business typically experiences increased activity during the months of August through November. We do not expect that significant one-time sales like one discussed above will continue to occur in the future periods.

Gross Profit

Aggregate gross profit increased by 11.0% or $1.39 million to $14.04 million for the year ended August 31, 2005, as compared to $12.66 million for the year ended August 31, 2004. This increase is primarily attributable to a significant sale to a federal government customer- the USDA discussed above in the revenue section, and the gross profit associated with Emtec post-merger, (Old Emtec) revenues. Gross profits associated with USDA sales approximated $814,000, and gross profit associated with merger equaled approximately $772,000. Without this one-time sale and the Merger, our aggregate gross profit would have decreased by approximately $200,000. Measured as a percentage of revenues, our gross profit margin decreased to 8.6% of total revenues for the year ended August 31, 2005 from 9.7% for the year ended August 31, 2004. Both of these decreases are mainly due to competitive pressures and aggressive pricing strategies which lowered our gross margins.

Factors that may affect gross margins in the future include changes in product margins, 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 10.8% or $1.16 million to $11.87 million for the year ended August 31, 2005, compared to $10.71 million for the year ended August 31, 2004. This increase is mainly due to the Merger with Emec on August 5, 2005. Selling, general and administrative expenses associated with Emtec post-merger (Old Emtec) approximated $857,000. Our increase in head count company-wide and the corresponding compensation and benefits expense associated with our long-term investment in new employees also factored into the to increase of our selling, general and administrative expenses. Selling, general and administrative expenses as a percentage of sales decreased to 7.3% from 8.2%.

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, compliance costs associated with Securities and Exchange Commission rules and insurance markets.

Management Fee-Related Party

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Management fee related-party increased by 200% or $233,336 to $350,000 for the year ended August 31, 2005 compared to $116,664 for the year ended August 31, 2004. The increase in the management fee-related party is due to a full year of management fees paid to DARR Global Holdings, Inc. as compared with only a partial year of management fees in 2004. DARR Global Holdings, Inc. is a management consulting company owned by Dinesh Desai, our Chief Executive Officer.

Rent Expense-Related Party

Rent Expense-Related Party decreased by 16.4% or $35,333 to $180,000 for the year ended August 31, 2005 compared to $215,333 for the year ended August 31, 2004. The decrease in Rent Expense-Related Party is due to the decrease in rent for the Springfield, NJ office and warehouse space.

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 Mr. Keith Grabel, our director and an executive officer, Mrs. Mary Margaret Grabel, spouse of our director and an executive officer, and Mr. David Micales, our Vice President of Operations are members. The lease term is through April 2009 with monthly base rent of $15,000.

Depreciation and Amortization

Depreciation and Amortization expense increased by 133.2% or $99,939 to $174,944 for the year ended August 31, 2005 compared to $75,005 for the year ended August 31, 2004. This increase is attributable to the merger with Emtec acquisition on August 5. Old Emtec’s post-merger depreciation and amortization accounted for approximately for $52,000 of the increase. Additionally, we made fixed asset acquisitions of $491,310 during the year ended August 31, 2005. These capital assets acquisitions were primarily for the purchase of computer equipment for internal use, purchase of software licenses to upgrade our computer systems, and for furniture and fixtures, which increased our depreciation expense.

On August 5, 2005, the Company recorded an Intangible asset, ascribed to customer relationship of $8,378,166 in connection with the acquisition of Old Emtec. Intangible assets at August 31, 2005 and 2004 consisted of the value ascribed to customer relationships of $8,661,712 less accumulated amortization of $68,868 and $283,546 less accumulated amortization of $7,270, respectively. The assets ascribed to customer relationships are being amortized on a straight-line basis over 13-15 years. Amortization expense was $61,598 and $7,270 for the periods ended August 31, 2005 and August 31, 2004, respectively. 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 the years ended August 31, 2018, and 2019, and $518,755 for the year ended August 31, 2020.

Interest expense

Interest expense increased by 137.5% or $353,995 to $611,479 for the year ended August 31, 2005, compared to $257,484 for the year ended August 31, 2004. This is mainly due to a full year of interest expense on notes payable to former stockholders of Westwood, DARR Westwood LLC, and Four Kings Management, LLC, which were associated with the April 2004 acquisition of Westwood by Darr.

Other expense (income)

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Other income of $303,604 recorded on August 31, 2005, was due to the change in the value of the put options issued on August 5, 2005 using a Black-Scholes option pricing model. Under the Black-Scholes model, the total value of the put options was $315,104. As of August 31, 2005, the total value of the put options was $11,500.

Income Taxes

Income taxes decreased by 41.3% or $318,318 to $452,550 for the year ended August 31, 2005, compared to $770,868 for the year ended August 31, 2004. This decrease is primarily attributable to the decrease in taxable income. Taxable income decreased by 28.19% or $499,451 to $1.28 million for the year ended August 31, 2005, compared to $1.78 million for the year ended August 31, 2004.

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Comparison of Years Ended August 31, 2004 and 2003


EMTEC, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended August 31,
	2004			2003 (unaudited)			Change			%

Revenues	$	129,871,323		$	97,449,611		$	32,421,712		33.3	%
Cost of revenues	$	117,214,228			87,843,440			29,370,788		33.4	%

Gross profit		12,657,095			9,606,171			3,050,924		31.8	%
Percent of revenues		9.7	%		9.9	%


Operating expenses:
Selling, general, and administrative expenses	$	10,711,020			8,623,016			2,088,004		24.2	%

Management fee – related party		116,664			—			116,664		N/A

Rent expense – related party	$	215,333			—			215,333		N/A

Depreciation and amortization	$	75,005			125,054			(50,049	)	-40.0	%


Total operating expenses		11,118,022			8,748,070			2,369,952		27.1	%


Pecent of revenues		8.6	%		9.0	%


Operating income		1,539,073			858,101			680,972		79.4	%

Percent of revenues		1.2	%		0.9	%


Other expense (income):
Forgiveness of debt		($ 405,652	)		—			(405,652	)	N/A

Interest income – related party		($ 21,483	)		—			(21,483	)	N/A

Interest income – other		($ 70,262	)		(48,613	)		(21,649	)	44.5	%

Interest expense	$	257,484			42,324			215,160		508.4	%

Loss on sales of land and building		—			102,253			—		N/A




Income before income taxes		1,778,986			762,137			1,016,849		133.4	%

Provision for income taxes	$	770,868			294,747			476,121		161.5	%


Net income	$	1,008,118		$	467,390		$	540,728		115.7	%

Percent of revenues		0.8	%		0.5	%

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Total Revenues

Total revenues increased by 33.3% or $32.42 million, to $129.87 million for year ended August 31, 2004, compared to $97.45 for the year ended August 31, 2003. Of this $32.42 million increase, $24.31 million, representing 75.0% of the increase, was attributable to a substantial increase in federal government related business. The increase was amongst various military and civilian departments and agencies including sizable increases in sales to the Department of Defense and the Department of Justice which amounted to approximately $3.23 million and $5.71 million, respectively, for the year ended August 31, 2004. In addition to our federal government related business, our overall revenues from our commercial customer base increased by approximately $8.0 million for the fiscal year ended August 31, 2004 as compared with the year ended August 31, 2003. This is mainly attributable to an overall increase in our commercial customers’ IT spending.

Gross Profit

Aggregate gross profit increased by 31.8%, or $3.05 million, to $12.66 million for the year ended August 31, 2004, compared to $9.61 million for the year ended August 31, 2003. This was primarily attributable to an increase in our overall revenues as discussed in the total revenue section above. Measured as a percentage of product revenues, our gross profit margin decreased to 9.7% of revenue for the year ended August 31, 2004, as compared with 9.9% for the year ended August 31, 2003. This decrease is mainly due to continued downward pricing pressure on product sales from our customers.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses increased by 26.7%, or $2.33 million to $11.02 million for the year ended August 31, 2004, compared to $8.7 million for the year ended August 31, 2003. This increase was mainly due to payroll and benefits costs associated with increase in employee headcount company-wide, increased management related compensation, increased sales commission expense related to increased revenue and gross profits and increased professional fees as a result of the April 16, 2004 acquisition of Westwood by Darr.

Depreciation and Amortization

Depreciation and Amortization expense decreased by 40.0% or $50,049 to $75,005 for the year ended August 31, 2004 as compared to $125,054 for year ended August 31, 2003

Interest expense

Interest expense increased by 508.4%, or $215,160, to $257,484 for the year ended August 31, 2004, compared to $42,324 for the year ended August 31, 2003. This is primarily attributable to the interest expense on the notes payable to former stockholders of Westwood, the note payable to DARR Westwood LLC, and the note payable to Four Kings Management, LLC. Partial year interest expense was recorded in 2004. These notes did not exist in 2003.

Income Taxes

Income tax expense increased by 161.5%, or $476,121, to $770,868 for the year ended August 31, 2004, compared to $294,747 for the year ended August 31, 2003. This increase is primarily attributable to the increase in taxable income. Taxable income increased by 133.4% or $1.02 million to $1.78 million for the year ended August 31, 2004, compared to $762,137 for the year ended August 31, 2004.

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Recently Issued Accounting Standards

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs, and an Amendment of ARB No. 43, Chapter 4.” SFAS No. 151 retains the general principle of ARB No. 43, Chapter 4, “Inventory Pricing,” that inventories are presumed to be stated at cost; however, it amends ARB No. 43 to clarify that abnormal amounts of idle facilities, freight, handling costs and spoilage should be recognized as current period expenses. Also, SFAS No. 151 requires that fixed overhead costs be allocated to inventories based on normal production capacity. The guidance in SAFS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We believe that implementing SFAS No. 151 should not have any material impact on our financial condition, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the next fiscal year that begins after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. Under SFAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption.

SFAS No. 123R will apply to awards granted or modified by us after August 31, 2005. Compensation cost will also be recorded for prior option grants that vest after that date. The effect of adopting SFAS 123 on our consolidated results of operations will depend on the level of future option grants and the fair value of the options granted at such future dates, as well as the vesting periods provided by such awards and, therefore, cannot currently be estimated. We are evaluating the requirements of SFAS 123R and have not yet determined the method of adoption or the effect of adopting SFAS 123R, and we have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

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Liquidity and Capital Resources

Cash and cash equivalents at August 31, 2005 of $1.02 million represented a decrease of $194,680 from $1.22 million at August 31, 2004. Outstanding borrowings under our line of credit at August 31, 2005 represented an increase of $4.11 million from $299,290 at August 31, 2004. At August 31, 2005, our working capital was decreased by $901,605 to $2.90 million from $3.80 million as of August 31, 2004.

The Merger was treated as a purchase by Darr of Emtec. Working capital of Emtec acquired by Darr amounted to $5.49 million at August 5, 2005. Darr incurred merger transaction costs of $521,134 that reduced its working capital. Pursuant to the merger terms, we executed a self tender offer to purchase up to 2,864,584 shares of its outstanding common stock from pre-merger Emtec stockholders at a price per share of $1.92. We recorded a current liability of $315,104 at August 5, 2005 related to the fair value of the put options granted in the self tender offer. We borrowed $5.5 million on August 5, 2005 under our revolving credit facility with GE Commercial Distribution Finance Corporation; this amount is classified as restricted cash on the balance sheet as a non-current asset and therefore, reduced our working capital. We initiated this self tender offer on September 7, 2005 and closed on October 4, 2005. The net effect of the Merger and related aforementioned transactions reduced the overall working capital of Darr by $846,728 exclusive of post-merger interest costs related to the $5.5 million borrowing.

The March 1, 2005 acquisition of Proven Technology business was done at a cost of $162,610 which reduced working capital. Earnings from operations for the year ended August 31, 2005 added approximately $1.0 million to our working capital, whereas capital expenditures of $491,000 and debt repayments of $449,000 reduced working capital as of August 31, 2005.

Since our inception, we have funded our operations primarily from borrowings under our credit facility. On August 5, 2005, our subsidiaries, Emtec NJ and Westwood (together, the “Borrower”), entered into a Business Financing Agreement with GE Commercial Distribution Finance Corporation (“Lender”) pursuant to which the Lender has agreed to provide to Borrower an accounts receivable facility (the “Credit Facility”). The Credit Facility provides for aggregate borrowings of the lesser of $35.0 million or 85% of eligible accounts receivable, plus 100% of unsold inventory financed by the Lender, minus a $3.15 million reserve. The Credit Facility includes certain financial covenants that we must maintain on a quarterly basis and we are also subject to certain mandatory prepayments upon the occurrence of certain events, subject to certain exceptions, set forth in the Business Financing Agreement.

Borrowings under the Credit Facility will bear interest at an annual rate equal to the greater of (i) the rate of interest which JP Morgan Chase Bank (or its successor) publicly announces from time to time as its prime rate or reference rate or (ii) four percent (4%). Interest will be calculated by multiplying (i) the annual rate divided by 360 and (ii) the amount of the outstanding principal balance under the Credit Facility at the end of each day.

To secure the payment of the obligations under the Credit Facility, Borrower granted to 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 connection with the Credit Facility, Emtec NJ and Westwood (together, the “Dealer”) entered into the Agreement for Wholesale Financing with the Lender on August 5, 2005 (the “Wholesale

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Agreement”). The Wholesale Agreement provides for an extension of credit by the Lender to the Dealer from time to time, subject to the maximum aggregate borrowings set forth in the Credit Facility, to purchase inventory from approved vendors and for other purposes. The financial terms of any advance by the Lender are not set forth in the Wholesale Agreement because such terms depend upon many variable factors, including availability of vendor discounts, payment terms or other incentives and purchase volume. The Wholesale Agreement contains certain customary representations and warranties and events of default, including the failure to pay interest, principal or fees, any material inaccuracy of any representation and warranty, bankruptcy and insolvency events.

Since our current credit facility with one of our primary trade vendors MRA Systems, Inc dba GE Access was also collateralized by substantially all of our assets, the Lender and GE Access entered into an intercreditor agreement in which the lender agreed to give GE Access 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.

As of August 31, 2005, we were in compliance with all of our financial covenants and we had a $4.41 million outstanding balance under the credit facility and an unused availability of $11.16 million.

On November 22, 2005, the Lender increased our total credit facility from $35.0 million to $48.0 million. This is a temporary increase available to us only through December 15, 2005.

Our open terms credit facilities at August 31, 2005 with our primary trade vendors, including aggregators and manufacturers was $20.75 million with outstanding principal of approximately $13.67 million. Under these credit lines, we are obligated to pay each invoice within 30-45 days from the date of such invoice. These credit lines could be reduced or eliminated without a notice, and this action could have a material adversely affect our business, result of operations, and financial condition.

Capital expenditures of $491,310 during the year ended August 31, 2005 were primarily for the purchase of computer equipment for internal use, purchase of software licenses to upgrade our computer systems, and for furniture and fixtures. We anticipate our capital expenditures for fiscal year ending August 31, 2006 will be approximately $650,000. Approximately $540,000 will primarily be for the upgrade of our computer system across the organization, as well as implementation and data conversion costs, and remaining $110,000 will primarily be for the purchase of computer equipment for internal use.

The following are our long-term contractual obligations for leases, debt and other long term liabilities as of August 31, 2005. Other long-term liabilities consists of accrued severance.

	Payments due by period:

Contractual Obligations:	Total		less than 1 year		1-3 years		4-5 years		more than 5 years


Long-term debt obligations		3,535,093		524,874		1,223,027		1,787,192		—

Capital lease obligations		—		—		—		—		—

Operating lease obligations		3,010,259		973,463		1,498,299		538,497		—

Purchase obligations		—		—		—		—		—

Other long-term liabilities		380,356		130,150		235,900		14,306		—


Total	$	6,925,708	$	1,628,487	$	2,957,226	$	2,339,995	$	—

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We will need to generate cash flow from operations at a sufficient enough level through fiscal 2009 to finance anticipated capital expenditures and service our current outstanding debt.

Cash generated from operations may be negatively affected by a number of factors. See “Forward Looking Statements” and “Business Risk Factors” for a discussion of the factors that can negatively impact the amount of cash we generate from our operations.

We anticipate that our primary sources of liquidity in fiscal 2006 will be cash generated from operations, trade vendor credit and cash available to us under our revolving 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. Our revenues will continue to be impacted by the loss of customers due to price competition and technological advances. Our future financial performance could be negatively affected by unforeseen factors and unplanned expenses. See “Forward Looking Statements” and “Business – Risk Factors.”

Although we have no definite plans to undertake any future debt or equity financing, we will continue to pursue all potential funding alternatives. Among the possibilities for raising additional funds are issuances of debt or equity securities, and other borrowings under secured or unsecured loan arrangements. There can be no assurances that additional funds will be available to us on acceptable terms or in a timely manner.

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, although 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, and valuation of deferred tax assets.

Revenue Recognition

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

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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 customers 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 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 customer arrangements include “set-up” services performed at customer locations where our personnel perform the routine tasks of removing the equipment from boxes, and setting up the equipment at customer 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:

	Ÿ	In some instances, the “set-up” service is performed after date of delivery. We recognizes 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 customer has agreed that the transaction is complete as to the “hardware” component. In instances where our customer does not accept delivery until “set-up” services are completed, we defer all revenue in the transaction until customer acceptance occurs.

	Ÿ	There are occasions when a customer 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. At August 31, 2005, accounts receivable related to bill and hold sales totaled $221,255. Total revenue from bill and hold sales were $768,726 with a gross profit of $86,860 which was included in the results of operations for the year ended August 31, 2005. 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 projects 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 customers, 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.

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Revenues from manufacturer support service contracts where the manufacturer is responsible for fulfilling the service requirements of the customer are recognized immediately on their contact sale date. Manufacturer support service contracts contain cancellation privileges that allow our customers’ to terminate a contract with 90 days written notice. In this event, the customer 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 customer 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 allowance for doubtful accounts for estimated losses resulting from the inability of our customers 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 customers 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. Allowance for doubtful accounts was $225,000 and $225,000 as of August 31, 2005, and 2004, respectively.

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 it determines are obsolete or where salability has deteriorated based on managements review of products and sales.

The components of inventory at August 31 are as follows:

Hardware, software, accessories, and parts	$	6,070,728		$	644,262

Less: Inventory reserve	$	(300,138	)	$	(120,000	)


Net Inventory	$	5,770,590		$	524,262

Property and Equipment

We estimate the useful lives of property and equipment in order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The majority of our equipment is depreciated over a three-five year period. The estimated useful lives are based on the historical experience with similar assets as well as taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be accelerated, resulting in the recognition of increased depreciation and amortization expense in future periods. We evaluate the recoverability of our long-lived assets (other than intangibles and deferred tax assets) in accordance with Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS No. 144). Long-lived assets are reviewed for impairment under SFAS No. 144 whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 144 requires recognition of impairment of long-lived assets in the event that the net book value of such assets exceeds the future undiscounted net cash flows attributable to such assets. Impairment, if any, is recognized

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in the period of identification to the extent the carrying amount of an asset exceeds the fair value of such asset.

Property and equipment along with their components are as follows:

	2005			2004			Estimated Life Years


Leasehold improvements	$	197,903		$	132,018		4.67

Computer equipment		572,728			199,504		3 to 5

Furniture and fixtures		31,156			7,738		3 to 5

Automobiles		72,956			27,445		3 to 5

Software		172,410			—		3 to 5

Total Property Plant & Equipment	$	1,047,153		$	366,705

Less accumulated depreciation		(129,994	)		(16,469	)

	$	917,159		$	350,236

Goodwill and Intangible Assets

We have adopted Statement of Financial Accounting Standards No. 141 “Business Combinations” and No. 142 “Goodwill and Other Intangible Assets”. 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. At August 31, 2005, we recorded goodwill related to the acquisition of Old Emtec of $8,974,610. We test goodwill and indefinite-lived assets for impairment at least annually in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142). Intangible assets that have finite useful lives are amortized over their useful lives.

Intangible assets at August 31, 2005 and 2004 consisted of the value ascribed to customer relationships of $8,661,712 less accumulated amortization of $68,868 and $283,546 less accumulated amortization of $7,270, respectively. The assets ascribed to customer relationships are being amortized on a straight-line basis over 13-15 years. Amortization expense was $61,598 and $7,270 for the periods ended August 31, 2005 and August 31, 2004, respectively. Absent any further acquisitions, 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 the years ended August 31, 2018, and 2019, and $518,755 for the year ended August 31, 2020.

Property and equipment and customer relationship 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 (“SFAS”) 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.

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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). At August 31, 2005 and August 31, 2004, approximately $2,117,290 and $1,009,000, respectively, of rebates receivable are recorded in accounts-receivable-other in the accompanying consolidated balance sheets.

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.

Off-Balance Sheet Arrangements

Under SEC regulations, in certain circumstances, we are required to make certain disclosures regarding the following off-balance sheet arrangements, if material:

	Ÿ	Any obligation under certain guarantee contracts;

	Ÿ	Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;

	Ÿ	Any obligation under certain derivative instruments; and

	Ÿ	Any obligation arising out of a material variable interest held by the Company in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or engages in leasing, hedging or research and development services with the Company.

We do not have any off-balance sheet arrangements that are required to be disclosed pursuant to these regulations.

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Item 7A. Quantitative and Qualitative Disclosures 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 August 31, 2005 was approximately $4.4 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 $44,000 annually.

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Item 8. Financial Statements and Supplementary Data

Reference is made to Item 15(a)(i) herein.

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

As previously disclosed, the Merger is being treated as a “reverse acquisition” for accounting purposes. As such, the historical financial statements of the accounting acquirer, Darr, become the historical financial statements of Emtec. Because Darr’s independent registered public accounting firm, Ernst & Young LLP (“E&Y”), was different from Emtec’s independent registered public accounting firm, Baratz and Associates, P.A. (“Baratz”), there has been a change in our independent registered public accounting firm as a result of the Merger. Our board of directors formally authorized our change in independent registered public accounting firm from Baratz to E&Y.

Baratz’s reports on our financial statements for the fiscal years ended March 31, 2005 and 2004 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles. During those two fiscal years and through the subsequent period ended August 19, 2005 (the date upon which Baratz completed its SAS 100 review for our June 30, 2005 Form 10-Q) there were no disagreements with Baratz on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Baratz, would have caused Baratz to make reference to the subject matter of the disagreement in connection with its reports.

As a result of being the independent auditors of Darr, E&Y consulted with Darr regarding the Merger, however, prior to the engagement of E&Y as our independent accountants, neither Darr nor pre-Merger Emtec consulted with E&Y regarding any of the matters described in Item 304(a)(2)(i) or 304(a)(2)(ii) of Regulation S-K.

E&Y became Darr’s independent accountants on June 17, 2004. Prior to that time, the financial statements of Westwood (the historical financial statements of which became Darr’s historical financial statements when Darr acquired Westwood in April, 2004), were audited by Glassel & Bonfiglio LLC (“Glassel”), an independent accounting firm that is not registered with the SEC. Glassel was dismissed as the independent accountants of Darr on June 17, 2004. Glassel’s reports on Darr’s financial statements for the fiscal years ended August 31, 2003 and 2002 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles. During those two fiscal years and through the subsequent period ended June 17, 2004 there were no disagreements with Glassel on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Glassel, would have caused Glassel to make reference to the subject matter of the disagreement in connection with its reports.

Prior to the engagement of E&Y by Darr on June 17, 2004, Darr did not consult with E&Y regarding any of the matters described in Item 304(a)(2)(i) or 304(a)(2)(ii) of Regulation S-K.

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Item 9A. Controls and Procedures

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 of August 31, 2005. 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 Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission.

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 August 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Item 9B. Other Information

Not Applicable.

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PART III

Item 10. Directors and Executive Officers of the Registrant

The following table sets forth certain information as to each of our executive officers and directors:

Name	Age	Positions and Offices Presently Held

Dinesh R. Desai	55	Chairman of the Board and Chief Executive Officer

Brian McAdams	63	Vice Chairman and Director

Gregory Chandler	38	Director

Keith Grabel	53	President - Westwood Operations and Director

Stephen C. Donnelly	47	Chief Financial Officer

John P. Howlett	61	President

Ronald A. Seitz	58	President

DINESH DESAI -- From 1986 to the present, Mr. Desai has been the Chairman and CEO of DARR Global Holdings, Inc., a management consulting firm. Since 2004, he has served as Chairman on the Board of Directors of two private corporations, Westwood Computer Corporation and DARR Westwood Technology Corporation. Mr. Desai has also served as a member of the Board of Directors of the Enterprise Center, a Nonprofit Organization. Mr. Desai holds a Bachelor of Science Degree in chemical engineering from the Indian Institute of Technology in Bombay, India, and a Masters of Science Degree in both chemical and industrial engineering from Montana State University. He earned a Masters in Business Administration from Temple University in 1978.

BRIAN MCADAMS -- Director and Vice Chairman. In the last five years, Mr. McAdams has served as a Senior Partner with DARR Global Holdings, as the Vice Chairman of Westwood Computer Corporation, the CEO of Passport Express Services, Inc., and the CEO of My Help Desk, Inc. He has held prior positions as director at two public companies: Crusader Bank Corporation and National Media Corporation, where he served as both Chairman and CEO.

GREGORY CHANDLER -- Director. Mr. Chandler currently works as the Managing Director of the Business and IT Services Investment Banking Practice at Janney Montgomery Scott LLC, where he has been employed since 1999. Prior to this, he worked as a manager in the Office of the CFO consulting practice at PricewaterhouseCoopers. He has also worked in the Business Assurance Practice at Coopers & Lybrand, and served as an officer in the United States Army. Mr. Chandler received his undergraduate degree from the United States Military Academy at West Point and a Masters in Business Administration from Harvard University.

KEITH GRABEL -- Since 2000, Mr. Grabel has held the positions of president and director of Westwood Computer Corporation. For the past year, he has also served as president and director of DARR Westwood Technology Corp. Mr. Grabel graduated from the University of Miami School of Business in 1974.

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STEPHEN DONNELLY - -- Since 2002, Mr. Donnelly has been the Chief Financial Officer of DARR Global Holdings, Inc. a management consulting firm. Since 2004, he has served as an officer for Westwood Computer Corporation. Between 1993 and 2002, Mr. Donnelly worked as a Manager and Managing Director for Acquisition Management Services, Inc., a merger and acquisition advisory firm. Prior to that, he has worked as a Director of Operations for a privately-held human resource and employee benefits software developer and as a Financial Manager for a healthcare organization. Mr. Donnelly began his career with the accounting firm of PriceWaterhouse. He is a Certified Public Accountant with a Bachelor’s degree in Accounting from Villanova University (in 1980).

JOHN P. HOWLETT – Since August 5, 2005, John P. Howlett has been President of Emtec – North East Region. Prior to August 5, 2005 he was our Chairman of the Board and Chief Executive Officer since January 17, 2001 and Chief Executive Officer of Emtec-NJ since August, 1997 and Chairman of Emtec-NJ since August, 1998. He has been a director of Emtec-NJ since October, 1996. Mr. Howlett was the founder (in 1983) of Cranford, New Jersey-based Comprehensive Business Systems, Inc. (CBSI). CBSI primarily provided microcomputer systems, network integration, training, and data communications to mid-size and Fortune 1000 corporations. In October 1996, CBSI merged into Emtec-NJ. Prior to founding CBSI, Mr. Howlett was with the AT&T Long Lines Division for twelve years. He earned a Bachelor of Science degree in Electrical Engineering from Rose Hulman Institute of Technology in Terre Haute, Indiana, and a Master of Business Administration degree from Fairleigh Dickinson University in New Jersey. A Vietnam veteran, Mr. Howlett served in the U.S. Army for four years.

RONALD A. SEITZ – Since August 5, 2005, Ronald A. Seitz has been President of Emtec – South East Region. Prior to August 5, 2005 he was our President and Chief Operating Officer since February 2003 and Executive Vice-President and a director since January 17, 2001 and Executive Vice President of Emtec-NJ since March, 1996. Prior to that he was the Chief Operating Officer of Emtec-NJ. He has been a director of Emtec-NJ since April, 1995. Mr. Seitz was the founder (in 1980) of Charleston, South Carolina-based Computer Source, Inc. (CSI). CSI primarily provided microcomputer systems, network integration, and data communications to mid-size and Fortune 1000 corporations. In April 1995, CSI merged with Landress Information Systems of Mt. Laurel, New Jersey to become Emtec-NJ. Prior to founding CSI, Mr. Seitz was employed for six years as an engineer with the U.S. government in Washington, DC. He graduated from North Carolina State University with a Bachelor of Science degree and from George Washington University with an MBA in computer science. Mr. Seitz also holds a DMD degree from the Dental School at the Medical University of South Carolina.

Since August 5, 2005 the board held two meetings. Each director attended both of the meetings. The Chairman usually determines the agenda for the meetings. Board members receive the agenda and supporting information in advance of the meetings. Board members may also raise other matters at the meetings.

Since we are not a listed company, we are not required to establish an audit committee. Our board of directors believes it can conduct all the functions of an audit committee without unduly burdening the duties and responsibilities of the board members. Our board of directors has determined that Mr. Gregory Chandler, an independent member of our board of directors, meets the definition of an “audit committee financial expert.”

Our Board of Directors has adopted a Code of Ethics applicable to all of its employees, including its Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer, as well as the members of its board of directors.

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Currently, we do not have a compensation committee. The members of the entire board deliberate and decide compensation. Mr. Chandler is not nor has he been an employee or an officer of our company. Mr. Desai is our Chairman and Chief Executive Officer, and Mr. Grabel is the President of Westwood Operations.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own beneficially more than 10% of our common stock to file reports of ownership and changes in ownership of such common stock with the Securities and Exchange Commission, and to file copies of such reports with us. Based solely upon a review of the copies of such reports filed with Emtec, Emtec believes that during the past four fiscal years, such reporting persons complied with the filing requirements of said Section 16(a) or any filing delinquencies by such persons were reported under the Exchange Act, except that Dinesh Desai, Brian McAdams, Keith Grabel, Stephen Donnelly and Gregory Chandler did not file on a timely basis a Form 3 reflecting their initial statement of beneficial ownership and John Howlett and Ronald Seitz did not file on a timely basis Form 4s reflecting one transaction, respectively.

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Item 11. Executive Compensation

The following table sets forth the aggregate compensation that we paid for services rendered to our executive officers during our fiscal years ended August 31, 2005, 2004 and 2003 and to our former chief executive officer and president:

SUMMARY COMPENSATION TABLE

								Long Term Compensation

			Annual Compensation					Awards		Payouts
Name and Principal Position		Fiscal Year					Other Annual Compensation					All Other Compensation
								Restricted Stock Awards	Number of Options	Long Term Incentive Payouts
			Salary		Bonus			Restricted Stock Awards	Number of Options	Long Term Incentive Payouts


Dinesh R. Desai	(1)	2005	$	19,731							(4)	$	350,000
Chief Executive Officer		2004	$	—							(4)	$	116,664
		2003	$	—								$	—

Brian McAdams	(1)	2005	$	13,846
Vice Chairman		2004	$	—
		2003	$	—

Keith Grabel	(2)	2005	$	258,654	$	381,250
President - Westwood Operations		2004	$	192,074	$	498,750
		2003	$	161,408	$	217,275

Mary Grabel	(3)	2005	$	258,654	$	38,201
		2004	$	124,901	$	542,000
		2003	$	58,672	$	245,000

Stephen C. Donnelly	(1)	2005	$	12,462
Chief Financial Officer		2004	$	—
		2003	$	—

John P. Howlett	(5)	2005 (August)	$	94,310							(6)	$	6,354
Former Chief Executive Officer and Current President, Northeast Operations	(5)	2005 (March)	$	229,280							(6)	$	15,250
	(5)	2004 (March)	$	216,300		—					(6)	$	18,553


Ronald A. Seitz	(5)	2005 (August)	$	94,310							(7)	$	1,893
Former Chief Operating Officer	(5)	2005 (March)	$	229,280	$	25,000					(7)	$	4,544
and Former President, Current President, Southeast Operations	(5)	2004 (March)	$	216,300		—					(7)	$	6,642


_______________
	(1)	Members of the new executive management team as of August 5, 2005 pursuant to the merger with Darr. These individuals were not employed by the Company or its predecessors before August 5, 2005.

	(2)	Member of the new executive management team as of August 5, 2005 pursuant to the merger with Darr. President of Darr since April 16, 2004. President of Westwood during the entire three year period ended August 31, 2005.

	(3)	Spouse of Keith Grabel

	(4)	Management fees accrued to DARR Global Holdings, Inc. at an annual rate of $350,000 beginning April 16, 2004.

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(5) Former executive officers of Emtec, Inc. prior to August 5, 2005. Compensation amounts for the two earliest years are based upon former March fiscal year end of Emtec. Compensation amount for the current year is for the period of April 1, 2005 through August 31, 2005. John Howlett is president of Emtec’s Northeast region effective August 5, 2005. Ron Seitz is president of Emtec’s Southeast region effective August 5, 2005.

(6) Reflects employer contributions for life insurance premiums and for disability insurance premiums.

(7) Reflects employer contribution for life insurance premiums.

Stock Options

None of the named executive officers listed in the Summary Compensation Table were granted stock options during the fiscal year ended August 31, 2005 nor did any such officers hold any stock options as of August 31, 2005.

Employment Agreements

John Howlett. We entered an employment agreement, dated as of July 14, 2005, with Mr. Howlett, pursuant to which Mr. Howlett is to serve as our President of Northeast Operations for a period commencing on the effective date of the Merger (the “Effective Date”) and terminating on August 31, 2008, although this term may be extended annually for additional one-year periods with the mutual consent of the parties. Under the terms of this agreement, Mr. Howlett is entitled to receive a base salary of $230,000, which shall be increased by 5% each year of the initial term of employment. In addition, Mr. Howlett is eligible to receive both an annual bonus of $100,000 and a bonus targeted at 50% of his base salary based upon the achievement by Emtec of performance criteria set forth in the employment agreement.

Mr. Howlett’s employment is subject to early termination in the event of his death or disability or in the event that either he or Emtec elect to terminate his employment. In the event his employment is terminated for any reason during the term of the agreement, Mr. Howlett will be entitled to any earned or accrued but unpaid base salary through the date of termination and to all amounts payable and benefits accrued under any applicable plan, policy, program, or practice of Emtec in which he was a participant during his employment with Emtec in accordance with the terms of the employment agreement. In the case that Mr. Howlett’s employment is terminated by us without cause or his employment terminates in the event of death or disability, he will be entitled to his base salary for the entire initial term of employment and to a pro-rata bonus payment for the year of his termination, as set forth in the employment agreement.

Ronald Seitz. We entered an employment agreement, dated as of July 14, 2005, with Mr. Seitz, pursuant to which Mr. Seitz is to serve as our President of Southeast Operations for a period commencing on the Effective Date and terminating on August 31, 2008, although this term may be extended annually for additional one-year periods with the mutual consent of the parties. Under the terms of this agreement, Mr. Seitz is entitled to receive a base salary of $230,000, which shall be increased by 5% each year of the initial term of employment. In addition, Mr. Seitz is eligible to receive both an annual bonus of $100,000 and a bonus targeted at 50% of his base salary based upon the achievement by Emtec of performance criteria set forth in the employment agreement.

Mr. Seitz’s employment is subject to early termination in the event of his death or disability or in the event that either he or Emtec elect to terminate his employment. In the event his employment is terminated for any reason during the term of the agreement, Mr. Seitz will be entitled to any earned or accrued but unpaid base salary through the date of termination and to all amounts payable and benefits

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accrued under any applicable plan, policy, program, or practice of Emtec in which he was a participant during his employment with Emtec in accordance with the terms of the employment agreement. In the case that Mr. Seitz’s employment is terminated by us without cause or his employment terminates in the event of his death or disability, he will be entitled to his base salary for the entire initial term of employment and a pro-rata bonus payment for the year of his termination, as set forth in the employment agreement.

Keith Grabel. Westwood entered an employment agreement, dated as of April 16, 2004, with Mr. Grabel, pursuant to which Mr. Grabel is to serve as president of that company, for an initial period commencing on April 16, 2004, and terminating on April 16, 2009, which will automatically be extended for one (1) additional year at the end of the initial five (5) year term, and again each successive year thereafter. Such annual extensions may cease by either party delivering written notice of such cessation to the other party with at least sixty (60) days notice. Under the terms of this agreement, Mr. Grabel is entitled to receive an annual base salary of (i) $250,000 in the first year of the term of employment, (ii) $275,000 in the second year of the term of employment, (iii) $300,000 in the third year of the term of employment, and (iv) $325,000 in the fourth year of the term of employment. Mr. Grabel’s base salary for each year will be increased to 200% of his then-current salary in the event that Westwood terminates its employment agreement with Margaret Grabel. In addition, Mr. Grabel is to receive an annual bonus of (i) $375,000 in the first year of the term of employment, (ii) $400,000 in the second year of the term of employment, (iii) $440,000 in the third year of the term of employment, and (iv) $400,000 in the fourth year of the term of employment, payable in quarterly installments in each year.

Mr. Grabel’s employment is subject to early termination in the event of his death or disability or in the event that either he or Westwood elect to terminate his employment under certain circumstances. In the event his employment is terminated by Mr. Grabel during the term of the agreement, Mr. Grabel will be entitled to (i) any earned but unpaid base salary through the date of termination, (ii) a pro rata portion of his termination salary, which shall be (a) $150,000 for the first year of the term of employment, (b) $200,000 for the second year of the term of employment, (c) $250,000 for the third year of the term of employment, (d) $300,000 for the fourth year of the term of employment, and (v) $350,000 for the fifth year of the term of employment, (iii) payment for accrued vacation days, (iv) any bonus payments, and (v) all amounts payable and benefits accrued under any applicable plan, or arrangements of the company. In the event Westwood terminates Mr. Grabel’s employment for any reason, Mr. Grabel will be entitled to (i) all amounts due to him under the agreement, (ii) all amounts due and owing under the note made by Westwood in the amount of $750,000 in favor of Four Kings Management LLC and (iii) all amounts due and owing under the 5% note and 8% note made by Westwood in favor of Mr. Grabel.

Mr Desai, Mr. McAdams, and Mr. Donnelly are currently paid a salary of $285,000, $200,000 and $180,000, respectively on an annual basis. The Board of Directors intends to put employment contracts in place in 2006 for these three executives.

Compensation of Directors

Our two former independent directors each received $15,000 and received 15,000 stock options for service to the Board during the period of April 1, 2005 through August 5, 2005. Each of our former independent directors received options to purchase an aggregate of 45,000 shares of common stock for services performed during the three year period ended March 31, 2005. Mr. Chandler, as our independent director, shall receive an annual fee of $20,000, plus stock options at amount to be determined by board. The independent directors receive reimbursement of out-of-pocket expenses incurred for each board meeting or committee meeting attended and any other expenses incurred while working in his capacity as a Board Member.

Compensation Committee Interlocks and Insider Participation

Currently, there is no compensation committee. The members of the entire board deliberate and decide compensation.

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Item 12. Security Ownership of Certain Beneficial Owners and Management

	The following table sets forth, as of November , 2005, based on information obtained from the persons named below, with respect to the beneficial ownership of our common stock held by:

	each person known by us to be the owner of more than 5% of our outstanding shares;

	each director;

	each executive officer named in the Summary Compensation Table; and

	all executive officers and directors as a group.

Name and Address of Beneficial Owner ⁽¹⁾	Amount and Nature of Beneficial Ownership⁽²⁾		Percent of Class

Dinesh R. Desai	8,900,825	⁽³⁾	56.8	%

Brian McAdams	0		0.0	%

Keith Grabel	1,905,622	⁽⁴⁾	13.3	%

Stephen C. Donnelly	0		0.0	%

John P. and Rosemary A. Howlett	595,759	⁽⁵⁾	4.1	%

Ronald A. Seitz	352,765	⁽⁶⁾	2.5	%

Gregory Chandler	0		0.0	%

Mary Margaret Grabel	2,225,206	⁽⁷⁾	15.1	%

Carla Seitz P.O. Box 2243 Mt. Pleasant, SC 29465	332,858	⁽⁸⁾	2.3	%

All executive officers and directors as a group (7 persons)	9,849,349		62.9	%


⁽¹⁾	Each stockholder’s address is c/o Emtec, 572 Whitehead Road, Bldg. #1, Trenton, New Jersey, unless otherwise indicated.

⁽²⁾	As used herein, beneficial ownership means the sole or shared power to vote, or direct the voting of, a security, or the sole or shared power to invest or dispose, or direct the investment or disposition, of a security. Except as otherwise indicated, all persons named herein have (i) sole voting power and investment power with respect to their shares, except to the extent that authority is shared by spouses under applicable law and (ii) record and beneficial ownership with respect to their shares; also includes any shares issuable upon exercise of options or warrants that are currently exercisable or will become exercisable within 60 days of August 31, 2005.

⁽³⁾	Held by Mr. Desai through DARR Westwood LLC. Includes 1,278,337 shares issuable upon exercise of a warrant equal to 8% of outstanding common stock of the Company.

⁽⁴⁾	Includes 1,905,622 shares owned by Mary Margaret Grabel, Mr. Grabel’s spouse. Mr. Grabel disclaims any beneficial ownership in these shares.

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⁽⁵⁾ Owned jointly with Rosemary Howlett, Mr. Howlett’s spouse.

⁽⁶⁾ Excludes 332,858 shares owned by Carla Seitz, Mr. Seitz’s spouse. Mr. Seitz disclaims any beneficial interest in these shares.

⁽⁷⁾ Includes 319,584 shares issuable upon exercise of a warrant equal to 2% of outstanding common stock of the Company.

⁽⁸⁾ Excludes 352,765 shares owned by Ronald A. Seitz, Mrs. Seitz’s spouse. Mrs. Seitz disclaims any beneficial ownership in these shares.

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Item 13. Certain Relationships and Related Transactions

During the period ended April 16, 2004, Westwood held a note receivable from a company controlled by its former stockholders which was repaid through periodic payments. In connection with the Westwood Acquisition, the note receivable was distributed to the former stockholders of Westwood through a dividend in the amount of $399,958. Interest income recorded on this note for the period ended April 16, 2004 totaled $21,483. There were no other dividends paid to common stockholders during the five year period ended on August 31, 2005.

Pursuant to a Management Services Agreement dated April 16, 2004 by and between DARR Global Holdings, Inc. and Westwood, Westwood, is being charged a monthly management fee of $29,166 by DARR Global Holdings, Inc. DARR Global Holdings, Inc. is a management consulting firm, which is 100% owned by Mr. Dinesh Desai, our Chairman and Chief Executive Officer. The initial term of this agreement runs through April 2009.

We are occupying approximately 21,000 square feet of office and warehouse space out of a total of approximately 70,000 square feet. This space is leased from GS&T Properties, LLC, in which Messrs. John Howlett and Ronald Seitz, each an executive officer of our company, are passive investors, each owning an approximate 10% equity interest. The lease term is through November 2009 with monthly base rent of $15,000.

Mr.Gregory Chandler, our independent director is employed by Janney Montgomery Scott (“Janney”) as a Managing Director. Janney has acted as Investment Advisor to Darr in the Merger. Janney received a $10,000 retainer and was paid $250,000 by Darr upon the closing of the Merger.

In connection with our self tender offer, two of our current officers, John Howlett and Ronald Seitz, tendered shares. After accounting for proration, 805,152 shares were accepted for tender from Mr. Howlett, with an aggregate purchase price of $1,545,891 and 476,754 shares were accepted for tender from Mr. Seitz, with an aggregate purchase price of $915,367.

Other Agreements

Subordinated Note held by Darr Westwood LLC Westwood has issued a promissory note dated April 16, 2004 to Darr Westwood LLC, a Delaware limited liability company, of which Mr. Desai is the sole member, or permitted assigns, whereby it promises to pay to the holder of such note the principal sum of $750,000. Interest on the unpaid balance of the principal amount of the note is calculated at a floating rate per month equal to the prime rate as published in the Wall Street Journal under “Money Rates” plus four percent (4%), up to a maximum of ten percent (10%). The note reaches maturity on April 16, 2009. Until that date, Westwood must pay to the holder of the note (i) $194,482 on April 16, 2007, (ii) $323,859 on April 16, 2008, and (iii) $231,659 on April 16, 2009, the date the note matures. Accrued interest from April 16, 2004, until March 28, 2007, is due on March 28, 2007. Accrued interest from March 28, 2007, until March 28, 2008, is due on March 28, 2008. Accrued interest from March 28, 2008, until April 16, 2009, is due on April 16, 2009. In addition, the holder of the note is entitled to a quarterly revenue participation fee of 0.0875% of the gross revenue of Westwood, subject to annual adjustments which are capped at $30,000 for any quarter.

Subordinated Note held by Four Kings Management LLC. Westwood has issued a promissory note dated April 16, 2004 to Four Kings Management LLC, a Delaware limited liability company, which is an affiliate of Keith Grabel, or permitted assigns, whereby it promises to pay to the holder of such note the

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principal sum of $750,000. Interest on the unpaid balance of the principal amount of the note is calculated at a floating rate per month equal to the prime rate as published in the Wall Street Journal under “Money Rates” plus four percent (4%), up to a maximum of ten percent (10%). The note reaches maturity on April 16, 2009. Until that date, Westwood must pay to the holder of the note a principal monthly repayment beginning on May 16, 2005 of $9,000 until the note has matured. Interest is payable on the last business day of each month beginning on April 30, 2004. In addition, the holder of the note is entitled to a quarterly revenue participation fee of 0.0875% of the gross revenue of Westwood, subject to annual adjustments which are capped at $30,000 for any quarter.

5% Junior Subordinated Note held by Keith Grabel Westwood has issued certain promissory notes dated April 16, 2004 to Keith Grabel and certain of his family members, whereby it promises to pay to the holders of the notes the aggregate principal sum of $313,695. Interest on the unpaid balance of the aggregate principal amount of the notes is payable at a rate of five percent (5%) per annum. The notes reach maturity on April 16, 2009. Until that date, Westwood must pay to the holders of the notes (i) thirty percent (30%) of the principal amount on April 16, 2006, (ii) thirty percent (30%) of the principal amount on April 16, 2007, (iii) twenty percent (20%) of the principal amount on April 16, 2008, and (iv) twenty percent (20%) of the principal amount on April 16, 2009. Each principal payment is accompanied by all interest then accrued and unpaid on the notes.

8% Junior Subordinated Note held by Keith Grabel Westwood has issued certain promissory notes dated April 16, 2004 to Keith Grabel and certain of his family members, whereby it promises to pay to the holders of the notes the aggregate principal sum of $941,083. Interest on the unpaid balance of the aggregate principal amount of the notes is payable at a rate of eight percent (8%) per annum. The notes reach maturity on April 16, 2007. Until the date of maturity, Westwood must pay to the holders of the notes 16.67% of the aggregate principal amount due every six months. The first such payment took place on October 16, 2004, and the last payment is scheduled for April 16, 2007, the date the notes mature. Each principal payment is accompanied by all interest then accrued and unpaid on the notes.

8% Subordinated Promissory Note held by Darr Westwood LLC In connection with the Merger and in exchange for certain preferred stock in Darr held by Darr Westwood LLC, Darr issued a promissory note dated August 5, 2005 to Darr Westwood LLC whereby it promises to pay to the holder of such note the principal sum of $1.102,794. Interest on the unpaid balance of the principal amount of the note is payable at a rate of eight percent (8%) per annum. The note matures on April 16, 2009. Principal on the note is due in a single payment on the maturity date. Interest is payable annually beginning on August 5, 2008.

Family Relationships

Mary Margaret Grabel, the spouse of Keith Grabel, is an employee of Westwood and is the owner of fifteen percent (15%) of our outstanding common stock. There are no other family relationships among our director or officers.

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Item 14. Principal Accountants Fees and Services

As previously disclosed, as a result of the Merger, the shareholders of Darr became the majority shareholders of Emtec. The Merger with Darr is being treated as a “reverse acquisition” for accounting purposes.

As such, the historical financial statements of the accounting acquirer, Darr, have become our historical financial statements. Because Darr’s independent registered public accounting firm, E &Y, was different from our independent registered public accounting firm, Baratz, there has been a change in our independent registered public accounting firm as a result of the Merger. Our board of directors formally authorized a change in our independent registered public accounting firm from Baratz to E&Y.

E&Y was retained as our independent auditors for our fiscal year ended August 31, 2005 and 2004. We did not consult with E&Y during either the prior fiscal years or the interim period with respect to (i) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or (ii) any matter that was either the subject of a disagreement or a reportable event.

The following table sets forth the aggregate fees incurred by us for the fiscal years ended August 31, 2005 and 2004 to our principal auditing firm:

		2005		2004


Audit Fees	$	300,000	$	115,000

Audit Related Fees	$	0		—

Tax Fees	$	0	$	15,000

All Other Fees	$	145,000	$	10,000

Total	$	445,000	$	140,000

Audit Fees: The Audit Fees billed by E&Y for the fiscal years ended August 31, 2005 and August 31, 2004 were for professional services rendered for the audits of the financial statements of the Company, quarterly reviews, and assistance with the review of documents filed with the Securities and Exchange Commission.

Audit Related Fees: The Audit Related Fees for the fiscal years ended August 31, 2005 and August 31, 2004 were for attendance at the annual stockholders meeting.

Tax Fees: The Tax Fees billed by E&Y for the fiscal years ended August 31, 2005 and August 31, 2004 were for services performed in connection with income tax compliance.

All Other Fees: All Other fees billed by E&Y for the fiscal years ended August 31, 2005 and August 31, 2004 were for professional services rendered relating to acquisitions and other technical services.

Our board of directors has adopted a policy that requires advance approval of all audit, audit-related, tax services, and other services performed by our independent auditor. The policy provides for pre-approval

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by the board of directors of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the board of directors must approve the permitted service before the independent auditor is engaged to perform it.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Financial Statements

Report of Independent Registered Public Accounting Firm	66

Consolidated Balance Sheets as of August 31, 2005 and 2004	67

Consolidated Statements of Operations for the periods ended August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003(unaudited)	68

Consolidated Statements of Cash Flows for the periods ended August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003(unaudited)	69

Consolidated Statements of Changes in Shareholders’ Equity for the periods ended August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003(unaudited)	70


Notes to Consolidated Financial Statements	71-88

(b) Financial Statement Schedules

None.

Exhibit No.		Description

	2.1	Agreement and Plan of Merger and Reorganization, dated as of December 14, 2000, between Registrant, then known as American Geological Enterprises, Inc., and Emtec, Inc.⁽¹⁾

	2.2	Agreement and Plan of Merger, dated as of March 15, 2004, by and among DARR Westwood Technology Corporation, DARR Westwood Acquisition Corporation, the Shareholders of Westwood Computer Corporation Named, Westwood Computer Corporation, and Keith Grabel, as Shareholder’s Agent.

	2.3	Agreement and Plan of Merger, dated as of July 14, 2005, by and among the Registrant, Emtec Viasub LLC, and Darr Westwood Technology Corporation.⁽¹⁴⁾

	3.1	Certificate of Incorporation, as amended.⁽²⁾

	3.2	Amended and Restated Bylaws.⁽²⁾

	4.1	Certificate evidencing shares of common stock.⁽²⁾

	10.1	Resale Agreement, dated September 29, 1997, between Registrant and Ingram Micro, Inc.⁽²⁾

	10.2	Volume Purchase Agreement, dated January 28, 1998, between Registrant and Tech Data Corporation.⁽²⁾

	10.3	1996 Stock Option Plan, as amended in 1999.⁽²⁾

	10.4	U.S. Systems Integrator Agreement, dated December 22, 1999, between Cisco System, Inc. and Registrant.⁽³⁾

	10.5	Sun Microsystem, Inc. Channel Agreement, dated February 1, 2000, between Sun Microsystems, Inc. and Registrant.⁽⁵⁾

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Exhibit No. Description



10.6 IBM Business Partner Agreement, dated May 31, 2000, between International Business Machines Corporation and Registrant.⁽³⁾



10.7 Microsoft Certified Partner Agreement, dated December 20, 2000, between Microsoft and Registrant.⁽³⁾



10.8 Letter Agreement, dated April 24, 2001, between Novell Inc. and Registrant.⁽³⁾



10.9 Citrix Solutions Network Gold Renewal Membership Agreement, dated April 30, 2001, between Citrix Systems, Inc. and Registrant.⁽³⁾



10.10 Loan and Security Agreement, dated November 21, 2001, by and between Fleet Capital Corporation and Registrant.⁽¹²⁾



10.11 Agreement for Wholesale Financing, dated November 21, 2001, by and between IBM Credit Corporation and Registrant.⁽¹²⁾



10.12 Subordination Agreement, dated as of November 21, 2001, among Registrant, MRA Systems, Inc., dba GE Access, and Fleet Capital Corporation.⁽¹²⁾



10.13 Intercreditor Agreement, dated as of November 21, 2001, between Fleet Capital Corporation and Ingram Micro, Inc., and accepted by Registrant.⁽¹²⁾



10.14 Asset Acquisition Agreement, dated December 5, 2001, by and between Devise Associates, Inc. and Registrant.⁽⁴⁾



10.15 Lease Agreement, dated January 9, 2002, between Registrant and Vandergrand Properties Co., L.P., for New York, New York facility.⁽⁸⁾



10.16 Lease Agreement, dated March 1, 2002, between Registrant and G. F. Florida Operating Alpha, Inc., for Jacksonville, Florida facility.⁽⁸⁾



10.17 Asset Acquisition Agreement, dated August 12, 2002, by and between Acentra Technologies, Inc. and Registrant.⁽⁶⁾



10.18 Remarketer/Integrator Agreement, dated August 15, 2002, between Dell Marketing L.P. and Registrant.⁽⁶⁾



10.19 Asset Acquisition Agreement, dated August 31, 2002, by and between Turnkey Computer Systems, Inc. and Registrant.⁽⁷⁾



10.20 Lease Agreement, dated November 15, 2002, between Registrant and Hamilton Transit Corporate Center, for warehouse facility in Trenton, New Jersey.⁽⁹⁾



10.21 Lease Agreement, dated April 21, 2003, between V-Sullyfield Properties II LLC and Westwood Computer Corporation, for Chantilly, Virginia facility.



10.22 Lease Agreement, dated July 1, 2003, between Westwood Property Holdings LLC and Westwood Computer Corporation, for Springfield, New Jersey facility.



10.23 Amendment to Lease Agreement, dated July 14, 2003, between V-Sullyfield Properties II LLC and Westwood Computer Corporation, for Chantilly, Virginia facility.



10.24 Management Services Agreement, dated April 16, 2004, by and between DARR Global Holdings, Inc., and Westwood Computer Corporation.



10.25 Employment Agreement, dated as of April 16, 2004, by and between Keith Grabel and Westwood Computer Corporation.



10.26 Employment Agreement, dated as of April 16, 2004, by and between Mary Margaret Grabel and Westwood Computer Corporation.

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Exhibit No. Description



10.27 Separation Agreement, dated April 16, 2004, between Westwood Computer Corporation and Joyce Tischler.



10.28 Subordinated Note, dated April 16, 2004, in the amount of $750,000, made by DARR Westwood Acquisition Corporation in favor of DARR Westwood LLC.⁽¹⁷⁾



10.29 Subordinated Note, dated April 16, 2004, in the amount of $750,000, made by DARR Westwood Acquisition Corporation in favor of Four Kings Management LLC.⁽¹⁷⁾



10.30 5% Junior Subordinated Note, dated April 16, 2004, in the amount of $7,771.63, made by Westwood Computer Corporation in favor of Michael John Grabel.



10.31 5% Junior Subordinated Note, dated April 16, 2004, in the amount of $12,588.89, made by Westwood Computer Corporation in favor of Megan Patricia Grabel.



10.32 5% Junior Subordinated Note, dated April 16, 2004, in the amount of $132,183.32, made by Westwood Computer Corporation in favor of Mary Margaret Grabel.



10.33 5% Junior Subordinated Note, dated April 16, 2004, in the amount of $161,151.16, made by Westwood Computer Corporation in favor of Keith Grabel.⁽¹⁷⁾



10.34 8% Junior Subordinated Note, dated April 16, 2004, in the amount of $23,314.84, made by Westwood Computer Corporation in favor of Michael John Grabel.



10.35 8% Junior Subordinated Note, dated April 16, 2004, in the amount of $37,766.58, made by Westwood Computer Corporation in favor of Megan Patricia Grabel.



10.36 8% Junior Subordinated Note, dated April 16, 2004, in the amount of $396,549.13, made by Westwood Computer Corporation in favor of Mary Margaret Grabel.



10.37 8% Junior Subordinated Note, dated April 16, 2004, in the amount of $483,452.45, made by Westwood Computer Corporation in favor of Keith Grabel.⁽¹⁷⁾



10.38 First Amendment to Lease Agreement, dated April 16, 2004, between Westwood Property Holdings LLC and Westwood Computer Corporation, for Springfield, New Jersey facility.



10.39 Lease Agreement, dated May 20, 2004, between Registrant and Facstore, for office space in Cranford, New Jersey.⁽¹⁰⁾



10.40 Lease Agreement, dated June 1, 2004, between Registrant and Hamilton Transit Corporate Center, for office space in Trenton, New Jersey.⁽¹⁰⁾



10.41 Lease Agreement, dated September 2, 2004, between Registrant and GS&T Properties, LLC, for Suwanee, Georgia facility.⁽¹¹⁾



10.42 Sublease Agreement, dated November 24, 2004, between Registrant and vFinance, Inc., for office space in New York, New York.⁽¹¹⁾



10.43 Amendment to Loan and Security Agreement, dated as of December 10, 2004, between Bank of America Business Capital Corporation and Registrant.⁽¹³⁾



10.44 Lease Agreement, dated January 1, 2005, between Registrant and Select Office Suites, for a sales office space in New York, New York.⁽¹¹⁾



10.45 Lease Agreement, dated March 1, 2005, between Twenty Keyland Corporation and Westwood Computer Corporation, for Bohemia, New York facility.

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Exhibit No. Description



10.47 Revocable License Agreement, dated June 1, 2005, between A.M. Property Holding Corporation and Westwood Computer Corporation, for New York, New York facility.



10.48 Employment Agreement, dated as of July 14, 2005, between Registrant and John Howlett.⁽¹⁴⁾



10.49 Employment Agreement, dated as of July 14, 2005, between Registrant and Ronald Seitz.⁽¹⁴⁾



10.50 Form of Guaranty issued by Registrant in favor of Four Kings Management LLC, Keith Grabel, Mary Margaret Grabel, Megan Patricia Grabel, Michael John Grabel, Darr Westwood LLC, and Joyce Tischler, dated September, 2005.



10.51 Business Financing Agreement, dated August 5, 2005, by and between GE Commercial Distribution Finance Corporation and subsidiaries of Registrant.⁽¹⁵⁾



10.52 Agreement for Wholesales Financing, dated August 5, 2005, by and between GE Commercial Distribution Finance Corporation and subsidiaries of Registrant.⁽¹⁵⁾



10.53 Addendum to Agreement for Wholesales Financing and Business Financing Agreement, dated August 5, 2005, by and between GE Commercial Distribution Finance Corporation and subsidiaries of Registrant.⁽¹⁵⁾



10.54 Common Stock Purchase Warrant between Registrant and DARR Westwood LLC, dated August 5, 2005.⁽¹⁶⁾



10.55 Common Stock Purchase Warrant between Registrant and Margaret Grabel, dated August 5, 2005.⁽¹⁶⁾



10.56 8% Subordinated Promissory Note, dated August 5, 2005, issued by Darr Westwood Technology Corporation in favor of Darr Westwood LLC.⁽¹⁷⁾



10.57 Assignment of State of New Jersey Contract from Acentra Technologies, Inc. to Registrant.⁽⁶⁾



14.1   Code of Ethics.⁽¹⁰⁾



21.1   List of Subsidiaries.



31.1   Certification of Dinesh R. Desai, Principal Executive Officer of Registrant, dated December 14, 2005. Rule 13a-14(a)/15 d-14(a).



31.2   Certification of Stephen C. Donnelly, Principal Financial Officer of Registrant, dated December 14, 2005. Rule 13a-14(a)/15 d-14(a).



32.1   Certificate of Dinesh R. Desai, Principal Executive Officer of Registrant, dated December 14, 2005. Section 1350.



32.2   Certificate of Stephen C. Donnelly, Principal Financial Officer of Registrant, dated December 14, 2005. Section 1350.

⁽¹⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated January 17, 2001, filed on January 31, 2001, and incorporated herein by reference.

⁽²⁾ Previously filed as an exhibit to Registrant’s Registration Statement on Form 10, filed on May 21, 2001, and incorporated herein by reference.

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⁽³⁾ Previously filed as an exhibit to Amendment No. 1 to Registration Statement on Form 10, filed on July 12, and incorporated herein by reference.

⁽⁴⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated December 5, 2001, filed on December 20, 2001, and incorporated herein by reference.

⁽⁵⁾ Previously filed as an exhibit to Registrant’s Form 10-K dated March 31, 2001, filed on July 12, 2001, and incorporated herein by reference.

⁽⁶⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated August 12, 2002, filed on August 26, 2002, and incorporated herein by reference.

⁽⁷⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated August 31, 2002, filed on September 13, 2002, and incorporated herein by reference.

⁽⁸⁾ Previously filed as an exhibit to Registrant’s Form 10-K, dated March 31, 2002, filed on June 30, 2002, and incorporated herein by reference.

⁽⁹⁾ Previously filed as an exhibit to Registrant’s Form 10-K, dated March 31, 2003, filed on July 15, 2003, and incorporated herein by reference.

⁽¹⁰⁾ Previously filed as an exhibit to Registrant’s Form 10-K, dated March 31, 2004, filed on July 14, 2004, and incorporated herein by reference.

⁽¹¹⁾ Previously filed as an exhibit to Registrant’s Form 10-K, dated March 31, 2005, filed on July 14, 2005, and incorporated herein by reference.

⁽¹²⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated November 21, 2001, filed on November 26, 2001, and incorporated herein by reference.

⁽¹³⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated December 10, 2004, filed on December 14, 2004, and incorporated herein by reference.

⁽¹⁴⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated July 14, 2005, filed on July 20, 2005, and incorporated herein by reference.

⁽¹⁵⁾ Previously filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q, dated June 30, 2005, filed on August 19, 2005, and incorporated herein by reference.

⁽¹⁶⁾ Previously filed as an exhibit to Registrant’s Tender Offer Statement on Form SC TO-I, filed September 7, 2005, and incorporated herein by reference.

⁽¹⁷⁾ Previously filed as an exhibit to Amendment to Registrant’s Tender Offer Statement on Form SC TO-I/A, filed September 22, 2005, and incorporated herein by reference.

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Report of Independent Registered Public Accounting Firm

Board of Directors
Emtec, Inc.

We have audited the accompanying consolidated balance sheets of Emtec, Inc. as of August 31, 2005 and 2004, and the related consolidated statements of operations, cash flows and changes in stockholders’ equity, for the year ended August 31, 2005, the period from April 17, 2004 to August 31, 2004 (Successor Period) and the period from September 1, 2003 to April 16, 2004 (Predecessor Period). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of The Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Emtec, Inc at August 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for the year ended August 31, 2005, the period from April 17, 2004 to August 31, 2004 (Successor Period) and the period from September 1, 2003 to April 16, 2004 (Predecessor Period), in conformity with U.S. generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Philadelphia, PA
December 2, 2005

EMTEC, INC.
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2005 and 2004


2005

2004

Assets

   Current Assets

      Cash & cash equivalents $ 1,021,237 $ 1,215,917

      Receivables:

       Trade, less allowance
        for doubtful accounts 34,541,373 17,732,321

       Others 3,385,891 1,191,658

      Inventories, net 5,770,590 524,262

      Prepaid expenses 433,238 79,388

      Deferred tax asset - current 603,533 172,232

   Total Current Assets 45,755,862 20,915,778

   Net property and equipment 917,159 350,236

   Deferred tax asset - long term — 154,344

   Customer relationships, net 8,592,844 276,276

   Goodwill 8,974,610 —

   Restricted cash 5,650,000 —

   Other assets 119,443 41,004

Total Assets $ 70,009,918 $ 21,737,638

Liabilities and Shareholders’ Equity

   Current Liabilities

      Line of credit 4,412,526 299,250

      Accounts payable - trade 29,738,061 14,259,738

      Accounts payable - related party 133,333 33,333

      Current portion of long term debt - related party 524,874 349,694

      Income taxes payable 828,659 97,786

      Accrued liabilities 4,190,728 1,021,994

      Due to former stockholders 631,415 664,567

      Customer deposits 1,268,672 —

      Deferred revenue 1,125,205 385,422

   Total Current Liabilities 42,853,473 17,111,784

   Accrued severance 380,356 473,489

   Deferred tax liability 2,838,298
—

   Long term debt - related party 3,010,219 2,405,084

Total Liabilities 49,082,346 19,990,357

   Shareholders’ Equity

      Redeemable preferred stock,$0.01 par value — 10

      Common Stock $0.01 par value; 25,000,000 shares
      authorized; 17,232,134 and 9,528,110 shares issued and
     outstanding at August 31, 2005 and 2004 172,321 95,281

      Additional paid-in capital 19,908,779 1,529,709

      Retained earnings 846,472 122,281

Total Shareholders’ Equity 20,927,572 1,747,281

Total Liabilities and Shareholders’ Equity $ 70,009,918 $ 21,737,638

The accompanying notes are an integral part of these consolidated financial statements.

EMTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Periods Ended August 31, 2005, 2004 and 2003

Year Ended
August 31, 2005 Period from
April 17, 2004 to
August 31, 2004
(Successor Period) Period from
September 1, 2003 to
April 16, 2004
(Predecessor Period) (Unaudited)
Year Ended
August 31, 2003

Revenues $ 162,632,042 $ 41,641,604 $ 88,229,719 $ 97,449,611

Cost of revenues 148,587,442 37,617,860 79,596,368 87,843,440

Gross profit 14,044,600 4,023,744 8,633,351 9,606,171

Operating expenses:

   Selling, general, and administrative expenses 11,872,766 3,418,755 7,292,265 8,623,016

   Management fee – related party 350,000 116,664 — —

   Rent expense – related party 180,000 60,000 155,333 —

   Depreciation and amortization 174,944 23,739 51,266 125,054

Total operating expenses 12,577,710 3,619,158 7,498,864 8,748,070

Operating income 1,466,890 404,586 1,134,487 858,101

Other expense (income):

   Forgiveness of debt — — (405,652 ) —

   Interest income – related party — — (21,483 ) —

   Interest income – other (120,520 ) (25,783 ) (44,479 ) (48,613 )

   Interest expense 611,479 184,665 72,819 42,324

   Other expense (income) (303,604 ) — — —

   Loss on sales of land and building — — — 102,253

Income before income taxes 1,279,535 245,704 1,533,282 762,137

Provision for income taxes 452,550 123,423 647,445 294,747

Net income 826,985 122,281 885,837 467,390

    Preferred stock dividends (72,794 ) (30,000 ) — —

    Net income allocable to
        common stockholders $ 754,191 $ 92,281 $ 885,837 $ 467,390

Net income per common share

    Basic and Diluted $ 0.08 $ 0.01 $ 0.09 $ 0.05

Weighted Average Shares Outstanding

    Basic 10,075,520 9,528,110 9,528,110 9,597,871

    Diluted 10,108,803 9,528,110 9,528,110 9,597,871

The accompanying notes are an integral part of these consolidated financial statements.

Emtec Inc.
Consolidated Statements of Cash Flows
Periods Ended August 31, 2005, 2004 and 2003

Year Ended
August 31, 2005 Period from
April 17, 2004 to
August 31, 2004
(Successor Period) Period from
September 1, 2003 to
April 16, 2004
(Predecessor Period) (Unaudited)
Year Ended
August 31, 2003

Cash Flows From Operating Activities

Net income for the year $ 826,985 $ 122,281 $ 885,837 $ 467,390

Adjustments to Reconcile Net Income to Net
Cash (Used In) Provided by Operating Activities

Forgiveness of debt — — (405,652 ) —

Depreciation and amortization 196,755 23,739 51,266 125,054

Loss on sale of land and building — — — 102,253

Deferred income tax (benefit) expense (147,382 ) 50,578 58,303 (203,517 )

Put option valuation (303,604 ) — — —

Changes In Operating Assets and Liabilities

Receivables (2,118,382 ) (6,854,567 ) 579,725 4,918,052

Inventories (3,090,989 ) (75,838 ) 622,947 1,290,429

Prepaid expenses and other assets (21,380 ) 7,706 (22,063 ) 45,233

Accounts payable 5,875,608 8,707,348 (1,238,723 ) (1,056,019 )

Customer deposits (43,935 ) — — —

Income Taxes Payable 148,501 — — —

Accrued liabilities 1,362,375 (637,962 ) 765,315 149,630

Deferred compensation — — — 489,465

Deferred revenue (74,611 ) 16,815 (125,914 ) 291,583

Net Cash (Used In) Provided By
Operating Activities $ 2,609,941 $ 1,360,100 $ 1,171,041 $ 6,619,553

Cash Flows From Investing Activities

Purchases of property and equipment $ (491,310 ) $ (147,705 ) $ (45,616 ) $ (67,593 )

Repurchase of treasury stock — — — (13,670 )

Payments from note receivable — — — (2,706 )

Acquisition of businesses, net of cash acquired (678,875 ) (4,917,499 ) — —

Net Cash Used In Investing Activities $ (1,170,185 ) $ (5,065,204 ) $ (45,616 ) $ (83,969 )

Cash Flows From Financing Activities

Net Increase (decrease) in line of credit $ 4,054,524 $ 299,250 $ (7,121,955 ) $ —

Proceeds from issuance of common stock 16,671 625,000 — —

Proceeds from issuance of preferred stock — 1,000,000 — —

Proceeds from long-term debt — 1,500,000 — —

Repayment of amount due to former stockholders (33,152 ) — — —

Increase in restricted cash (5,350,000 ) — — —

Repayment of debt (322,479 ) — — (44,445 )

Net Cash Provided By (Used In)
Financing Activities $ (1,634,436 ) $ 3,424,250 $ (7,121,955 ) $ (44,445 )

Net (decrease) increase in Cash and Cash Equivalents $ (194,680 ) $ (280,854 ) $ (5,996,530 ) $ 6,491,139

Beginning Cash and Cash Equivalents $ 1,215,917 $ 1,496,771 $ 7,493,301 $ 1,002,162

Ending Cash and Cash Equivalents $ 1,021,237 $ 1,215,917 $ 1,496,771 $ 7,493,301

The accompanying notes are an integral part of these consolidated financial statements.

Emtec Inc.
Consolidated Statement of Changes in Shareholders’ Equity

Preferred Stock Common Stock Additional
Paid-in
Capital Retained
Earnings Treasury
Stock, at
Cost
Total
Stockholders’
Equity

Shares Amount Shares Amount

Predecessor period

Balance at September 1, 2002 (Unaudited) 9,667,645 $ 96,676 $ 770,285 $ 3,664,339 $ (1,767 ) $ 4,529,533

   Purchase of treasury stock (139,535 ) (1,395 ) 1,395 (13,670 ) (13,670 )

   Net income 467,390 467,390

Balance at August 31, 2003 (Unaudited) 9,528,110 $ 95,281 $ 771,680 $ 4,131,729 $ (15,437 ) $ 4,983,253

Capital contribution — — 903,811 — — 903,811

Noncash distribution — — — (399,587 ) — (399,587 )

Net income — — — 885,837 — 885,837

Balance at April 16, 2004 9,528,110 $ 95,281 $ 1,675,491 $ 4,617,979 $ (15,437 ) $ 6,373,314

Successor period

Balance at April 17, 2004 1,000 $ 10 9,528,110 $ 95,281 $ 1,529,709 — — $ 1,625,000

   Net income — — — — — 122,281 — 122,281

Balance at August 31, 2004 1,000 $ 10 9,528,110 $ 95,281 $ 1,529,709 $ 122,281 $ — $ 1,747,281

   Common stock deemed to be issued in reverse merger 7,676,024 76,760 19,362,670 19,439,430

   Dividends on preferred stock (102,794 ) (102,794 )

   Conversion of preferred stock into debt (1,000 ) (10 ) (999,990 ) (1,000,000 )

   Common stock issued upon exercise of options- post merger 28,000 280 16,390 16,670

   Net income 826,985 826,985

Balance at August 31, 2005 — $ — 17,232,134 $ 172,321 $ 19,908,779 $ 846,472 $ — $ 20,927,572

The accompanying notes are an integral part of these consolidated financial statements.

Emtec, Inc.
Notes to Consolidated Financial Statements
August 31, 2005

1. Organization

Business

On August 5, 2005, Emtec, Inc. (Old Emtec) completed a merger with Darr Westwood Technology Corporation (Darr) pursuant to which the two companies merged and now operate as a consolidated entity that has retained the name Emtec, Inc. (the Company or Emtec) (the August 5, 2005 merger). Management concluded that the transaction resulted in a change in control of the Company and that the transaction should be accounted for as a reverse merger, whereby Darr was considered the accounting acquirer of Old Emtec for financial reporting purposes. In what was regarded as a recapitalization, the historical stockholders’ equity of Darr, the accounting acquirer, prior to the merger, was retroactively restated for the equivalent number of shares received in the merger after giving effect to any difference in the par value of Old Emtec’s and Darr’s stock with an offset to paid-in capital. Retained earnings of Darr are carried forward after the merger. Operations prior to the merger are those of Darr. Earnings per share for periods prior to the merger were restated to reflect the equivalent number of shares.

Accordingly, the historical financial statements of Emtec are considered to be those of Darr for all periods presented. The consolidated financial statements include the accounts and transactions of Darr for the year ended August 31, 2005 (and including the accounts and transactions of Emtec for the period from August 6, 2005 to August 31, 2005), the periods from September 1, 2003 to April 16, 2004 (Predecessor Period) and from April 17, 2004 to August 31, 2004 (Successor Period) and for the year ended August 31, 2003 and the accounts and transactions of Old Emtec for the period from August 5, to August 31, 2005. The notes to the consolidated financial statements refer to the following defined periods ended: August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003.

The Company is a systems integrator focused on providing technology solutions that enable its customers to use and manage their data to grow their businesses. The Company’s customer base is comprised of departments of the United States, state and local governments, education and commercial businesses throughout the United States. Emtec specializes in information technology services including: enterprise computing, data communications, data access, network design, enterprise backup and storage consolidation, managed services and staff augmentation. The most significant portion of the Company’s revenue is derived from activities as a reseller of 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.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Westwood, and Westwood’s wholly owned subsidiary, Solutions. Significant intercompany account balances and transactions have been eliminated in consolidation.

Unaudited Financial Statements

The results of operations and cash flows for the year ended August 31, 2003 are considered to be unaudited because they were not audited by a registered public accounting firm. The Company is in the process of resolving the matter and intends to amend its form 10-K upon the completion of the audit of the financial statements for the year ended August 31, 2003, by a firm that is a registered public accounting firm.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company typically maintains cash at major financial institutions. At times throughout the year, bank account balances exceed FDIC insurance limits, which are up to $100,000 per account.

The Company has restricted cash from time to time during the year that represents amounts collected on accounts receivable that have not been released to the Company by its financing company. At August 31, 2005 cash that has not been released by the finance company totaled $476,290. In addition, the Company recorded $5,650,000 of restricted cash at August 31, 2005 that represents cash earmarked to fund a self tender offer of $5,500,000 that begins September 7, 2005, and $150,000 to obtain a letter of credit required as a security deposit for a real estate lease.

Concentration of Credit Risk and Significant Customers

Other financial instruments that potentially subject the Company to a concentration of credit risk consist principally of accounts receivable. A substantial portion of the Company’s customer base is related departments of the United States government and state and local governments. 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. Accounts 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’s revenues comprised of the following customer types for the periods ended:

	August 31, 2005		August 31, 2004		April 16, 2004		August 31, 2003

Departments of the United States Government	$	123,823,906	$	31,463,023	$	66,663,466	$	73,816,257
State and Local Governments		17,625,586		3,571,827		7,567,943		11,691,527
Commercial Companies		12,338,163		4,580,576		9,705,269		9,880,240
Education and other		8,844,387		2,026,178		4,293,041		2,061,587

Total Revenues	$	162,632,042	$	41,641,604	$	88,229,719	$	97,449,611

The United States Department of Agriculture (USDA), accounted for approximately 13.4%, 1.2%, 1.1% and 1.1% of our total revenues for the periods ended August 31, 2005, August 31 2004, April 16, 2004 and 2003, respectively.

As of August 31, 2005 and 2004, trade accounts receivable are comprised of the following:

	August 31, 2005			August 31, 2004

Trade receivables	$	34,766,373		$	17,957,321
Allowance for doubtful account		(225,000	)		(225,000	)

Trade receivables, net	$	34,541,373		$	17,732,321

Fair Value of Financial Instruments

The carrying amounts of accounts receivable, other receivables accounts payable, accrued expenses and customer deposits approximate fair value because of their short-term nature. The carrying amount of the line of credit and long-term debt approximates their fair value because the interest rates reflect rates the Company would be able to obtain on debt with similar terms and conditions.

Revenue Recognition

The Company recognizes revenue from the sales of products when risk of loss and title passes which is upon customer acceptance.

The Company may also enter into sales arrangements with customers that contain multiple elements. The Company recognizes 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. The Company follows the criteria contained in EITF 00-21 and SAB 104 in recognizing revenue associated with these transactions. The Company performs software installations, configurations and imaging services at its locations prior to the delivery of the product. Some customer arrangements include “set-up” services performed at customer locations where the Company’s personnel perform the routine tasks of removing the equipment from boxes, and setting up the equipment at customer 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:

Ÿ In some instances, the “set-up” service is performed after date of delivery. The Company recognizes 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, the Company’s customer has agreed that the transaction is complete as to the “hardware” component. In instances where the Company’s customer does not accept delivery until “set-up” services are completed, the Company defers all revenue in the transaction until customer acceptance occurs.

Ÿ There are occasions when a customer requests a transaction on a “bill & hold” basis. The Company follows the SAB 104 criteria and recognizes revenue from these sales prior to date of physical delivery only when all the criteria of SAB 104 are met. At August 31, 2005, accounts receivable related to bill and hold sales totaled $221,255. Total revenue from bill and hold sales were $768,726 with a gross profit of $86,860 which was included in the results of operations for the year ended August 31, 2005. The Company does not modify its 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.

The Company has experienced minimal customer returns. Since all eligible products must be returned to the Company with 30 days from the date of the invoice, the Company reduces 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 customers, 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 proportional 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 customer are recognized immediately on their contact sale date. Manufacturer support service contracts contain cancellation privileges that allow our customers’ to terminate a contract with 90 days written notice. In this event, the customer 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, the Company has experienced no customer cancellations of any significance during our most recent three-year history and do not expect cancellations of any significance in the future.

Rebates

Rebates received on products purchased are recorded in the accompanying consolidated statements of operations 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). At August 31, 2005 and August 31, 2004, approximately $2,117,290 and $1,009,000, respectively, of rebates receivable were recorded in accounts-receivable-other in the accompanying consolidated balance sheets.

Inventory

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. The Company provides an inventory reserve for products it determines are obsolete or where salability has deteriorated based on managements review of products and sales. The components of inventory at August 31 are as follows:

	2005			2004

Hardware, software, accessories, and parts	$	6,070,728		$	644,262
Less: Inventory reserve	$	(300,138	)	$	(120,000	)

Net Inventory	$	5,770,590		$	524,262

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets, which generally are three to five years. Maintenance and repair costs are charged to expense as incurred. The cost and accumulated depreciation relating to property and equipment retired or otherwise disposed of are eliminated from the accounts and any resulting gains or losses are credited or charged to income.

Goodwill

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. On August 5, 2005, the Company recorded goodwill related to the acquisition of Old Emtec equal to $8,817,231. On March 1, 2005, the Company recorded goodwill related to the acquisition of Proven Technologies, Inc. equal to $157,739. Total Goodwill at August 31, 2005 is $8,974,610. The Company tests goodwill and indefinite-lived assets for impairment at least annually in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142). The Company’s annual impairment test is made on June 1 of each year. Intangible assets that have finite useful lives are amortized over their useful lives.

Identifiable Intangible Asset

On August 5, 2005, the Company ascribed $8,378,166 of the purchase price associated with the acquisition of Old Emtec to customer relationships. Intangible assets at August 31, 2005 and 2004 consisted of the value ascribed to customer relationships of $8,661,712 less accumulated amortization of $68,868 and $283,546 ascribed to customer relationships less accumulated amortization of $7,270, respectively. The assets ascribed to customer relationships are being amortized on a straight-line basis over 13-15 years. Amortization expense was $61,598 and $7,270 for the periods ended August 31, 2005 and August 31, 2004, respectively. 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 the years ended August 31, 2018, and 2019, and $518,755 for the year ended August 31, 2020.

Advertising

Advertising costs are expensed as incurred. Advertising expense was $551,065, $200,690, $217,557, and $320,196 for the periods ending August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003, respectively, and is included in selling, general and administrative expenses in the consolidated statements of operations. Marketing development funds received from various manufacturers are included in selling, general and administrative expense.

Stock-Based Compensation

The Company accounts for stock-based compensation using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (APB 25) and related Interpretations. Accordingly, no compensation cost for stock options granted to employees is reflected in net income, since all options granted had an exercise price equal to the fair market value of the Company’s common stock on the date of the grant. Stock options in the Company are fully vested and were granted by Old Emtec prior to the August 5, 2005 merger.

In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123 (Revised), “Share-Based Payments” (“SFAS 123R”), which is effective for the Company beginning December 15, 2005. Under SFAS 123R, the Company will be required to measure the cost of employee service received in exchange for awards of stock options based upon the fair value of the options as of their grant date. The cost of the employee service will be recognized as compensation cost ratably over the option vesting period. Currently, the Company recognizes compensation expense pursuant to APB 25, whereby compensation expense is recognized to the extent that an option price is less than the market price of the stock at the date of the grant (the “Intrinsic Value”). SFAS 123R allows the use of either the Black-Scholes or a lattice option-pricing model to calculate the fair value of options. Currently, the Company is evaluating the adoption alternatives under SFAS 123R. There will be no impact on future operating results until the Company issues stock options in future periods.

Income Taxes

The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities.

Earnings Per Share

Basic earnings/(loss) per share is computed based on the weighted average shares outstanding during the reporting period without considering any dilutive effects. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the weighted average shares outstanding reflects all shares that could be issued, including options and warrants.

3. Acquisition

On August 5, 2005, Old Emtec and Darr completed a transaction pursuant to which the two companies merged and will operate as a new consolidated entity that retains the name Emtec, Inc. Under the terms of the merger agreement all shares Darr common stock that were issued and outstanding immediately prior to the merger were exchanged for 9,528,110 shares of Old Emtec’s common stock plus warrants to purchase an additional 10% of the Company, measured on a post exercise basis. Immediately following the merger, Darr’s stockholders owned approximately 55.7% of the outstanding shares of the Company’s common stock. In addition, as a condition of the transaction, the Company was required to initiate a self tender offer to repurchase issued and outstanding shares of the Company for an aggregate purchase price up to $5,500,000 at a fixed price of $1.92 per share. The Company believes that the merger transaction will allow the Company to expand its service offerings, add to or enhance its base of technical or sales personnel, and nurture and expand existing client relationships. The anticipated synergies from the merger include enhanced buying power, cross utilization of resources, and cross selling into existing client relationships.

Management concluded that the transaction resulted in a change in control of the Company and that the transaction should be accounted for as a reverse merger, whereby Darr is considered the accounting acquirer and the purchase price is allocated to the net tangible and intangible assets of Old Emtec (hereinafter net assets) based on their underlying fair values.

The aggregate purchase price was $20,275,670 based on the fair value of the consideration, which consisted of: $19,266,820 for 7,676,024 shares of common stock of Old Emtec deemed to be issued at $2.51 per share, $172,612 for stock options deemed to be issued, $315,104 for put warrants issued under a self tender offer and $521,134 of acquisition costs incurred by Darr. The Company accounted for the acquisition under the purchase method, whereby, amounts were assigned to assets acquired and liabilities assumed based on their respective fair values, on the date of merger. Management determined the fair value of Old Emtec’s net assets on August 5, 2005 was $11,458,800, which resulted in an excess purchase price over fair value of net assets acquired of $8,816,870, which was recognized as goodwill.

The allocation of purchase price by significant component is as follows:

Accounts and other receivables	$	16,884,901
Inventories		2,155,339
Deferred tax asset-current		267,574
Prepaid expenses		354,260
Property and equipment		210,770
Customer relationships		8,378,166
Other assets		356,651
Accounts payable		(9,702,715	)
Other current liabilities		(4,469,849	)
Deferred tax liabilities		(2,976,297	)

Fair value of net assets acquired	$	11,458,800
Purchase price		20,275,670

Excess purchase price	$	8,816,870

The value of the put options issued was estimated on the date of grant (August 5, 2005) using a Black-Scholes option pricing model. Under the Black-Scholes model, the total value of the put options was $315,104. Key assumptions used in the model included: exercise price - $1.92 per share, stock price- $2.15 per share, expected volatility of 0.869; risk free rate of 4.5% and dividend yield of 0.0%. At August 31, 2005, the value of the put options was estimated to be $11,500 and was determined based on the same key assumptions with a stock price of $2.40 per share. In connection with the change in value, the Company recorded other income of $303,600 in the consolidated statement of operation.

On April 16, 2004, Darr purchased substantially all of the net assets of Westwood for $6,697,816. Prior to the acquisition, the Company had no operating history. The acquisition was accounted for under the purchase method of accounting and allowed the Company to enter into the computer and peripheral sales and service industry. The accompanying financial statements present the results of operations for the period from September 1, 2003 to April 16, 2004 under the Predecessor’s basis of accounting (Predecessor Period) and for the period from April 17, 2004 to August 31, 2004 under the Company’s basis of accounting (Successor Period). The purchase price consisted of cash of $5,245,222, assumed liabilities of $1,254,778 and related acquisition costs of $197,816.

The purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, on the date of purchase, as follows:

Current assets	$	14,152,360
Customer relationships		283,546
Property and equipment		188,420
Deferred tax asset		377,154
Other assets		58,038
Current liabilities		(7,853,970	)
Accrued severance		(507,732	)

Net assets acquired	$	6,697,816

On March 1, 2005, Old Emtec acquired selected assets of Proven Technology LLC, a provider of data storage solutions including hardware, software and support services for $162,610. The acquisition was accounted for under the purchase method of accounting and allowed the Company to enter into the data storage market. The purchase price was allocated to assets acquired, which consisted of property and equipment of $4,871 based on their respective fair values on the date of purchase. There were no liabilities assumed in the transaction and the excess of purchase price over the estimated fair value of assets acquired totaled $157,740 and is recorded as goodwill.

Unaudited pro forma condensed results of operations for the year ended August 31, 2005 and the twelve month (predecessor and successor combined) period ended August 31, 2004 are presented as if the August 5, 2005 merger and the March 1, 2005 asset acquisition had been completed at the beginning of each year as follows:

	2005		2004


Net revenues	$	267,658,142	$	235,794,558
Gross profit		29,839,291		28,664,004

Income from continuing operations	$	1,984,942	$	892,829


Income from continuing operations per share (basic and diluted)	$	0.12	$	0.05

4. Property, Plant and Equipment

Property and equipment consisted of the following at August 31:

							Estimated Life
	2005			2004			Years

Leasehold improvements	$	197,903		$	132,018		4.67
Computer equipment		572,728			199,504		3 to 5
Furniture and fixtures		31,156			7,738		3 to 5
Automobiles		72,956			27,445		3 to 5
Software		172,410			—		3 to 5

Total Property and Equipment	$	1,047,153		$	366,705
Less accumulated depreciation		(129,994	)		(16,469	)

	$	917,159		$	350,236

Depreciation expense was $113,525, $16,469, $51,266 and $125,054 for the periods ended, August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003, respectively.

5. Line of Credit

The Company maintains a credit facility under two agreements with a financing company. The credit facility finances purchases from specified vendors, as defined, and allows for borrowings based on a percentage of eligible accounts receivable, as defined. Borrowings under both agreements are limited to an aggregate of $35,000,000 and bear interest at the greater of the prime rate as published by JP Morgan Chase Bank or 4.0%. The underlying agreements allow for an increased borrowing base during periods of high seasonal activity. At August 31, 2005 and 2004, there were $4,412,526 and $299,250 of borrowings outstanding under this facility. The credit facility was amended on August 5, 2005 and expires on August 31, 2006.

The credit facility is secured by substantially all of the Company’s assets and the underlying agreements contain certain restrictive covenants that limit dividends to stockholders and require the Company to meet defined financial covenants. In addition, the credit facility requires that the Company maintain a lock-box for all cash receipts related to trade accounts receivable, from which the financing company releases funds to the Company for operations pursuant to terms identified in the underlying agreements.

6. Commitments

The Company leases its operating facilities, certain sales offices and transportation equipment under noncancelable operating lease agreements that expire on various dates through August 31, 2010. Rent expense was $385,990, $118,958, $222,329 and $149,291 for the periods ending August 31, 2005, August 31, 2004, April 16, 2004, and August 31, 2003, respectively, and is recorded in general and administrative expenses on the consolidated statements of operations.

The following are our contractual obligations associated with lease commitments. We lease warehouse and office facilities, vehicles and certain office equipment under noncancellable operating leases. Future minimum lease payments under such leases are as follows:

Fiscal Years

2006 $ 975,743

2007 810,249

2008 688,430

2009 383,428

2010 155,069

Total $ 3,012,919

The Company is occasionally involved in various lawsuits, claims, and administrative proceedings arising in the normal course of business. The Company believes that any liability or loss associated with such matters, individually or in the aggregate, will not have a material adverse effect on the Company’s financial condition or results of operations.

In March 2002, a lawsuit was filed against the Company by a competitor seeking damages of an unspecified amount. The competitor is alleging that the Company illegally interfered with customer relationships of the competitor. There has been no change to this litigation matter in the last twelve months. The lawsuit is still in the discovery phase.

At March 16, 2005, Old Emtec sold its 5.49% working interest in the Roosevelt Hot Springs geothermal unit to Energy Minerals, Inc. (‘buyer”). As part of the transaction, the buyer assumed the remaining liability under the geothermal steam purchase agreement with Pacificorp (d/b/a Utah Power & Light Company). Under the 30-year agreement executed in 1993, a $1 million prepayment was received by Old Emtec from Pacificorp. The agreement gives Pacificorp the right to recover a pro-rata portion of their original $1 million pre-payment should the geothermal unit fail to produce steam at levels specified under the agreement. Old Emtec recorded the pre-payment as deferred revenue and was amortizing the amount as earned revenue over the 30-year term of the steam purchase agreement. Energy Minerals, Inc. has been assigned rights to the steam purchase agreement with Pacificorp and assumed the remaining $672,123 deferred revenue liability as of March 16, 2005. However, should the geothermal unit fail to produce steam at levels specified under the agreement during the remaining 30 year term of the agreement, PacifiCorp could potentially make a claim against the Company as a former owner, if the current ownership of the geothermal unit failed to satisfy Pacificorp’s claims. The Company believes that the probability of this occurrence is remote due to the strong production and operating history of the geothermal unit.

The Company was counterparty to deferred compensation arrangements with a spouse (as beneficiary) of a former officer and a former stockholder of Westwood during the periods ended April 16, 2004 and August 31, 2003. Commensurate with the acquisition of Westwood on April 16, 2004, the arrangement with the spouse was forfeited in exchange for a separation agreement. The agreement provides quarterly severance payments to the beneficiary of $22,000 to $33,900 through February 2009. In connection with the exchange, the Company recorded forgiveness of debt of $405,652 for the difference between the estimated present value of future cash flows of the forfeited deferred compensation arrangement and the separation agreement during the period ended April 16, 2004. The Company’s liability at August 31, 2005 and 2004 was $380,356 and $473,489, respectively for the separation agreement. The deferred compensation arrangement between the Company and former stockholder of Westwood was forfeited without recompense. In

connection with this forfeiture, the Company recorded a contribution to capital of $1,507,181, net of income tax effect, during the period ended April 16, 2004.

7. Long-Term Debt

The Company’s long-term debt at August 31, consists of the following:

		2005			2004

5% junior subordinated notes payable to former stockholders of Westwood	$	313,695		$	313,695
8% junior subordinated notes payable to former stockholders of Westwood		627,389			941,083
8% junior subordinated note payable to Darr Westwood LLC, a related entity		1,102,794			—
Subordinate note payable to Darr Westwood
Subordinate note payable to Darr Westwood LLC, a related entity		750,000			750,000
Subordinate note payable to Four Kings Management, a related entity		714,000			750,000
GMAC		27,215			—

Total debt		3,535,093			2,754,778
Less current portion		(524,874	)		(349,694	)

Long-term debt, net of current portion	$	3,010,219		$	2,405,084

The 5% junior subordinated notes payable to the former stockholders of Westwood requires annual principal payments of $94,108 plus accrued interest in April 2006 and April 2007. Annual principal payments of $62,739 plus accrued interest are due in April 2008 and April 2009.

The 8% junior subordinated notes payable to the former stockholders of Westwood require principal payments of $156,847 plus accrued interest due semiannually commencing October 2004.

The 8% junior notes payable to Darr Westwood LLC is due in April 2009 with accrued interest payable annually in August of 2008 and annually thereafter. These notes were issued in exchange for 1,000 shares outstanding of series A redeemable preferred stock of Darr in conjunction with the August 5, 2005 merger.

The subordinated note payable to Darr Westwood LLC bears interest at a rate equal to the prime rate, as published in the Wall Street Journal, plus 4%, not to exceed 10%. Annual principal payments are due in April 2007 ($194,482), April 2008 ($323,859) and April 2009 ($231,659). Accrued interest is payable annually beginning in March 2007 through April 2009. The Company is obligated under this note to pay additional interest in the form of a fee based on achieving certain levels of revenue, as defined. The fee, if any, is limited to $30,000 per quarter and is payable in March 2008 and April 2009. Interest expense was $202,870 and $69,879 for the periods ended August 31, 2005 and August 31, 2004, respectively, all of which is accrued at the end of each respective period.

The subordinated note payable to Four Kings Management, LLC (Four Kings) bears interest at a rate equal to the prime rate, as published in the Wall Street Journal, plus 4%, not to exceed 10%. Interest is payable monthly. Monthly principal payments of $9,000 began in May 2005 and continue through March 2009. The remaining balance plus accrued interest is due in April 2009. The Company is obligated under this note to pay additional interest in the form of a fee based on achieving certain levels of revenue, as defined. The fee, if any, is limited to $30,000 per quarter and is payable quarterly. Officers of Westwood own membership interests in Four Kings. Interest expense was $202,203 and $69,879 for the periods ended August 31, 2005 and 2004, respectively, of which $32,198 and $27,217 is accrued at the end of the respective period.

Principal maturities of long-term debt at August 31, 2005 are as follows $524,874, $719,357, $503,670 and $1,787,192 for the respective years ended August 31, 2006 through August 31, 2009.

8. Income Taxes

Income tax expense (benefit) for the periods ended August 31, 2005, August 31, 2004, April 16, 2004, and August 31, 2003 consists of the following:


	Year Ended August 31, 2005			Successor Period		Predecessor Period		Year Ended August 31, 2003

								(unaudited)
Current provision:
Federal	$	499,144		$	56,208	$	454,620	$	381,382
State		136,284			16,637		134,522	$	116,882

		635,428			72,845		589,142	$	498,264
Deferred provision (benefit):
Federal		(141,485	)		39,029		45,019	$	(157,047	)
State		(41,393	)		11,549		13,284	$	(46,470	)

		(182,878	)		50,578		58,303	$	(203,517	)

	$	452,550		$	123,423	$	647,445	$	294,747

A reconciliation of the federal statutory provision to the provision for financial reporting purposes is as follows:

	Year Ended August 31, 2005			Successor Period		Predecessor Period		Year Ended August 31, 2003 (unaudited)

Statutory federal tax Provision	$	435,043		$	83,539	$	521,316	$	259,127
State income taxes net of federal		69,696			14,823		92,503		46,441
Fair value adjustment of put options		(103,225	)		—		—		—
Other permanent difference		51,036			25,061		33,626		(10,821	)

Provision for income taxes	$	452,550		$	123,423	$	647,445	$	294,747

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at August 31, 2005 and 2004 are as follows:

Deferred Tax Assets/(Liabilities)
2005

2004

Differences between book and tax basis:

Deferred tax assets:

         Trade receivables $ 249,595 $ 90,074

         Inventories 358,996 36,548

         Accrued liabilities 80,726 45,609

         Goodwill 74,998 —

         Property and equipment 44,113 —

         Accrued Liabilities 372,939 189,551

$ 1,181,367 $ 411,784

Deferred tax liabilities:

         Customer Relationships $ (3,330,347 ) $ —

         Property and equipment — (35,208 )

         Deferred revenue (85,785 ) —

$ (3,416,134 ) $ (35,208 )

Net Deferred tax (liability) asset $ (2,234,765 ) $ 376,576

9. Retirement Plan

The Company maintains a defined contribution 401(k) pension plan. Contributions are based on up to 1% of each covered employees salary and totaled $50,448, $13,317, 19,333, and $22,989 for the periods ending August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003, respectively. The expense is included in selling, general and administrative expenses in the consolidated statement of operations.

The Company sponsors a 401(k) plan for all employees who are at least 20 years of age with at least 6 months of service. Eligible employees may contribute 2% to 15% of their annual compensation to the plan. The Company matches 25% of the first 6% of employee plan contributions and could contribute additional amounts at its discretion. Participants are vested 20% for each year of service and are fully vested after 5 years. The Company adopted the provisions of this plan in conjunction with the August 5, 2005 merger. There were contributions to this plan during the period ended August 31, 2005.

10. Stock Option Plan

The Company’s 1996 Stock Option Plan (amended in 1999) (the 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 Plan at prices not less than 100% of the fair value of the Company’s common stock on the date of grant over a 4 year period (110% in the case of shareholders owning more than 10% of the Company’s common stock). Options under the plan typically terminate after 5 years and vest over a four year period. Options were issued by Old Emtec and no other options were issued by the Company. Options outstanding and exercisable at August 31, 2005 total 92,453 and their estimated weighted average value is $1.22.

11. Equity

In connection with the August 5, 2005 merger, the 500 aggregate shares of outstanding Darr class A and B common stock were exchanged for 9,528,110 shares of the Company’s common stock. The accompanying consolidated financial statements reflect the retroactive effects of the recapitalization.

Concurrent with the purchase of Westwood, Darr authorized 5,000 shares and issued 1,000 shares of series A redeemable preferred stock for $1,000,000. Series A redeemable preferred stock was senior to all securities outstanding. The holders of series A redeemable preferred stock were entitled to dividends at a rate of 8% per annum. Dividends were cumulative and were due and payable after April 2008. The series A redeemable preferred stock had no voting rights and was redeemable at the option of the Company commencing April 17, 2009 at 100% of its liquidation value. The liquidation value of series A redeemable preferred stock was equal to $1,000 plus accumulated but unpaid dividends. The outstanding shares of series A redeemable preferred stock were exchanged for notes payable in connection with the August 5, 2005 acquisition, total notes payable issued was $1,102,794, which represented the carrying value of preferred stock on that date.

12. Supplemental Cash Flow Information

Cash paid for interest and income taxes for the periods ended August 31, 2005, August 31, 2004, April 16, 2004, and August 31, 2003 were as follows:

Interest $355,474; $52,500; $28,000; $42,324

Income Taxes $417,056; $433,000; $345,000; $318,800

Supplemental noncash investing and financing activities for the periods ended August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003 were as follows:

Capital contribution: The deferred compensation arrangement between the Company and former stockholder of Westwood was forfeited without recompense. In connection with this forfeiture, the Company recorded a contribution to capital of $1,507,181, net of income tax effect $603,370, during the period ended April 16, 2004.

Notes Receivable Distributed: Note receivable distributed to the former stockholders in the amount of $399,587 during the period ended April 16, 2004.

Issuance of long-term debt: Issuance of long-term debt with a face value of $1,102,794 at an 8% annual rate to former preferred stockholders in full redemption of preferred stock previously issued by Darr during the period ended August 31, 2005. Issuance of $664,567 of notes payable to former stockholders during the period ended August 31, 2004, in connection with the April 16, 2004 acquisition of Westwood.

13. Related Party Transactions

During the period ended April 16, 2004, the Company held a note receivable from a company controlled by former stockholders of Westwood which was repaid through periodic payments.

The note receivable was distributed to the former stockholders of Westwood through a dividend on April 16, 2004. Interest income recorded on this note for the period ended April 16, 2004 totaled $21,483.

Beginning April 17, 2004, the Company is charged a monthly management fee of $29,166 by Darr Global Holdings, Inc. Darr Global Holdings, Inc is a management consulting company 100% owned by the majority stockholder of Darr Westwood LLC. For the periods ended August 31, 2005, and August 31, 2004, the Company recorded $350,000 and $116,664, respectively for this management fee in the accompanying consolidated statements of operations. At August 31, 2005, and August 31, 2004 $133,333 and $33,333 of the fee is included in accounts payable – related party.

One of the Company’s facilities is leased under a non-cancelable operating lease agreement with an entity that is owned by officers of Westwood. Rent expense recorded for the period ended August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003 totaled $180,000, $60,000, $155,333 and $38,833, respectively.

The Company is occupying approximately 21,000 square feet of office and warehouse space out of a total of approximately 70,000 square feet. This space is leased from GS&T Properties, LLC, in which officers of the 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 period ended August 31, 2005, the Company recorded $14,190 in expense under this lease.

14. Accrued Expenses

Accrued expenses consisted of the following at August 31:

2005 2004

Accrued payroll $ 1,042,864 $ 263,952

Accrued commissions 511,858 334,551

Accrued state sales taxes 579,056 —

Accrued third party service fees 627,526 —

Industrial funding fee 216,126 —

Other accrued expenses 1,213,298 423,491

$ 4,190,728 $ 1,021,994

15. Quarterly Financial Information – (Unaudited)


		Period ended August 31, 2005

		First Quarter		Second Quarter		Third Quarter		Fourth Quarter			Fiscal 2005

Revenue	$	45,528,612	$	45,177,383	$	29,414,963	$	36,898,839		$	155,813,976

Gross Profit	$	3,753,505	$	3,419,976	$	3,036,804	$	3,157,129		$	13,271,832

Net Income (Loss)	$	472,110	$	246,022	$	70,142	$	(143,705	)	$	600,083

Net Income (Loss) per share:
Basic and Diluted	$	0.05	$	0.02	$	0.01		0.01		$	0.08

		Predecessor and Successor periods ended April 16, 2004 and August 31, 2004

		First Quarter		Second Quarter		Third Quarter		Fourth Quarter			Fiscal 2004


Revenues - Predecessor	$	54,525,132	$	21,989,226	$	11,715,361	$	—		$	88,229,719
Revenues - Successor	$	—	$	—	$	12,313,070	$	29,328,534		$	41,641,604

Gross Profit - Predecessor	$	4,834,128	$	2,619,462	$	1,179,761	$	—		$	8,633,351
Gross Profit- Successor	$	—	$	—	$	1,389,473	$	2,634,271		$	4,023,744

Net Income (Loss) - Predecessor	$	683,152	$	46,507	$	156,178	$	—		$	885,837
Net Income (Loss) - Successor	$	—	$	—	$	44,606	$	77,675		$	122,281

Combined net income	$	683,152	$	46,507	$	200,784	$	77,675		$	1,008,118

Net Income(Loss) per share:
Basic and Diluted	$	0.07	$	0.00	$	0.02		0.01		$	0.11

Earnings per share for the third quarter ended May 31, 2004 is calculated based on the combined net income from the predessor and successor periods for the quarter.

16. Accounts Receivable and Inventory Allowances

The following table provides information regarding accounts receivable and inventory valuation allowance activity for the periods ending August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003:

	Receivable Allowance		Inventory Allowance


Balance,September 1, 2002	$	180,000	$	—

Charged to costs and expenses		20,000		—
Write-offs		—		—


Balance, August 31, 2003	$	200,000		—

Charged to costs and expenses		25,000		120,000
Write-offs		—		—


Balance, April 16, 2004	$	225,000	$	120,000
Charged to costs and expenses		—		—
Write-offs		—		—


Balance, August 31, 2004	$	225,000	$	120,000
Charged to costs and expenses		—		180,138
Write-offs		—		—

Balance, August 31, 2005	$	225,000	$	300,138

17. Subsequent Event

Pursuant to the August 5, 2005 merger agreement, the Company initiated a self tender offer on September 7, 2005 to repurchase up to 2,864,584 shares of its then issued and outstanding common stock having an aggregate purchase price of up to $5.5 million at a price of $1.92 per share. The tender offer closed on October 4, 2005. In the tender offer 4,984,185 shares were properly tendered and not withdrawn. Because the number of shares of common stock tendered exceeded the number of shares that the Company offered to purchase 57.473 percent of the shares that were tendered were repurchased by the Company. The Company funded the payment for the 2,864,584 shares of common stock validly tendered and accepted under the tender offer from borrowings of $5.5 million under its revolving credit facility made prior to August 31, 2005.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: December 14, 2005

	EMTEC, INC.


	By:	/s/ Dinesh R. Desai

		Dinesh R. Desai
		Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/Dinesh R. Desai Dinesh R. Desai	Chairman and Chief Executive Officer	December 14, 2005

/s/Brian McAdams Brian McAdams	Vice Chairman, Director	December 14, 2005

/s/Stephen C. Donnelly Stephen C. Donnelly	Chief Financial Officer (Principal Financial Officer)	December 14, 2005

/s/Keith Grabel Keith Grabel	Director, President -Westwood Division	December 14, 2005

/s/Gregory Chandler Gregory Chandler	Director	December 14, 2005

EX-2 2 ex2-2.txt EXHIBIT 2.2 Exhibit 2.2 EXECUTION VERSION AGREEMENT AND PLAN OF MERGER Dated as of March 15, 2004 by and among DARR Westwood Technology Corporation, DARR Westwood Acquisition Corporation, The Shareholders of Westwood Computer Corporation Named Herein, Westwood Computer Corporation, and Keith Grabel, as Shareholders' Agent TABLE OF CONTENTS Page ARTICLE I THE MERGER ..........................................................1 Section 1.1. The Merger. ..............................................1 Section 1.2. Effective Time of the Merger. ............................2 Section 1.3. Effects of the Merger. ...................................2 Section 1.4. Closing. .................................................2 ARTICLE II THE SURVIVING AND PARENT CORPORATIONS...............................2 Section 2.1. Articles of Incorporation. ...............................2 Section 2.2. Bylaws. ..................................................2 Section 2.3. Directors and Officers. ..................................2 ARTICLE III EFFECT OF THE MERGER ON THE STOCK OF THE CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES ....................3 Section 3.1. Conversion of Shares in the Merger. ......................3 Section 3.2. Conversion of Subsidiary Shares. .........................3 Section 3.3. Surrender of Certificates. ...............................3 Section 3.4. Tax Withholding. .........................................4 Section 3.5. Closing of the Company's Transfer Books. .................5 Section 3.6. Options and Stock Grants. ................................5 Section 3.7. Dissenters' Rights. ......................................5 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY ......................6 Section 4.1. Organization and Qualification. ..........................6 Section 4.2. Capitalization. ..........................................6 Section 4.3. Subsidiaries. ............................................7 Section 4.4. Authority; Non-Contravention; Approvals. .................7 Section 4.5. Financial Statements. ....................................9 Section 4.6. Absence of Undisclosed Liabilities. ......................9 Section 4.7. Absence of Certain Changes or Events. ...................10 Section 4.8. Litigation. .............................................10 Section 4.9. No Violation of Law. ....................................11 Section 4.10. Contracts. ..............................................11 Section 4.11. Taxes. ..................................................12 Section 4.12. Employee Benefit Plans; ERISA. ..........................14 Section 4.13. Labor Controversies. ....................................17 Section 4.14. Environmental Matters. ..................................18 Section 4.15. Title to Assets. ........................................19 Section 4.16. Intellectual Property; Software. ........................19 Section 4.17. Brokers and Finders. ....................................21 Section 4.18. New Jersey Shareholders Protection Act and Rights Agreement. .......................................21 Section 4.19. Affiliate Transactions. .................................21 - i - Section 4.20. Products Liability. .....................................21 Section 4.21. Relationship with Customers and Suppliers. ..............22 Section 4.22. Indemnification Claims. .................................22 Section 4.23. Absence of Questionable Payments. .......................22 Section 4.24. Board Recommendation. ...................................22 Section 4.25. Insurance. ..............................................22 Section 4.26. Government Contracts. ...................................23 Section 4.27. Shareholders. ...........................................24 Section 4.28. Disclosures. ............................................24 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY ............25 Section 5.1. Organization and Qualification. .........................25 Section 5.2. Authority; Non-Contravention; Approvals. ................25 Section 5.3. Financing. ..............................................26 Section 5.4. Brokers and Finders. ....................................26 Section 5.5. Subsidiary. .............................................26 ARTICLE VI COVENANTS OF THE PARTIES ..........................................27 Section 6.1. Mutual Covenants. .......................................27 Section 6.2. Covenants of the Company. ...............................28 ARTICLE VII ADDITIONAL AGREEMENTS OF THE PARTIES .............................31 Section 7.1. Access to Information. ..................................31 Section 7.2. Acquisition Transactions. ...............................32 Section 7.3. Expenses and Fees. ......................................35 Section 7.4. Employee Benefits. ......................................36 Section 7.5. Litigation. .............................................37 Section 7.6. Third Party Standstill Agreements. ......................37 Section 7.7. Insurance. ..............................................38 ARTICLE VIII CONDITIONS ......................................................38 Section 8.1. Conditions to Each Party's Obligation to Effect the Merger. .................................................38 Section 8.2. Conditions to Obligations of Parent and Subsidiary to Effect the Merger. ...................................39 Section 8.3. Conditions to Obligations of the Company. ...............42 ARTICLE IX TERMINATION, AMENDMENT AND WAIVER .................................43 Section 9.1. Termination. ............................................43 Section 9.2. Effect of Termination. ..................................45 Section 9.3. Amendment. ..............................................46 Section 9.4. Extension; Waiver. ......................................46 ARTICLE X INDEMNIFICATION ....................................................46 Section 10.1. Survival of Representations, Etc. .......................46 Section 10.2. Indemnification by Shareholders. ........................47 Section 10.3. Limitation on Indemnification. ..........................48 - ii - Section 10.4. Indemnification by Parent. ..............................49 Section 10.5. No Contribution. ........................................49 Section 10.6. Interest. ...............................................50 Section 10.7. Insurance and Tax Benefits...............................50 Section 10.8. Procedure for Indemnification - Third-Party Claims.......50 Section 10.9. Exercise of Remedies by Parent Indemnitees Other Than Parent...................................................52 Section 10.10. Indemnification Remedy...................................52 ARTICLE XI GENERAL PROVISIONS ................................................52 Section 11.1. Shareholders' Agent. ....................................52 Section 11.2. Further Assurances. .....................................53 Section 11.3. Notices. ................................................53 Section 11.4. Governing Law. ..........................................54 Section 11.5. Parties to Agreement. ...................................54 Section 11.6. Interpretation. .........................................54 Section 11.7. Severability. ...........................................54 Section 11.8. Assignment. .............................................55 Section 11.9. Enforcement. ............................................55 Section 11.10. Submission to Jurisdiction; Waivers. ....................55 Section 11.11. Counterparts. ...........................................55 Section 11.12. Entire Agreement. .......................................55 ARTICLE XII DEFINITIONS ......................................................56 EXHIBITS A. Directors and Officers of the Surviving Corporation B. Allocation of Consideration C. Form of 5% Promissory Note D. Form of 8% Promissory Note E. Form of Letter of Transmittal F. Form of Voting Agreement G. Form of Amendment to Purchase and Sale Agreement - iii - AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, dated as of March 15, 2004 (this "Agreement"), is made and entered into by and among DARR Westwood Technology Corporation, a Delaware corporation ("Parent"), DARR Westwood Acquisition Corporation, a New Jersey corporation and a subsidiary of Parent ("Subsidiary"), the shareholders of the Company listed on the signature pages hereto (each a "Principal Shareholder" and collectively the "Principal Shareholders"), Westwood Computer Corporation, a New Jersey corporation (the "Company") and Keith Grabel, as Shareholders' Agent (as defined herein). BACKGROUND WHEREAS, Parent, Subsidiary and the Company intend to effect a merger of Subsidiary with and into the Company (the "Merger") in accordance with this Agreement and the Business Corporation Act of the State of New Jersey ("NJBCA"). Upon consummation of the Merger, Subsidiary will cease to exist, and the Company will continue as a subsidiary of Parent. WHEREAS, this Agreement has been approved by the respective boards of directors of Parent, Subsidiary and the Company. WHEREAS, the Company's authorized capital stock consists of Class A Series I (Voting) stock, no par value, and Class A Series II (Non-Voting) stock, no par value, (the "Company Common Stock"). WHEREAS, simultaneously with the execution and delivery of this Agreement and in order to induce Parent and Subsidiary to enter into this Agreement, the Principal Shareholders have executed and delivered to Parent and Subsidiary an agreement (the "Voting Agreement") pursuant to which the Principal Shareholders have agreed to take specified actions in furtherance of the transactions contemplated by this Agreement, including voting their shares in favor of this Agreement, the Merger and the transactions contemplated hereby. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I THE MERGER Section 1.1. The Merger. Upon the terms and subject to the conditions of this Agreement, at the Effective Time (as defined below) Subsidiary shall be merged with and into the Company in accordance with the NJBCA, and the separate existence of Subsidiary shall thereupon cease. The Company shall continue its existence under the laws of the State of New Jersey and, in its capacity as the surviving corporation in the Merger, the Company is hereinafter sometimes referred to as the "Surviving Corporation." Section 1.2. Effective Time of the Merger. The Merger shall become effective at such time (the "Effective Time") as shall be stated in a certificate of merger (or if no time shall be stated, upon the filing of such certificate), in such form as required by and executed in accordance with the NJBCA, to be filed with the Department of Treasury of the State of New Jersey in accordance with Section 14A:10-4.1 of the NJBCA (the "Merger Filing"). The Merger Filing shall be made as soon as practicable after the satisfaction or waiver of the conditions set forth in Article VIII. The parties shall, subject to the provisions hereof use all commercially reasonable efforts to consummate, as soon as practicable, the Merger in accordance with Section 1.4. Section 1.3. Effects of the Merger. The Merger shall have the effects set forth in the applicable provisions of the NJBCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of Subsidiary and the Company shall vest in the Surviving Corporation, and all debts, liabilities and duties of Subsidiary and the Company shall become the debts, liabilities and duties of the Surviving Corporation. Section 1.4. Closing. The consummation of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Drinker Biddle & Reath LLP, 105 College Road East, Princeton, NJ 08542 at 10:00 a.m. on the second business day after satisfaction or waiver of the latest to occur of the conditions set forth in Article VIII except for those conditions which are only capable of being performed at the Closing. The date on which the Closing actually takes place is referred to in this Agreement as the "Closing Date." ARTICLE II THE SURVIVING AND PARENT CORPORATIONS Section 2.1. Articles of Incorporation. The articles of incorporation of the Company as in effect immediately before the Effective Time shall be the articles of incorporation of the Surviving Corporation as of the Effective Time, and thereafter may be amended in accordance with their terms and as provided in the NJBCA. Section 2.2. Bylaws. The bylaws of Subsidiary as in effect immediately before the Effective Time shall be the bylaws of the Surviving Corporation as of the Effective Time and thereafter may be amended in accordance with their terms and as provided by the Articles of Incorporation of the Surviving Corporation and the NJBCA. Section 2.3. Directors and Officers. The director and officers of the Surviving Corporation immediately after the Effective Time shall be the individuals identified on Exhibit A. - 2 - ARTICLE III EFFECT OF THE MERGER ON THE STOCK OF THE CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES Section 3.1. Conversion of Shares in the Merger. At the Effective Time, by virtue of the Merger and without any action on the part of any holder of any capital stock of Parent, Subsidiary or the Company: (a) the total Merger Consideration (as defined below) shall be $6,500,000, and each share of Company Common Stock (other than shares canceled pursuant to Section 3.1(b)) shall be converted into the right to receive (i) (A) a cash amount per share per Shareholder as set forth next to such Shareholder's name on Exhibit B, which, in the aggregate, equals $5,245,222 (the "Cash Consideration,") (ii) a promissory note in the original principal amount set forth on Exhibit B next to such Shareholder's name made by the Company in favor of such Shareholder in the form attached hereto as Exhibit C and for which the aggregate principal amount owed to all Shareholders is $313,695 (the "5% Note") and (iii) and a promissory note in the original principal amount set forth on Exhibit B next to such Shareholder's name made by the Company in favor of such Shareholder in the form attached hereto as Exhibit D, and for which the aggregate principal amount owed to all Shareholders is $941,083 (the "8% Note", together with the 5% Note, the "Notes" and the Notes together with the Cash Consideration, the "Merger Consideration"), payable to the holder thereof, in each case without interest, upon surrender of the certificate formerly representing such share in the manner provided in Section 3.3, less any required withholding taxes; and (b) each share of capital stock of the Company, if any, owned by Parent or any subsidiary of Parent or held in treasury by the Company immediately before the Effective Time shall be canceled and no consideration shall be paid in exchange therefor and shall cease to exist from and after the Effective Time. Section 3.2. Conversion of Subsidiary Shares. At the Effective Time, by virtue of the Merger and without any action on the part of the shareholders of Subsidiary, each issued and outstanding share of voting common stock, par value $.01 per share of the Subsidiary shall be converted into one voting common share, par value $.01 per share of the Surviving Corporation and each issued and outstanding share of non-voting common stock, par value $.01 per share of Subsidiary shall be converted into one non-voting common share, par value $.01 per share, of the Surviving Corporation. Section 3.3. Surrender of Certificates. (a) Parent shall serve as paying agent in the Merger ("Paying Agent"). Within three business days after the Effective Time, the Paying Agent shall mail to each holder of record of a certificate or certificates that immediately before the Effective Time represented outstanding shares of Company Common Stock (the "Company Certificates") (i) a letter of transmittal in the form attached hereto as Exhibit E which shall specify that delivery shall be effected, and risk of loss and title to the Company Certificates shall pass, only upon actual delivery of the Company Certificates to the Paying Agent, and (ii) instructions for use in effecting the surrender of the Company Certificates in exchange for the Cash Consideration. Upon surrender of Company Certificates for cancellation to the Paying Agent, together with a - 3 - duly executed letter of transmittal and the proper execution and delivery to Paying Agent of such reasonable documentation, the holder of such Company Certificates shall thereupon be entitled to receive in exchange therefor the Cash Consideration for each share of Company Common Stock formerly represented thereby, in accordance with Section 3.1, and the Company Certificates so surrendered shall be canceled. No interest shall be paid or accrued, upon the surrender of the Company Certificates, for the benefit of holders of the Certificates on any Cash Consideration. The holder of the Company Certificates shall be entitled to receive payments made pursuant to the Notes at such times and in such amounts as set forth therein.. (b) At any time following the date which is twelve months after the Effective Time, the duties of the Paying Agent shall terminate. Thereafter, each holder of a Company Certificate may surrender such Company Certificate to the Surviving Corporation (subject to applicable abandoned property, escheat and similar laws), solely as general creditors therefor, for the payment of their claim for Merger Consolidation, without any interest thereon, which such holders may be entitled. None of the Parent, Subsidiary, the Company or the Surviving Corporation shall be liable to a holder of shares of Company Common Stock for any amounts delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. If any Company Certificates shall not have been surrendered prior to twelve months after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration in respect of such Company Certificate would otherwise escheat to or become the property of any Governmental Authority), any such cash shall, to the extent permitted by applicable law, become the property of the Parent, free and clear of all claims or interest of any person previously entitled thereto. If, after the Effective Time, subject to the terms and conditions of this Agreement, Company Certificates formerly representing shares of Company Common Stock are presented to the Surviving Corporation, they shall be cancelled and exchanged for Merger Consideration in accordance with this Article III. (c) If any Company Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the holder claiming such Company Certificate to be lost, stolen or destroyed, the Surviving Corporation shall issue in exchange for such lost, stolen or destroyed Company Certificate the Merger Consideration deliverable in respect thereof determined in accordance with this Article III. When authorizing such issuance in exchange therefor, the Board of Directors of the Surviving Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Company Certificate to give the Surviving Corporation such indemnity as it may reasonably direct as protection against any claim that may be made against the Surviving Corporation with respect to the Company Certificate alleged to have been lost, stolen or destroyed. Section 3.4. Tax Withholding. Parent (or any affiliate thereof) shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any former holder of shares of Company Common Stock such amounts as Parent (or any affiliate thereof) is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any other provision of federal, state, local or foreign tax law. To the extent that amounts are so withheld by Parent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the - 4 - former holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by Parent. Section 3.5. Closing of the Company's Transfer Books. From and after the Effective Time, the stock transfer books of the Company shall be closed and no transfer of shares of Company Common Stock which were outstanding immediately before the Effective Time shall thereafter be made. Section 3.6. Options and Stock Grants. Prior to the Closing, the Company shall use all reasonable efforts to cause each outstanding stock option (each an "Option") heretofore granted under any Company stock option plan (the "Company Stock Plan"), each outstanding phantom stock option (the "Phantom Stock") heretofore granted under any Company phantom stock plan or agreement granting phantom stock options or rights (whether written or oral) (the "Phantom Stock Plan") and each outstanding warrant to purchase Common Stock (each a "Warrant") to be exercised or terminated effective immediately prior to the Closing and conditioned upon the Closing. As provided herein, the Company Stock Plan, the Phantom Stock Plan and any Benefit Plan (or other plan, program or arrangement) providing for the issuance or grant of any other interest in respect of the capital stock of the Company shall terminate upon the Effective Time. The Company has taken all steps necessary to ensure that the Company is not or will not be bound by any Options, Phantom Stock, Warrants, other options, other warrants, rights or agreements which would entitle any Person to acquire any capital stock of the Surviving Corporation or, except as otherwise provided in this Agreement, to receive any payment in respect thereof. Section 3.7. Dissenters' Rights. (a) Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time and that are owned by shareholders of the Company who have properly perfected their rights as dissenting shareholders within the meaning of Section 14A:11-2 of the NJBCA (the "Dissenting Shares") shall not be converted into the right to receive the Merger Consideration unless and until such shareholders shall have failed to perfect their right of payment under applicable law, but, instead, the holders thereof shall be entitled to payment of the fair value of such Dissenting Shares determined in accordance with Sections 14A:11-3 through 14A:11-11 of the NJBCA. If any such holder shall have failed to perfect or shall have effectively withdrawn or lost such right of dissent, each share of Company Common Stock held by such shareholder shall thereupon be deemed to have been converted into the right to receive and become exchangeable for, at the Effective Time, Merger Consideration in the manner provided for in Section 3.1. (b) The Company shall give Parent and Shareholders' Agent (i) prompt notice of any notices of dissent filed pursuant to Section 14A:11-2 of the NJBCA received by the Company, withdrawals of demands for payment and any other instruments served in connection with the exercise by shareholders of their dissenters' rights pursuant to the NJBCA and received by the Company and (ii) the opportunity to participate in all negotiations and proceedings with respect to notices of dissent and demands for payment under the NJBCA. The Company and Parent shall jointly direct all negotiations and proceedings with respect to notices of dissent and demands for payment under the NJBCA with counsel jointly selected by Parent and the Company and any such expenses relating to such negotiations and proceedings - 5 - shall be paid by the Company. Each of the Company and Parent shall direct such negotiations and proceedings in a prompt manner and shall use commercially reasonable efforts in conducting such negotiations and proceedings. The Company shall not, except with the prior written consent of Parent, which consent shall not be unreasonably withheld or delayed, (x) make any payment with respect to any such notice of dissent or demand for payment or (y) offer to settle or settle any such notice of dissent or demand for payment. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Subsidiary that, except as set forth in the disclosure schedule dated as of the date hereof (the "Company Disclosure Schedule"), it being agreed that disclosure of any item on the Company Disclosure Schedule shall be deemed disclosure with respect to all sections of this Article IV if the relevance of such item to all such other sections is clearly apparent from the face of the Company Disclosure Schedule: Section 4.1. Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted and is contemplated to be conducted following the Closing. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified and in good standing has not and could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. True, accurate and complete copies of the Company's articles of incorporation and bylaws, in each case as in effect on the date hereof, including all amendments thereto, have heretofore been delivered to Parent. Section 4.2. Capitalization. (a) The authorized capital stock of the Company consists of 2,000,000 shares of Class A Series I (voting) common stock, no par value ("Series I Common Stock"), and 18,000,000 shares of Class A Series II (non-voting) common stock, no par value ("Series II Common Stock"). 1,870,424 shares of Series I Common Stock and 16,796,866 of Series II Common Stock are outstanding, all of which are validly issued and are fully paid, non-assessable and free of preemptive rights and (iii) 73,840 shares of Series I Common Stock and 247,960 shares of Series II Common Stock are held in treasury of the Company. (b) No bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of the Company may vote are issued or outstanding. (c) As of the date hereof, there are no outstanding subscriptions, options, stock phantom rights (or rights outstanding under any Company phantom stock plan), grants, calls, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any rights of conversion or exchange under any outstanding security, - 6 - instrument or other agreement, obligating the Company to issue, deliver or sell, redeem or repurchase, or cause to be issued, delivered or sold, additional shares of the capital stock of the Company or obligating the Company to grant, extend or enter into any such agreement or commitment. Except as otherwise contemplated by this Agreement, there are no voting trusts, proxies or other agreements or understandings to which the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company. Section 4.3. Subsidiaries. The only subsidiaries of the Company are those set forth in Section 4.3 of the Company Disclosure Schedule. Each direct and indirect subsidiary of the Company is duly formed or organized, validly existing and in good standing under the laws of its jurisdiction of formation or incorporation and has the requisite corporate or limited liability company power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted, and each subsidiary of the Company is qualified to transact business, and is in good standing, in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary except in all cases where the failure to be so qualified and in good standing has not had and could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. All of the outstanding shares of capital stock of each subsidiary of the Company are validly issued, fully paid, nonassessable and free of preemptive rights and are owned directly or indirectly by the Company free and clear of any liens, claims, encumbrances, adverse rights and security interests whatsoever. There are no subscriptions, options, warrants, rights, calls, contracts, voting trusts, proxies or other commitments, understandings, restrictions or arrangements relating to the issuance, sale, voting or transfer of any shares of capital stock of or interest in any subsidiary of the Company, including any right of conversion or exchange under any outstanding security, instrument or agreement. Except for the capital stock of its subsidiaries, the Company does not own, directly or indirectly, any capital stock or other ownership interest of any corporation, partnership, limited partnership, limited liability company, joint venture or other entity. Except for the capital stock of other subsidiaries of the Company, each subsidiary of the Company does not own, directly or indirectly, any capital stock or other ownership interest of any corporation, partnership, limited partnership, limited liability company, joint venture or other entity. The Company has delivered to Parent complete and correct copies of the Charter and Bylaws or other organizational documents of the Company's subsidiaries. The Company's subsidiaries do not own, directly or indirectly, any shares of Company Common Stock. Section 4.4. Authority; Non-Contravention; Approvals. (a) The Company has full corporate power and authority to execute and deliver this Agreement and, subject to the Company Shareholders' Approval (as defined herein) to consummate the transactions. This Agreement has been approved by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement or, except for the Company Shareholders' Approval, the consummation by the Company of the transactions. The only vote of holders of any class or series of capital stock of the Company or any of its subsidiaries necessary to adopt and approve this Agreement and the Merger is the adoption and approval of this Agreement and the Merger by the holders of a majority of the total number of outstanding shares of Series I Common Stock entitled to vote at the Shareholders Meeting (the "Company - 7 - Shareholders' Approval"). The affirmative vote of the holders of any capital stock or other securities (or any separate class thereof) of the Company or any of its subsidiaries is not necessary to consummate the Merger or any transaction contemplated by this Agreement other than as set forth in the preceding sentence. This Agreement has been duly executed and delivered by the Company, and, assuming the due authorization, execution and delivery hereof by Parent and Subsidiary, constitutes a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except that such enforcement may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (b) general equitable principles. (b) The execution, delivery and performance of this Agreement by the Company and the consummation of the Merger and the other transactions will not violate, conflict with or result in any violation of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or give rise to a right of termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of Encumbrances upon any of the properties or assets of the Company or any of its subsidiaries under (i) the articles of incorporation or bylaws of the Company or any of its subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any Governmental Authority or court applicable to the Company or any of its subsidiaries or any of their respective properties or assets, or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, contract, lease or other instrument, obligation or agreement of any kind to which the Company or any of its subsidiaries is now a party or by which the Company or any of its subsidiaries or any of their respective properties or assets are bound or affected; subject in the case of the terms, conditions or provisions described in clause (ii) above, to obtaining (before the Effective Time) the Company Required Statutory Approvals (as defined below) and the Company Shareholders' Approval. Excluded from the foregoing sentences of this paragraph (b), insofar as they apply to the terms, conditions or provisions described in clause (iii) of the first sentence of this paragraph (b) (and whether resulting from such execution and delivery or consummation), are such violations, conflicts, breaches, defaults, terminations, accelerations or creations of Encumbrances that have not had and could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. (c) Except for (i) filings under any applicable state securities or blue sky laws or state takeover laws, (ii) the making of the Merger Filing with the Department of Treasury of the State of New Jersey in connection with the Merger, and (iii) any required filings with or approvals from applicable environmental authorities, including, without limitation, the New Jersey Industrial Site Recovery Act, as amended, public service commissions and public utility commissions (the filings and approvals referred to in clauses (i) through (iii) are collectively referred to as the "Company Required Statutory Approvals"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any Governmental Authority is necessary for the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not made or obtained, as the case may be, have not had and could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. - 8 - Section 4.5. Financial Statements. (a) The Company has furnished to Parent (i) the audited balance sheets of the Company as of August 31, 2003 (the "Company Balance Sheet") and as of August 31, 2002, and the related audited statements of income and cash flows of the Company for the twelve months ended August 31, 2003 and August 31, 2002 and (ii) the unaudited balance sheet of the Company as of November 30, 2003 and the related statements of income and cash flows of the Company for the three (3) months ended November 30, 2003 (collectively, the "Company Financial Statements"). The Company Financial Statements are accurate and complete in all material respects, have been prepared in accordance with generally accepted accounting principles consistently applied ("GAAP"), and fairly present the financial position, assets and liabilities of the Company as of the respective dates thereof, and the results of operations and cash flows of the Company for the periods covered thereby. Since the date of the Company Balance Sheet, (i) there has been no change in the assets, liabilities or financial condition of the Company from that reflected in the Company Balance Sheet, except for changes in the ordinary course of business which in the aggregate have not been materially adverse to the Company and (ii) to the Knowledge of the Company, no event or condition that individually or in the aggregate has had or could reasonably be expected to have a Company Material Adverse Effect has occurred or is continuing. The Financial Statements have been prepared from and are in accordance with the books and records of the Company. (b) The Company Financial Statements reflect all liabilities of the Company, whether absolute, accrued or contingent, as of the respective dates thereof, of the type required to be reflected or disclosed in a balance sheet (or the notes thereto) prepared in accordance with GAAP. The Company does not have any liabilities or obligations of any nature that are not reflected on the Company Financial Statements other than current liabilities (within the meaning of GAAP) incurred since the respective dates thereof in the ordinary course of business. To the Knowledge of the Company, there is no basis for the assertion against the Company of any material liability (other than current liabilities referred to above) not fully reflected or reserved against in the Company Financial Statements. Section 4.6. Absence of Undisclosed Liabilities. Neither the Company nor any of its subsidiaries have incurred any liabilities or obligations (whether absolute, accrued, contingent or otherwise) of any nature, except (a) liabilities, obligations or contingencies which (i) are accrued or reserved against in the Company Financial Statements or reflected in the notes thereto or (ii) were incurred after August 31, 2003 in the ordinary course of business, consistent with past practices or (b) liabilities, obligations or contingencies which have not had and could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. Section 4.7. Absence of Certain Changes or Events. Except as set forth in Section 4.7 of the Company Disclosure Schedule, since August 31, 2003, the Company, its subsidiaries and their shareholders have conducted their business only in the ordinary course consistent with past practice and there has been no Company Material Adverse Effect. Without limiting the foregoing, except as set forth in Section 4.7 of the Company Disclosure Schedule or as reflected in the Company Balance Sheet, since the date of the Company Balance Sheet, neither the Company nor any of its subsidiaries have (a) purchased or redeemed any shares of their - 9 - respective stock (including, without limitation, the Company Common Stock), or granted or issued any option, warrant or other right to purchase or acquire any such shares, (b) incurred any liabilities or obligations (whether absolute, accrued, contingent or otherwise), except liabilities and obligations incurred in the ordinary course of business which would not have a Company Material Adverse Effect, (c) encumbered any of their properties or assets, tangible or intangible, except for Encumbrances incurred in the ordinary course of business, consistent with past practice, (d) suffered any change or, to the Company's Knowledge, received any threat of any change in any of its relations with, or any loss or, to the Company's Knowledge, threat of loss of, any of the suppliers, clients, distributors, customers or employees that are material to the business of the Company or its subsidiaries, including any loss or change which may result from the transactions contemplated by this Agreement, (e) disposed of or has failed to keep in effect any rights in, to or for the use of any franchise, license, permit or certificate material to the business of the Company or its subsidiaries, (f) changed any method of keeping of its books of account or accounting practices, (g) disposed of or failed to keep in effect any rights in, to or for the use of any of the Intellectual Property (as hereinafter defined) material to the business of the Company or its subsidiaries, (h) sold, transferred or otherwise disposed of any assets, properties or rights of any of the business of the Company or its subsidiaries, except inventory sold in the ordinary course of business consistent with past practice, (i) entered into any transaction, agreement or event outside the ordinary course of the conduct of the business of the Company or its subsidiaries, (j) made nor authorized any single capital expenditure in excess of $25,000, or capital expenditures in excess of $100,000 in the aggregate, (k) changed or modified in any manner its existing credit, collection and payment policies, procedures and practices with respect to accounts receivable and accounts payable, respectively, including without limitation, acceleration of collections of receivables, failure to make or delay in making collections of receivables (whether or not past due), acceleration of payment of payables or failure to pay or delay in payment of payables, (l) incurred any damage, destruction or loss, whether covered by insurance or not, that would have a Company Material Adverse Effect, (m) made any declaration, payment or setting aside for payment of any dividend or other distribution (whether in cash, stock or property) with respect to any securities of the Company or its subsidiaries, other than as identified in writing to counsel for Parent on or prior to the date hereof; or (n) waived or released any material right or claim of the Company or its subsidiaries. Section 4.8. Litigation. Except as specifically set forth in Section 4.8 of the Company Disclosure Schedule, there are no claims, suits, actions or proceedings pending or, to the Knowledge of the Company, threatened against the Company or any of its subsidiaries, or any of their respective directors or officers (in their capacity as such), before any court or Governmental Authority, or any arbitrator (collectively, "Claims") that (i) seek to restrain the consummation of the Merger or the transactions or (ii) which if adversely determined could reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. Except as set forth in Section 4.8 of the Company Disclosure Schedule, neither the Company nor any of its subsidiary is a party to or bound by any judgment, decree, injunction, settlements, arbitration, awards, rule or order of any court or Governmental Authority or any arbitrator (collectively, "Judgments") with respect to or affecting the properties, assets, personnel or business of the Company, which prohibits or restricts the consummation of the transactions, or has had or could reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect or could affect the validity of this Agreement or its enforceability against any shareholder or the Company, or compliance by any shareholder or the Company. Except set forth in Section - 10 - 4.8 of the Company Disclosure Schedule as of the date hereof, there are no material Claims or Judgments with respect to or affecting the properties, assets, personnel or business of the Company or any of its subsidiaries. The Company Financial Statements reflect an adequate reserve for all claims, suits, actions, proceedings, judgments, decrees, injunctions, rules or order pending or threatened against the Company or any of its subsidiaries through the date of such financial statements. Section 4.9. No Violation of Law. Except as disclosed in Section 4.9 of the Company Disclosure Schedule, the Company and its subsidiaries are and, since August 31, 2003 have been in compliance in all material respects with all applicable provisions of any law, statute, order, rule, regulation, ordinance or judgment (including, without limitation, any applicable environmental law, ordinance or regulation) of any Governmental Authority. The Company and its subsidiaries have all material permits, licenses, approvals, and other governmental authorizations, consents and approvals necessary to conduct its businesses as presently conducted (collectively, the "Company Permits"). The Company and its subsidiaries are in compliance with the terms of the Company Permits in all material respects. Section 4.10. Contracts. Section 4.10 of the Company Disclosure Schedule lists, under the relevant heading, oral or written contracts, agreements, arrangements, guarantees, licenses, leases and commitments (each a "Contract"), that, to the Knowledge of the Company, exist as of the date hereof to which the Company or any subsidiary is a party or by which it is bound and which fall within any of the following categories (collectively, the "Material Contracts"): (a) Contracts not entered into in the ordinary course of the Company's or any of its subsidiaries' businesses and other than those that individually or in the aggregate are not material to the business of the Company and any of its subsidiaries, taken as a whole, (b) joint venture and partnership agreements, (c) Contracts containing covenants purporting to limit the freedom of the Company or any of its subsidiaries to compete in any line of business in any geographic area or to hire any individual or group of individuals, (d) Contracts which after the consummation of any of the transactions could have the effect of limiting the freedom of Parent or to compete in any line of business in any geographic area or to hire any individual or group of individuals, (e) Contracts which contain minimum purchase conditions in excess of $50,000 with respect to inventory purchases for resale, and $50,000 in the case of everything else, or requirements or other terms that restrict or limit the purchasing or distribution relationships of the Company or its subsidiaries or their affiliates (including after consummation of any of the transactions), Parent or any of its affiliates, or any customer, licensee or lessee thereof, (f) Contracts relating to any outstanding commitment for capital expenditures in excess of $50,000, (g) indentures, mortgages, promissory notes, loan agreements or guarantees of borrowed money, letters of credit or other agreements or instruments of the Company or its subsidiaries or commitments for the borrowing or the lending by the Company or its subsidiaries of amounts in excess of $50,000 in the aggregate or providing for the creation of any Encumbrance upon any of the assets of the Company or its subsidiaries with an aggregate value in excess of $50,000, (h) Contracts providing for "earn-outs" or other contingent payments by the Company or its subsidiaries involving more than $50,000 per contract over the terms of all such Contracts, (i) Contracts associated with off balance sheet financing, including but not limited to arrangements for the sale of receivables, (j) Material Licenses (as defined in Section 4.16), (k) stock purchase agreements, asset purchase agreements or other acquisition or divestiture agreements entered into since February 1, 1998 where the consideration in any individual transaction exceeds $50,000, (l) - 11 - material Contracts with respect to which a change in the ownership (whether directly or indirectly) of shares of Company Common Stock or the composition of the Board of Directors of the Company may result in a violation of or default under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of benefits under such Contract, except any such Contract that is not material to the business of the Company, (m) contracts with consultants, employees, officers or directors of the Company or any of its subsidiaries or (n) contracts with Governmental Entities (as defined below) involving an obligation by the Company or any of its subsidiaries to make a payment in excess of $50,000 (excluding customary rebates or credit to Governmental Entities pursuant to such contracts). All Material Contracts to which the Company or any of its subsidiaries is a party or by which they are bound are valid and binding obligations of the Company and, to the Knowledge of the Company, the valid and binding obligation of each other party thereto and are in full force and effect. Neither the Company, it subsidiaries, nor, to the knowledge of the Company, any other party thereto is in violation of or in default in respect of, nor has there occurred an event or condition which with the passage of time or giving of notice (or both) would constitute a default under or permit the termination of, any Material Contract. Notwithstanding the above, Material Contracts shall not include contracts or agreements with customers, vendors and suppliers entered into in the ordinary course of business (i) which are terminable on less than 60 days prior written notice by either party or (ii) which do not contain minimum purchase or other commitments or obligations provisions on the part of the Company. Section 4.11. Taxes. Except as disclosed in Section 4.11 of the Company Disclosure Schedule: (a) All federal, state, local and foreign returns, estimates, information statements and reports, including any schedule or attachment thereto or any amendment thereof ("Tax Returns"), relating to any and all Taxes concerning or attributable to the Company and its subsidiaries or their respective operations required to be filed by or on behalf of the Company or its subsidiaries have been timely filed (after giving effect to any valid extensions of time in which to make such filings). All such Tax Returns are true, correct and complete in all material respects. All Taxes, whether or not shown as due on such Tax Returns, have been timely paid. Adequate reserves or accruals for Taxes have been (or will be) provided on the Company's books and the Company Financial Statements, in accordance with GAAP, with respect to any period (or portion thereof) up to the Closing Date for which Tax Returns have not been filed or for which Taxes are not yet due and owing. The Company has made available to Parent all material Tax Returns, examination reports and statements of deficiencies filed or received for all taxable periods since February 1, 2000. (b) Neither the Company nor any of its subsidiaries have waived any statute of limitations in respect of the assessment and collection of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (c) Neither the Company nor any of its subsidiaries is currently the beneficiary of any extension of time within which to file any Tax Return. The Company and its subsidiaries are not a party to any Tax allocation or Tax sharing agreement. - 12 - (d) The Company and its subsidiaries have duly and timely withheld from employee salaries, wages and other compensation and has paid over to the appropriate Governmental Authority all material Taxes required to be so withheld and paid over. (e) There is no Tax deficiency outstanding, assessed or proposed in writing against the Company or any of its subsidiaries. No audit or other examination of any Tax Return of the Company or any of its subsidiaries is currently in progress. No Governmental Authority with respect to which the Company or any of its subsidiaries does not file Tax Returns has claimed that the Company or any of its subsidiaries are, or may be, subject to taxation by that jurisdiction. (f) Neither the Company, any of its subsidiaries nor any other person on behalf of the Company or its subsidiaries, has (i) filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by the Company or its subsidiaries, (ii) agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign law by reason of a change in accounting method (and the Company and each of its subsidiaries has no application pending with any Governmental Authority with respect to an accounting method change), (iii) executed or entered into closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign law or (iv) granted a power of attorney with respect to any Tax matter that would have continuing effect after the Closing. (g) Neither the Company nor its subsidiaries is subject to any private letter ruling of the Internal Revenue Service or comparable rulings of other Governmental Authorities. (h) Neither the Company nor any subsidiary is a party to any agreement, contract, arrangement or plan (including this Agreement and the consummation of the Merger) that has resulted or could result, separately or in the aggregate, in the payment of any "excess parachute payment" within the meaning of Section 280G of the Code (or any similar provision of state, local or foreign law) or that would bind the Company or its subsidiaries to compensate any individual for excise Taxes paid under Section 4999 of the Code. (i) The Company and it subsidiaries have never been a member of an affiliated group of corporations (as that term is defined in Section 1504(a)(1) of the Code, or any similar provision of state, local, or foreign law), and the Company and its subsidiaries have no liability for the Taxes of any person under Treasury Regulation 'SS' 1.1502-6 (or any similar provision of state, local, or foreign law), or as a transferee or successor, by contract, or otherwise. (j) The Company and its subsidiaries have not been the "distributing corporation" or the "controlled corporation" within the meaning of Section 355(a) of the Code. (k) There are no Encumbrances for Taxes on the assets of the Company or its subsidiaries, except for Liens for Taxes not yet due and payable. - 13 - (l) Neither the Company not any Shareholder is a foreign person within the meaning of Sections 897 and 1445 of the Code. (m) The Company and each of its subsidiaries is not a U.S. real property holding corporation as defined in Section 897 of the Code and has not been such a corporation during the five-year period ending on the date of the Closing Date. (n) The Company and its subsidiaries have disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code. The Company and its subsidiaries have not invested in any entity or entered into any arrangement that is a "tax shelter" within the meaning of Section 6662(d)(2)(C) of the Code or that has been described in any list or announcement published pursuant to Section 6662(d)(2)(D) of the Code. (o) The disallowance of a deduction under Section 162(m) of the Code of employee remuneration will not apply to any amount paid or payable by the Company under any commitment, program, arrangement or understanding. Section 4.12. Employee Benefit Plans; ERISA. (a) For purposes of this Agreement, (i) "Company Plan" means (x) each employee pension benefit plan (as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) ("Pension Plan"); (y) each employee welfare benefit plan (as such term is defined in Section 3(1) of ERISA) ("Welfare Plan") maintained contributed to or required to be contributed to by the Company and any of its ERISA Affiliates, and (z) each stock option, stock purchase, stock appreciation right and stock based plan and each deferred compensation, severance, change-in-control, incentive and bonus plan, program, contract or agreement, whether funded or unfunded, written or unwritten, subject to ERISA or exempt, maintained by the Company or any ERISA Affiliate (as such term is defined below) for the benefit of current or former employees or current or former directors of the Company; and (ii) "ERISA Affiliate" means any trade or business whether or not incorporated, under common control with the Company within the meaning of Section 414(b), (c), (m), or (o) of the Code or Section 4001(b) of ERISA. (b) With respect to each Company Plan, the Company has made available to Parent a true, correct and complete copy of: (i) all current plan documents, trust agreements, insurance contracts and other funding vehicles, and amendments thereto; (ii) all Form 5500 series forms for the most recently ended plan year (and any financial statements and other schedules attached thereto) filed with respect to any Company Plan for which such filing is required; (iii) all current summary plan descriptions and subsequent summaries of material modifications with respect to each Company Plan for which such descriptions and modifications are required under ERISA; (iv) the most recent IRS determination letter for each Pension Plan which is intended to be qualified under Section 401(a) of the Code (and any current or pending application with respect to any Pension Plan); and (v) the most recent actuarial report for all Pension Plans requiring actuarial valuation. - 14 - (c) The Company and, with respect to the Company Plans each ERISA Affiliate, and each of the Company Plans, are in compliance in all material respects with the applicable provisions of ERISA, and those provisions of the Code applicable to the Company Plans. (d) All contributions to and payments from any Company Plan which may have been required in accordance with its terms and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been timely made. All contributions with respect to the period ending on the Closing Date will have been paid by that date, even though not due until a later date. No Pension Plan which is subject to the minimum funding requirements of Part 3 of Subtitle B of Title I of ERISA or to Section 412 of the Code has incurred any "accumulated funding deficiency" within the meaning of Section 302 of ERISA or Section 412 of the Code and no funding deficiency has been waived within the meaning of Section 303 of ERISA or Section 412 of the Code. The funding method used in connection with each Company Plan is acceptable under current IRS guidelines and the actuarial assumptions used in connection with funding each such Company Plan are reasonable. No asset of the Company, and no asset of any ERISA Affiliate which is to be acquired by Parent pursuant to this Agreement, is subject to any lien under Code Section 401(a)(29), ERISA Section 302(f) or Code Section 412(n), ERISA Section 4068 or arising out of any action filed under ERISA Section 4301(b). (e) Except as indicated on Schedule 4.12(e), all material reports, returns and similar documents with respect to the Company Plans required to be filed with any government agency or distributed to any Company Plan participant have been duly and timely filed or distributed. (f) The Company and each ERISA Affiliate have complied with the notice and continuation coverage requirements of Section 4980B of the Code and the regulations thereunder with respect to each Company Plan that is, or was during any taxable year of the Company or any ERISA Affiliate for which the statute of limitations on the assessment of federal income taxes remains open, by consent or otherwise, a group health plan within the meaning of Section 5000(b)(1) of the Code. (g) No conditions exist that would reasonably be expected to subject the Company, or any ERISA Affiliate to any material liability under Title IV of ERISA. Set forth in Section 4.13(g) of the Company Disclosure Schedule are the unfunded liabilities and projected costs, as of the date of this Agreement, of each of the Company Plans. Unfunded liabilities include, but are not limited to, (1) the excess of the liabilities, determined using both the accumulated benefit obligation and projected benefit obligation methodology of Statement of Financial Accounting Standards No. 87, of any Company Plan subject to Title IV of ERISA over the fair market value of such Company Plan's assets (2) the amount of any unfunded deferred compensation, including, without limitation the present value, based on the methods and assumptions described in (1) of an Company Plan described in Section 201(2) of ERISA and (3) the actuarially determined present value of any obligation to provide retiree medical or life insurance benefits. For the purposes of this Section 4.13(g) unfunded liabilities and projected costs have been determined by the Company and its actuaries using actuarial methods and assumptions that are, individually and in the aggregate, reasonable taking into account circumstances known to them as of the date of this Agreement, specifically including - 15 - assumptions as to mortality and expected retirement ages, and, except as adjusted to satisfy the requirements that such assumptions be reasonable, consistent with prior practice. Projected costs include all legally required contributions to any such plans, plus the reasonably estimated ongoing costs of providing the annual benefits payable under any such Company Plans on the assumption those plans remain in effect in accordance with their terms. (h) Neither the Company nor any of its ERISA Affiliates, currently maintains or has, within the previous six years, maintained, been obligated to contribute to or incurred any liability that remains unsatisfied as of the date of this Agreement with respect to any multiemployer plan, as defined in Section 3(37) of ERISA. (i) Except as set forth on the Company Disclosure Schedule, neither the Company nor any of its ERISA Affiliates is bound by any collective bargaining agreement or legally binding agreement to maintain or contribute to any Company Plan. (j) Each Company Plan (i) has been administered in material compliance with its terms (except that in any case in which any Company Plan is currently required to comply with a provision of ERISA or of the Code, but is not yet required to be amended to reflect such provision, it has been administered in accordance with such provision); (ii) which is intended to be a qualified plan within the meaning of Section 401(a) of the Code has a favorable determination from the IRS as to its qualified status or is within the remedial amendment period for making any required changes and no determination letter with respect to any Company Plan has been revoked nor has the Company or any ERISA Affiliate received notice of threatened revocation, nor has any Company Plan been amended, or failed to be amended, since the date of its most recent determination letter in any respect that would adversely affect its qualification or materially increase its cost nor has any Company Plan been amended in a manner that would require security to be provided in accordance with Section 401(a)(29) of the Code; (iii) may, without liability, be amended, terminated or otherwise discontinued, except as specifically prohibited by federal law; and (iv) which constitutes a "Group Health Plan" under the Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and the regulations issued thereunder, such Group Health Plans are in compliance in all material respects with applicable provisions of HIPAA and the HIPAA regulations. (k) There are no pending investigations by any governmental agency involving the Company Plans, no termination proceedings involving the Company Plans, and no threatened or pending claims (except for claims for benefits payable in the normal operation of the Company Plans), suits or proceedings against any Company Plan or asserting any rights or claims to benefits under any Company Plan which could give rise to any material liability, nor, to the best of the Company's or any ERISA Affiliate's knowledge are there any facts which could give rise to any material liability in the event of any such investigation, claim, suit or proceeding. (l) Neither the Benefit Plans, the Company, any ERISA Affiliate, nor any employee of the foregoing, nor, to the best of the Company's knowledge, any trusts created thereunder, nor any trustee, administrator or other fiduciary thereof, has engaged in a "prohibited transaction" (as such term is defined in Section 4975 of the Code or Section 406 of ERISA) - 16 - which could subject any thereof to the tax or penalty on prohibited transactions imposed by such Section 4975 or the sanctions imposed under Title I of ERISA. (m) Except as set forth in Section 4.12(m) of the Company Disclosure Schedule which shall include a detailed description of the payments and other obligations of the Company under such Company Plan, no Company Plan provides benefits, payments or other remuneration to any employee, director, former employee or former director, including, without limitation, death or medical benefits, upon a change of control, or beyond termination of service or retirement other than (A) coverage mandated by law or (B) death or retirement benefits under a Company Plan qualified under Section 401(a) of the Code. Except as set forth in Section 4.12(m) of the Company Disclosure Schedule, neither the Company nor any ERISA Affiliate has made a written or oral representation to any current or former employee promising or guaranteeing any employer paid continuation of medical, dental, life or disability coverage for any period of time beyond retirement or termination of employment. (n) The Company maintains, and has complied with in all material respects, its policies or practices, on the proper classification for all employees, leased employees, consultants and independent contractors, for all purposes (including, without limitation, for all Tax purposes and for purposes of determining eligibility to participate in any Company Plan). (o) Neither the Company nor any ERISA Affiliate has incurred or is reasonably likely to incur any liability with respect to any plan or arrangement that would be included within the definition of "Company Plan" hereunder but for the fact that such plan or arrangement was terminated before the date of this Agreement. (p) There are no material pension, welfare, stock option, stock purchase, stock appreciation right, other stock based, deferred compensation, severance, change-in-control, incentive or bonus plan, program, contract or agreement which would be described in Section 4.12(a) above, but for the fact that such plans are maintained outside the jurisdiction of the United States. Section 4.13. Labor Controversies. There are no controversies pending or, to the knowledge of the Company, threatened between the Company or its subsidiaries and any of their respective employees, except for such controversies which have not had and could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. Neither the Company nor any of its subsidiaries is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by the Company or any of its subsidiaries, nor does the Company know of any activities or proceedings of any labor union to organize any such employees. The Company and each of its subsidiaries have no knowledge of any current strikes, slowdowns, work stoppages, lockouts or threats thereof, by or with respect to any employees of the Company or its subsidiaries. Section 4.14. Environmental Matters. (a) The Company and each of its subsidiaries is in compliance in all material respects with all applicable federal, state, local and foreign laws, statutes, orders, rules, - 17 - regulations, ordinances, decrees, orders or judgments relating to protection of human health and the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) and worker health and safety (collectively, "Environmental Laws"), which compliance includes, but is not limited to, the possession by the Company and its subsidiaries of all material Permits required under applicable Environmental Laws, and compliance in all material respects with the terms and conditions thereof. Neither the Company nor its subsidiaries have received written notice of or, to the Knowledge of the Company, is the subject of, any action, cause of action, claim, investigation, penalty, demand or notice by any Person alleging liability under or non-compliance with any Environmental Law (an "Environmental Claim") that is unresolved or for which payment or other performance is still pending. Neither the Company nor any of its subsidiaries have received any unresolved written request for information, notice of claim, demand or notification that it is or may be potentially responsible for any investigation, examination or response action in connection with any Release or threatened Release of Hazardous Substances. (b) No hazardous, toxic or polluting substance, material or waste, including, without limitation, petroleum or fractions thereof, polychlorinated biphenyls, asbestos or asbestos-containing materials, and radioactive materials ("Hazardous Substances") have been released, spilled, leaked, discharged, disposed of, pumped, poured, emitted, emptied, injected, leached, dumped or allowed to escape ("Released") by or on behalf of the Company. Except as disclosed in Section 4.14(b) of the Company Disclosure Schedule, to the actual Knowledge of the Company, no person at any property now or formerly owned, operated or leased by the Company or any of its predecessors has Released any Hazardous Substances. No asbestos, asbestos-containing materials or polychlorinated biphenyls are present at any building on the property operated or leased by the Company or its subsidiaries in violation of Environmental Laws or which requires abatement, removal, retrofilling or other investigation, remediation or other response action. No Hazardous Substances managed, used, generated, treated, manufactured, processed, handled, stored, recycled, transported, disposed or Released by the Company or its subsidiaries or any of their predecessors has come to be located at any site listed on the National Priorities List promulgated pursuant to the Comprehensive Environmental Response and Liability Act, CERCLIS or any similar list maintained by any Governmental Authority or which requires investigation, remediation or other response actions under applicable Environmental Laws. Neither the Company nor any of its subsidiaries have retained or assumed by contract any material liability or responsibility for any environmental matters including liability under or violations of Environmental Laws. Except as set forth in Section 4.14 of the Company Disclosure Schedule and heretofore provided to Parent and Subsidiary, there have been no environmental inspections, studies, audits, tests, reviews or other analyses in relation to any property or business now or previously owned, operated or leased by Company and its subsidiaries. Section 4.15. Title to Assets. The Company and each of its subsidiaries has good and marketable title in fee simple to all its real property and good and valid title to all its material leasehold interests and other material assets and properties (real, personal or intangible) reflected in the most recent balance sheet included in the Company Financial Statements, except for properties and assets that have been disposed of in the ordinary course of business since the date of such balance sheet, free and clear of all Encumbrances, except (a) liens for current taxes, payments of which are not yet delinquent, and (b) such imperfections in title and easements and - 18 - encumbrances, if any, as do not materially detract from the value, or interfere with the present use of the property subject thereto or affected thereby, or otherwise materially impair the Company's business operations. Section 4.15 of the Company Disclosure Schedule sets forth the addresses of the real property owned by the Company and its subsidiaries. All leases under which the Company leases any real or personal property are in good standing, valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event which with notice or lapse of time or both would become a default. The material machinery and equipment owned or leased by the Company and its subsidiaries is (i) suitable for the uses to which it is currently employed and (ii) in good operating condition (except for ordinary wear and tear). Section 4.16. Intellectual Property; Software. (a) The Company and each of its subsidiaries owns, or is validly licensed or otherwise has the right to use (in each case, free and clear of all material Encumbrances) all patents, patent applications, trademarks (both registered and unregistered), trade names, service marks (both registered and unregistered), copyrights (both registered and unregistered) and other proprietary intellectual property rights, computer programs and other technology that are material to the Company's and its subsidiaries' businesses. Section 4.16(a) of the Company Disclosure Schedule sets forth, as of the date hereof, a complete and accurate list of all patents and pending patent applications, trademarks, service marks, trade names, material copyrights (including without limitation, computer software programs), and registrations and applications for registration of copyrights, trademarks, service marks, trade names, trade dress and domain names (collectively "Intellectual Property") owned or held for use by the Company or any of its subsidiaries in the conduct of their business. (b) Section 4.16(b) of the Company Disclosure Schedule sets forth a list of all material licenses, sublicenses, consents and other agreements (whether written or otherwise) other than commercial off the shelf ("COTS") licenses for software ("Material License") (A) pertaining to any patents, trademarks, service marks, trade names, trade dress, copyrights, trade secrets, computer software (other than commercially available, off-the-shelf software applications obtained or licensed for less than $5,000), web site design, or other intellectual property used by the Company or its subsidiaries in the conduct of their businesses, and (B) by which the Company licenses or otherwise authorizes a third party to use the Company's or its subsidiaries' Intellectual Property. The Company is in compliance in all material respects with all applicable provisions of such agreements, and such agreements are now, and immediately following the Closing shall be, in full force and effect. Except as set forth in Section 4.16(b) of the Company Disclosure Schedule, the transactions contemplated under this Agreement do not and will not trigger any provision under any such license agreement to (x) permit the termination of such agreement by the licensor; (y) permit the renegotiation of any terms, including without limitation the amount of any commission, royalty or other fee(s) payable under such agreement; or (z) restrict, in any material way, the Company's or Surviving Corporation's use of such intellectual property in the business subsequent to the Effective Time. To the Knowledge of the Company, the computer software and information technology systems owned, leased or licensed for use in the business do not contain any viruses, worms, or other disabling or malicious code, and any such software or systems, to the extent applicable, will consistently and accurately interpret, calculate, manipulate, store, and exchange data/time date. - 19 - (c) In each of the following cases, except for those matters that have not had and could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect: (i) to the Knowledge of the Company, the business operations of the Company and its subsidiaries do not infringe, dilute, misappropriate or otherwise violate the patents, trademarks, service marks, trade names, trade dress, copyrights (including computer software), trade secrets or other intellectual property rights of any Person; (ii) to the Knowledge of the Company, no Person is challenging or infringing on or otherwise violating any right of the Company or any of its subsidiaries with respect to any Company Intellectual Property; (iii) the Company and its subsidiaries have not received any written notice or otherwise has Knowledge of any claim, demand, suit, order or proceeding that the operations of the Company or its subsidiaries infringe, misappropriate or otherwise violate the intellectual property rights of any Person; (iv) to its Knowledge, all Company Intellectual Property is in full force and effect, is held of record in the name of the Company or its subsidiaries free and clear of all Encumbrances, and is not the subject of any cancellation or reexamination proceeding or any proceeding challenging their extent or validity; and (v) none of the material trade secrets, know-how or other confidential or proprietary information of the Company or its subsidiaries has been disclosed to any Person unless such disclosure was necessary and made pursuant to an appropriate confidentiality agreement. (d) The information technology systems owned, licensed, leased, operated on behalf of, or otherwise held for use in the business by the Company and its subsidiaries, including all computer hardware, software, firmware and telecommunications systems used in the business of Company and its subsidiaries perform reliably and in material conformance with the appropriate specifications or documentation for such systems. Except for scheduled or routine maintenance, the information technology systems of Company and its subsidiaries are fully available for use in the business and, as applicable, by the customers and clients of the Company, 24 hours a day, 7 days a week. The Company and its subsidiaries have taken commercially reasonable steps to provide for the archival, back-up, recovery and restoration of the critical business data of the business. (e) Except as set forth in Section 4.16(e) of the Company Disclosure Schedule, the Company and its subsidiaries own or possess the right to use, including without limitation the right to modify and create derivative works of, the design, content, and all intellectual property rights associated with and contained in all of the Company's and its subsidiaries' operating web sites. The Company and its subsidiaries own all right, title and interest in the design and content of the web site free and clear of all claims, including without limitation claims or rights of joint owners and employees, agents, consultants or other parties involved in the development, creation, maintenance or enhancement of the web site. Section 4.17. Brokers and Finders. Except for its obligation to pay fees and expenses pursuant to its agreement with Everingham & Kerr, Inc., neither the Company nor its subsidiaries have entered into any contract, arrangement or understanding with any Person which may result in the obligation of the Company or any of its subsidiaries or Parent or any of its subsidiaries to pay any finder's fees, brokerage or agent commissions or other like payments in connection with the transactions contemplated hereby. Except for the fees and expenses payable to Everingham & Kerr, Inc., no Person is entitled to receive any investment banking, brokerage or finder's fee, or commission in connection with this Agreement, the Merger or the other - 20 - transactions based upon arrangements made by or on behalf of the Company or any of its subsidiaries. Section 4.18. New Jersey Shareholders Protection Act and Rights Agreement. Prior to the date hereof, the Board of Directors of the Company has taken all action necessary to exempt under or make not subject to (x) the provisions of the New Jersey Shareholders Protection Act (the "NJSPA") and (y) any other New Jersey takeover law or New Jersey law that purports to limit or restrict business combinations: (i) the execution of this Agreement, (ii) the Merger and (iii) the transactions contemplated hereby. Section 4.19. Affiliate Transactions. Except as disclosed in Section 4.19 of the Company Disclosure Schedule, since December 31, 2001, no director, officer, employee or greater than five percent (5%) shareholder of the Company or member of the family of any such Person or any entity in which any such Person or any member of the family of any such Person, has a substantial interest or is an officer, director, trustee, partner or holder of more than 5% of the outstanding capital stock thereof, is a party to any transaction with the Company or any of its subsidiaries, including any Contract providing for the employment of, furnishing of services by, rental of real or personal property from or otherwise requiring payments to any such Person or firm, other than employment-at-will arrangements in the ordinary course of business. Section 4.20. Products Liability. To the Knowledge of the Company, there are no (a) liabilities, known or unknown, fixed or contingent, with respect to any products of the Company or any of its subsidiaries that are based on a theory of strict product liability, negligence or other tort theories (as distinct from product warranty claims described in clause (b) below), or (b) liabilities of the Company or its subsidiaries, known or unknown, fixed or contingent, which have been asserted, for the breach of any express or implied product warranty or any other similar claim with respect to any product manufactured or sold by the Company or it subsidiaries (other than any claim based on standard warranty obligations made by the Company or it subsidiaries in the ordinary course of the conduct of their respective businesses to purchasers of their products), which individually or in the aggregate could reasonably be expected to have a Company Material Adverse Effect. Section 4.20 of the Company Disclosure Schedule contains copies of the Company's standard warranties and return policies. The Company, its subsidiaries and each of their respective predecessors has not and does not produce, market, distribute, sell or otherwise use in the operation of its business any product or component that contains asbestos. Section 4.21. Relationship with Customers and Suppliers. Section 4.21 of the Company Disclosure Schedule lists the names and addresses of the 10 suppliers of the Company and its subsidiaries which accounted for the largest dollar volume of purchases by the Company and its subsidiaries for the twelve months ended August 31, 2003 (the "Major Suppliers"). Section 4.21 of the Company Disclosure Schedule lists the names and addresses of the 10 customers of the Company and its subsidiaries which accounted for the largest dollar volume of purchases from the Company and its subsidiaries for the twelve months ended August 31, 2003 (the "Major Customers"). The Company knows of no written or oral communication, fact, event or action which exists or has occurred within 12 months prior to the date hereof, which would lead the Company reasonably to believe that any Major Customer or any Major Supplier will terminate or materially and adversely modify its business relationship with Company and its subsidiaries. - 21 - Section 4.22. Indemnification Claims. Other than as set forth in Section 4.22 of the Company Disclosure Schedule, the Company is not aware of any indemnification, breach of contract or similar claims by or against the Company or any of its subsidiaries which are pending or threatened (or which could be reasonably expected to be made in the future), in each case in excess of $100,000 in amount, with respect to any acquisition or disposition by the Company or any of its subsidiaries of any assets or businesses. Section 4.23. Absence of Questionable Payments. To the Company's Knowledge, neither the Company, nor its subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or its subsidiaries, has used any corporate or other funds for unlawful contributions, payments, gifts, or entertainment, or made any unlawful expenditures relating to political activity to government officials or others or established or maintained any unlawful or unrecorded funds in violation of (i) Section 104 of the Foreign Corrupt Practices Act of 1977 (15 U.S.C. 'SS'79dd-2), as amended, or (ii) any other applicable foreign, federal or state law. To the Company's Knowledge, neither the Company, nor its subsidiaries, nor any current director, officer, agent, employee or other person acting on behalf of the Company or its subsidiaries, has accepted or received any unlawful contributions, payments, gifts, or expenditures. Section 4.24. Board Recommendation. The Board of Directors of the Company, at a meeting duly called and held on the date of execution of this Agreement, has unanimously approved this Agreement and (i) determined that this Agreement and the transactions, including the Merger, are fair to and in the best interests of the shareholders of the Company and declared the Merger to be advisable; (ii) approved this Agreement; and (iii) recommended that the shareholders of the Company approve and adopt this Agreement and approve the Merger and directed that such matter be submitted to the Company's shareholders at the Company's Shareholders' Meeting. Section 4.25. Insurance. Except as set forth in Section 4.25 of the Company Disclosure Schedule, the Company and its subsidiaries have been fully covered at all times by insurance in scope and amount customary and reasonable for the businesses in which they are engaged and the liabilities they have incurred. Section 4.25 of the Company Disclosure Schedule contains a complete and correct list of all policies of insurance of the Company and its subsidiaries for the past 5 years, including the policy numbers, coverage amounts and deductibles for each policy. The Company has made available true, correct and complete copies of such policies to Parent. All such policies are in full force and effect. All premiums due on such policies have been paid in full. There is no default with respect to any provision contained in any such policy which could have an adverse affect upon the ability of the insured to collect insurance proceeds under such policy, nor has there been any failure by the insured to give any notice or present any claim under any such policy in a timely fashion or in the manner or detail required by the policy. No notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such policy has been received by the Company or any of their affiliates. Since its inception, all products liability and general liability policies maintained by or for the benefit of the Company and its subsidiaries have been "occurrence" policies and not "claims made" policies. - 22 - Section 4.26. Government Contracts. (a) (i) To the knowledge of the Company none of its employees or its subsidiaries' employees is or during the last three years has been (except as to routine security investigations) under administrative, civil, or criminal investigation, indictment, or information by any regulatory authority of the United States Federal Government or any state government or any of their respective agencies, the contracting or auditing function of any governmental entity with which it is contracting, the United States Department of Justice, the Inspector General of the United States Governmental Entity or the respective state equivalent, or any prime contractor with a governmental entity (a "Governmental Entity"), (ii) to the Knowledge of the Company, there is no pending audit or investigation by any Governmental Entity of the Company or its subsidiaries with respect to any alleged irregularity, misstatement, or omission arising under or relating to a Government Contract (as defined below), and (iii) during the last three years, neither the Company nor its subsidiaries has made a voluntary disclosure with respect to any alleged irregularity, misstatement, or omission arising under or relating to a Government Contract. To the Knowledge of the Company, neither the Company nor its subsidiaries has made any intentional misstatement or omission in connection with any voluntary disclosure that has led to any of the consequences set forth in clause (i) or (ii) of the immediately preceding sentence or any other material damage, penalty assessment, recoupment of payment, or disallowance of cost. For purposes of this Agreement, "Government Contract" means any contract that (i) is between the Company or a subsidiary and a Governmental Entity or (ii) is entered into by the Company or a subsidiary as a subcontractor (at any tier) in connection with a contract between another entity and a Governmental Entity. (b) To the Knowledge of the Company, there are (i) no outstanding claims against the Company or any subsidiary by a Governmental Entity or by any prime contractor, subcontractor, or vendor arising under any Government Contract and (ii) no disputes between the Company or a subsidiary and a Governmental Entity under the Contract Disputes Act or any other federal or state statute or between the Company or a subsidiary and any prime contractor, subcontractor, or vendor arising under or relating to any such Government Contract, except any such claim or dispute that would not reasonably be expected to result in a Company Material Adverse Effect. (c) Neither the Company nor any subsidiary has been suspended or debarred from doing business with a Governmental Entity and is not the subject of a finding of non-responsibility or ineligibility for U.S. Government contracting. (d) No misstatement contained in schedules of Government-furnished equipment provided to a Governmental Entity by the Company or a subsidiary under any Government Contract would reasonably be expected to result in a Company Material Adverse Effect. (e) The Company and each of its subsidiaries has not, with respect to any Government Contract, or within the past three years with respect to any former contract with a Governmental Entity, received a cure notice advising the Company or any subsidiary that it was in default or would, if it failed to take remedial action, be in default under such contract. - 23 - (f) All amounts previously charged by the Company or any subsidiary to any Government Contract have been reasonable, allowable, and allocable (as such terms are defined in the Federal Acquisition Regulations) and in accordance with Government Cost Accounting Standards to each such contract or proposal. (g) To the Knowledge of the Company, no basis exists for any of the following with respect to any of its contracts or subcontracts with any Governmental Entity: (i) a Termination for Default (as provided in 48 C.F.R. Ch.1 'SS'52.249-8, 52.249-9 or similar sections), (ii) a Termination for Convenience (as provided in 48 C.F.R. Ch.1 'SS'52.241-1, 52.249-2 or similar sections), or (iii) a Stop Work Order (as provided in 48 C.F.R. Ch.1 'SS'52.212-13 or similar sections); and the Company and its subsidiaries have no reason to believe that funding may not be provided under any contract or subcontract with any Governmental Entity in the upcoming federal fiscal year. (h) Except as set forth in Section 4.26(h) of the Company Disclosure Scheduled, the Company and its subsidiaries have no agreements, contracts, or commitments which require it to obtain or maintain a security clearance with any Governmental Entity. (i) Except as described in Section 4.26(i) of the Company Disclosure Schedule, no item of Intellectual Property (as defined in Section 4.16) has been conceived, developed, created or reduced to practice under or pursuant to any Government Contract. Section 4.27. Shareholders. There are no more than 35 purchasers (as such term is defined by Regulation D of the Securities Act, as defined below) of the Company that will purchase the Notes. Section 4.28. Disclosures. No representation or warranty made by the Company in this Agreement, nor any statement or record contained in the Company Disclosure Schedule of this Agreement or certificate furnished by the Company to the Parent or Subsidiary pursuant to this Agreement contains any untrue statement of a material fact or omits any material fact necessary to make the statements contained herein or therein not misleading. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY Parent and Subsidiary each represent and warrant to the Company that: Section 5.1. Organization and Qualification. Each of Parent and Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. Each of Parent and Subsidiary is qualified to transact business and is in good standing in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified and in good standing could not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. True, accurate and complete copies of each of Parent's and Subsidiary's articles (or certificate) of incorporation or formation and bylaws, in each case as in - 24 - effect on the date hereof, including all amendments thereto, have heretofore been delivered to the Company. Section 5.2. Authority; Non-Contravention; Approvals. (a) Parent and Subsidiary each have full corporate power and authority to enter into this Agreement and to consummate, the Merger and the other transactions. This Agreement has been approved by the shareholders of Subsidiary and the Boards of Directors of Parent and Subsidiary, and no other corporate proceedings on the part of Parent or Subsidiary are necessary to authorize the execution and delivery of this Agreement or the consummation by Parent and Subsidiary of the transactions. This Agreement has been duly executed and delivered by each of Parent and Subsidiary, and, assuming the due authorization, execution and delivery hereof by the Company, constitutes a valid and legally binding agreement of each of Parent and Subsidiary enforceable against each of them in accordance with its terms, except that such enforcement may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and (b) general equitable principles. (b) The execution, delivery and performance of this Agreement by each of Parent and Subsidiary does not and the consummation of the Merger and the other transactions will not violate, conflict with or result in violation of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or give rise to a right of termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any Encumbrance upon any of the properties or assets of Parent or any of its subsidiaries under (i) the respective articles (or certificates) of incorporation or bylaws of Parent or any of its subsidiaries, (ii) any law, regulation, judgment, injunction, order or decree binding on or applicable to Parent or any of its subsidiaries, except that no representation or warranty is made with respect to any antitrust statute, regulation, rule or other such restriction), or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which Parent or any of its subsidiaries is now a party or by which Parent or any of its subsidiaries or any of their respective properties or assets may be bound or affected; subject in the case of the terms, conditions or provisions described in clause (ii) above, to obtaining (before the Effective Time) the Parent Required Statutory Approvals (as defined in Section 5.2(c)). Excluded from the foregoing sentences of this paragraph (b), insofar as they apply to the terms, conditions or provisions described in clause (iii) of the first sentence of this paragraph (b) (and whether resulting from such execution and delivery or consummation), are such violations, conflicts, breaches, defaults, terminations, accelerations or creations of Encumbrances that have not had and could not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. (c) Except for (i) filings under any applicable state securities or blue sky laws or state takeover laws, (ii) the filing of appropriate documents with the relevant authorities of other states or jurisdictions in which the Parent or any of its subsidiaries is qualified to do business, (iii) the making of the Merger Filing with the Department of Treasury of the State of New Jersey in connection with the Merger, (iv) any required filings with or approvals from applicable environmental authorities, public service commissions and public - 25 - utility commissions, and (v) the filing of reports with the U.S. Department of Commerce regarding foreign direct investment in the United States, if applicable (the filings and approvals referred to in clauses (i) through (v) are collectively referred to as the "Parent Required Statutory Approvals"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any Governmental Authority is necessary for the execution and delivery of this Agreement by Parent or Subsidiary or the consummation by Parent or Subsidiary of the transactions contemplated hereby. Section 5.3. Financing. Parent has and will have at the Effective Time, and will make available to Subsidiary (or cause to be made available), $2,250,000 in funds, which funds will be utilized to consummate the Merger on the terms contemplated by this Agreement. Section 5.4. Brokers and Finders. Parent and its subsidiaries have not entered into any contract, arrangement or understanding with any Person which may result in the obligation of the Company, to pay prior to the Effective Time any finder's fees, brokerage or agent commissions or other like payments in connection with the transactions contemplated hereby. Except as set forth in Section 4.17, to the Knowledge of Parent, no Person is entitled to receive from the Company any investment banking, brokerage or finder's fee or commission prior to the Effective Time in connection with this Agreement, the Merger or the other transactions based upon arrangements made by or on behalf of Parent or any of its subsidiaries. Section 5.5. Subsidiary. Subsidiary was formed solely for the purposes of engaging in the transactions contemplated hereby, and has engaged in no other business activities and has conducted its operations only as contemplated hereby. There are no debts, obligations or liabilities of Subsidiary immediately prior to the Effective Time other than those relating to the financing provided by Parent as contemplated in Section 5.3, which financing has been approved by the Company. - 26 - ARTICLE VI COVENANTS OF THE PARTIES Section 6.1. Mutual Covenants. (a) General. Subject to the terms and conditions hereof (including Section 7.2(b)), each of the parties shall (and shall cause its respective subsidiaries to) use commercially reasonable efforts to take all actions and to do all things necessary, proper or advisable to consummate the Merger and the other transactions, including, without limitation, using reasonable efforts to prepare, execute and deliver such instruments and take or cause to be taken such actions as are necessary, proper or advisable under applicable laws and regulations to consummate and make effective as soon as reasonably practicable the transactions. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall take all such necessary action. Such commercially reasonable efforts shall apply to, without limitation, the obtaining of all necessary consents, approvals or waivers from third parties and Governmental Authorities necessary to the consummation of the transactions. (b) Other Governmental Matters. Subject to the terms and conditions hereof, each of the parties hereto shall (and shall cause its subsidiaries to) use commercially reasonable efforts to take any additional action that may be necessary, proper or advisable to (i) obtain from any Governmental Authority any consent, license, permit, waiver, approval, authorization required or appropriate to be obtained by either Parent or the Company in connection with the authorization, execution and delivery of this Agreement and the consummation of the Merger and the other transactions contemplated hereby, (ii) make all necessary filings, and thereafter make any required submissions with respect to the Merger and the other transactions required under any applicable federal or state securities or other laws, and (iii) effect all other necessary registrations, filings and submissions. Each of the parties shall (and shall cause each of their respective subsidiaries to) cooperate and use commercially reasonable efforts to contest vigorously and resist any action, including legislative, administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order whether temporary, preliminary or permanent that is in effect and restricts, prevents, prohibits or otherwise bars the consummation of the Merger or any other transaction. (c) Shareholder Approval. (i) (A) As soon as practicable but in no event later than March 26, 2004, the Company shall duly call and give notice of a meeting of its shareholders (the "Shareholders Meeting") for the purpose of obtaining the Company Shareholders' Approval and (B) as soon as practicable following the execution of this Agreement convene and hold the Shareholders Meeting for the purpose of obtaining the Company Shareholders' Approval. (ii) To the extent permitted by law, Parent agrees to cause all shares of Company Common Stock owned by Parent or any of its subsidiaries to be voted in favor of the Merger. - 27 - (d) Notification of Certain Matters. From and after the date hereof and until the Effective Time, upon receiving knowledge thereof, each party hereto shall promptly notify the other parties hereto of (i) the occurrence or nonoccurrence of any event, the occurrence or nonoccurrence of which has resulted in, or could reasonably be expected to result in, any condition to the Merger set forth in Article VIII, not being satisfied, (ii) the Company's failure to comply with any covenant or agreement to be complied with by it pursuant to this Agreement which has resulted in, or could reasonably be expected to result in, any condition to the Merger set forth in Article VIII, not being satisfied and (iii) any representation or warranty made by such party contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified as to materiality becoming untrue or inaccurate in any material respect; provided, however, that the delivery of any notice pursuant to this Section 6.1(d) shall not cure any breach of any representation or warranty contained in this Agreement or limit or otherwise affect the remedies available hereunder to the party receiving such notice. (e) Public Statements. All press releases or other public statements with respect to the Merger or the other transactions contemplated hereby issued or made available to customers and suppliers of the Company shall require the prior mutual agreement and approval of both Parent and the Company, unless otherwise required by applicable law. (f) The Company and its Board of Directors shall (i) use best efforts to ensure that no state takeover statute or similar statute, rule or regulation (including Sections 14A:10A-1 to 14A:10A-6 of the NJBCA) is or becomes applicable to, the Merger, this Agreement, or any of the other transactions contemplated by the foregoing and (ii) if any state takeover statute or similar statute, rule or regulation becomes applicable to, the Merger, this Agreement or any other transactions, use best efforts to ensure that the Merger and the other transactions, including the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Merger and the other transactions. (g) The Company shall use commercially reasonable efforts not to, and shall use commercially reasonable efforts not to permit any of its subsidiaries to, take any action or nonaction that will, or that could reasonably be expected to, result in (i) any of the representations and warranties of the Company set forth in this Agreement that is qualified as to materiality becoming untrue, (ii) any of such representations and warranties that is not so qualified becoming untrue in any material respect or (iii) except as otherwise permitted by Section 7.2, or any condition to the Merger set forth in Article VIII, not being satisfied. Section 6.2. Covenants of the Company. (a) Conduct of Business. Except as otherwise contemplated by this Agreement or disclosed in the Company Disclosure Schedule, after the date hereof and before the Closing Date or earlier termination of this Agreement, unless Parent shall otherwise consent in writing, the Company shall (and shall cause its subsidiaries to): - 28 - (i) to conduct its business in the ordinary course of business in all material respects, in substantially the same manner as conducted before the date of this Agreement; (ii) use commercially reasonable efforts to preserve intact its business organizations and goodwill, keep available the services of its respective present officers and key employees, and preserve the goodwill and business relationships with material customers and others having material business relationships with it; and (iii) not (A) amend or propose to amend its articles (or certificate) of incorporation or bylaws or equivalent organizational documents; (B) authorize for issuance, issue, sell, offer, deliver pledge or otherwise encumber or agree, propose to offer or commit to issue, sell, deliver, pledge or otherwise encumber (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) any additional shares of its capital stock of any class or other securities (except commercial loans) or equity equivalents (including, without limitation, stock options and any stock appreciation rights) or securities convertible into or exchangeable for (or accelerate any right to convert or exchange securities for any capital stock of the Company other than as provided in Section 3.6 hereof), except that upon written notice to Parent the Company may issue shares upon exercise of options or the vesting of stock grants outstanding on the date hereof, in accordance with their respective terms as in effect on the date hereof; (C) split, combine or reclassify its outstanding capital stock or declare, set aside or pay any dividend or distribution payable in cash, stock, property or otherwise, except for the payment of dividends or distributions to the Company; (D) adopt, authorize or propose a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries (other than the Merger); (E) redeem, purchase, acquire or offer or propose to redeem, purchase or acquire any shares of its capital stock or any options, warrants or rights to acquire any of its capital stock or any security convertible into or exchangeable for its capital stock; (F) make or agree to make, by merging or consolidating with, by purchasing an equity interest in or a portion of the assets of, or in any other manner, any material acquisition of any assets or businesses other than (1) the purchase of inventories and supplies from suppliers and vendors in the ordinary course of business, and (2) expenditures for fixed or capital assets not in excess of $100,000 in the aggregate; (G) sell, lease, exchange pledge, encumber or otherwise dispose of any material assets or businesses other than (1) sales of obsolete and excess assets and sales of inventories in the ordinary course of business, (2) sales of businesses or assets - 29 - disclosed in the Company Disclosure Schedule, and (3) Encumbrances entered into in the ordinary course of business; (H) make or revoke any material Tax election except in a manner consistent with past practice, change any method of accounting for Tax purposes, or settle or compromise any material Tax liability with any Governmental Authority or agree to an extension of a statute of limitations; (I) adopt or effect any change in accounting policies or practices, except to the extent required by generally accepted accounting principles, or by applicable law; (J) purchase any derivative securities, except for purchases to hedge interest and rate exposure in the ordinary course of business; (K) settle or compromise any material claims or litigation or modify or amend or terminate any Contracts or waive, release or assign any material right or claims; (L) (i) incur any indebtedness for borrowed money, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its subsidiaries, guarantee any such indebtedness or debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, or (ii) make any loans, advances or capital contributions to, or investments in, any other person, other than to or in the Company; (M) enter into any Contract with commitments by the Company or any of its subsidiaries for expenditures of $5,000 or more individually and $25,000 in the aggregate except those incurred in the ordinary course of business consistent with past practices; (N) pay, discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge, settlement or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in the Company Financial Statements or incurred since the date of such financial statements in the ordinary course of business consistent with past practice; (O) grant any bonus, award, loan, pay raise, unusual or extraordinary sick pay or vacation payment or unusual salary or other payments, disbursements or other distributions in any manner or form to any of the Company's or its affiliates, shareholders, directors, officers or employees (or related parties thereto); provided, however, that (i) the Company shall be entitled to make bonus payments for the quarter ended November 30, 2003 to management level employees of the Company and (ii) the Company shall be entitled to grant pay raises to management level employees, in each of (i) and (ii) upon providing Parent with written notice of the amounts of such bonus payments and/or pay raise and - 30 - the name of the employee at least five (5) days prior to making such bonus payment and/or granting such pay raise; (P) make a contribution in cash or assets to any rabbi trust or any analogous funding mechanism maintained or created to provide security under a nonqualified Company Plan, except to the extent required under such Company Plan as it exists on the date of this Agreement; or (Q) enter into any letter of intent or binding contract, agreement, commitment or arrangement with respect of any of the foregoing. (b) The Company shall cause to be prepared and timely filed all Tax Returns required to be filed by the Company on or prior to the Closing Date (the "Company Pre-Closing Returns"). The Company Pre-Closing Returns shall be prepared, where relevant, in a manner consistent with the Company's past practices except as otherwise required by applicable law. The Company shall allow Parent the opportunity to review and comment on the Company Pre-Closing Returns to be filed after the date hereof for a reasonable period prior to the intended filing date. The Company shall cause to be timely paid and shall be responsible for all Taxes due with respect to Company Pre-Closing Returns. (c) Parent shall cause all other Tax Returns of the Company to be prepared and filed. With respect to any such Tax Return that includes a period prior to the Closing Date (the "Straddle Period Returns"), Parent shall deliver such return (and a calculation of the portion of the Taxes shown on such return that are apportioned, as determined in Section 10.2(b), to the portion of the Tax period ending on the Closing Date) to the Shareholders' Agent, for review and comment, at least 60 days prior to the applicable filing deadline for such return. The Shareholders' Agent shall promptly notify Parent of any disputed items with respect to the Straddle Period Returns and the parties shall diligently attempt to resolve such disputes. If such disputes cannot be resolved within 30 days prior to the applicable filing deadline, such disputes shall be submitted to an independent accounting firm mutually acceptable to the Company and Parent for final resolution. ARTICLE VII ADDITIONAL AGREEMENTS OF THE PARTIES. Section 7.1. Access to Information. (a) Subject to applicable law and to the terms and conditions of the Confidentiality Agreement dated April 24, 2003 between Everingham & Kerr, Inc. and Parent (the "Confidentiality Agreement"), the Company and its subsidiaries shall afford to Parent and Subsidiary and Parent's employees, directors, officers, accountants, counsel, financial advisors and other representatives (the "Parent Representatives") full access during normal business hours and at other times with reasonable notice throughout the period before the Effective Time (including for the purpose of conducting any environmental investigations or audits that Parent or Subsidiary reasonably determine are necessary) to all of the Company's properties, books, contracts, commitments and records and, during such period, shall furnish promptly to Parent or - 31 - the Parent Representatives (i) a copy of each report, schedule and other document filed by the Company pursuant to the requirements of federal or state securities laws, (ii) such other information concerning the Company's business, properties and personnel as Parent shall reasonably request, and (iii) permit Parent to make such inspections as it may require (and the Company shall cooperate with in any inspections, including, without limitation, environmental diligence). Parent and its subsidiaries shall hold and shall use commercially reasonable efforts to cause the Parent Representatives to hold in strict confidence all nonpublic documents and information furnished to Parent, Subsidiary and any Parent Representative in connection with the transactions contemplated by this Agreement in accordance and subject to the Confidentiality Agreement. (b) The parties acknowledge that certain of the information which has been and will be made available pursuant to this Agreement may be proprietary and include confidential information ("Confidential Information"). The Company and Parent shall each hold all such Confidential Information about the other in confidence and shall not disclose it to any Person (other than to their respective Representatives, so long as those Representatives agree to keep any such Confidential Information in confidence) without the approval of the Person supplying such information; provided, however, that the foregoing restriction shall not apply to any information which is or becomes publicly known or which is lawfully obtained from a third party, or to any disclosure required by law or in connection with the enforcement of the Company's or Parent's rights under this Agreement. If the transactions contemplated hereby are not consummated, Parent and Subsidiary shall return all documents containing proprietary or Confidential Information received from them and destroy any internal analyses based in whole or in part on such information. This section supplements the terms and conditions of the Confidentiality Agreement and shall not be construed to supersede such Agreement except to the extent expressly inconsistent herewith. (c) If this Agreement is terminated, Parent shall promptly return to the Company (or, at the Company's request, destroy) all nonpublic written material provided pursuant to this Section 7.1 and shall not retain any copies, extracts or other reproductions in whole or in part of such written material. In such event all documents, memoranda, notes and other writings (including all electronic versions thereof) prepared by Parent based on the information in such material shall be destroyed (and Parent shall cause the Parent Representatives to similarly destroy the documents, memoranda and notes), and, if requested by the Company, such destruction (and reasonable best efforts) shall be certified to the Company in writing by an authorized officer supervising such destruction. Section 7.2. Acquisition Transactions. (a) From and after the date hereof and before the Effective Time or earlier termination of this Agreement, the Company shall not, and shall not permit any of its subsidiaries to, and the Company shall cause its subsidiaries, officers, directors and employees, and any attorney, accountant, investment banker, financial advisor or other agent retained by it or any of its subsidiaries not to, initiate, solicit, encourage (including by providing non-public or confidential information) or take any other action to facilitate, any inquiries or the making of any submissions of any Acquisition Proposal (as defined herein) or enter into or maintain or continue discussions or negotiate with any person or group in furtherance of such inquiries or to obtain or - 32 - induce any person or group to make or submit an Acquisition Proposal or agree to or endorse any Acquisition Proposal or assist or participate in, facilitate or encourage, any effort or attempt by any other person or group to do or seek any of the foregoing or authorize or permit any of its officers, directors or employees or any of its subsidiaries or any of its affiliates or any attorney, accountant, investment banker, financial advisor or other representative or agent retained by it or any of its subsidiaries to take such action. "Acquisition Proposal" means an inquiry, offer or proposal regarding any of the following (other than the transactions contemplated by this Agreement) involving the Company or any subsidiary: (i) any merger, consolidation, share exchange, recapitalization, liquidation, dissolution, business combination or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 20% or more of the assets of the Company and its subsidiaries, taken as a whole, or of any Material Business (as defined herein) or of any subsidiary or subsidiaries responsible for a Material Business in a single transaction or series of related transactions; (iii) any tender offer (including a self tender offer) or exchange offer that, if consummated, would result in any person or group beneficially owning more than 20% of the outstanding shares of any class of equity securities of the Company or its subsidiaries (or in the case of a person or group which beneficially owns more than 20% of the outstanding shares of any class of equity securities of the Company as of the date hereof, would result in such person or group increasing the percentage or number of shares of such class beneficially owned by such person or group) or the filing of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") in connection therewith; (iv) any acquisition of 20% or more of the outstanding shares of capital stock of the Company or the filing of a registration statement under the Securities Act in connection therewith or any other acquisition or disposition the consummation of which would prevent or materially diminish the benefits to Parent of the Merger; or (v) any public announcement by the Company or any third party of a proposal, plan or intention to do any of the foregoing or of any agreement to engage in any of the foregoing. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in this Section 7.2 by any officer, director, employee or affiliate of the Company or any attorney, accountant, investment banker or other advisor, agent or representative of the Company or any of its subsidiaries, whether or not such person is purporting to act on behalf of the Company or any of its subsidiaries or otherwise, shall be deemed to be a breach of this Section 7.2 by the Company. (b) Notwithstanding the provisions of paragraph (a) above or of this Agreement (other than the third sentence of this Section 7.2(b)), the Company may, prior to the adoption of this Agreement by the requisite vote of the shareholders of the Company, in response to a unsolicited, bona fide, written Acquisition Proposal from a financially capable Person (a "Potential Acquiror") which did not result from a breach of this Section 7.2, which the Company's Board of Directors determines would reasonably be expected to lead to, a Superior Proposal (as defined herein), furnish confidential or non-public information to such Potential Acquiror and negotiate with such Potential Acquiror, if, and only to the extent that (i) the Board of Directors of the Company, after consultation with and based upon the written opinion of independent legal counsel (who may be the Company's regularly engaged independent legal counsel), determines reasonably and in good faith that the failure to do so would constitute a breach of the fiduciary duty of the Board of Directors of the Company under applicable law and (ii) prior to taking such action the Company (x) delivers to Parent and Subsidiary the notice required pursuant to Section 7.2(c) stating that it is taking such action and (y) receives from such person or group an executed confidentiality agreement that is not, in any material respect, less - 33 - restrictive as to such person or entity than the Confidentiality Agreement and which, in any event, contains customary confidentiality and standstill restrictions and shall not contain any exclusivity provisions which would prohibit the Company from complying with its obligations under this Section 7.2 or otherwise under this Agreement. Additionally, nothing contained in this Section 7.2 shall prohibit the Company or the Board of Directors of the Company from taking and disclosing to its shareholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Securities Exchange Act of 1934, as amended or from making any disclosure to the Company's shareholders if the Board of Directors of the Company, after consultation with and based upon the written opinion of independent legal counsel (who may be the Company's regularly engaged independent counsel), determines reasonably and in good faith that the failure to take such action would constitute a breach of the fiduciary duty of the Board of Directors under applicable law; provided that neither the Board of Directors of the Company nor any committee thereof withdraws or modifies, or proposes to withdraw or modify, the approval or recommendation of the Board of Directors of the Company of the Merger or approves or recommends, or publicly proposes to approve or recommend, an Acquisition Proposal unless and until the Company and the Board of Directors of the Company have complied with all the provisions of this Section 7.2. Notwithstanding anything herein to the contrary, the first sentence and second sentence of this Section 7.2(b) and the proviso of Section 7.2(d) shall not apply with respect to any Acquisition Proposal from a Person (or such Person's affiliates) that prior to the date hereof entered into a confidentiality agreement, non-disclosure agreement or similar arrangement with the Company or any of its subsidiaries or any of their respective agents in connection with such party's consideration of an Acquisition Proposal. (c) The Company shall promptly notify (and, in any event, within one business day) Parent orally and in writing after receipt of any Acquisition Proposal, indication of interest or request for non-public information relating to the Company or its subsidiaries in connection with an Acquisition Proposal or for access to the properties, books or records of the Company by any Person that informs the Board of Directors of the Company that it is considering making, or has made, an Acquisition Proposal and the status of any discussions with respect to an Acquisition Proposal. Such notice shall include the material terms of such request, Acquisition Proposal or inquiry and the identity of the person making any such request, Acquisition Proposal or inquiry and the Company's response thereto. The Company will keep Parent fully informed of the status and details (including amendments or proposed amendments) of any such request, Acquisition Proposal or inquiry. Immediately following the execution of this Agreement, the Company will cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. (d) Except as expressly permitted by this Section 7.2, neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw, modify in a manner adverse to Parent or Subsidiary, or propose to withdraw, modify in a manner adverse to Parent or Subsidiary or fail to make its approval or recommendation of the Merger, this Agreement and the other transactions, (ii) approve or recommend, or propose to approve or recommend, any Acquisition Proposal, (iii) take any action not previously taken to render the provisions of any anti-takeover statute, rule or regulation (including Sections 14A:10A-1 to 14A:10A-6 of the NJBCA) inapplicable to any person (other than Parent, Subsidiary or their affiliates) or group or to any Acquisition Proposal, or (iv) cause the Company to accept such - 34 - Acquisition Proposal and/or enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement (each, an "Acquisition Agreement") related to any Acquisition Proposal; provided, however, that prior to the adoption of this Agreement by the requisite vote of the shareholders of the Company, the Board of Directors of the Company may terminate this Agreement pursuant to Section 9.1(e) if, and only to the extent that (A) such Acquisition Proposal is a Superior Proposal, (B) the Board of Directors of the Company, after consultation with and based upon the written opinion of independent legal counsel (who may be the Company's regularly engaged independent counsel), determines reasonably and in good faith that the failure to do so would constitute a breach of the fiduciary duty of the Board of Directors of the Company under applicable law, (C) the Company shall, prior to or simultaneously with the taking of such action, have paid or pay to Parent or Subsidiary or their designee the Termination Fee referred to in Section 9.2, (D) the Company is not in material breach of this Agreement, including without limitation this Section 7.2, (E) the Company shall have complied with its obligations under Section 9.1(e) and (F) concurrently with such termination, the Company enters into a definitive acquisition agreement with respect to such Superior Proposal. (e) "Superior Proposal" means any proposal made by one or more third parties (the "Bidders") to acquire, directly or indirectly, including pursuant to a tender offer, exchange offer, merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or other similar transaction, all the shares of Company Common Stock then outstanding or all or substantially all of the assets of the Company and its subsidiaries for consideration consisting of all cash and such Bidders have such consideration immediately available and such proposal is not otherwise subject to a financing or funding condition, which the Board of Directors of the Company determines reasonably and in good faith (based on the written opinion of a financial advisor of nationally recognized reputation) to be superior to the holders of Company Common Stock from a financial point of view (taking into account any changes to the terms of this Agreement that have been proposed by Parent in response to such proposal) and to be more favorable to holders of Company Common Stock (taking into account all financial and strategic considerations, including relevant legal, financial, regulatory and other aspects of such proposal and the third party making such proposal and the conditions and prospects for completion of such proposal) than the Merger and the other transactions taken as a whole. "Material Business" means any business (or the assets needed to carry out such business) that contributed or represented 20% or more of the net sales, the net income or the assets (including equity securities) of the Company and its subsidiaries taken as a whole. Section 7.3. Expenses and Fees. If the Agreement is terminated all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, except as provided in Section 9.2. If the Agreement and the transactions contemplated hereby are consummated, all costs and expenses incurred shall be paid by the party incurring such expenses, except that the Company shall pay (a) the reasonable fees and expenses of all of Parent's third party advisors (including accountants and legal advisors retained by Parent in connection with the transactions contemplated by this Agreement) up to $200,000 and (b) the reasonable fees of the Company's accountants and legal advisors. Notwithstanding anything herein to the contrary, the shareholders of the Company immediately prior to the Effective time shall pay any and all fees and expenses of Everingham & Kerr, Inc. - 35 - Section 7.4. Employee Benefits. (a) During the period commencing at the Effective Time and ending on the first anniversary thereof (the "Anniversary Period"), the Surviving Corporation shall provide to employees who were employees of the Company or its subsidiaries immediately prior to the Effective Time (collectively, "Company Employees") severance benefits that are substantially similar to the severance benefits provided to those Company Employees under the Company's existing severance plans (the "Severance Plans") as they exist on the date of this Agreement. During the Anniversary Period, the Surviving Corporation shall provide to Company Employees (for so long as they are employed by the Surviving Corporation) salary and other benefits that are, in the aggregate, substantially similar to those provided by the Company and its subsidiaries to such Company Employees immediately prior to the Effective Time (including, without limitation, benefits pursuant to qualified and nonqualified retirement plans, savings plans, medical, dental, disability and life insurance plans and programs, deferred compensation arrangements, bonus plans, and retiree benefit plans, policies and arrangements), but excluding for purposes of this comparison the Company's long-term incentive programs or other Company Plans providing for compensation based on the equity of the Company and any such benefits provided prior to the Effective Time that consist of any equity-related compensation. (b) Except to the extent prohibited by law, with respect to any employee benefit plans in which any Company Employees first become eligible to participate on or after the Effective Time, and in which such Company Employees did not participate before the Effective Time, the Surviving Corporation shall: (i) to the extent applicable, use commercially reasonable efforts to cause the waiver of all pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Company Employees under any such plans in which such employees may be eligible to participate after the Effective Time, except to the extent such pre-existing conditions, exclusions or waiting periods would apply under the Company Plan, agreement, policy or arrangement that provides the same type of benefits as it existed immediately before the Effective Time; (ii) provide each Company Employee with credit for any co-payments and deductibles paid before the Effective Time (to the same extent such credit was given under the appropriate Company Plan, agreement, policy or arrangement that provides the same type of benefits as it existed immediately before the Effective Time) in satisfying any applicable deductible or out-of-pocket requirements under any such plan in which such employees may be eligible to participate after the Effective Time; (iii) recognize all service of such Company Employees to the extent such Company Employee's service was recognized by a Company Plan (or vacation, personal or sick day policy of the Company) as in effect on the date of this Agreement for all purposes (including, without limitation, purposes of eligibility to participate, vesting credit, entitlement to benefits, and, benefit accrual) in any plan or policy in which such employees may be eligible to participate or receive benefits after the Effective Time, which provides the same type of benefits provided under the Company Plan as it existed immediately before the Effective Time and (iv) with respect to flexible spending accounts, provide each Company Employee with a credit for any salary reduction contributions made thereto and a debit for any expenses incurred thereunder with respect to the plan year in which the Effective Time occurs. - 36 - (c) Notwithstanding anything in this Section 7.4 to the contrary, (i) the Surviving Corporation shall not be required to take any actions under this Section 7.4 that would result in duplication of the benefits (including, without limitation, the accrual of benefits under a pension plan) with respect to any Company Employee, (ii) any plan, program or arrangement adopted or maintained by the Surviving Corporation, that is not a plan, program or arrangement that provides the same type of benefits provided under a Company Plan as of the date immediately prior to the Effective Time shall not be subject to the provisions of Section 7.4(b), and (iii) nothing in this Section 7.4 shall (A) subject to Sections 7.4(a) and 7.4(b), prohibit any changes to or terminations of the Company Plans (including, but not limited to, the Severance Plans), (B) confer upon any Company Employee any right with respect to continued employment by the Surviving Corporation or any of its ERISA Affiliates, or (C) create any third party beneficiary rights in any Company Employee, any beneficiary or any dependent thereof with respect to the compensation, terms and conditions of employment or benefits that may be provided to any Company Employee (or former Company Employee) by the Surviving Corporation or its ERISA Affiliates or under any benefit plan which the Surviving Corporation or its ERISA Affiliates may maintain or cause to be maintained with respect to such Company Employee. Section 7.5. Litigation. The Company shall give Parent and Shareholder's Agent the opportunity to participate in the defense or settlement of any shareholder litigation against the Company and its directors or officers relating to the Merger or the other transactions contemplated by this Agreement, and shall give Parent the opportunity to participate in the defense of such litigation (at the Company's cost); provided, however, that no settlement shall be agreed to before the consummation of the Merger without Parent's consent, which consent shall not be unreasonably withheld or delayed; and provided further that no settlement requiring a payment or an admission of any wrongdoing by a director or officer shall be agreed to without such director's or officer's consent. Notwithstanding anything is this section to the contrary, Parent shall have the opportunity to direct the defense or settlement of shareholder litigation against the Company and its directors and officers relating to the Merger or the other transactions contemplated by this Agreement if each of the Litigation Conditions (as defined herein) have not been satisfied. Section 7.6. Third Party Standstill Agreements. During the period from the date of this Agreement through the Effective Time, the Company shall not terminate, amend, modify or waive any material provision of any confidentiality or standstill or similar agreement to which the Company and any of its subsidiaries is a party (other than any involving Parent or Subsidiary). Subject to the foregoing, during such period, the Company agrees to enforce and agrees to permit (and, to the fullest extent permitted under applicable law, hereby assigns its rights thereunder to Parent and Subsidiary) Parent and Subsidiary to enforce on its behalf and as third party beneficiaries thereof, to the fullest extent permitted under applicable law, the provisions of any such agreements, including obtaining injunctions to prevent any breaches of such agreements and to enforce specifically the terms and provisions thereof in any court or other tribunal having jurisdiction. Notwithstanding the foregoing, nothing in this Section 7.6 is intended to prevent the Company from exercising its rights under Section 7.2 in accordance with the provisions of such Section. In addition, the Company hereby waives any rights the Company may have under any standstill or similar agreements to object to the transfer to Subsidiary of all shares of Company Common Stock held by Shareholders covered by such standstill or similar - 37 - agreements and hereby covenants not to consent to the transfer of any shares of Company Common Stock held by such Shareholders to any other person unless (i) the Company has obtained the specific, prior written consent of Parent with respect to any such transfer or (ii) this Agreement has been terminated pursuant to Article IX. Section 7.7. Insurance. The Company shall maintain in full force and effect the policies of insurance listed in Section 4.25 of the Company Disclosure Schedule, subject only to variations required by the ordinary operations of its business, or else will obtain, prior to the lapse of any such policy, substantially similar coverage with insurers of recognized standing and approved in writing by Parent. The Company shall promptly advise Parent in writing of any change of insurer or type of coverage in respect of the policies listed in Section 4.25 of the Company Disclosure Schedule. ARTICLE VIII CONDITIONS Section 8.1. Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger are subject to the satisfaction or waiver, where permissible, before the Effective Time, of the following conditions: (a) this Agreement shall have been adopted by the requisite affirmative vote of the shareholders of the Company in accordance with applicable law; (b) no statute, rule, regulation, executive order, decree or injunction shall have been enacted, entered, promulgated, or enforced by any court or Governmental Authority which is in effect and has the effect of prohibiting the consummation of the Merger; and (c) (i) in the case of the Company's obligations, (x) all other Company Required Statutory Approvals necessary for the consummation of the Merger and the transactions shall have been obtained and be in effect at the Effective Time, and (y) all other consents or approvals of Governmental Authorities necessary for the consummation of the Merger and the transactions shall have been obtained and be in effect at the Effective Time, except where the failure to obtain any such consent or approval could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, and (ii) in the case of Parent's and Subsidiary's obligations, (x) all other Parent Required Statutory Approvals necessary for the consummation of the Merger and the transactions contemplated hereby shall have been obtained and be in effect at the Effective Time, and (y) all other consents or approvals of Governmental Authorities necessary for the consummation of the Merger and the transactions shall have been obtained and be in effect at the Effective Time, except where the failure to obtain any such consent or approval could not reasonably be expected (i) to have a Company Material Adverse Effect or a Parent Material Adverse Effect, (ii) to prohibit or materially limit the ownership or operation by the Company, Parent or any of their respective subsidiaries or affiliates of any of the businesses or assets of the Company or Parent or any of their respective subsidiaries or affiliates, (iii) to impose material limitations on the ability of Parent or Subsidiary to acquire or hold, or exercise full rights of ownership of, any shares of Company Common - 38 - Stock (iv) to prohibit Parent or any of its subsidiaries or affiliates from effectively controlling the businesses of the Company in any material respect, or (v) to require divestiture by Subsidiary or any of its affiliates of any shares of Company Common Stock. Section 8.2. Conditions to Obligations of Parent and Subsidiary to Effect the Merger. The obligations of Parent and Subsidiary to effect the Merger and otherwise consummate the transactions contemplated by this Agreement are subject to the satisfaction (or waiver by Parent), at or prior to the Closing, of each of the following conditions: (a) Shareholder Approval. This Agreement and the transactions contemplated hereby shall have been adopted by the requisite vote of the Shareholders of the Company in accordance with applicable law; provided, that no more than ten percent (10%) of holders of Company Common Stock shall exercise dissenter's rights within the meaning of Section 14A:11-2 of the NJBCA. (b) GE Financing. The Company shall have received financing of at least $1,500,000 from GE Commercial Distribution Finance Corporation, on terms and conditions satisfactory to Parent and the Company. (c) Performance of Agreements; Representations and Warranties. (i) The Company shall have performed in all material respects all of the obligations under this Agreement to be performed by it at or before the Closing, (ii) all representations and warranties of the Company contained in this Agreement that are qualified by materiality will be true and correct in all respects on the date of this Agreement and on the Effective Date subject to such qualification, with the same force and effect as though such representations and warranties had been made on and as of the Closing Date, except to the extent that such representations are made expressly as of an earlier date, which representations will be true and correct as of such earlier date, and (iii) all representations and warranties of the Company contained in this Agreement that are not qualified by materiality will be true and correct in all material respects on the date of this Agreement and on the Effective Date, with the same force and effect as though such representations and warranties had been made on and as of the Effective Date, except to the extent that such representations are made expressly as of an earlier date, which representations will be true and correct as of such earlier date. Parent and Subsidiary shall have been furnished with a certificate of the Company's President or Vice President, dated the Effective, certifying to the foregoing. (d) AntiTrust Filings. No Governmental Authority having jurisdiction over the transactions contemplated hereby shall have taken any action to enjoin or prevent the consummation of such transactions. (e) Required Governmental Consents; Notice. All statutory and regulatory consents and approvals which are required under the laws or regulations of the United States and other Authorities shall have been obtained. (f) Third Party Consents. All third-party consents required in connection with the transactions contemplated hereby shall have been obtained for the Contracts - 39 - set forth in Section 8.2(f) of the Company Disclosure Schedule, excluding consents under those Contracts that are terminable at will by such third party (the "Specified Contracts"). (g) Divestiture of Real Estate. The Company shall have divested its building located in Springfield, New Jersey and made a payment to all of its shareholders of the proceeds of such sale prior to the Effective Date. (h) Lease Agreement. Parent and the Company shall have entered into an amended five-year lease agreement for the Springfield premises, such lease to be on terms and conditions satisfactory to Parent and the Company as agreed to prior to the date hereof. (i) No Material Adverse Effect. No Material Adverse Effect shall have occurred, nor shall any event or circumstance which could reasonably be expected to have a Material Adverse Effect have occurred. (j) Credit Facilities. The bank and credit facilities the Company currently has in place with GE Commercial Distribution Finance Corporation and Textron Financial Corporation shall either (i) remain in place with such terms, conditions and agreements as are satisfactory to Parent or (ii) be replaced with such bank and credit facilities upon terms and conditions satisfactory to Parent and the Company. (k) Grabel Investment. At the Effective Time, Four Kings Management LLC shall provide the Company with a $750,000 note, in the form agreed to by the parties thereto prior to the date hereof. (l) Net Tangible Assets. Net tangible assets of the Company at the Effective Date shall be at least $5,385,000 and the composition of the Company's assets and liabilities shall be consistent with the Company's balance sheet as of and at February 28, 2003. (m) Employment Agreements. The Company shall enter into (a) employment agreements with Mary Margaret Grabel and Keith Grabel, in the forms agreed to by the parties thereto prior to the date hereof (the "Employment Agreements") and (b) a severance agreement with Joyce Tischler, in the form agreed to by the parties thereto prior to the date hereof, such agreement and the Employment Agreements each to contain a non-competition agreement with the Company. (n) Management Agreement. The Company shall have entered into a Management Agreement with DARR Global Holdings, Inc., in the form agreed to by the parties thereto prior to the date hereof. (o) Westwood Solutions LLC. The Company shall own 100% of the outstanding membership interest in Westwood Solutions LLC. (p) Company Closing Certificate. Parent shall have been furnished with a certificate executed by the Company and the Shareholders' Agent (the "Company Closing Certificate"), dated the Closing Date, certifying that the conditions set forth in Sections 8.1 and 8.2 have been fulfilled (or waived) at or prior to the Closing Date. - 40 - (q) FIRPTA Certificate. At or prior to Closing, the Company shall deliver to Parent, a certificate, pursuant to Treasury Regulation 'SS''SS' 1.897-2(h) and 1.1445-2(c), certifying that the Company Common Stock is not a U.S. real property interest. (r) Letter of Transmittal. The Parent shall have received from each Shareholder the letter of transmittal in the form of Exhibit E attached hereto. (s) Voting Agreement. The Principal Shareholders shall have executed and delivered the Voting Agreement, in the form of Exhibit F, to Parent and Subsidiary. (t) Securities Purchase Agreement. Mary Margaret Grabel shall have entered into the Securities Purchase Agreement by and among Parent, DARR Westwood LLC and Mary Margaret Grabel, on terms agreed to by the parties thereto prior to the date hereof. (u) Purchase and Sale Agreement Amendment. The Company shall have entered into an Amendment to the Purchase and Sale Agreement, such amendment in the form attached hereto as Exhibit G, with Westwood Property Holdings LLC, under which amendment Westwood Property Holdings LLC agrees to fully indemnify the Company for any and all environmental liabilities at the property located on Diamond Road in Springfield Township, Union County, New Jersey. (v) Financing Statements. The UCC-1 financing statements filed by (i) MLC Federal Inc. with the State of New Jersey Department of Treasury Commercial Recording and (ii) First Union National Bank with the New Jersey Union County Clerk and Fairfax County Circuit Court, Virginia shall be terminated. (w) Opinion of Counsel. Parent shall have received from both Drinker Biddle & Reath LLP and counsel to the Company, an opinion dated the Effective Date, in form and substance satisfactory to Parent. Section 8.3. Conditions to Obligations of the Company. The obligations of the Company to effect the Merger and otherwise consummate the transactions contemplated by this Agreement are subject to the satisfaction (or waiver by the Company), at or prior to the Closing, of each of the following conditions: (a) GE Financing. The Company shall have received financing of at least $1,500,000 from GE Commercial Distribution Finance Corporation, on terms and conditions satisfactory to Parent and the Company. (b) Performance of Agreements; Representations and Warranties. (i) Parent and Subsidiary shall have performed in all material respects all of the obligations under this Agreement to be performed by it at or before the Closing, (ii) all representations and warranties of Parent and Subsidiary contained in this Agreement that are qualified by materiality will be true and correct in all respects on the date of this Agreement and on the Effective Date subject to such qualification, with the same force and effect as though such representations and warranties had been made on and as of the Closing Date, except to the extent that such representations are made expressly as of an earlier date, which representations will be true and correct as of such earlier date, and (iii) all representations and warranties of Parent and - 41 - Subsidiary contained in this Agreement that are not qualified by materiality will be true and correct in all material respects on the date of this Agreement and on the Effective Date, with the same force and effect as though such representations and warranties had been made on and as of the Effective Date, except to the extent that such representations are made expressly as of an earlier date, which representations will be true and correct as of such earlier date. The Company shall have been furnished with a certificate of Parent's President or Vice President, dated the Effective, certifying to the foregoing. (c) AntiTrust Filings. No Governmental Authority having jurisdiction over the transactions contemplated hereby shall have taken any action to enjoin or prevent the consummation of such transactions. (d) Required Governmental Consents; Notice. All statutory and regulatory consents and approvals which are required under the laws or regulations of the United States and other Authorities shall have been obtained. (e) Third Party Consents. All third-party consents required in connection with the transactions contemplated hereby shall have been obtained for the Specified Contracts. (f) Divestiture of Real Estate. The Company shall have divested its building located in Springfield, New Jersey and made a payment to all of its shareholders of the proceeds of such sale prior to the Effective Date. (g) No Material Adverse Effect. No Material Adverse Effect shall have occurred, nor shall any event or circumstance which could reasonably be expected to have a Material Adverse Effect have occurred. (h) Credit Facilities. The bank and credit facilities the Company currently has in place with GE Commercial Distribution Finance Corporation and Textron Financial Corporation shall either (i) remain in place with such terms, conditions and agreements as are satisfactory to Parent or (ii) be replaced with such bank and credit facilities upon terms and conditions satisfactory to Parent and the Company. (i) DARR Westwood LLC Investment. At the Effective Time, DARR Westwood LLC shall provide the Company with a $750,000 note, in the form agreed to by the parties thereto prior to the date hereof. (j) Employment Agreements. The Company shall enter into (a) the Employment Agreements and (b) a severance agreement with Joyce Tischler, in the form agreed to by the parties thereto prior to the date hereof, such agreement and the Employment Agreements each to contain a non-competition agreement with the Company. (k) Management Agreement. The Company shall have entered into a Management Agreement with DARR Global Holdings, Inc., in the form agreed to by the parties thereto prior to the date hereof. - 42 - (l) Parent's Closing Certificate. The Company shall have been furnished with a certificate executed by Parent (the "Parent Closing Certificate"), dated the Closing Date, certifying that the conditions set forth in Sections 8.1 and 8.3 have been fulfilled (or waived) at or prior to the Closing Date. (m) Preferred Stock. The Parent shall have furnished the Company, and the Company shall have approved, the terms of the Certificate of Designation for the 8% Cumulative Compounding Preferred Stock of the Parent. (n) Securities Purchase Agreement. DARR Westwood LLC shall have entered into the Securities Purchase Agreement by and among the Parent, DARR Westwood LLC and Mary Margaret Grabel, on terms agreed to by the parties thereto prior to the date hereof. (o) Purchase and Sale Agreement Amendment. The Company shall have entered into an Amendment to the Purchase and Sale Agreement, such amendment in the form attached hereto as Exhibit G, with Westwood Property Holdings LLC, under which amendment Westwood Property Holdings LLC agrees to fully indemnify the Company for any and all environmental liabilities at the property located on Diamond Road in Springfield Township, Union County, New Jersey. ARTICLE IX TERMINATION, AMENDMENT AND WAIVER Section 9.1. Termination. This Agreement may be terminated at any time before the Effective Time, whether before or after approval of this Agreement and the Merger by the shareholders of the Company: (a) by mutual written consent of duly authorized by the Boards of Directors of Parent, Subsidiary and the Company; (b) by the Company at any time if (i) Parent or Subsidiary are in breach in any material respect of any of its covenants or agreements in this Agreement, (ii) the representations and warranties of Parent or Subsidiary contained in this Agreement that are qualified by materiality are not true and correct in all respects on the date of this Agreement and at anytime thereafter subject to such qualification, with the same force and effect as though such representations and warranties had been made on and as such date, except to the extent that such representations are made expressly as of an earlier date, which representations should be true and correct as of such earlier date, (iii) the representations and warranties of Parent or Subsidiary contained in this Agreement that are not qualified by materiality are not true and correct in all material respects on the date of this Agreement and at anytime thereafter, with the same force and effect as though such representations and warranties had been made on and as of such date, except to the extent that such representations are made expressly as of an earlier date, which representations should be true and correct as of such earlier date (collectively, a "Parent Breach"), which Parent Breach shall not have been cured, if such Parent Breach is capable of cure, within ten (10) days after notice thereof by the Company; - 43 - (c) by Parent or Subsidiary at any time if (i) the Company is in breach in any material respect of any of its covenants or agreements in this Agreement (other than those contained in Sections 6.2(iv)(B) and 6.2(iv)(E)), (ii) the Company is in breach in any respect of the agreements and covenants set forth in Sections 6.2(iv)(B) and 6.1(iv)(E), (iii) the representations and warranties of the Company contained in this Agreement that are qualified by materiality are not true and correct in all respects on the date of this Agreement and at anytime thereafter subject to such qualification, with the same force and effect as though such representations and warranties had been made on and as such date, except to the extent that such representations are made expressly as of an earlier date, which representations should be true and correct as of such earlier date or (iv) the representations and warranties of the Company contained in this Agreement that are not qualified by materiality are not true and correct in all material respects on the date of this Agreement and at anytime thereafter, with the same force and effect as though such representations and warranties had been made on and as of such date, except to the extent that such representations are made expressly as of an earlier date, which representations should be true and correct as of such earlier date (collectively, a "Company Breach"), which Company Breach shall not have been cured, if such Company Breach is capable of cure, within ten (10) days after notice thereof by Parent; (d) by Parent or the Company, if there shall exist any statute, rule, regulation or order of any court or Governmental Authority which permanently (without right of appeal or reconsideration) restrains or prohibits the transactions contemplated hereby; (e) by the Company prior to the Closing, concurrently with the execution of a definitive acquisition agreement under the circumstances permitted by Section 7.2, provided, that such termination under this Section 9.1(e) shall not be effective unless (x) the Company and its Board of Directors shall have complied in all material respects with all their obligations under Section 7.2 and the Company shall have paid the Termination Fee pursuant to Section 9.2(b) and (y) the Company shall have provided Parent with at least three (3) Business Days' prior written notice prior to terminating this Agreement, which notice shall be accompanied by (1) a copy of the proposed definitive acquisition agreement with respect to the Superior Proposal that the Company proposes to accept and (2) the Company's written certification that it has made the determinations with respect to such Superior Proposal set forth in clauses (A) and (B) of the proviso in Section 7.2(d) and (3) the representation that the Company will, in the absence of any other Superior Proposal, execute such a definitive acquisition agreement unless Parent modifies this Agreement such that the Company's Board of Directors determines that this Agreement is at least as favorable to the holders of the Company's common stock from a financial point of view as such Superior Proposal; (f) by Parent if (i) the Company shall have notified Parent that its Board of Directors has resolved to recommend another transaction to the shareholders of the Company, (ii) the Board of Directors of the Company or any committee thereof shall have withdrawn, or modified, amended or changed in a manner adverse to Parent its approval or recommendation of the transactions contemplated hereby or this Agreement, or shall have approved or recommended to the Company's shareholders an Acquisition Proposal or shall have adopted any resolutions to effect any of the foregoing or (iii) the Board of Directors of the Company shall have failed to publicly reaffirm their approval or recommendation of the - 44 - transactions contemplated hereby or this Agreement within two (2) Business Days following Parent's written request to do so; (g) by either party hereto, if the Closing does not occur on or prior to May 31, 2004 (provided that the terminating party shall not have prevented the Closing to occur as a result of a breach by it of this Agreement). Section 9.2. Effect of Termination. (a) In the event of termination of this Agreement by either Parent or the Company pursuant to the provisions of Section 9.1, this Agreement shall forthwith become void and there shall be no liability or further obligation on the part of the Company, Parent, Subsidiary or their respective officers or directors (except for obligations in this Section 9.2, in the second sentence of Section 7.1(a) and in Sections 7.1(b), 7.3, 11.5, and 11.11, all of which shall survive the termination). Nothing in this Section 9.2 shall relieve any party from liability for any willful and intentional breach of any covenant or agreement of such party contained in this Agreement. (b) If (i) Parent terminates this Agreement pursuant to Section 9.1(f); (ii) Parent terminates this Agreement pursuant to Sections 9.1(c) and within 12 months after such termination the Company enters into or publicly announces an intention to enter into a definitive agreement with respect to an Acquisition Proposal, or consummates or publicly announces an intention to enter into a definitive agreement with respect to an Acquisition Proposal, or consummates or publicly announces an intention to consummate an Acquisition Proposal; or (iii) this Agreement is terminated by the Company pursuant to Section 9.2(e), then the Company shall pay to Buyer a termination fee in cash equal to $150,000 (the "Termination Fee"), which shall be paid in the case of a termination pursuant to subclause (ii) of this Section 9.2(b), within two (2) Business Days following the date of the occurrence described in such subclause, or in the case of a termination pursuant to subclause (i) or (iii) of this Section 9.2(b), prior to or simultaneously with such termination. Any payment required to be made pursuant to this subsection (b) shall be made to Parent by wire transfer of immediately available funds to an account designated by Parent. The payment of the Termination Fee shall not be deemed to constitute liquidated damages. The provisions of this Section 9.2 shall not derogate from any other rights or remedies which Parent or Subsidiary may possess under this Agreement (including as provided in Article X or Section 11.11) or under applicable law, and the payment of the Termination Fee shall not be deemed to constitute liquidated damages. Section 9.3. Amendment. This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered: (a) prior to the Closing Date, on behalf of Parent, Subsidiary, the Company and the Shareholders' Agent (acting exclusively for and on behalf of all of the Shareholders); and (b) after the Closing Date, on behalf of Parent and the Shareholders' Agent (acting exclusively for and on behalf of all of the Shareholders). Section 9.4. Extension; Waiver. At any time before the Effective Time, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party - 45 - contained herein or in any document, certificate or writing delivered pursuant hereto, or (c) waive compliance by the party with any of the agreements or conditions contained herein. Any agreement on the part of any party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party hereto to assert any of its rights hereunder shall not constitute a waiver of such rights. ARTICLE X INDEMNIFICATION Section 10.1. Survival of Representations, Etc. (a) The representations and warranties made by the Company and the Shareholders in this Agreement and in each of the other agreements, certificates and instruments delivered to Parent pursuant to or in connection with the transactions contemplated by this Agreement shall survive the Closing and shall expire, together with the Parent Indemnitees' (as defined below) right to seek indemnification for breaches thereto pursuant to this Article X, on the second anniversary of the Closing Date, except that (i) representations and warranties contained in Section 4.14 (relating to Environmental Matters) shall not expire until the fifth anniversary of the Closing Date, (ii) the representations and warranties contained in Sections 4.12 (relating to Employee Benefit Plans) and 4.11 (relating to Taxes) shall not expire until ninety (90) days after the relevant statute of limitations expires and the representations and warranties contained in 4.1 (relating to Organization and Qualification), 4.2 (relating to Capitalization), 4.4 (relating to Authority; Non-Contravention; Approvals), and 4.17 (relating to Brokers and Finders) shall survive indefinitely (as applicable, the "Shareholder Expiration Date"); provided, however, that if, at any time prior to the applicable Shareholder Expiration Date, any Parent Indemnitee (acting in good faith) delivers to the Shareholders' Agent a written notice alleging the existence of an inaccuracy in or a breach of any of the representations and warranties made by the Company and any Shareholder (and setting forth in reasonable detail the basis for such Parent Indemnitee's belief that such an inaccuracy or breach may exist) and asserting a claim for recovery under Section 10.2 based on such alleged inaccuracy or breach, then the claim asserted in such notice shall survive the applicable Shareholder Expiration Date until such time as such claim is fully and finally resolved. The representations and warranties made by Parent and Subsidiary survive the Closing and shall expire, together with the Shareholder Indemnitees' right to seek indemnification for breaches thereto pursuant to this Article X, on the second anniversary of the Closing Date, except that the representations and warranties contained in Section 5.1 (relating to Organization) and 5.2 (relating to Authority) shall survive indefinitely (as applicable, the "Parent Expiration Date"); provided, however, that if, at any time prior to the applicable Parent Expiration Date, any Shareholder Indemnitee (acting in good faith) delivers to Parent a written notice alleging the existence of any inaccuracy in or breach of any of the representations and warranties made by Parent and Subsidiary (and setting forth in reasonable detail the basis for such Shareholder Indemnitee's belief that such an inaccuracy or breach may exist) and asserting a claim for recovery under Section 10.4 based on such alleged inaccuracy or breach, then the claim asserted in such notice shall survive the applicable Parent Expiration Date until such time as such claim is fully and finally resolved. - 46 - (b) For purposes of this Agreement, each statement or other item of information set forth in the Company Disclosure Schedule shall be deemed to be a part of the representation and warranty made by the Company in this Agreement. (c) No limitation or condition of liability provided in this Article X shall apply to any misrepresentation or breach of warranty contained herein if such misrepresentation or breach of warranty was made willfully or with intent to deceive, or breach of the covenants and agreements under this Agreement or in any statement or certificate furnished or to be furnished pursuant hereto or in connection with the transactions contemplated hereby. For purposes of determining the existence of any misrepresentation, breach of warranty, or nonfulfillment of any covenant or agreement, or calculating the amount of any Damages incurred in connection with any such misrepresentation, breach of warranty, or nonfulfillment of any covenant or agreement, any and all references to material or Company Material Adverse Effect (or other correlative terms) shall be disregarded. Section 10.2. Indemnification by Shareholders. (a) Subject to the limitations set forth in this Article X, from and after the Closing Date, the Shareholders of the Company (the "Shareholder Indemnitors"), jointly and severally, shall hold harmless and indemnify the Parent Indemnitees from and against, and shall compensate and reimburse each of the Parent Indemnitees for, any Damages which are directly or indirectly suffered or incurred by any of the Parent Indemnitees or to which any of the Parent Indemnitees may otherwise become subject (regardless of whether or not such Damages relate to any third-party claim) and which arise from or as a result of or are directly or indirectly connected with: (i) any misrepresentation in, inaccuracy in or breach of any representation or warranty of the Company set forth in this Agreement or in any agreement, certificate or instrument furnished or to be furnished to Parent pursuant hereto or in connection with the transactions contemplated hereby; (ii) any breach of any covenant or obligation of the Company (including the covenants set forth in Articles VI and VII); (iii) any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before or otherwise involving, any court or other Governmental Authority or any arbitrator or arbitration panel ("Legal Proceeding") relating to any inaccuracy or breach of the type referred to in clause (i) or (ii) above; (iv) any Legal Proceeding set forth in Section 4.8 of the Company Disclosure Schedule; (v) any Legal Proceeding initiated by a shareholder or shareholders of the Company challenging the fairness of the Merger; (vi) any Legal Proceeding commenced by any Parent Indemnitee for the purpose of enforcing any of its rights under this Article X, (vii) any and all amounts payable to any shareholder of the Company who exercises his or her right to dissent from the Merger and the transactions contemplated hereby and seeks to receive the fair value of such shareholder's shares of Company Common Stock in accordance with the NJBCA or (viii) any claims or assertions made by any employees or shareholders of the Company for stock or other rights pursuant to any phantom stock arrangement that the Company may have, whether oral or written. Any amount of Damages required to be indemnified pursuant to this Section 10.2 shall be deemed, to the extent permitted by law, an adjustment in the Merger Consideration. - 47 - (b) From and after the Effective Time, the Shareholder Indemnitors, jointly and severally, shall hold harmless and indemnify each of the Parent Indemnitees from and against, and shall compensate and reimburse each of the Parent Indemnitees for: (i) any Taxes of the Company (and related Damages) attributable to any taxable period (or portion thereof) ending on or before the Closing Date, to the extent such Taxes exceed the accrual for such Taxes on the Company Balance Sheet; (ii) any increase in Tax liability (and related Damages) resulting from the Company being liable for any Taxes (a) of any consolidated group of which the Company was a member on or before the Closing Date pursuant to Section 1.1502-6 of the Treasury Regulations or any analogous state, local or foreign provisions and (b) of any Person as transferee or successor, by contract or otherwise for any taxable period (or portion thereof) ending on or before the Closing Date. In the event a taxable period includes a period prior to the Closing Date, Taxes shall, in the case of real and personal property Taxes, be apportioned ratably to such taxable period on a daily basis and, in the case of other Taxes, be apportioned to such taxable period based on a closing of the books on the Closing Date. (c) Each of the Company and the Shareholders acknowledges and agrees that, if the Surviving Corporation suffers, incurs or otherwise becomes subject to any Damages as a result of or in connection with any inaccuracy in or breach of any representation, warranty, covenant or obligation, then (without limiting any of the rights of the Surviving Corporation as a Parent Indemnitee) Parent shall also be deemed, by virtue of its ownership of the stock of the Surviving Corporation, to have incurred Damages as a result of and in connection with such inaccuracy or breach. Section 10.3. Limitation on Indemnification. (a) The Shareholder Indemnitors shall have no liability (for indemnification or otherwise) with respect to claims under Section 10.2 until the total of all Damages with respect to such matters exceeds $150,000 and then only for the amount by which such Damages exceed $75,000. The limitation on liability in the preceding sentence does not apply to Damages resulting from any breach of the representations and warranties contained in 4.1 (relating to Organization and Qualification), 4.2 (relating to Capitalization), and 4.4 (relating to Authority; Non-Contravention; Approvals). (b) The total liability of each Shareholder Indemnitor with respect to all claims under Section 10.2 shall not exceed the pro rata share of the Merger Consideration allocable to each Shareholder on Exhibit B. (c) The liability of the Shareholder Indemnitors under this Section 10.3 must first be satisfied by set-off against the Notes against the latest installments of principal payments due and allocated 25% to the 5% Note and 75% to the 8% Note. The right of set off granted herein is granted without any requirement of presentment, demand, protest or other notice of any kind to the Company and the Shareholders and shall be in addition to and not in substitution of any other rights Parent shall entitled to under this Agreement or otherwise. Nothing in this Article X shall limit the ability of the Parent Indemnities to seek recovery for Damages based on fraud or intentional misrepresentation. - 48 - Section 10.4. Indemnification by Parent. Subject to the limitations set forth in this Article X, from and after the Effective Time, Parent shall hold harmless and indemnify each of the Shareholder Indemnitees from and against, and shall compensate and reimburse each of the Shareholder Indemnitees for, any Damages which are directly or indirectly suffered or incurred by any of the Shareholder Indemnitees or to which any of the Shareholder Indemnitees may otherwise become subject (regardless of whether or not such Damages relate to any third-party claim) and which arise from or as a result of, or are directly or indirectly connected with: (a) any misrepresentation in, inaccuracy in or breach of any representation or warranty set forth in this Agreement or any agreement or instrument furnished or to be furnished to the Company or the Shareholders pursuant hereto or in connection with the transactions contemplated hereby; (b) any breach of any covenant or obligation of Parent (including the covenants set forth in Article VI); or (c) any Legal Proceeding relating to any inaccuracy or breach of the type referred to in clause (a) or (b) above (including any Legal Proceeding commenced by any Shareholder Indemnitee for the purpose of enforcing any of its rights under this Article X). Any amount of Damages required to be indemnified pursuant to this Section 10.4 shall be deemed, to the extent permitted by law, an adjustment in the Merger Consideration. Any claims for indemnification pursuant to this Section 10.4 shall be made by the Shareholders' Agent on behalf of any Shareholder Indemnitee; provided, however, that the Shareholders' Agent shall not make any such claim without obtaining the prior written consent of at least 50% of the Shareholder Indemnitees. Section 10.5. No Contribution. Each Shareholder Indemnitor waives, and acknowledges and agrees that he shall not have and shall not exercise or assert (or attempt to exercise or assert), any right of contribution, right of indemnity or other right or remedy against Subsidiary or the Company in connection with any indemnification obligation or any other liability to which he may become subject under or in connection with this Agreement or any agreement or instrument furnished or to be furnished to Parent or in connection with the transactions contemplated hereby. Section 10.6. Interest. Any Indemnitor who is required to hold harmless, indemnify, compensate or reimburse any Indemnitee pursuant to this Article X with respect to any Damages shall also be liable to such Indemnitee for interest on the amount of such Damages (for the period commencing as of the date on which such Indemnitor first received notice of a claim for recovery by such Indemnitee and ending on the date on which the liability of such Indemnitor to such Indemnitee is fully satisfied by such Indemnitor) at a floating rate equal to the rate of interest publicly announced by Citibank, N.A. in its principal office in New York, New York from time to time as its prime, base or reference rate. Section 10.7. Insurance and Tax Benefits. The amount due as indemnification with respect to any claim under this Article X shall take into account and shall be reduced by the amount of any tax benefits received by the Indemnitee with respect to the claim for Damages and any insurance or indemnification proceeds actually paid by any third party in respect of the subject matter of such claim (after deducting all attorneys' fees, expenses and other costs of recovery); provided, that the amounts of any increase in insurance premium or retroactive premiums or premium adjustments resulting from the making of a claim or claims against insurers shall, for this purpose, be deemed to be deducted from the amount so paid by such insurers; provided, further, that the Company agrees, at the request of the Shareholders' Agent, to file a claim against any such insurer (but not indemnitor) and use its reasonable efforts to - 49 - pursue any such filed claim, so long as the costs of such activities are paid by the Shareholders and the filing of such claim and such activities will not adversely affect the business of the Company or its relations with its constituencies or disrupt its operations. Section 10.8. Procedure for Indemnification - Third-Party Claims. (a) Promptly after receipt by a party entitled to indemnity under Section 10.2 or 10.4 (an "Indemnified Person") of notice of the assertion of a claim (the "Claim Notice") by a third party against it, such Indemnified Person shall, if a claim is to be made against a party obligated to indemnify under such Section (an "Indemnifying Person"), give the Claim Notice to the Indemnifying Person of the assertion of such claim; provided, however, that the failure to provide such Claim Notice shall not relieve the Indemnifying Person of any obligations that it may have to any Indemnified Person under this Article X, except (i) to the extent such failure shall have adversely prejudiced the Indemnifying Party and (ii) to the extent expenses are incurred during the period in which notice was not provided. (b) If any third-party claim referred to in Article X is against an Indemnified Person and it gives notice to the Indemnifying Person of the assertion of such third-party claim, the Indemnifying Person shall have fifteen (15) days from the personal delivery of mailing of the Claim Notice (the "Notice Period"), or if the laws of jurisdiction of the Company require a shorter term than the Notice Period, the Notice Period shall be reduced to two (2) days from the personal delivery or mailing of the Claim Notice, to notify the Indemnified Party whether or not it desires to assume the defense of such claim with counsel satisfactory to the Indemnified Person if (i) the claim involves (and continues to involve) solely monetary damages and the Indemnifying Party's assumption of the defense or settlement of such claim will not have an adverse effect on the Indemnified Party's business, (ii) the Indemnifying Party expressly agrees in writing to the Indemnified Party that, as between the two, the Indemnifying Party is solely obligated to satisfy and discharge the claim, and (iii) the Indemnifying Party makes reasonably adequate provision to satisfy the Indemnified Party of the Indemnifying Party's ability to satisfy and discharge the claim (the foregoing collectively, the "Litigation Conditions"); provided, however, that if (i) the Indemnifying Person is also a party against whom the third-party claim is made and the Indemnified Person determines in good faith that joint representation would be inappropriate, or (ii) the Indemnifying Person fails to provide reasonable assurance to the Indemnified Person of its financial capacity to defend such third-party claim and provide indemnification with respect to such third-party claim; and provided further, however, that the Indemnifying Party shall forfeit the right to control the defense or settlement of any such claim if, at any time after assuming the defense or settlement thereof, the Indemnifying Party no longer satisfies the Litigation Conditions. All costs and expenses incurred by the Indemnifying Party in defending such claim or demand shall be a liability of, and shall be paid by, the Indemnifying Party. After notice from the Indemnifying Person to the Indemnified Person of its election to assume the defense of such third-party claim, the Indemnifying Person shall not, as long as it diligently conducts such defense, be liable to the Indemnified Person under this Article X for any fees of other counsel or any other expenses with respect to the defense of such third-party claim, in each case subsequently incurred by the Indemnified Person in connection with the defense of such claim, other than reasonable costs of investigation, which shall be Damages recoverable under this Section. If the Indemnifying Person assumes the defense of a third-party claim, (i) such assumption will conclusively establish for purposes of this Agreement that the - 50 - claims made in that claim are within the scope of and subject to indemnification; (ii) no compromise, settlement, or offer to settle or compromise any such claim may be effected by the Indemnifying Person without the Indemnified Person's prior written consent, which shall not be unreasonably withheld, if such settlement or compromise would result in the imposition of a consent order, injunction or decree that would restrict the future activity or conduct of the Indemnified Party or any subsidiary or affiliate thereof unless the sole relief provided is monetary damages that are paid in full by the Indemnifying Person (after the set-off and satisfaction of the Notes as provided in Section 10.3; and (iii) the Indemnified Person shall have no liability with respect to any compromise or settlement of such third-party claims effected without its consent (which may not be unreasonably withheld). If a Claim Notice is given to an Indemnifying Person of the assertion of any third-party claim and the Indemnifying Person does not, within the Notice Period, give notice to the Indemnified Person of its election to assume the defense of such claim, the Indemnifying Person will be bound by any determination made in such claim or any compromise or settlement effected by the Indemnified Person. (c) With respect to any third-party claim subject to indemnification under this Section: (i) both the Indemnified Person and the Indemnifying Person, as the case may be, shall keep the other party fully informed of the status of such third-party claim and any related proceedings at all stages thereof where such party is not represented by its own counsel, and (ii) the parties agree (each at its own expense) to render to each other such assistance as they may reasonably require of each other and to cooperate in good faith with each other in order to ensure the proper and adequate defense of any third-party claim. (d) With respect to any third-party claim subject to indemnification under this Section, the parties agree to cooperate in such a manner as to preserve in full (to the extent possible) the confidentiality of all Confidential Information and the attorney client and work-product privileges. In connection therewith, each party agrees that: (i) it will use its best efforts, in respect of any third-party claim in which it has assumed or participated in the defense, to avoid production of Confidential Information (consistent with applicable law and rules of procedure), and (ii) all communications between any party hereto and counsel responsible for or participating in the defense of any third-party claim shall, to the extent possible, be made so as to preserve any applicable attorney-client or work-product privilege. Section 10.9. Exercise of Remedies by Parent Indemnitees Other Than Parent. No Parent Indemnitee (other than Parent or any successor thereto or assign thereof) shall be permitted to assert any indemnification claim or exercise any other remedy under this Agreement unless Parent (or any successor thereto or assign thereof) shall have consented to the assertion of such indemnification claim or the exercise of such other remedy. Section 10.10. Indemnification Remedy. The indemnification rights of Indemnified Persons under this Article X are independent of and in addition to such rights and remedies as such Indemnified Persons may have at law or in equity or otherwise for any breach of representation, warranty, agreement or covenant hereunder on the part of any shareholder hereto, including the right to seek recission or restitution, none of which rights or remedies shall be affected or diminished hereby. No right to indemnification under this Article X shall be limited by reason of any investigation or audit conducted before or after the Closing of any Indemnified Persons hereto or the knowledge of such party of any breach of any representation, warranty, - 51 - agreement or covenant by the shareholders of the Company at any time, or the decision by Indemnified Persons to complete the Closing. ARTICLE XI GENERAL PROVISIONS Section 11.1. Shareholders' Agent. By virtue of their approval and adoption of this Agreement, the Shareholders of the Company shall be deemed to have irrevocably constituted and appointed, effective as of the Closing, Keith Grabel (the "Shareholders' Agent") as their true and lawful agent and attorney-in-fact to take any and all actions on their behalf in connection with the transactions contemplated by this Agreement, including, without limitation, entering into any other agreement relating thereto or to this Agreement and exercising on behalf of the Shareholders of the Company all or any powers, authority, rights and discretion conferred on them under this Agreement, the Escrow Agreement or any such other agreement, including without limitation, waiving any terms and conditions of any such agreement, giving and receiving notices and communications entering into agreements regarding satisfaction of claims by Parent Indemnitees, objecting to such deliveries, agreeing to, negotiating, entering into settlements and compromises of, and demanding arbitration and complying with orders of courts and awards of arbitrators with respect to such claims, and taking all actions necessary or appropriate in the judgment of the Shareholders' Agent for the accomplishment of the foregoing. This power of attorney is coupled with an interest and is irrevocable. By virtue of its approval and adoption of this Section 11.1, the Shareholders' Agent hereby accepts its appointment as Shareholders' Agent hereunder on the terms set forth herein. No bond shall be required of the Shareholders' Agent, and the Shareholders' Agent shall receive no compensation for its services. Notices or communications to or from the Shareholders' Agent shall constitute notice to or from each of the Company's Shareholders for purposes of this Agreement. Parent shall be entitled to deal exclusively with the Shareholders' Agent on all matters relating to this Agreement, and shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed on behalf of any Shareholder by the Shareholders' Agent, and on any other action taken or purported to be taken on behalf of any Shareholder by the Shareholders' Agent, as fully binding upon such Shareholder. Section 11.2. Further Assurances. Each party hereto shall execute and cause to be delivered to each other party hereto such instruments and other documents, and shall take such other actions, as such other party may reasonably request (prior to, at or after the Closing) for the purpose of carrying out or evidencing any of the transactions contemplated by this Agreement. Section 11.3. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed given, and shall be effective upon receipt, if delivered personally, telecopied (which is confirmed), sent by registered or certified mail (return receipt requested), or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): If to Parent or Subsidiary, to: - 52 - DARR Technology LLC 309 Fellowship Road, Suite 210 Mt. Laurel, New Jersey 08504 Attn: Facsimile number: (865) 840-0885 and Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 Attn: Carmen J. Romano, Esq. Facsimile number: (215) 994-2222 If to the Company, or Shareholders' Agent, to: Westwood Computer Corporation 11 Diamond Road Springfield, NJ 07081 Attn: Keith Grabel Facsimile number: (973) 379-4693 with a copy (which shall not constitute notice) to: Drinker Biddle & Reath LLP 105 College Road East Princeton, NJ 08542 Facsimile number: (609) 799-7000 Attn: Thomas A. Belton, Esq. Section 11.4. Governing Law. This agreement shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of New Jersey applicable to contracts executed and to be performed wholly within such state. Section 11.5. Parties to Agreement. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. The rights of any third party beneficiary hereunder are not subject to any defense, offset or counterclaim. Section 11.6. Interpretation. When a reference is made in this Agreement to an Article, Section or Exhibit, such reference shall be to an Article or Section of, or an Exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." - 53 - The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein or unless the context clearly otherwise indicates. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. References to a Person are also to its permitted successors and assigns. Section 11.7. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. Section 11.8. Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties hereto without the prior written consent of the other parties. Any assignment in violation of the preceding sentence shall be void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. Section 11.9. Enforcement. The parties agree that irreparable damage would occur and that the parties would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. Section 11.10. Submission to Jurisdiction; Waivers. Each of Parent, Subsidiary and the Company irrevocably agrees that any legal action or proceeding with respect to this Agreement or for recognition and enforcement of any judgment in respect hereof brought by any other party hereto or its successors or assigns may be brought and determined in the federal or state courts located in Camden County, New Jersey, and each of Parent, Subsidiary and the Company hereby irrevocably submits with regard to any such action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of Parent, Subsidiary and the Company hereby irrevocably waives, and agrees not to assert, - 54 - by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to lawfully serve process, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment before judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), or (c) to the fullest extent permitted by applicable law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts. Section 11.11. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 11.12. Entire Agreement. This Agreement (including the documents and instruments referred to herein and the Confidentiality Agreement) constitutes the entire agreement, and supersedes all prior agreements and understandings, both oral and written, among the parties with respect to the subject matter of this Agreement. In the event of a conflict between the provisions of this Agreement and the Confidentiality Agreement, the provisions of this Agreement shall prevail. ARTICLE XII DEFINITIONS Section 12.1. For purposes of this Agreement: (a) "Company Material Adverse Effect" means any change, event, circumstance or effect, individually or when aggregated with other such changes, events, circumstances or effects, (i) is or may reasonably be expected to be materially adverse to the business, assets, liabilities, prospects, earnings, operations, products, properties, condition (financial or otherwise) or results of operations of the Company and its subsidiaries, or (ii) materially impairs the ability of the Company to perform on a timely basis its obligations under this Agreement or the consummation of the transactions contemplated hereby. For the purposes of this Agreement, the determination of whether a breach of a representation and warranty or covenant of this Agreement shall be deemed to give rise to a Company Material Adverse Effect shall be determined on a cumulative basis by adding the effect of the breach of any such representation and warranty or covenant (determined without regard to any materiality or Company Material Adverse Effect qualifiers) to the effect of all other breaches of representations and warranties and covenants of this Agreement (determined without regard to any materiality or Company Material Adverse Effect qualifiers) for each of the applicable period or periods to which each such representation, warranties or covenants relate, in all cases before applying the materiality standard set forth in the preceding sentence, and then determining whether, for any of the applicable periods, such aggregate sum exceeds the materiality standard set forth in the preceding sentence. - 55 - (b) "Damages" mean loss, damage, injury, decline in value, lost opportunity, liability, claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost (including costs of investigation, remediation or other response actions) or expense of any nature. (c) "Encumbrance" means liens, security interests, pledges, equities, proxies, claims, charges, adverse claims, mortgages, rights of first refusal, preemptive rights, restrictions, encumbrances, easements, covenants, licenses, options or title defects of any kind whatsoever. (d) "Governmental Authority" means a governmental or regulatory body, agency or authority. (e) "Knowledge of the Company" means the actual knowledge of those individuals listed in Section 12.1(e) of the Company Disclosure Schedule, after due inquiry. (f) "Knowledge of the Parent" means the actual knowledge of those individuals listed in Section 12.1(f) of the Company Disclosure Schedule, after due inquiry. (g) "Parent Indemnitees" means each of (i) Parent; (ii) Parent's current and future affiliates (including Subsidiary and, following the Merger and the Surviving Corporation); (iii) the respective representatives of the Persons referred to in clauses (i) and (ii) above; and (iv) the respective successors and assigns of the Persons referred to in clauses (i), (ii) and (iii) above; provided, however, that the Shareholders of the Company shall not be deemed to be Parent Indemnitees. (h) "Parent Material Adverse Effect" means any change, event, violation, inaccuracy, circumstance or effect, individually or when aggregated with other such changes, events, violations, inaccuracies, circumstances or effects, that materially impairs the ability of Parent to perform on a timely basis its obligations under this Agreement or the consummation of the transactions contemplated hereby. (i) "Person" means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity, and the term "subsidiary" (written without capitalization) means, when used with reference to any non-natural Person, any corporation, partnership, limited liability company, joint venture or other entity of which such Person owns or controls, directly or indirectly, 50% or more of the stock or other voting interests, the holders of which are entitled to vote for the election of a majority of the board of directors or any similar governing body of such corporation, partnership, limited liability company, joint venture or other entity. (j) "Shareholder Indemnitees" means the following Persons: (i) the Shareholders; (ii) the Shareholder' Agent; (iii) the current and future Affiliates of the Shareholders and the Shareholders' Agent; (iv) the respective representatives of the Persons referred to in clauses (i), (ii) and (iii) above; and (v) the respective successors and assigns of the Persons referred to in clauses (i), (ii), (iii) and (iv) above. - 56 - (k) "Shareholders" mean each shareholder of the Company that does not perfect its appraisal rights and is otherwise entitled to receive the Merger Consideration. (l) "Taxes" means all taxes, including, without limitation, income, gross receipts, excise, property, sales, withholding, social security, occupation, use, service, license, payroll, franchise, transfer and recording taxes, fees and charges, windfall profits, severance, customs, import, export, employment or similar taxes, charges, fees, levies or other assessments imposed by the United States, or any state, local or foreign government or subdivision or agency thereof, whether computed on a separate, consolidated, unitary, combined, or any other basis, and such term shall include any interest, fines, penalties or additional amounts of any interest in respect of any additions, fines or penalties attributable or imposed or with respect to any such taxes, charges, fees, levies or other assessments. - 57 - IN WITNESS WHEREOF, Parent, Subsidiary, the Principal Shareholders, the Company and the Shareholders' Agent have caused this Agreement to be signed by their respective officers as of the date first written above. WESTWOOD COMPUTER CORPORATION By: /s/ Keith Grabel ---------------------------- Name: -------------------------- Title: ------------------------- DARR WESTWOOD ACQUISITION CORPORATION By: /s/ Stephen C. Donnelly ---------------------------- Name: -------------------------- Title: ------------------------- DARR WESTWOOD TECHNOLOGY CORPORATION By: /s/ Sephen C. Donnelly ---------------------------- Name: -------------------------- Title: ------------------------- /s/ Mary Margaret Grabel ------------------------------- MARY MARGARET GRABEL /s/ Keith Grabel ------------------------------- KEITH GRABEL /s/ Keith Grabel ------------------------------- KEITH GRABEL, AS SHAREHOLDERS AGENT - 58 - 5% Note........................................................................3 8% Note........................................................................3 Acquisition Agreement.........................................................35 Acquisition Proposal..........................................................33 Agreement......................................................................1 Anniversary Period............................................................36 Bidders.......................................................................36 Cash Consideration.............................................................3 Claim Notice..................................................................51 Claims........................................................................11 Closing........................................................................2 Closing Date...................................................................2 Code...........................................................................5 Company........................................................................1 Company Balance Sheet..........................................................9 Company Breach................................................................45 Company Certificates...........................................................4 Company Closing Certificate...................................................41 Company Common Stock...........................................................1 Company Disclosure Schedule....................................................6 Company Employees.............................................................37 Company Financial Statements...................................................9 Company Material Adverse Effect...............................................56 Company Permits...............................................................11 Company Plan..................................................................15 Company Pre-Closing Returns...................................................32 Company Required Statutory Approvals...........................................9 Company Shareholders' Approval.................................................8 Company Stock Plan.............................................................5 Confidential Information......................................................33 Confidentiality Agreement.....................................................32 Contract......................................................................11 COTS..........................................................................20 Damages.......................................................................57 Dissenting Shares..............................................................5 Effective Time.................................................................2 Employment Agreements.........................................................41 Encumbrance...................................................................57 Environmental Claim...........................................................18 Environmental Laws............................................................18 ERISA.........................................................................15 ERISA Affiliate...............................................................15 GAAP...........................................................................9 Government Contract...........................................................24 Governmental Authority........................................................57 Governmental Entity...........................................................24 Hazardous Substances..........................................................19 HIPAA.........................................................................17 Indemnified Person............................................................51 Indemnifying Person...........................................................51 Intellectual Property.........................................................20 Judgments.....................................................................11 Knowledge of the Company......................................................57 Knowledge of the Parent.......................................................57 Legal Proceeding..............................................................48 Litigation Conditions.........................................................51 Major Customers...............................................................22 Major Suppliers...............................................................22 Material Business.............................................................36 Material Contracts............................................................11 Material License..............................................................20 Merger.........................................................................1 Merger Consideration...........................................................3 Merger Filing..................................................................2 NJBCA..........................................................................1 NJSPA.........................................................................22 Notes..........................................................................3 Notice Period.................................................................51 Option.........................................................................5 Parent.........................................................................1 Parent Breach.................................................................44 Parent Closing Certificate....................................................44 Parent Expiration Date........................................................47 Parent Indemnitees............................................................57 Parent Material Adverse Effect................................................57 Parent Representatives........................................................32 Parent Required Statutory Approvals...........................................27 Paying Agent...................................................................3 Pension Plan..................................................................15 Person........................................................................57 Phantom Stock..................................................................5 Phantom Stock Plan.............................................................5 Potential Acquiror............................................................34 Principal Shareholder..........................................................1 Released......................................................................19 Securities Act................................................................34 Series I Common Stock..........................................................7 Series II Common Stock.........................................................7 Severance Plans...............................................................37 Shareholder Expiration Date...................................................47 - 2 - Shareholder Indemnitees.......................................................58 Shareholder Indemnitors.......................................................48 Shareholders..................................................................58 Shareholders Meeting..........................................................28 Shareholders' Agent...........................................................53 Specified Contracts...........................................................41 Straddle Period Returns.......................................................32 Subsidiary.....................................................................1 Superior Proposal.............................................................36 Surviving Corporation..........................................................2 Tax Returns...................................................................13 Taxes.........................................................................58 Termination Fee...............................................................46 Voting Agreement...............................................................1 Warrant........................................................................5 Welfare Plan..................................................................15 - 3 - EXHIBIT A Directors and Officers of the Surviving Corporation Directors Keith Grabel Mary Margaret Grabel Dinesh Desai Angeli Dinesh Desai Reena Dinesh Desai Officers Chairman - Dinesh Desai Vice Chairman - Brian McAdams President - Keith Grabel Treasurer, CEO-Maggie Grabel Assistant Treasurer-Steve Donnelly Vice President Operations- Dave Micales Vice President Sales - Paul DeCamara Secretary, Chief Financial Officer - Tom Duda Assistant Secretary- Mike Fabling Assistant Secretary-Vicki Ballinger EXHIBIT B Allocation of Consideration EXHIBIT C Form of 5% Promissory Note EXHIBIT D Form of 8% Promissory Note EXHIBIT E Form of Letter of Transmittal EXHIBIT F Form of Voting Agreement EXHIBIT G Form of Amendment to Purchase and Sale Agreement EX-10 3 ex10-21.txt EXHIBIT 10.21 Exhibit 10.21 Lease Between V-SULLYFIELD PROPERTIES II, LLC (Lessor) & WESTWOOD COMPUTER CORPORATION (Lessee) April 21 , 2003

DEED OF LEASE THIS DEED OF LEASE ("Lease") made and entered into this 21st day of April, 2003, by and between V-Sullyfield Properties II, LLC, a Virginia limited liability company, having an address c/o Velsor Properties, LLC, 1420 Spring Hill Road, Suite 335, McLean, Virginia, 22102, hereinafter referred to as "Lessor", and Westwood Computer Corporation., a New Jersey corporation., having an address of 11 Diamond Road, Springfield, NJ, 07081-3101, hereinafter referred to as "Lessee". WITNESSETH: 1. PREMISES: a. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the following described office and warehouse space (the "demised premises"): Floor: 1st Suite: Suite 111 Square Feet: 3,286 rentable square feet Lessee's Share: 1.51% b. The demised premises are more particularly shown and outlined on the space plans attached hereto as Exhibit A, and made a part hereof, designated as Suite 111 (left side) in a building (the "Building") having a mailing address of 14121 Parke-Long Court, Chantilly, Virginia and which office space is hereinafter referred to as the "Demised Premises." Lessor and Lessee agree that the Demised Premises contains Three Thousand Two Hundred Eighty-Six (3,286) rentable square feet of space (including both Lessee's exclusive usable area contained in the demised premises and common areas attributable to Lessee's usable area). The demised premises are located in a building located in a business park (the "Business Park") commonly known as "Dulles Corporate Center at Sullyfield Business Park." Lessee's interest in this Lease is subject to all covenants and restrictions of record and all applicable zoning, municipal, county, state and federal laws, statutes, codes, ordinances, rules and regulations affecting the Office Park. The Building, together with the land upon which the Building is located, which land is described on Exhibit B attached hereto and by reference incorporated herein (the "Land"), and together with all drives, parking areas, parking lots, walkways, terraces and landscaped areas used and maintained in connection with the Building and/or such Land that are contiguous to such Land (regardless of whether in fact located within the boundaries of such Land) are herein collectively referred to as the "Property"). c. Subject to the terms herein provided, the demised premises shall include the appurtenant right to use, in common with others, on a non-exclusive basis, public lobbies, entrances, stairs, corridors, elevators, all drives, parking areas, parking lots and other public portions of the Property. All the windows and outside walls of the demised premises, and any space in the demised premises used for shafts, pipes, conduits, ducts, telephone ducts and equipment, electric or other utilities, sinks or other Building facilities, and the use thereof and access thereto through the demised premises for the purposes of operation, maintenance, inspection, display and repairs are hereby reserved to Lessor. No easement for light, air or view, is granted or implied hereunder, and the reduction or elimination of Lessee's light, air or view will not affect Lessee's liability under this Lease. 2. TERM AND DELIVERY OF THE DEMISED PREMISES: a. The term of this Lease (the "Term") shall commence on the date Landlord notifies Tenant in writing that the Demised Premises are ready for occupancy (the "Commencement Date"), provided that the Commencement Date shall not be later than August 1, 2003. The Term shall end at midnight on July 31, 2006 (the "Expiration Date") or on such earlier date as the Term may expire or be terminated pursuant to the provisions of this Lease or pursuant to law. This Lease shall be effective and enforceable between Lessor and Lessee upon its execution and delivery, whether such execution and delivery occurs on, prior to, or after the Commencement Date. Landlord anticipates, but does not guarantee, that the Commencement Date will occur between May 15 and June 1, 2003. 1 b. "Lease Year" as used herein shall mean (i) each and every twelve (12) month period during the Term of this Lease, or (ii) in the event of Lease expiration or termination, the period between the end of the then most recently completed twelve (12) month period and said expiration or termination. The first such twelve (12) month period shall commence on the Commencement Date. 3. RENT: a. As annual base rent for the demised premises, Lessee shall pay to Lessor the following:

b. Base rent stipulated for each of the applicable lease years shall be paid in equal one-twelfth (1/12th) installments in advance on the first day of each calendar month for the applicable lease year. Base rent and all other items of rent or payments due Lessor under this Lease shall be paid to Lessor at the address of Lessor set forth above or at such other address and/or to such other party as Lessor may, from time to time, designate by written notice to Lessee in the manner hereafter set forth. c. Lessor hereby acknowledges receipt of Lessee's check, subject to collection, in the amount of Nine Thousand Eight Hundred Fifty-Eight and No/100 Dollars ($9,858.00),' representing payment of the initial security deposit required by paragraph 31 of this Lease. d. Lessor hereby acknowledges receipt of Lessee's check, subject to collection, in the amount of Three Thousand Two Hundred Eighty-Six and No/100 Dollars ($3,286.00), representing payment of one (1) month of base rent in advance. e. Lessee covenants and agrees to pay all licenses, taxes, sales taxes and assessments of every kind and character imposed by any governmental body, on, against or in connection with the operation of the business conducted on the demised premises, or against Lessee's property in or on the demised premises or on any installment of base rent or item of additional rent or other charge payable by Lessee under this Lease. 4. REPAIR AND MAINTENANCE: Lessor shall (other than for any repairs or replacements required as a result of the acts or omissions or negligence of Lessee, its agents, officers and its and their employees or invitees) maintain in good condition, comparable to similar buildings in Fairfax County, Virginia, the roof and structural portions of the Building, all landscaping, curbing, sidewalks, roads, parking areas, driveways and all interior and exterior common areas of the Building and systems used in common by the tenants of the Building and generally keep the same clean. Lessee will maintain in good order, condition and repair (including replacements) the entire demised premises, including all doors and door frames, windows, fixtures, machinery and equipment therein. Garbage and refuse shall be stored at such locations and in such containers as shall be approved by Lessor, and if required by Lessor or any municipal or governmental directive, Lessee shall sort and separate its trash and refuse as it shall be directed by Lessor or the applicable municipal or governmental authority, as the case may be. Lessee agrees that extraordinary waste, such as crates, cartons, boxes, etc. (the discarding of used furniture or equipment being deemed extra-ordinary waste) shall be removed from the Building and disposed of by Lessor, at Lessee's cost and expense, and that Lessee, upon Lessor's demand, will promptly reimburse Lessor for such removal and disposal. Lessee shall be responsible for repairs and restoration to the demised premises resulting from, occasioned by, or arising from, any break-ins, burglaries or attempted break-ins or burglaries in, on or to the demised premises. 2 5. COMPLIANCE WITH REQUIREMENTS OF LAW: Lessee, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances, rules, orders, regulations and requirements of the federal, state, county and local government and of any and all of their departments and bureaus with jurisdiction over the demised premises, and with any directives of any public officer or officers which shall impose any violation, order or duty upon Lessor or Lessee with respect to the demised premises and/or relate to the correction, prevention and/or abatement of nuisances or other grievances in, upon or connected with the demised premises during the term hereof. Lessee shall, at Lessee's own cost and expense, also promptly comply with and obey all rules, orders and regulations of all Lessor's insurance carriers and any fire underwriting or rating authority. Any governmental or municipal permits, approvals or consents required in order for Lessee to be able to use the demised premises for the purposes for which Lessee intends, and is permitted hereunder, shall be obtained by Lessee, at Lessee's sold cost and expense, and any failure of Lessee to obtain such permits, approvals or consents shall not relieve Lessee of its obligations hereunder. 6. UTILITIES: Lessee shall be responsible for procuring directly from the providers selected by Lessor of all utility services, and paying to such providers the costs and expenses of all utilities and services used on the demised premises during the term of this Lease except water used for drinking and lavatory purposes. In the event Lessor determines that Lessee is using water for other than drinking and lavatory purposes, then Lessee shall, from time to time and within fifteen (15) days of being furnished with a statement thereof, pay to Lessor the amounts that Lessor attributes as the cost for providing water to Lessee. 7. ALTERATIONS: Lessee shall make no additions, installations, alterations or changes in or to the demised premises without obtaining the prior written permission of Lessor. In any event, all installations, alterations or work done by Lessee shall at all times comply with: a. Laws, rules, orders and regulations of all governmental or municipal bodies, authorities, departments or agencies having jurisdiction thereof and such rules and regulations as Lessor shall promulgate, including the ADA as provided in Section 56 of this Lease. b. Plans and specifications prepared by and at the expense of Lessee theretofore submitted to Lessor for its prior written approval; no installations, alterations or any other work shall be undertaken, started or begun by Lessee, its agents, servants or employees, until Lessor has approved such plans and specifications; and no amendments or additions to such plans and specifications shall be made without the prior written consent of Lessor. c. Lessee agrees to pay Lessor's costs and expenses of reviewing any plans and specifications submitted for Lessor's review plus an inspection fee of Two Hundred and Fifty and no/100 Dollars ($250.00) per inspection. 8. ACCESS: Lessee shall permit Lessor and others authorized by Lessor to enter upon the demised premises at all reasonable times, with advance notice to Lessee to examine the condition thereof and conditions of Lessee's occupancy, to make such repairs, additions or alterations therein as Lessor may deem necessary, for such other purposes as may be related to Lessor's ownership or to exhibit the same to prospective tenants, purchasers and/or mortgagees. 9. SIGNAGE: Lessee may not erect any sign in or on any portion of the demised premises or on the Building visible from any point outside of the interior of the demised premises or the Building without Lessor's prior written approval and according to the covenants of the Business Park. 10. USE: Lessee shall use the demised premises only for office purposes, generally in accordance with the manner of use by other tenants at the Property (the "Permitted Use"). The foregoing notwithstanding, the demised premises shall not be used for any of the purposes or uses described in Exhibit E; any illegal purposes; nor in any manner to, create any nuisance or 3 trespass; nor in any manner to vitiate the insurance or increase the rate of insurance on the demised premises. Lessee's use of the demised premises shall not violate any ordinance, law or regulation of any governmental body or the "Rules and Regulations" of Lessor (the "Rules") as set forth in Exhibit C attached hereto and made a part hereof, or cause an unreasonable amount of use of any of the services provided at the Property. Lessee agrees, at its own expense, to promptly comply with any and all municipal, county, state and federal statutes, regulations, or requirements applicable or in any way relating to the use and occupancy of the demised premises. Lessee agrees to conduct its business in the manner and according to the generally accepted business principles of the business or profession in which Lessee is engaged. 11. LIABILITY: Lessee shall save and hold Lessor harmless from all liabilities, charges, expenses (including counsel fees) and costs on account of all claims for damages and otherwise and/or suits for or by reason of any injury or injuries to any person or property of any kind whatsoever, whether the person or property of Lessee, its agents or employees or third persons, from any cause or causes whatsoever while on or upon or in proximity to the demised premises or due to any breach of a covenant herein by Lessee or to Lessee's use and occupancy of the demised premises unless arising from any gross negligence or willful misconduct on the part of Lessor. Lessor shall not in any manner be liable to Lessee for damages, losses or any other claim resulting from Lessor's delay or failure in delivery of the demised premises. 12. SURRENDER AND TERMINATION: All fixtures, equipment, improvements and appurtenances attached to or built into the demised premises prior to or during the term, whether by Lessor, at its expense or at the expense of Lessee, or by Lessee, shall be and remain part of the demised premises and shall not be removed by Lessee at the end of the term, unless Lessor, at least fifteen (15) days prior to the expiration of the term, notifies Lessee to remove the same. All of Lessee's removable trade fixtures and removable business equipment may be removed by Lessee upon condition that such removal does not materially damage the demised premises or the Building and that the cost of repairing any damage to the demised premises or the Building arising from such removal shall be paid by Lessee. Any property of Lessee or of any sublessee or occupant that Lessee has the right to remove or may hereunder be required to remove which shall remain in the Building after the expiration or termination of the term of this Lease shall be deemed to have been abandoned by Lessee, and either may be retained by Lessor as its property or may be disposed of in such manner as Lessor may see fit; provided, however, that, notwithstanding the foregoing, in the event of any failure of Lessee to promptly remove the items requested by Lessor to be removed and/or restore any damage to the Building or demised premises occasioned by such removal, Lessor, at Lessee's cost and expense, may remove the items Lessee failed to remove and/or effect all repairs to the Building and the demised premises. If such property or any part thereof shall be sold, Lessor may receive and retain the proceeds of such sale and apply the same, at its option, against the expenses of the sale, the cost of moving and storage, any arrears of base rent, additional rent or other charge payable hereunder and any damages to which Lessor may be entitled hereunder or pursuant to law. Upon the expiration or other termination of the term of this Lease, Lessee shall quit and surrender to Lessor the demised premises, broom clean, in good order and condition, ordinary wear excepted, and Lessee shall (i) remove all of its property and other items that it is permitted or required hereunder to remove and (ii) repair all damage to the Building and/or the demised premises occasioned by such removal. Lessee's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of this Lease. 13. INDEMNITY: Lessor, its agents and its and their employees shall not be liable for any damage to property of Lessee or of any other party claiming by, through or under Lessee, nor for the loss or damage to any property of Lessee by theft or otherwise, unless caused by the negligence or willful misconduct of Lessor or its agents or employees. Lessee shall, at its own cost and expense, be responsible for the repairs or restoration due to, or resulting from, any theft or otherwise. Lessor or its agent shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, electrical disturbance, water, rain or snow or leaks from any part of the Building or from the pipes, appliances or plumbing works or from the roof, street or sub-surface or from any other place or by dampness or by any 4 other cause of whatsoever nature, unless caused by the negligence or willful misconduct of Lessor or its agents or employees; nor shall Lessor or its agents be liable for any such damage caused by other tenants or persons in the Building or caused by operations in construction of any private, public or quasi-public work, unless caused by the negligence or willful misconduct of Lessor or its agents or employees; nor shall Lessor be liable for any defect (latent or otherwise) in the demised premises or in the Building. Lessee shall reimburse and compensate Lessor as additional rent for all expenditures made by, or damages or fines sustained or incurred by, Lessor due to non-performance or non-compliance with or breach or failure to observe any term, covenants or condition of this Lease upon Lessee's part to be kept, observed, performed or complied with. 14. NO WAIVER: The failure of Lessor to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease shall not prevent a subsequent act, which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Lessor of rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. No provision of this Lease shall be deemed to have been waived by Lessor unless such waiver be in writing signed by Lessor. No surrender of this Lease shall be effective without Lessor's written agreement to accept such surrender. No payment by Lessee, or receipt by Lessor, of a lesser amount than the full rent, additional rent or payment obligation hereunder shall be deemed to be other than on account for the sum or sums stipulated hereunder, nor shall any endorsement or statement on any check or any letter accompanying a payment by Lessee be deemed an accord and satisfaction and Lessor may accept such check or payment without prejudice to Lessor's right to recover the balance of such rent, additional rent or other payment or pursue any other remedy available to Lessor. No waiver, on the part of Lessor, its successors or assigns, of any default or breach by Lessee of any covenant, agreement or condition of this Lease shall be construed to be a waiver of the rights of Lessor as to any prior or future default or breach by Lessee. 15. SUBORDINATION: a. This Lease is, or will be, subject and subordinate to any underlying land leases or to the lien of any and all mortgages, deeds of trust or other security devices which may now or hereafter affect or encumber this Lease or the Property and also to all renewals, modifications, extensions, consolidations, and replacements of such leases or security devices. This clause shall be self-operative and no further instrument of subordination shall be required by any mortgagee, or holder of another security device or holder of a ground leasehold interest. In confirmation of such subordination, however, Lessee shall, within ten (10) days after Lessor's request, execute and acknowledge any documents reasonably required to effectuate an attornment, a subordination, or to make this Lease or any option granted herein prior to any underlying land leases or the lien of any mortgage, deed of trust or other security devices, as the case may be. b. Notwithstanding the foregoing, in the event any such mortgagee or the holder of any deed to secure debt, other security device or ground leasehold interest shall elect to make the lien of this Lease prior to the lien of its mortgage, deed to secure debt, other security device or ground leasehold interest, then, upon such party giving Lessee written notice to such effect, this Lease shall be deemed to be prior in lien to the lien of such mortgage, deed to secure debt, other security device or ground leasehold interest, whether dated prior or subsequent thereto. c. If any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale or conveyance in lieu of foreclosure under any mortgage, deed of trust or other security device, Lessee shall at the option of the purchaser at such foreclosure or other sale, attorn to such purchaser and recognize such person as Lessor under this Lease. Lessee agrees that the institution of any suit, action or other proceeding by a mortgagee or a sale of the Property pursuant to the powers granted to a mortgagee under its mortgage, deed of trust or other security device, shall not, by operation of law or otherwise, result in the cancellation or the termination of this Lease or of the obligations of Lessee hereunder. d. If such purchaser requests and accepts such attornment, from and after the time of such attornment, Lessee shall have the same remedies against such purchaser for the breach of an agreement contained in this Lease that Lessee might have had against Lessor if the mortgage, 5 deed of trust or other security device, had not been terminated or foreclosed, except that such purchaser shall not be (i) liable for any act or omission of the prior Lessor; (ii) subject to any offsets or defenses which Lessee might have against the prior Lessor; (iii) bound by any rent or Security Deposit (hereinafter defined) which Lessee might have paid in advance to the prior Lessor; (iv) obligated to cure any default of any prior Lessor under the Lease that occurred prior to the time that such purchaser succeeded to the interest of Lessor in the Property; or (v) bound by any amendment or modification of the Lease made without the prior written consent of such purchaser. 16. INSURANCE: Lessee shall, during the term hereof, keep in full force and effect (i) public liability and property damage insurance with respect to the demised premises and the use and/or business operated by Lessee in the demised premises, in which the limits of public liability shall not be less than Three Million and no/100 Dollars ($3,000,000.00) on account of personal injury to or the death of any one or more persons, as a result of any accident or disaster, and One Million and no/100 Dollars ($1,000,000.00) on account of damage to property; (ii) fire and extended coverage insurance with sprinkler leakage coverage in an amount sufficient to cover the cost of replacing its property and fixtures; and (iii) glass breakage and replacement insurance. a. The limits of said insurance shall not, however, in any way limit the liability of Lessee under this Lease. b. All insurance policies which Lessee is required to secure and maintain shall be in such form and by companies acceptable to Lessor. c. Lessee shall include in its fire and glass insurance policies for the demised premises appropriate clauses pursuant to which the insurance carriers (i) waive all rights of subrogation against Lessor, Lessor's mortgagees and holders of any ground lease, with respect to losses payable under such policies and/or (ii) agree that such policies shall not be invalidated should the insured waive, in writing, prior to a loss any or all right of recovery against any party for losses covered by such policies. If Lessee, at any time, is unable to obtain such inclusion of either of the clauses described in the preceding sentence, Lessee shall have Lessor, Lessor's mortgagees and holders of any ground lease named in such policies as insureds. Lessee hereby waives any and all right of recovery which it might otherwise have against Lessor, its contractors, agents and its and their employees, for loss or damage to Lessee's furniture, furnishings, fixtures and other property and all other losses covered by the insurance required to be carried by Lessee. Lessee shall, concurrently with its execution of this Lease (and thereafter, at least thirty (30) days prior to the expiration of any policy) furnish Lessor with a duplicate original of all insurance carried by Lessee at the demised premises with evidence that the premiums therefor have been paid current. d. All public liability policies required by this Lease to be obtained by Lessee shall name Lessor and such other parties as Lessor shall designate as an insured thereunder. 17. DEFAULT: Time is of the essence with regard to the performance of Lessee's obligations under this Lease. Any of the following constitutes a default of this Lease by Lessee: a. Failure to pay any installment of base rent, item of additional rent or other charge payable under this Lease on the applicable payment date. Lessee shall pay Lessor interest at the rate of eighteen (18%) percent simple interest per annum (or if such rate be illegal, at the maximum rate permitted by law, and any payment in excess of that which is permitted by law shall, and be deemed to be, an advance payment of base rent and shall be applied against the installments of base rent next becoming due) on all payments due under this Lease that are not made on the date when due, calculated from the date when due until paid in full. b. Failure to cure any other default of Lessee's obligations under this Lease for a period of ten (10) days after notice specifying the nature of the default. c. Vacation (and failure to pay rent) or abandonment of the demised premises. 6 d. Filing a voluntary petition in bankruptcy or the adjudication of Lessee as insolvent or bankrupt, or an assignment for the benefit of creditors, or filing a petition for relief under any applicable bankruptcy law, or consent to the appointment of a trustee or receiver of all or any substantial part of Lessee's property; or e. Filing of an involuntary petition under any applicable bankruptcy law against Lessee which is not vacated within thirty (30) days. 18. LESSOR'S REMEDIES: Upon Lessee's default and the expiration of any applicable grace period, Lessor may (at Lessor's option and in addition to all other rights provided in this Lease, at law or in equity) take any one or more of the following actions without further notice or demand. a. Terminate this Lease in which event Lessee shall immediately surrender the demised premises to Lessor. If Lessee fails to do so, Lessor may, without further notice and without prejudice to any other remedy Lessor may have, enter upon the demised premises without the requirement of resorting to the dispossessory procedures set forth by applicable law, if any, and expel or remove Lessee and Lessee's effects without being liable for any claim for trespass or damages therefor. Upon any such termination, Lessee shall remain liable to Lessor for damages, due and payable monthly on the day rent would have been payable hereunder, in an amount equal to the rent and any other amounts which would have been owing by Lessee for the balance of the term had this Lease not been terminated, less the net proceeds, if any, of any reletting of the demised premises by Lessor, plus the aggregate amount of all of Lessor's expenses of reletting (including, without limitation, rental concessions to new tenants, repairs, alterations, advertising expenses, legal fees, brokerage commissions and other professional fees) and any other costs incurred in connection with the termination of this Lease, eviction of Lessee and such reletting, and all other damages to which Lessor is entitled under law. b. Enter the demised premises as the agent of Lessee without terminating the Lease and without being liable for any claim for trespass or damages therefor, and, in connection therewith, re-key the demised premises, remove Lessee's improvements, signs, personal property, equipment and other evidences of tenancy, and store or dispose of them, at Lessee's expense or as Lessor may see fit without being liable for any damage thereto, and relet the demised premises without advertisement, by private negotiations, for any term Lessor deems proper, and receive the rent therefor. If Lessor elects to take possession only without terminating this Lease, such entry and possession shall not terminate the Lease or release Lessee, in whole or in part, from the obligation to pay the rent and other charges payable under this Lease for the full term or from any other obligation under this Lease. Notwithstanding any such re-letting without termination, Lessor may at any time thereafter elect to terminate this Lease for such previous breach. c. Demand immediate repayment by Lessee, in addition to but not in lieu of or in limitation of any other right or remedy provided to Lessor under the terms of this Lease, of all sums expended by Lessor and not repaid by Lessee in connection with preparing or improving the demised premises to Lessee's specifications and all costs and expenses incurred in reasonably renovating or altering the demised premises to make it suitable for re-letting. d. Declare the entire amount of the rent and other sums which would have become due and payable during the remainder of the term of the Lease to be due and payable immediately without notice to Lessee and thereafter terminate this Lease and Lessee's right of possession of the demised premises. e. Pursue any other remedy, at law or in equity, now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the demised premises are located. Lessor's reentry, demand for possession, notice that the tenancy hereby created will be terminated on the date therein named, institution of an action of unlawful detainer or ejectment or the entering of a judgment for possession in such action or any other act or acts resulting in the termination of Lessee's right to possession of the demised premises shall not relieve Lessee from Lessee's obligation to pay all sums due hereunder during the balance of the term, except as expressly provided herein. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the lesser of 7 eighteen percent (18%) per annum or the maximum rate then allowable by law as provided in Section 17 of this Lease. f. This Lease shall not be deemed to be terminated by Lessor's entry on the demised premises or by any other act unless Lessor specifically expresses its intent to terminate this Lease. g. For purposes of any reletting by Lessor described in this Section 18, Lessor is authorized to redecorate, repair, alter and improve the demised premises to the extent necessary in Lessor's sole but reasonable discretion. Upon such reletting, all rentals received by Lessor from such re-letting shall be applied first, to the payment of any indebtedness other than the rent due hereunder from Lessee to Lessor; second, to the payment of any costs and expenses of such reletting or eviction of Lessee, including, without limitation, brokerage fees and attorneys' fees and the costs of such alterations and repairs as may be necessary relative to such re-letting; third, to the payment of the rents then due and unpaid under the Lease; and the residue, if any, shall be held by Lessor and applied in payment of future rents as same may become due and payable hereunder. Lessee shall pay Lessor on demand any deficiency that may arise by reason of such reletting, but Lessee shall not be entitled to any surplus so arising. h. Lessor, in addition to but not in lieu of or in limitation of any other right or remedy provided to Lessor under the terms of this Lease or otherwise (but only to the extent such sum is not reimbursed to Lessor in conjunction with any other payment made by Lessee to Lessor), shall have the right to be immediately repaid by Lessee the unamortized portion of all sums expended by Lessor and not repaid by Lessee in connection with preparing or improving the demised premises to Lessee's specifications and any and all costs and expenses incurred in renovating or altering the demised premises to make it suitable for reletting. Lessee agrees that Lessor may file suit to recover any sums due Lessor under this Paragraph 18 from time to time and that such suit or recovery of any amount due Lessor shall not be a defense to any subsequent action brought for any amount not previously reduced to judgment in favor of Lessor. i. All rights and remedies of Lessor created or otherwise existing at law or in equity are cumulative and the exercise of one or more rights or remedies shall not be taken to exclude or waive the right to exercise any other j. In the event Lessor commences any proceedings for nonpayment of rent or other sums due hereunder, Lessee will not interpose any counterclaim of whatever nature or description which is not directly related to the Lease in any such proceeding, as construed by a court having proper jurisdiction. This shall not, however, be construed as a waiver of Lessee's right to assert such claims in any separate action or actions brought by Lessee. k. Notwithstanding anything in this Lease to the contrary, Lessee shall have no claim and hereby waives the right to any claim, against Lessor for money damages by reason of any refusal, withholding or delaying by Lessor of any consent, approval or statement of satisfaction, and in such event, Lessee's only remedies therefor shall be an action for specific performance or injunction to enforce any such requirements. If the results of any such action or arbitration shall be adverse to Lessor, Lessor shall be liable for Lessee's reasonable expenses and attorneys' fees thereby incurred. 19. DESTRUCTION - FIRE OR OTHER CAUSE: a. If the demised premises shall be partially damaged by fire or other cause without the fault or neglect of Lessee or Lessee's servants, employees, agents, invitees or licensees, Lessor shall, upon Lessor's receipt of the insurance proceeds and to the extent such proceeds are allocable or attributable to the demised premises, repair the portions of the demised premises covered by Lessor's insurance, and the rent until such repairs shall have been made shall be apportioned according to the part of the demised premises which is usable by Lessee. But if such partial damage is due to the fault or neglect of Lessee or Lessee's servants, employees, agents, invitees or licensees, without prejudice to any other rights and remedies of Lessor and without prejudice to the rights of subrogation of Lessor's insurer, the damages shall be repaired by Lessor but there shall be no apportionment or abatement of rent. 8 b. If the demised premises are totally damaged or are rendered wholly untenantable by fire or other cause, Lessor has the option to terminate the Lease as of the date of the damage or destruction by giving Lessee written notice within ninety (90) days after the date of the damage or destruction. If the demised premises are totally damaged or are rendered wholly untenantable and Lessor shall decide not to restore or not to rebuild the same, or if the Building shall be so damaged that Lessor shall decide to demolish it or not to rebuild it, or if the Building (whether or not the demised premises have been damaged) should be damaged to the extent of fifty (50%) percent or more of the then monetary value thereof, or if the damage resulted from a risk not fully covered by Lessor's insurance, then or in any of such events, Lessor may, within ninety (90) days after such damage or destruction, give Lessee written notice of Lessor's election to terminate this Lease, and thereupon the term of this Lease shall expire and terminate upon the third day after such notice is given, and Lessee shall vacate the demised premises and surrender the same to Lessor. Notwithstanding the foregoing, if the demised premises are totally damaged or are rendered wholly untenantable by fire or other cause, either party may terminate this Lease upon written notice to the other within thirty (30) days after the date of such damage or destruction. c. If neither Lessor nor Lessee elects to terminate this Lease within thirty (30) days after such destruction or damage, Lessor shall complete such restoration with reasonable diligence within one hundred eighty (180) days after the date of Lessor's receipt of insurance proceeds paid with respect to such damage or destruction. During such period of repair, if any portion of the demised premises shall be untenantable as a result of said damage or destruction, rent shall abate beginning with the date of such damage or destruction and ending on the date the demised premises are rendered tenantable by an amount bearing the same ratio to the total amount of rent due under this Lease as the untenantable portion of the demised premises bears to the entire demised premises. Notwithstanding such abatement, Lessee shall remain obligated to perform and discharge all of its remaining covenants under this Lease during the period of abatement. d. If such damage or destruction occurs within one (1) year of the expiration of the term of this Lease, either party may, at its option on written notice to the other party within thirty (30) days after such destruction or damage, terminate this Lease as of the date of such damage or destruction. e. For purposes of this Lease, the term "Lessor's receipt of insurance proceeds" shall mean the portion of the insurance proceeds paid over to Lessor free and clear of any collection by mortgagees for the value of the damage, attorneys' fees and other costs of compromise, adjustment, settlement and collection of the insurance proceeds. 20. LEGAL FEES: In the event it shall become necessary for either party at any time to institute any legal action or proceedings of any nature for the enforcement of this Lease, or any of the provisions hereof, or to employ an attorney-at-law therefor and said party prevails in such action or proceedings, then the non-prevailing party shall pay to the prevailing party such prevailing party's costs (including a reasonable attorney's fee) incurred in such action or proceedings. 21. CONDEMNATION: If all of the Building is taken by or under the power of eminent domain (or conveyance in lieu thereof), this Lease shall terminate on the date the condemning authority takes possession and any rent paid for any period beyond said date shall be repaid to Lessee. In all other cases of any taking of the Building or the Land by the power of eminent domain (or conveyance in lieu thereof), Lessor shall have the option of electing to terminate this Lease. If Lessor does not elect to terminate, Lessor shall do the work necessary so as to constitute the portion of the Building not so taken a complete architectural unit and Lessee shall do all other work necessary for it to use and occupy the demised premises for its permitted purpose. During the period of Lessor's repairs, rent shall abate in an amount bearing the same ratio as the portion of the demised premises usable by Lessee bears to the entire demised premises. Rent shall be equitably adjusted, as of the date the condemning authority permanently acquires possession of any portion of the demised premises, to reflect any permanent reduction in the tenantable portion of the demised premises. Lessee shall not be entitled to, hereby expressly waives, and hereby assigns to Lessor all Lessee's right, title and interest in and to, any 9 award made in any condemnation proceeding, action or ruling relating to any taking (or consideration paid for a conveyance in lieu thereof), whether whole, partial, temporary or permanent, and whether for diminution of the value of Lessee's interest in this Lease or term thereof or to the lease improvements or for any other claim or damage, including, without limitation, severance damages and loss of, or damage to, Lessee's trade fixtures. Notwithstanding the foregoing, in the event of a termination of this Lease, Lessee shall be entitled to make a separate claim in any condemnation proceeding, action or ruling relating to any taking against the condemning authority for Lessee's moving expenses, loss of goodwill, and the unamortized value of the leasehold improvements in the demised premises actually paid for by Lessee without contribution by Lessor, provided any awards or proceeds sought by, or paid to, Lessee does not reduce or diminish in any way or amount the awards or proceeds otherwise payable to Lessor. Lessee shall have no claim against Lessor for the value of any unexpired portion of this Lease. 22. ASSIGNMENT AND SUBLETTING: a. Lessee shall not sublet any part of the demised premises, nor assign this Lease or any interest herein, without the prior written consent of Lessor, which consent shall not be unreasonably withheld or delayed. Any sublease or assignment made without Lessor's consent shall be void. For illustration only, the following are examples of reasons Lessor may withhold its consent without being deemed to be unreasonable: (i) the proposed sublessee or assignee may, in Lessor's judgment unreasonably burden the Building, its amenities or services (ii) if the rate of compensation, including, but not limited to, all rent requested by Lessee for the portion of the demised premises to be subleased or subject to an assignment of the Lease, impacts upon or impairs Lessor's ability to rent space in the Building at the then market rate as offered by Lessor, (iii) the financial statements or the business experience of the proposed assignee or sublessee are unsatisfactory to Lessor, (iv) the proposed use of the demised premises conflicts with other uses in the Building, (v) the prospective assignee or sublessee is an existing tenant of the Building and in Lessor's judgment such sublease or assignment may affect Lessor's lease relationship with such tenant, or (vi) Lessee's proposed subletting or assignment will, in Lessor's judgment, compete with Lessor's ability to lease other vacant space in the Building. Consent by Lessor to one assignment or sublease shall not destroy or waive this provision, and all later assignments and subleases shall likewise be made only upon prior written consent of Lessor. If a sublease or assignment is consented to by Lessor, any subleases or assignees shall become liable directly to Lessor for all obligations of Lessee hereunder without relieving or in any way modifying Lessee's liability hereunder. b. If Lessee desires to assign this Lease or sublet the demised premises or any part thereof, Lessee shall give Lessor written notice at least thirty (30) days in advance of the date on which Lessee desires to make such assignment or sublease, and pay to Lessor a non-refundable $Two Hundred Fifty and No/100 Dollars ($250.00) administrative processing fee. Lessee's notice shall specify: (a) the name and business of the proposed assignee or sublessee; (b) the amount and location of the space in the demised premises affected; (c) the proposed effective date of the subletting or assignment; and (d) the proposed rental to be paid to Lessee by such sublessee or assignee. c. If Lessee shall give such notice, Lessee shall pay on demand Lessor's reasonable costs not to exceed Two Thousand Five Hundred Dollars ($2,500.00), including attorneys' fees incurred to consider and as necessary to document such transaction. If Lessee notifies Lessor of Lessee's intent to sublease or assign this Lease, Lessor shall within fifteen (15) business days from receipt of such notice (a) consent to such proposed assignment or subletting; (b) deny such consent (if Lessor shall fail to notify Lessee in writing of such election within said fifteen (15) day period, Lessor shall be deemed to have elected to deny such consent); or (c) elect to cancel this Lease if Lessee intends to sublease the entire demised premises, or to reduce the demised premises by the area requested to be subleased or assigned if the area is less than the entire demised premises. d. If Lessor's election is to cancel or to reduce the area of the demised premises as provided in the foregoing clause (c) (such election being referred to herein as "Lessor's Modification Election"), Lessee shall have ten (10) days from receipt of Lessor's Modification Election to notify Lessor of Lessee's acceptance of such cancellation or reduction or Lessee's desire to remain in possession of the demised premises under this Lease for the remainder of the Term. If Lessee fails to notify Lessor of Lessee's election to accept termination or reduction or 10 to continue as Lessee hereunder, such failure shall be deemed an election to terminate or have the area of the demised premises reduced, as the case may be, in accordance with Lessor's Modification Election and such termination or reduction shall be effective at the end of the ten (10) day period provided for above. If Lessor gives its consent to any such assignment or sublease, seventy-five percent (75%) of any rent or other cost to the assignee or sublessee for all or any portion of the demised premises over and above the rent payable by Lessee for such space shall be due and payable, and shall be paid, to Lessor. e. If this Lease is cancelled, the area of the demised premises is reduced or a sublease or assignment is made as herein provided, Lessee shall pay Lessor a charge equal to the actual costs incurred by Lessor, in Lessor's reasonable judgment (including, but not limited to, the use and time of Lessor's personnel), for all of the necessary legal, management, leasing or accounting services required to accomplish such cancellation, reduction of area of the demised premises, assignment or subletting, as the case may be. f. Any physical alterations necessary with respect to any such assignment, subletting or reduction of the area of the demised premises shall be subject to the provisions of this Lease regarding alterations and shall be at Lessee's sole cost and expense and subject to applicable building codes. No acceptance by Lessor of any rent or any other sum of money from any assignee, sublessee, or other category of transferee shall release Lessee from any of its obligations under this Lease or be deemed to constitute Lessor's consent to such assignment, sublease or transfer. g. The sale or transfer of Lessee's voting stock (if a corporation) or a partnership interest (if a partnership) or member interest (if a limited liability company) in Lessee resulting in the transfer of control of a majority of such stock or interest, or the occupancy of the demised premises by any successor firm of Lessee or by any firm into which or with which Lessee may become merged or consolidated shall be deemed an assignment of this Lease requiring the prior written consent of Lessee. The foregoing notwithstanding, Lessor shall not unreasonably withhold its consents to an assignment of this Lease in connection with a sale of all, or substantially all, of the stock or assets of Lessee, provided that: (i) Lessee provides Lessor with 30 days prior notice to making such assignment; and (ii) Lessee provides Lessor with financial information confirming that the surviving entity is able to satisfy the financial obligations under this Lease; and (iii) in the event the tangible net worth of the surviving entity is not least as great as Lessee's tangible net worth as of the date hereof, then Lessee shall provide Lessor with an additional security deposit reasonably acceptable to Lessor. h. The joint and several liability of Lessee named herein and any immediate and remote successor in interest of Lessee (by assignment or otherwise), and the due performance of the obligations of this Lease on Lessee's part to be performed or observed, shall not in any way be discharged, released or impaired by any (i) agreement which modifies any of the following or obligations of the parties under this Lease, (ii) stipulation which extends the time within which an obligation under this Lease is to be performed, (iii) waiver of the performance of an obligation required under this Lease, or (iv) failure to enforce any of the obligations set forth in this Lease; provided, however, that (a) in the case of any modification of this Lease made after the date of an assignment or other transfer of this Lease by Lessee, if such modification increases or enlarges the obligations of Lessee or reduces the rights of Lessee, then Lessee named herein and each respective assignor or transferor shall not be liable under or bound by any such increase, enlargement or reduction; and (b) in the case of any waiver by Lessor of a specific obligation of an assignee or transferee of Lessee, such waiver shall also be deemed a waiver of such obligation with respect to the immediate and remote assignors or transferor of such assignee or transferee. i. Lessee shall have no right whatsoever to encumber any of Lessee's rights, title or interest under this Lease, without the prior written consent of Lessor. j. Nothing in this Lease shall in any way restrict Lessor's right to assign or encumber this Lease in its sole and absolute discretion. Should Lessor assign this Lease as provided for above, or should Lessor encumber all or any portion of the Property and should the holder of such encumbrance succeed to the interest of Lessor, Lessee shall be bound to said assignee or any such holder under all the terms, covenants and conditions of this Lease for the balance of the Lease term remaining after such succession and Lessee shall attorn to such succeeding party as its Lessor under this Lease promptly under any such succession. essee agrees that should 11 any party so succeeding to the interest of Lessor require a separate agreement of attornment regarding the matters covered by this Lease, then Lessee shall promptly enter into such attornment agreement, provided the same does not substantially modify any of the provisions of this Lease and has no material adverse effect upon Lessee's continued occupancy of the demised premises. 23. PARKING: Lessee shall not park any vehicle, in any area, where said parking will constitute a problem to other tenants. Parking areas shall be provided at no additional cost to Lessee. Lessee shall have three (3) unreserved parking spaces per 1,000 square feet of rentable area. Lessor reserves the right at all times during the term hereof to designate and redesignate such parking areas and to proscribe the use thereof by reasonable rules and regulations. Lessee, its officers, employees, guests, invitees and visitors shall not at any time park trucks or vehicles in any of the areas designated for automobile parking. Lessor shall have no responsibility to police or otherwise insure Lessee's or other lessees' use thereof. Lessee shall not be entitled to any designated parking spaces. Parking areas shall be provided by Lessor for use by Lessee, its officers, employees, guests, invitees and visitors in common with the other tenants of the Office Park, their officers, employees, guests, invitees, visitors and such other parties as Lessor shall, from time to time, permit, on a "first come-first served" basis. All parking spaces and parking areas shall be non-attended and shall be utilized at the vehicle owner's own risk. Lessor shall not be liable for any injury to persons or property or loss by theft or otherwise to any vehicle or its contents. Vehicles parked on lawn areas are subject to being towed away at vehicle owner's expense. 24. KEYS: At the expiration or earlier termination of this Lease, Lessee shall furnish Lessor with at least one (1) key to each door or other locked area in or to the demised premises. 25. MECHANICS' LIENS: Neither Lessor nor the Property shall be liable for any labor, services or materials furnished or to be furnished to Lessee upon credit, and no mechanic's or other lien for any such labor, services or materials shall attach to, encumber or in any way affect the reversionary interest or other estate or interest of Lessor in and to the Building or the Land. Nothing in this Lease shall be construed as a consent by Lessor to subject Lessor's reversionary interest in the demised premises to liability under any lien or other law. If, as a result of any work or installation made by, or on behalf of Lessee, or Lessee's maintenance and repair of the demised premises, a claim of lien or lien is filed against the demised premises or all or any portion of the Property, within ten (10) days after it is filed, Lessee shall either satisfy the claim of lien or obtain a bond for or otherwise provide for the satisfaction of the lien in a manner acceptable to Lessor. If Lessee fails to do so within the ten (10) day period, Lessor may satisfy the lien, and Lessee shall reimburse Lessor for all Lessor's costs and expenses (including reasonable attorneys' fees) incurred in connection therewith. 26. NOTICES: All notices by Lessee to Lessor or by Lessor to Lessee with regard to this Lease shall be valid only if in writing and shall be deemed conclusively delivered when same are either hand delivered, or deposited in the U.S. mail, postage prepaid, certified, return receipt requested, or picked up for delivery by a nationally recognized courier for overnight delivery with such delivery charge being prepaid, if to Lessor, addressed to Lessor at the address set forth for Lessor on page 1 of this Lease or if to Lessee, at the address set forth for Lessee on page 1 of this Lease prior to Lessee's initial occupancy of the demised premises and thereafter with a duplicate to Lessee at the demised premises, attention: Manager of Facilities. Either party hereto may, by notice given as aforesaid, designate a different address or addresses for notices. 12 27. LESSEE'S PROPORTIONATE SHARE: a. Throughout the Term, Lessee agrees to pay, as additional rent, its proportionate share of Operating Costs (as hereinafter defined) of the Building, as hereinafter defined (the "Lessee's Share"). b. The term "Lessee's Share" shall mean the portion that the rentable square feet in the demised premises bears to the "Total Building Rentable Area" (as hereinafter defined). Notwithstanding anything to the contrary contained herein, in the event the Total Building Rentable Area does not have an average occupancy of ninety-five percent (95%) during any calendar year, appropriate adjustments shall be made to determine Operating Costs as though the Building had been ninety-five percent (95%) occupied, but in no event shall Lessee ever be required to pay more than Lessee's Share of the determined Operating Costs. The average occupancy shall be determined by adding together the total leased space on the last day of each month during the calendar year in question and dividing by twelve (12). For purposes of this Lease, the Total Building Rentable Area is Two Hundred Eighteen Thousand Fifty-Two (218,052) square feet and the "Lessee's Share" equals 1.51%. c. During the month of December of each calendar year (or as soon thereafter as is reasonably practicable), Lessor shall furnish to Lessee a statement of Lessor's estimate of the Operating Costs for the next calendar year. Commencing on the Commencement Date and continuing on each monthly rent payment date thereafter until further adjustment pursuant to this Section 27(c), Lessee shall pay to Lessor one-twelfth (1/12) of Lessor's estimate of Lessee's Share of Operating Costs. Within one-hundred and twenty (120) days after the expiration of each calendar year during the Term (or as soon thereafter as is reasonably practicable), Lessor shall furnish to Lessee a statement (the "Expense Statement") showing the actual Operating Costs for such calendar year. The Expense Statement shall be conclusive and binding on Lessee, unless objected to in writing by Lessee as provided in this Section 27. In case of an underpayment, Lessee shall, within thirty (30) days after the receipt of such statement, pay to Lessor an amount equal to such underpayment. In case of an overpayment, Lessor shall credit the next monthly rental payment by Lessee with an amount equal to such overpayment. Additionally, if this Lease shall have expired, Lessor shall apply such excess against any sums due from Lessee to Lessor and shall refund any remainder to Lessee within ninety (90) days after the expiration of the Term, or as soon thereafter as is reasonably practicable. d. Anything herein to the contrary notwithstanding, in no event shall the rent as set forth in Section 3(a) ever be reduced on account of Operating Costs. e. Should this Lease commence at any time other than the first day of a calendar year, or terminate at any time other than the last day of a calendar year, the amount of additional rent due from Lessee shall be proportionately adjusted based on that portion of the year that this Lease was in effect. f. Lessee shall have the right for a period of sixty (60) days after receipt of any Expense Statement to review Lessor's books and records with respect to actual annual Operating Costs for the period covered by the Expense Statement. Such review shall take place in Lessor's manager's office at the Property or at such other locally-based place as designated by Lessor. Lessee shall give Lessor not less than ten (10) days written notice of the date on which Lessee intends to conduct such review. In the event Lessee either fails to give written notice or thereafter fails to complete such inspection within ten (10) business days after the date for the inspection set forth in Lessee's written notice, then Lessee's right to review Lessor's books and records shall terminate on such tenth (10th) day and the Expense Statement in question shall be binding on both Lessor and Lessee. The results of such review shall be for the benefit of Lessor and Lessee only, shall be maintained in confidence by Lessee, and shall not be disseminated or furnished to any other person or entity. Lessee may use accountants or other professionals to aid Lessee in conducting the audit, but Lessee may not use any auditing services or consultants that are owned by, affiliated with, employed by or related to any office building lessors or office building management companies or services. g. If, as a result of Lessee's review, Lessee claims that any particular items shall be incorrectly included as an Operating Costs under this Lease or Lessee claims any mathematical errors exist in the Expense Statement, Lessee may give written notice to Lessor within ten (10) days after the thirty (30) day review period. Said notice may only contest Lessor's Expense 13 Statement for the two (2) reasons included in this Section (g) and said notice shall clearly reflect the reasons for the disagreement and the amount claimed by Lessee as owed from Lessor. Lessee and Lessor shall then meet in an effort to resolve the differences in their respective findings. h. If a resolution is not reached within twenty (20) days of Lessee's written notice, then Lessor shall designate an independent certified public accountant to audit the actual annual Operating Costs for the period in question. The findings of said accountant shall be binding on both Lessor and Lessee. i. To the extent that the accountant's determination of Operating Costs is less than ninety percent (90%) of the amount reflected on Lessor's Expense Statement, then Lessor shall bear the cost of the audit. Conversely, to the extent that the accountant's determination of the amount reflected on Lessor's Expense Statement is equal to or within ninety percent (90%) of said statement, then Lessee shall bear the cost of the audit. j. If as a result of such audit it is determined that the amount of additional rent due from Lessee shall be less than that shown due on Lessor's Expense Statement, Lessor shall make such adjustments as necessary to correct such Expense Statement and Lessor shall refund to Lessee any over payments of additional rent made by Lessee. k. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the demised premises. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. 1. If any of Lessee's personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement from Lessor setting forth the taxes applicable to Lessee's property. m. The term "Operating Costs" shall mean all operating expenses of the Building and/or Property, all of which shall be computed on a modified cash basis and which shall include all expenses, costs, and disbursements of every kind and nature, which Lessor (i) shall pay; or (ii) become obligated to pay in connection with the ownership, operation, management, maintenance, repair, replacement and security of the Property, including, but not limited to, the following: (i) Wages and salaries of all employees engaged in the operation and maintenance of the Property, including, but not limited to, taxes, insurance and benefits relating thereto; (ii) All supplies and materials used in the operation and maintenance of the Building; (iii) Cost of water, sewage, electricity and other utilities furnished in connection with the operation of the Building which are not separately metered and paid by other tenants; (iv) Cost of all service agreements and maintenance for the Building and/or the Property and/or the equipment therein, including, but not limited to, trash removal, security services, alarm services, window cleaning, janitorial service, HVAC maintenance, elevator maintenance, and grounds maintenance; (v) Cost of all insurance relating to the Property including, but not limited to, the cost of casualty and liability insurance applicable to the Property and Lessor's personal property used in connection therewith; (vi) All taxes (ad valorem and otherwise), assessments, and governmental charges whether federal, state, county, or municipal, and whether by taxing districts or authorities presently taxing the Building or by others, subsequently created or otherwise, and any other taxes (other than federal and state income taxes) and assessments attributable to any portion of the Building or its operation or any rent or any personal property in connection with 14 the operation of the Building, and any reasonable consultants and legal fees incurred with respect to issues, concerns or appeals involving the taxes or the Building; (vii) Cost of repairs and general maintenance of the interior and exterior of the Building (including, but not limited to, glass breakage); (viii) Cost of management fees for general operation and management of the Building, which service may be provided by an affiliated company or subsidiary of Lessor, provided that such management fee shall not exceed the management fee paid for the management of comparable office buildings in the area of the Property for comparable services negotiated at arms length; (ix) A reasonable amortization cost due to any capital expenditures incurred (i) which are incurred to have the effect of reducing or limiting Operating Costs of the Building, or improving the operating efficiency of the Property, if such reduction or limitation would inure to Lessee's benefit, or (ii) which may be required by governmental authority or by Lessor's insurance carrier, or (iii) which are designed to protect or enhance the health, safety or welfare of the lessees at the Property or their invitees; (x) Cost of repairs, replacements, damages in respect to the Building incurred due to casualties or other causes to the extent uninsured including any deductible amounts; (xi) Cost of auditing and maintaining accounting books and records in respect to the Building; (xii) Cost of conducting any indoor air quality testing in any portions of the Building or any exterior or interior air, water or soil testing deemed necessary or desirable by Lessor, including regularly scheduled testing, and any costs incurred in connection with work arising out of the results of such tests or reports or the recommendations in such tests or reports; and (xiii) All costs and expenses for the general operation, management, maintenance and repair of all common areas of the Property, including all such costs and expenses described in items (i) through (xii) above in respect to the common areas of the Property. Lessor shall be permitted to contract with its affiliates for supplies, materials, and services used for the operation, maintenance, and management of the Property and its affiliates shall be permitted to subcontract for the acquisition of said supplies, materials, and services; provided, however, Lessor's payments to any affiliates for such supplies, services, and materials shall not exceed the costs normally charged by third parties for such supplies, materials and services. n. Expressly excluded from the definition of the term "Operating Costs" are: (i) Replacement of capital investment items (excepting those expenditures referred to above); (ii) Lessor's home office expense; (iii) Leasing commissions; (iv) Reimbursements paid by specific tenants or other third parties for direct costs incurred at their request; (v) Depreciation; (vi) Principal, interest, and other costs directly related to financing the Property; (vii) The cost of any repairs or general maintenance paid by the proceeds of insurance policies carried by Lessor on the Property; and 15 (viii) The wages and salaries of any supervisory or management employee of Lessor not involved in the day-to-day operation and maintenance of the Property. o. Anything contained herein to the contrary notwithstanding, annual increases in Operating Costs which are controllable shall not exceed six percent (6%). 28. SECURITY SERVICES: Lessee acknowledges that Lessor is not providing, and is not obligated to provide, any security protection services to the demised premises, Building or Property. 29. "AS IS": Except as provided in Section 2 of this Lease, Lessor shall not be required to do any work in, on or upon the demised premises or the Building to ready the same for Lessee's use or occupancy of the demised premises, it being acknowledged that Lessee is fully familiar with the condition of the demised premises and that Lessee has either undertaken an exhaustive examination of the same prior to the execution of this Lease or has waived the opportunity to undertake such inspection. 30. WAIVER OF JURY AND COUNTERCLAIM: TO THE EXTENT PERMITTED BY LAW, IT IS MUTUALLY AGREED BY AND BETWEEN LESSOR AND LESSEE THAT THE RESPECTIVE PARTIES HERETO SHALL, AND THEY DO HEREBY, WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BETWEEN THE PARTIES HERETO OR THEIR SUCCESSORS OR ASSIGNS ON ANY MATTERS ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LESSOR AND LESSEE, AND/OR LESSEE'S USE OF, OR OCCUPANCY OF, THE DEMISED PREMISES. LESSEE FURTHER AGREES THAT IT SHALL NOT INTERPOSE ANY COUNTERCLAIM OR COUNTERCLAIMS IN A SUMMARY PROCEEDING OR IN ANY ACTION BASED UPON NON-PAYMENT OF RENT OR ANY OTHER PAYMENT REQUIRED BY LESSEE HEREUNDER. THIS WAIVER IS MADE FREELY AND VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER EACH OF THE PARTIES HERETO HAS HAD THE BENEFIT OF ADVICE FROM LEGAL COUNSEL ON THIS SUBJECT. 31. SECURITY: Lessee has this day deposited with Lessor Nine Thousand Eight Hundred Fifty-Eight and No/100 Dollars ($9,858.00) as a security deposit (the "Security Deposit") for the performance by Lessee of all the terms, covenants and conditions of this Lease upon Lessee's part to be performed. Unless required to do so by law, Lessor shall have no obligation to segregate such Security Deposit from any other funds of Lessor, and interest earned on such Security Deposit, if any, shall belong to Lessor. Security Deposits shall not be considered advance payments of Rent or a measure of Lessor's damages, in the case of a default by Lessee. The Security Deposit shall be returned to Lessee within thirty (30) days after the Expiration Date, provided Lessee has fully performed its obligations hereunder. Regardless of any permitted assignment of this Lease by Lessee, Lessor may return the Security Deposit to the original Lessee in the absence of evidence satisfactory to Lessor of an assignment of the right to receive the Security Deposit or the balance thereof, which shall satisfy in full Lessor's obligation to return the Security Deposit. Lessor shall have the right to apply any part of said Security Deposit to cure any default of Lessee and if Lessor does so, Lessee shall upon demand deposit with Lessor the amount so applied so that Lessor shall have the full Security Deposit on deposit at all times during the Term of this Lease. In the event of a sale or lease of the Building subject to this Lease, Lessor shall transfer the Security Deposit to the Purchaser or lessee, and Lessor shall thereupon be released from all liability for the return of such Security Deposit and Lessee shall look solely to the successor Lessor for the return of the Security Deposit. This provision shall apply to every transfer or assignment made of the Security Deposit to a successor Lessor. The Security Deposit shall not be assigned or encumbered by Lessee without the prior written consent of Lessor and any such unapproved assignment or encumbrance shall be void. 16 32. VIRGINIA LAW: This Lease shall be governed by and construed in accordance with the laws of, or applicable to, the Commonwealth of Virginia. Lessee agrees to adjudicate all disputes arising out of the Lease in the state courts of the Commonwealth of Virginia or the United States District Court for the Eastern District of Virginia. 33. BROKER: Advantis Realty ("Advantis") has acted as agent for Lessor in this transaction, Cam Dunlop of Jobin Realty ("Jobin") acted as agent for Lessee in this transaction, and MEC Real Estate Associates, Inc. ("MEC") has acted as agent for InphoMatch, Inc. ("InphoMatch"), the prior occupant of the Demised Premises. Each of Advantis, Jobin and MEC are to be paid a commission by InphoMatch or Lessor pursuant to the terms of separate agreements between such parties; Lessee shall not be responsible for the payment of any commissions to any of such parties. Lessee warrants that no dealings or prior negotiations were had with any other broker concerning the renting of the demised premises and that there are no other claims for broker's commissions or finder's fees in connection with the execution of this Lease. Lessee hereby indemnifies Lessor and holds Lessor harmless from and against all claims, loss, cost, damage or expense, including, but not limited to, reasonable attorneys' fees actually incurred without regard to any statutory presumption and court costs, incurred by Lessor as a result of or in conjunction with a claim of any real estate agent or broker, if made by, through or under Lessee relative to this Lease. 34. RECORDING: Lessee shall not record this Lease or a memorandum thereof without the written consent of Lessor. 35. RULES AND REGULATIONS: The Rules set forth on Exhibit C are incorporated into and made a part of this Lease. Lessor may from time to time amend, modify, delete or add new and additional reasonable Rules for the use, operation, safety, cleanliness and care of the demised premises and the Building. Such new or modified Rules shall be effective upon notice thereof to Lessee. Lessee will cause its employees and agents, or any others permitted by Lessee to occupy or enter the demised premises to abide by the Rules at all times. In the event of any breach of any Rules and failure to cure as permitted hereunder, Lessor shall have all remedies provided for in this Lease in the event of default by Lessee and shall, in addition, have any remedies available at law or in equity, including but not limited to, the right to enjoin any breach of the Rules. Lessor shall not be responsible to Lessee for the nonobservance of the Rules by any other lessee or person. 36. FAILURE TO DELIVER POSSESSION: If Lessor is unable to deliver possession of all or any portion of the demised premises, because of the holding-over or retention of possession of any lessee, subtenant or occupant, or for any other reason, Lessor shall not be subject to any liability for failure to give possession and the validity of this Lease shall not be impaired under such circumstances, nor shall the same be construed in any way to extend the term of this Lease. If permission is given to Lessee to enter into the possession of all or any portion of the demised premises prior to the date specified as the commencement of the term of this Lease, Lessee covenants and agrees that such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this Lease, except as to the covenant to pay rent. 37. WAIVER OF LIABILITY: The term "Lessor" as used in this Lease shall mean only the owner or mortgagee in possession, for the time being, of the Building, or the lessee or leasehold mortgagee in possession, for the time being, of a lease of the Building (which may include a lease of the Land), so that in the event of any transfer of title to the Building or any assignment of said lease, or in the event of a lease of the Building or of the Land and Building, the entity so transferring, assigning or leasing shall be and hereby is entirely freed and relieved of all covenants and obligations of Lessor hereunder, and it shall be deemed and construed as a covenant running with the Land without further agreement between the parties and their successors in interest, or 17 between the parties and any such transferee, assignee or lessee, that the said transferee, assignee or lessee has assumed and agreed to carry out any and all covenants and obligations of Lessor hereunder. Lessee agrees to look solely to the estate and interest of Lessor in the Land and Building, and subject to prior right of any mortgage of the Land and/or Building, for the collection of any judgment (or other judicial process) recovered against Lessor based upon the breach by Lessor of any of the terms, conditions or covenants of this Lease on the part of Lessor to be performed, and no other property or assets of Lessor shall be subject to levy, execution or other enforcement procedures for the satisfaction of Lessee's remedies under or with respect to either this Lease, the relationship of Lessor or Lessee hereunder, or Lessee's use and occupancy of the demised premises. 38. RIGHT OF LESSOR TO DISCHARGE OBLIGATIONS OF LESSEE: If Lessee shall fail to perform or observe any of the terms, obligations or conditions contained herein on its part to be performed or observed hereunder, within the time limits set forth herein, Lessor may, at its option, but shall be under no obligation to do so, perform or observe the same and all costs and expenses incurred or expended by Lessor in such performance or observance shall, upon demand by Lessor, be immediately repaid to Lessor by Lessee together with interest thereon at the higher of eighteen (18%) percent per annum or one hundred twenty (120%) percent of the prime rate charged by Citibank, N.A. (or if both rates be illegal, at the maximum rate permitted by law) to the date of repayment. For the purposes of this Lease, the term "prime rate" shall mean the rate then being charged by Citibank, N.A. to its largest corporate customers for unsecured loans of ninety (90) days or less. 39. SERVICE CONTRACTS: Lessor shall enter into, on behalf of Lessee, a maintenance contract for the existing HVAC with the understanding that Lessee will be invoiced separately by Lessor for the full amount of the maintenance contract fee as well as any costs associated with the general maintenance of the system. Should any of the HVAC equipment need replacement during the lease term, Lessor and Lessee shall pay their pro rata share of such replacement, i.e., if Lessor replaces an HVAC unit with exactly one lease year remaining in the term of the lease, Lessee shall reimburse Lessor for one-tenth (1/10th) of the cost of replacing such HVAC unit. The Industry Standard deems the useful life of replacement of an HVAC unit to be ten years. 40. BINDING ON SUCCESSORS, ETC.: Except as otherwise provided in this Lease, the covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of Lessor and Lessee and their respective legal representatives, successors and assigns. 41. LATE CHARGE: Lessee shall pay to Lessor a late charge of ten (10) cents per dollar for any installment of base annual rent, any item of additional rent or other charge payable hereunder which Lessee has failed to pay to Lessor within ten (10) days of Lessor's demand, not as a penalty, but to help defray administrative and other expenses involved in handling delinquent payments. In the event any check given to Lessor by, or on behalf of, Lessee is returned to Lessor by its bank for insufficient funds or for any other reason or is otherwise uncollectible, Lessee shall pay to Lessor a service charge in the sum equal to the higher of (i) Fifty and no/100 Dollars ($50.00) for each check so returned or otherwise uncollected or (ii) five (5%) percent of the amount of the check so returned or otherwise uncollected, which service charge, if applicable and if not prohibited by law, shall be in addition to, and not in substitution of, any "late charge". 42. EXECUTION OF LEASE: The submission of this Lease for examination does not constitute a reservation or option of any kind or nature whatsoever on or for the demised premises or any other space within the Building and shall vest no right in either party. This Lease shall become effective as a lease only upon execution and legal delivery thereof by the parties hereto. This Lease may be executed in more than one counterpart, and each such counterpart shall be deemed to be an original document. 18 43. MORTGAGEE PROTECTION CLAUSE: Lessee agrees to give any mortgage and/or trust deed holders, whose name and address has been previously furnished to Lessee, by certified mail, a copy of any notice of default served upon Lessor by Lessee. Lessee further agrees that if Lessor shall have failed to cure such default within the time provided for in this Lease, then the mortgagees and/or trust deed holders shall have such additional time as may be necessary to cure such default (including, but not limited to, commencement of foreclosure proceedings, if necessary to effect such cure), in which event this Lease shall not be terminated while such remedies are being so pursued. 44. PARTIAL INVALIDITY: If any provision of this Lease or application thereof to any person or circumstance shall to any extent be invalid, the remainder of this Lease or the application of such provision to persons or circumstances other than those as to which it is held invalid and shall not be affected thereby and each provision of this Lease shall be valid and enforced to the fullest extent permitted by law. 45. HOLDING OVER: Any holding over after the expiration of the term or any validly exercised renewal term shall be construed to be a tenancy from month to month at the rent equal to twice the base and additional rentals and other charges specified herein (prorated on a monthly basis) and shall otherwise be on the terms herein specified so far as applicable. 46. HAZARDOUS MATERIALS: Neither Lessee, its successors or assigns, nor any permitted assignee or sublessee, licensee or other person or entity acting by or through Lessee, shall (either with or without negligence) cause or permit the escape, disposal or release of any "Hazardous Substances, or Materials" (as hereinafter defined). Lessee shall not allow the storage or use of such Hazardous Substances or Materials in any manner not sanctioned by law and by the highest standards prevailing in the industry for the storage and use of such Hazardous Substances or Materials, nor allow to be brought into the Building, the Land, or the demised premises any such Hazardous Substances or Materials except to use in the ordinary course of Lessee's business, and then only if such Hazardous Substances or Materials are not prohibited by (and are only in amounts permitted by) law, after notice is given to, and written approval is received from, Lessor of the identity and quantity of such Hazardous Substances or Materials. Without limitation, Hazardous Substances or Materials shall include any biologically or chemically active substance and any waste, pollutant, substance or material described in Section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as amended from time to time, 42 U.S.C. Section 6901 et seq., any applicable state or local laws and the regulations adopted under these acts. If any lender or governmental agency shall ever require testing to ascertain whether or not there has been any release of Hazardous Substances or Materials, then the reasonable costs thereof shall be reimbursed by Lessee to Lessor upon demand as additional charges if such requirement applies to the demised premises. In addition, Lessee shall execute affidavits, representations and the like from time to time at Lessor's request concerning Lessee's best knowledge and belief regarding the presence of Hazardous Substances or Materials on the demised premises or the Property. Lessee indemnifies and covenants and agrees at its sole cost and expense, to protect and save Lessor harmless against and from any and all fines, damages, losses, liabilities, obligations, penalties, claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements or expenses of any kind or of any nature whatsoever (including without limitation, reasonable attorneys' fees and expert's fees) which may at any time be imposed upon, incurred by or asserted or awarded against Lessor arising from or out of any Hazardous Substances or Materials on, in, under or affecting the demised premises, the Building or the Property, or any part thereof as a result of any act or omission by Lessee, its successors or assigns, or any permitted assignee, permitted sublessee or licensee or other person or entity acting at the direction of or with the consent of Lessee. The within covenants shall survive the expiration or earlier termination of the Lease Term. 19 47. ESTOPPEL CERTIFICATE: Lessee agrees, at any time, and from time to time, upon not less than ten (10) days' prior notice by Lessor, to execute, acknowledge and deliver to Lessor, a statement in writing addressed to Lessor or such other party as Lessor shall designate, substantially in the form of Exhibit G attached hereto, certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating -the m)sidification), stating the dates to which base rent, additional rent and other charges have been paid, the amount of security deposited, if any, and stating whether or not there exists any default in the performance of any covenant, agreement, term, provisions or condition contained in this Lease, and, if so, specifying each such default and containing such other information, items and certifications as Lessor shall request, it being intended that any such statement delivered pursuant hereto may be relied upon by Lessor and by any purchaser, mortgagee or prospective mortgagee of any mortgage affecting all or any portion of the Office Park or Building and by any lessor under a ground or underlying lease affecting all or any portion of the Office Park or Building. Lessee irrevocably appoints Lessor as its attorney-in-fact, coupled with an interest, to execute and deliver, for and in the name of Lessee, any document or instrument provided for in this Section if Lessee fails to provide same in a timely manner. 48. FINANCIAL STATEMENTS: Lessee hereby agrees, from time to time and at the request of Lessor, to furnish Lessor, within thirty (30) days of each such request, with such financial statements of Lessee as Lessor shall require in order to reasonably determine the financial condition of Lessee, certified as true and correct by an officer of the Lessee. Such statements shall be prepared by an independent certified public accountant and shall include, without limitation, Lessee's net worth statements and statements of financial position and retained earnings statement of Lessee and its subsidiaries, if any, for the preceding three (3) years. Lessee agrees that Lessor may furnish any of its lenders or potential lenders or purchasers copies of such financial statements and records. Lessor agrees to hold, and to cause its lender and potential lenders and purchasers to hold, such financial statements in confidence and not to disclose such records to any party other than such party as shall have a financial interest in the Office Park or the Building or who has a loan on all or any portion of the Office Park or the Building or who is interested in making a loan on all or any portion of the Office Park or the Building or who is interested in purchasing all or a portion of the Office Park or the Building. 49. EXCULPATION OF LESSOR. a. Notwithstanding any provision in this Lease to the contrary, Lessor and Lessor's managing agent's liability with respect to or arising from or in connection with this Lease shall be limited solely to Lessor's interest in the Property. Neither Lessor, any of the partners of Lessor, any officer, director, principal, trustee, policy holder, shareholder, attorney nor employee of Lessor or its managing agent shall have any personal liability whatsoever with respect to this Lease. b. Lessor and Lessor's managing agent shall have absolutely no personal liability with respect to any provision of this Lease or any obligation or liability arising from this Lease or in connection with this Lease. Lessee shall look solely to the equity of Lessor in the Property for the satisfaction of any money judgment to Lessee. Such exculpation of liability shall be absolute and without exception whatsoever. 50. BANKRUPTCY. a. The following shall be events of bankruptcy under this Lease: (i) Lessee's becoming insolvent, as that term is defined in Title 11 of the United States Code, entitled "Bankruptcy, 11 U.S.C., Sec. 101, et. seq." (the "Bankruptcy Code"), or under applicable insolvency laws (the "Insolvency Laws"); (ii) the appointment of a receiver or custodian for any or all of Lessee's property or assets, if such appointment shall not be dismissed within ninety (90) days; or (iii) the filing of a voluntary petition under the provisions of the Bankruptcy Code or the Insolvency Laws; or (iv) the filing of an involuntary petition under the provisions of the Bankruptcy Code or the Insolvency Laws, which is not dismissed within sixty (60) days of filing; or (v) Lessee's making or consenting to an assignment for the benefit of creditors or a common law composition of creditors. 20 In the event of Lessee's bankruptcy, Lessor at its option may, in addition to all other rights and remedies provided in this Lease at law or in equity, terminate this Lease by giving written notice to Lessee. If termination of this Lease shall be stayed by order of any court having jurisdiction over any bankruptcy or insolvency proceeding or by federal or state statute, then, following the expiration of any such stay, or if Lessee or Lessee as debtor-in-possession or the trustee appointed in any such proceeding (being collectively referred to as "Lessee" only for the purposes of this Section 50) shall fail to assume Lessee's obligations under this Lease within the period prescribed therefor by law or within fifteen (15) days after entry of the order for relief or as may be allowed by the court, or if Lessee shall fail to provide adequate protection of Lessor's right, title and interest in and to the demised premises or adequate assurance of the complete and continuous future performance of Lessee's obligation under this Lease, Lessor, to the extent permitted by law or by leave of the court having jurisdiction over such proceeding, shall have the right, at its election, to terminate this Lease on fifteen (15) days' notice to Lessee and upon the expiration of said fifteen (15) day period this Lease shall cease and expire as aforesaid and Lessee shall immediately quit and surrender the demised premises as aforesaid. Upon the termination of this Lease as provided above, Lessor, without notice, may re-enter and repossess the demised premises using such force for that purpose as may be necessary without being liable to indictment, prosecution or damages therefor and may dispossess Lessee by summary proceedings or otherwise. b. For the purposes of the preceding Section (a), adequate protection of Lessor's right, title and interest in and to the demised premises, and adequate assurance of the complete and continuous future performance of Lessee's obligations under this Lease, shall include, without limitation, the following requirements: (i) that Lessee comply with all of its obligations under this Lease; (ii) that Lessee pay to Lessor, on the first day of each month occurring subsequent to the entry of such order, or the effective date of such stay, a sum equal to the amount by which the demised premises diminished in value during the immediately preceding monthly period, but, in no event, shall such amount be less than the aggregate Rent payable for such monthly period; (iii) that Lessee continue to use the demised premises in the manner originally required by the Lease; (iv) that Lessor be permitted to supervise the performance of Lessee's obligations under this Lease; (v) that Lessee pay to Lessor within fifteen (15) days after entry of such order or the effective date of such stay, as partial adequate protection against future diminution in value of the premises and adequate assurance of the complete and continuous future performance of Lessee's obligations under this Lease, an additional Security Deposit in an amount acceptable to Lessor; (vi) that Lessee has and will continue to have unencumbered assets after the payment of all secured obligations and administrative expenses to assure Lessor that sufficient funds will be available to fulfill the obligations of Lessee under this Lease; (vii) that if Lessee assumes this Lease and proposes to assign the same (pursuant to Title II U.S.C. 'SS' 365, or as the same may be amended) to any person who shall have made a bona fide offer to accept an assignment of this Lease on terms acceptable to such court having competent jurisdiction over Lessee's estate, then notice of such proposed assignment, setting forth (x) the name and address of such person, (y) all of the terms and conditions of such offer, and (z) the adequate assurance to be provided Lessor to assure such person's future performance under this Lease, including, without limitation, the assurances referred to in Title II U.S.C. 'SS' 365(b)(3), as it may be amended, shall be given to Lessor by Lessee no later than fifteen (15) days after receipt by Lessee of such offer, but in any event no later than thirty (30) days prior to the date that Lessee shall make application to such court for authority and approval to enter into such assignment and assumption, and Lessor shall thereupon have the prior right and option, to be exercised by notice to Lessee given at any time prior to the effective date of such proposed assignment, to accept, or to cause Lessor's designee to accept, an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person less any brokerage commissions which may be payable out of the consideration to be paid by such person for the assignment of this Lease; and 21 (viii)that if Lessee assumes this Lease and proposes to assign the same, and Lessor does not exercise its option pursuant to Section (vii) of this Section 50. Lessee hereby agrees that: A. such assignee shall have a net worth not less than the net worth of Lessee as of the Commencement Date, or such Lessee's obligations under this Lease shall be unconditionally guaranteed by a person having a net worth equal to Lessee's net worth as of the Commencement Date; B. such assignee shall not use the demised premises except subject to all the restrictions contained in this Lease; C. such assignee shall assume in writing all of the terms, covenants and conditions of this Lease including, without limitation, all of such terms, covenants and conditions respecting the Permitted Use and payment of Rent, and such assignee shall provide Lessor with assurances satisfactory to Lessor that it has the experience in operations having the same or substantially similar uses as the Permitted Use, in properties similar to the Property, sufficient to enable it so to comply with the terms, covenants and conditions of this Lease and successfully operate the demised premises for the Permitted Use; D. such assignee shall indemnify Lessor against, and pay to Lessor the amount of, any payments which may be obligated to be made to any Mortgagee by virtue of such assignment; E. such assignee shall pay to Lessor an amount equal to the unamortized portion of any construction allowance made to Lessee; and F. if such assignee makes any payment to Lessee, or for Lessee's account, for the right to assume this Lease (including, without limitation, any lump sum payment, installment payment or payment in the nature of rent over and above the Rent payable under this Lease), Lessee shall pay over to Lessor one-half of any such payment, less any amount paid to Lessor pursuant to clause (E) above on account of any construction allowance. As a material inducement to Lessor executing this Lease, Lessee acknowledges and agrees that Lessor is relying upon (i) the financial condition and specific operating experience of Lessee and Lessee's obligation to use the demised premises specifically in accordance with this Lease, (ii) Lessee's timely performance of all of its obligations under this Lease notwithstanding the entry of an order for relief under the Bankruptcy Code or the Insolvency Laws for Lessee and (iii) all defaults under the Lease being cured promptly and the Lease being assumed within 60 days of any order for relief entered under the Bankruptcy Code or the Insolvency Laws for Lessee, or the Lease being rejected within such 60-day period and the demised premises surrendered to Lessor. Accordingly, in consideration of the mutual covenants contained in this Lease and for other good and valuable consideration, Lessee hereby agrees that: (i) All obligations that accrue under this Lease (including the obligation to pay rent), from and after the date that a petition is filed or other action is commenced under the Bankruptcy Code or the Insolvency Laws (an "Action") shall be timely performed exactly as provided in this Lease and any failure to so perform shall be harmful and prejudicial to Lessor; (ii) Any and all rents that accrue from and after the date that an Action is commenced and that are not paid as required by this Lease shall, in the amount of such rents, constitute administrative expense claims allowable under the Bankruptcy Code with priority of payment at least equal to that of any other actual and necessary expenses incurred after the commencement of the Action; (iii) Any extension of the time period within which Lessee may assume or reject the Lease without an obligation to cause all obligations under the Lease to be performed as and when required under the Lease shall be harmful and prejudicial to Lessor; (iv) Any time period designated as the period within which Lessee must cure all defaults and compensate Lessor for all pecuniary losses that extends beyond the date of assumption of the Lease shall be harmful and prejudicial to Lessor; (v) Any assignment of the Lease must result in all terms and conditions of the Lease being assumed by the assignee without alteration or amendment, and any assignment that results in an amendment or alteration of the terms and conditions of the Lease without the express written consent of Lessor shall be harmful and prejudicial to Lessor; 22 (vi) Any proposed assignment of the Lease to an assignee: (1) that will not use the demised premises specifically in accordance with the Lease, (2) that does not possess financial condition, operating performance and experience characteristics equal to or better than the financial condition, operating performance and experience of Lessee as of the date of this Lease, or (3) that does not provide guarantors of the Lease obligations with financial condition equal to or better than the financial condition of the original guarantors of the Lease as of the date of this Lease, shall be harmful and prejudicial to Lessor; (vii) The rejection (or deemed rejection) of the Lease for any reason whatsoever shall constitute cause for immediate relief from the automatic stay provisions of the Bankruptcy Code, and Lessee stipulates that such automatic stay shall be lifted immediately and possession of the demised premises will be delivered to Lessor immediately without the necessity of any further action by Lessor. No provision of this Lease shall be deemed a waiver of Lessor's rights or remedies under the Bankruptcy Code, the Insolvency Laws, or applicable law to oppose any assumption and/or assignment of this Lease, to require timely performance of Lessee's obligations under this Lease, or to regain possession of the demised premises as a result of the failure of Lessee to comply with the terms and conditions of this Lease or the Bankruptcy Code. Notwithstanding anything in this Lease to the contrary, all amounts payable by Lessee to or on behalf of Lessor under this Lease, whether or not expressly denominated as such, shall constitute "rent" for purposes of the Bankruptcy Code. For purposes of this Section addressing the rights and obligations of Lessor and Lessee in the event that an Action is commenced, the term "Lessee" shall include Lessee's successor in bankruptcy, whether a trustee, Lessee as debtor in possession or other responsible person." 51. FORCE MAJEURE: Notwithstanding any provision in this Lease to the contrary, Lessor shall be excused for the period of any delay and shall not be deemed in default with respect to the performance of any of the terms, covenants, and conditions of this Lease when prevented from so doing by causes beyond Lessor's control, which shall include, but not be limited to, all labor disputes, governmental regulations or controls, fire or other casualty, inability to obtain any material or services, or acts of God. 52. CONTROL OF COMMON AREAS AND PARKING FACILITIES: All automobile parking areas, driveways, entrances and exits thereto, and other facilities furnished by Lessor, including all parking areas, truck way or ways, loading areas, pedestrian walkways and ramps, landscaped areas, stairways, corridors, and other areas and improvements provided by Lessor for the general use, in common (the "Common Areas"), of lessees, their officers, agents, employees, servants, invitees, licensees, visitors, patrons and customers, shall be at all times subject to the exclusive control and management of Lessor, and Lessor shall have the right but not the obligation from time to time to establish, modify, and enforce reasonable rules and regulations with respect to the Common Areas; to police same, from time to time; to change the area, level and location and arrangement of parking areas and other facilities hereinabove referred to; to restrict parking by, and enforce parking charges (by operation of meters or otherwise) to lessees, their officers, agents, invitees, employees, servants, licensees, visitors, patrons, and customers; to close all or any portion of said areas or facilities to such extent as may, in the opinion of Lessor's counsel, be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person of the public therein; to close temporarily all or any portion of the Common Areas; to discourage non-lessee parking; to charge a fee for visitors and customer parking; and to do and perform such other acts in and to said areas and improvements as, in the sole judgment of Lessor, shall be advisable with a view to the improvement of the convenience and use thereof by lessees, their officers, agents, employees, servants, invitees, visitors, patrons, licensees and customers. Lessor will operate and maintain the Common Areas in such a reasonable mariner as Lessor shall determine from time to time. Without limiting the scope of such discretion, Lessor shall have the full right and authority but not the obligation to designate a manager of the parking facilities or Common Areas or other facilities, who shall have full authority to make and enforce rules and regulations regarding the use of the same and to employ all personnel and to make and enforce all Rules pertaining to, and necessary for, the 23 proper operation and maintenance of the parking areas or the Common Areas. Lessee shall comply (and shall require all persons within its control to comply) with such Rules, upon notice of same. 53. CONDITIONS PRECEDENT [Intentionally Deleted] 54. INTERFERENCE: Lessor shall have no liability to Lessee nor shall Lessee have any right to terminate this Lease or claim any offset against or reduction in any sum to be paid hereunder because of interference with, or impairment to any extent, of light, air, visibility, or view, or because of damage or inconvenience due to noise, vibration or other matters resulting from the excavation, construction, repair or addition of or to, buildings adjacent to or near the Property. No easement of light or air is granted in this Lease or otherwise. 55. ADA: Lessee shall be responsible for compliance with Title III of the Americans with Disabilities Act of 1990 ("ADA") within the demised premises and Lessor shall be responsible for compliance with Title III of the ADA relative to the Common Areas within the remainder of the Property. 56. REPRESENTATIONS OF LESSEE: Lessee by its execution hereof, represents and warrants to Lessor and its successors and assigns that as of the date hereof Lessee is a duly established and validly existing corporation of the State of New Jersey and that the individual(s) signing this Lease on behalf of Lessee has(have) been duly authorized to do so and thereby bind Lessee. 24 57. RESTRICTED AREAS: Lessee will not have access to the rooftop or telephone closets without prior written consent of Lessor. IN WITNESS WHEREOF, we have hereunto set our hands and seals the day and year first above written. WITNESSES: LESSOR: V-SULLYFIELD PROPERTIES V, LLC By Its Manager: V-Sullyfield Manager V, LLC /s/ Illegible By: /s/ Lisbeth R. Horowitz - --------------------------------- ------------------------------ Name: Name: Lisbeth R. Horowitz Title: Managing Member LESSEE: WESTWOOD COMPUTER CORPORATION /s/ Illegible By: /s/ Illegible - --------------------------------- ------------------------------ Name: Name: Title: 25 LIST OF EXHIBITS Exhibit A - Demised Premises Exhibit B - Legal Description of Land Exhibit C - Rules and Regulations Exhibit D - Intentionally Omitted Exhibit E - Prohibited Uses of Demised Premises Exhibit F - Intentionally Omitted Exhibit G - Estoppel Certificate 26 EXHIBIT A DEMISED PREMISES Mar 12 03 08:22a Mark E. Cummings 7032789690 p.6 [GRAPHIC OMITTED] A-1 EXHIBIT B LEGAL DESCRIPTION OF LAND ALL THOSE certain lots or parcels of land situated and lying in Fairfax County, Virginia, and more particularly described as follows: All of Lot Three (3) and Lot Four (4), PARKE-LONG AT SULLYFIELD, as the same is shown on a plat attached to the Deed of Resubdivision and Easement recorded in Deed Book 6279, at page 1903, among the Land Records of Fairfax County, Virginia. TOGETHER WITH the parking rights created for the benefit of Lot 3 by Declaration of Covenant recorded among the aforesaid Land Records in Deed Book 7017, at page 330. AND ALSO All of Lot Five-A (5-A), being a consolidation of Lots 5, 6, and, PARKE LONG AT SULLYFIELD, as the same is shown on a plat attached to the Deed of Consolidation recorded in Deed Book 7371, at page 1604, among the Land Records of Fairfax County, Virginia. TOGETHER WITH AND SUBJECT TO the easement created for the benefit of all of the above-described parcels in Article XI of the Protective Covenants for Sullyfield Business Park recorded among the aforesaid Land Records in Deed Book 5849, at page 1928. B-1 EXHIBIT C RULES AND REGULATIONS The following rules and regulations have been adopted by Lessor for the care, protection and benefit of the Building and for the general comfort and welfare of all tenants: 1. The rights of Lessee in the sidewalks, entrances and corridors of the Building are limited to ingress to and egress from the Demised Premises for Lessee and its employees, licensees and invitees, and Lessee shall not use, or permit use of, such sidewalks, entrances and corridors for any other purposes. Lessor shall have the right to regulate the use of and operate the public portions of the Building, as well as portions furnished for the common use of the tenants, in such manner, as it deems best for the benefit of the tenants generally. 2. Lessee shall lock the Demised Premises and shut off water faucets, lights and electrical equipment and appliances located in the Demised Premises before leaving the Demised Premises each day. 3. All deliveries and shipments shall be made only at Lessee's loading dock(s) or other areas designated by Lessor. 4. Lessee shall place garbage and refuse only in trash containers approved by Lessor. Such containers shall be kept either inside the Demised Premises or outside the Demised Premises in such areas as designated by Lessor. All refuse, especially food products, must be enclosed in sealed trash bags to prevent attracting rodents, bees and other pests. The Lessor shall approve the trash collection and disposal service which will be utilized to empty and haul away such garbage and refuse and the times and days of the week such containers shall be emptied. Lessee shall pay for the cost of the containers and the periodic trash collection and disposal charges. 5. No wires of any kind or type (including, without limitation, television, satellite and radio antennas) shall be attached to the outside of the Building, and no wires shall be run or installed in any part of the Building without Lessor's prior written consent. 6. Lessee shall not engage in any activity nor utilize any machinery or apparatus that shall be heard, smelled or seen outside the Demised Premises. 7. Pallets or other furniture may not be placed in or near the dumpsters but shall be stored outside of the Demised Premises and removed no less than monthly. 8. Lessee shall not use the plumbing facilities (including sinks, toilets and drains) serving the demised premises for the disposal of refuse or any other improper use. Lessee shall, at its sole cost and expense, repair any damage to such plumbing facilities caused by any such misuse. 9. No animals or birds shall be allowed in or about the Demised Premises. 10. Except for Lessee's vehicles, Lessee shall not store any personal property outside of the Demised Premises. 11. Lessee shall, at the request of Lessor, retain a pest and rodent extermination service approved by Lessor, which shall periodically treat the demised premises in a manner and at such times as are approved by Lessor. 12. Lessee shall not burn or incinerate trash, refuse or any other items in or outside the Demised Premises. 13. Lessee shall not allow anyone to reside or sleep in the Demised Premises. 14. Lessor shall not be responsible for any loss, theft or disappearance of personal property from the Demised Premises and/or Business Park. C-1 15. Lessee shall park only in those areas designated by Lessor. Lessee shall comply with all directional and other signs posted in the parking areas and shall use only one (1) parking stall per vehicle. Lessee shall not park mobile homes, boats, boat trailers or similar vehicles in the common parking areas. No inoperable vehicle shall be allowed to remain in the common parking areas. All vehicles must have current State and County decals displayed. All vehicles must have current State and County decals displayed. Any vehicle that is parked in the common parking areas by Lessee in violation of these Rules and Regulations may be towed away at Lessee's expense. 16. Lessee shall not cover all or any part of any window or door of the Building without obtaining the prior written approval of Lessor. 17. Lessee shall not conduct or permit to be conducted any auction or similar sale on or about the Demised Premises. 18. Lessor shall have the right to prescribe the weight and position of safes and other objects of excessive weight on the second floor. If, in the reasonable judgment of Lessor, it is necessary to distribute the concentrated weight of any safe or heavy object, the work involved in such distribution shall be done in such manner as Lessor shall reasonably determine and the expense thereof shall be paid by Lessee. The moving of safes and other heavy objects shall take place only upon previous notice to, and at times and in a manner approved by Lessor, and the persons employed to move the same in and out of the Building, shall be acceptable to Lessor. 19. Lessee shall not wash, service (oil changes, etc.) or repair any vehicles on or about the Business Park. 20. Where any damage to the Building or to any portions used in common with other tenants is caused by Lessee or its employees, licensees or invitees, the cost of repairing the same shall be paid by Lessee upon demand. 21. Except as shall be approved in writing by Lessor, no lettering, sign, advertisement, trademark, emblem, notice or object shall be displayed in or on the windows or doors, or on the outside of the Demised Premises. 22. No dangerous, flammable, combustible or explosive object or material shall be brought into or kept in the Building by Lessee or with the permission of Lessee, except as permitted by law and the insurance companies insuring the Building or the property therein. 23. No additional locks or bolts of any kind shall be placed upon any of the doors or windows in the Demised Premises and no lock on any door shall be changed or altered in any respect. Duplicate keys for the Demised Premises and toilet rooms, if applicable, shall be procured only from Lessor, and Lessee shall pay to Lessor reasonable charge. Upon termination of the Lease, all keys of the Demised Premises and toilet rooms shall be delivered to Lessor. 24. Smoking is prohibited in the building. 25. Lessee shall store all Hazardous Substances or Hazardous Materials on secondary containment pallets or shall employ other secondary contaimment devices to contain any spills and prevent releases to air, water or soils around or under the Demised Premises, and all volatile or flammable materials shall be kept and maintained in a cabinet specifically designed to contain flammable materials. 26. Lessor reserves the right to rescind, alter or waive any rule or regulation at any time prescribed by Lessor when it deems it necessary, desirable or proper for its best interest or for the best interests of the tenants, and no rescission, alteration or waiver of any rule or regulation in favor of one tenant shall operate as a rescission, alteration or waiver in favor of any other tenant. Lessor shall not be responsible to Lessee for the non-observance or violation by any other tenant of any of the rules or regulations at any time prescribed by Lessor. These Rules and Regulations and any amendments hereto are intended to supplement the terms and provisions of the Lease and where possible shall be applied and interpreted in a manner that is consistent with the terms and provisions of the Lease. In the event of a conflict between the Lease C-2 and these Rules and Regulations, or any amendments thereto, the Lease shall govern. If Lessee fails to fully comply with these Rules and Regulations, Lessor may, in its sole discretion and without waiving any other right or remedy, undertake such actions on behalf of Lessee as Lessor determines are necessary to cause Lessee to fully comply with these Rules and Regulations. All costs, expenses and fees expended by Lessor to insure full compliance with these Rules and Regulations shall constitute Additional Rent under the Lease and be immediately due and payable by the Lessee upon demand. C-3 EXHIBIT D [INTENTIONALLY OMITTED] D-1 EXHIBIT E PROHIBITED USES OF DEMISED PREMISES Notwithstanding anything to the contrary contained in the Lease, the demised premises shall not be used for or as: (a) a school or other school or instructional activities and purposes; a church or other religious activities; a trade association office or facility or to promote any trade association activities or similar purposes; a union office or to promote union activities or purposes; government owned or affiliated office or facility; any pornographic or prurient sex related activity or purpose (such as, but not limited to, an escort service or telephone sex service); a medical or dental office; or (b) any office that, by its nature, shall involve operations substantially on a round-the-clock, 24 hour basis; or shall constitute a material additional burden to the services of the Building as compared to normal general office uses for standard building hours and holidays. E-1 EXHIBIT F [INTENTIONALLY OMITTED] F-1 EXHIBIT G ESTOPPEL CERTIFICATE To: ("Purchaser"), and any successor or assign of Purchaser Re: Property Name: (the "Property") Property Address: , Virginia Lease Date: Between: ("Lessor") and ___________________________("Lessee") Demised Premises: Suite_____________________(the "Premises") Ladies/Gentlemen: The undersigned Lessee understands that: (a) the Lessor has entered into an agreement to sell the Property to Purchaser; and (b) Purchaser is relying on this Estoppel Certificate in connection with the purchase of the Property. Lessor has requested Lessee to deliver this Estoppel Certificate to Purchaser. Lessee hereby certifies to Purchaser and its successors and assigns, as of the date hereof, as follows: 1. The Lease has not been supplemented, amended or modified, except as follows: (the Lease as supplemented, amended, and modified is herein referred to as the "Lease"). The Lease is in full force and effect and represents the entire agreement between Lessor and Lessee as to the Premises. A true, correct and complete copy of the Lease (including all supplements, amendments and modifications) is attached hereto as Exhibit "A", 2. The Premises consist of approximately square feet of rentable area. The present use of the Premises does not violate any provisions of the Lease regarding the permitted use or operation of the Premises. Lessee has accepted possession of the Premises, is in full occupancy thereof, and has not assigned or sublet any portion of the Lease or Premises. 3. The monthly rentals currently being paid for the Premises are as follows: base rent $ operating costs $______________________ real estate taxes $______________________ parking $______________________ other [_____________] $______________________ Lessee has paid all rent and other amounts required under the Lease through____________________ 2003. Lessee has not paid rent or other amount due under the Lease more than 30 days in advance. Rentals due under the Lease escalate as follows: 4. ________________________ The commencement date of the Lease was , 2003. The current term of the Lease expires on______________________________. (subject only to any renewal/extension options identified below). Lessee has the right to renew/extend the Lease pursuant to the following (and only the following) renewal/extension options: Lessee has no right or option to terminate the Lease prior to the expiration of its stated term. 5. Lessor has the right to terminate the Lease on___ days prior written notice. 6. Lessee pays a full pro rata share of operating costs and real estate taxes as described in the Lease. Lessee's pro rata share of operating costs and real estate taxes is ________%. Lessee has paid its share of all such operating charges and real estate taxes in full for the period ending______________________________________________________________________ G-1 7. Lessee's security deposit under the Lease, currently on deposit with Lessor, is $____________________ (the "Security Deposit"). Lessee has paid no other deposit or amount to Lessor which is required to be returned to Lessee. To Lessee's knowledge, Lessor has not drawn against the Security Deposit for rent due or for any other purpose. Lessor is not required to provide to Lessee any interest on the principal amount of the Security Deposit. 8. No default on the part of Lessor or Lessee exists under the Lease. No event has occurred which, with the giving of notice, the passage of time, or both, would constitute a default by Lessee or Lessor. Lessee has no offset, defense, deduction or claim against Lessor. 9. All obligations of Lessor to provide (a) maintenance, service and repairs at or to the Premises and/or Property, and (b) free rent, rent rebates, improvements or tenant improvement contributions, have been completed, accepted and satisfied in full through the date hereof. Lessor is not obligated to Lessee for any rent or other obligations under any other lease. 10. Lessee has no right or option to (a) expand the Premises, (b) lease additional space at the Property, (c) relocate to different space, or (d) exercise a first refusal right with respect to any other space in the Property, except for the following (and only the following) rights or options: . Lessee has no option or right pursuant to the Lease or otherwise to purchase the Property, or any part thereof. 11. Lessee's obligations under the Lease have been guaranteed by (the "Guarantor"). No bankruptcy or insolvency proceedings are pending by or against, or contemplated by, Lessee or any Guarantor. 12. No commission or other payment is due to any broker, consultant or agent by Lessee in connection with the leasing of the Premises. Lessee is not a party to any agreement, oral or written, pursuant to which any broker, consultant or agent is entitled to any payment or commission in connection with the leasing of the Premises, including without limitation any current or future renewals or extensions of the Lease, or expansions of the Premises. 13. Lessee has not contracted for, or within the past 120 days caused, any new construction or repair work to be performed on the Property, or, if performed, the costs of such work, including all costs of labor, supplies and materials, have been paid in full. 14. Lessee is in full compliance with its obligations under the Lease to maintain the insurance policies and coverage required therein. Lessee agrees to amend said insurance coverage to name Purchaser thereunder as an additional insured party. 15. Lessee's address for the delivery of notices (and the address of any other party required to receive copies of notices) under the Lease is as follows: The statements contained herein may be relied upon by Purchaser and its successors and assigns. The person executing and delivering this Estoppel Certificate on behalf of Lessee hereby certifies that he/she is duly authorized to do so. LESSEE: Date:_____________, 2003 By: Name: Title: G-2 EX-10 4 ex10-22.txt EXHIBIT 10.22 LEASE Exhibit 10.22 SECTION 1- BASIC LEASE PROVISIONS 1.01. Date and Parties. This lease ("Lease") is made as of July 1, 2003, between WESTWOOD PROPERTY HOLDINGS LLC, a New Jersey limited liability company ("Landlord"), and WESTWOOD COMPUTER CORPORATION, a New Jersey corporation, with offices at 11 Diamond Road, Springfield, New Jersey ("Tenant"). 1.02. Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord certain real property and the improvements thereon (the "Premises") located at 11 Diamond Road, Springfield, New Jersey (the "Building"), which Premises contain approximately 2,662 square feet of space which comprises the entire Building and are shown on the plan attached hereto as Exhibit A. Tenant shall have the nonexclusive right to the use of the common areas in the Building and the land (the "Land") on which the Building is located including elevators, sidewalks, parking areas, driveways, hallways, stairways, public bathrooms, common entrances, lobby, and other similar public areas and access ways. Upon reasonable prior notice to Tenant, Landlord may change the common areas if the changes do not adversely interfere with Tenant's access to or use of the Premises. 1.03. Use. Tenant shall use the Premises as a business office and warehouse and/or to provide other business services conducted or offered by Tenant or its subsidiaries or other related entities. 1.04. Term. The term of this Lease (the "Term") shall commence on July 1, 2003 (the "Commencement Date") and shall end on the ten-year anniversary of the Commencement Date, unless sooner terminated as herein provided. SECTION 2 - RENT 2.01. Base Rent. Tenant covenants and agrees to pay Landlord in lawful currency of the United States in advance on the first (1st) day of each month during the Term without any previous notice or demand therefor and without any offset or deduction, the following annual base rent in the following monthly installments (the "Base Rent"): Lease Year Annual Base Rent Monthly Installments --------- ---------------- -------------------- 2003-2013 $233,000.00 $19,416.66 As used herein, the term "Lease Year" shall refer to the first twelve (12) months of the Term and thereafter to each (12) month period during the Term. If the Term does not begin on the first day or end on the last day of a month, the Base Rent for that partial month shall be prorated by multiplying the monthly Base Rent by a fraction, the numerator of which is the number of days of the partial month included in the Term and the denominator of which is the total number of days in the full calendar month. 2.02. Utility Expenses Payment by Tenant. Tenant shall contract directly with all utility service providers and shall promptly pay all charges for water, gas, heat, electricity and any other utilities or services used or furnished to the Premises. 2.03. Taxes. 2.03(a). Payment by Tenant. It is the purpose and intent of Landlord and Tenant that the rental as herein provided shall be absolutely net to the Landlord, so that this Lease shall yield to Landlord the rent specified hereinabove and accordingly that all taxes, insurance, maintenance and other expenses of any type or nature shall be solely the responsibility of Tenant unless otherwise specifically provided herein. With such intent in mind, Tenant agrees that it shall pay, in addition to all other sums agreed to be paid by it in this Lease, all real property taxes and assessments against the real estate and improvements constituting the Premises which fall due during the term of this Lease. Such taxes and assessments shall be prorated for any partial lease years. Tenant shall have the right to protest taxes either in its own name or in the name of Landlord and Landlord shall cooperate to whatever extent necessary to protest said taxes, all at the sole expense of Tenant. In contesting any such taxes, Tenant shall obtain such bonds or take such other action as may be necessary to assure that liens or lien rights do not attach to the Premises. Tenant shall be solely responsible and shall pay for all personal property taxes on all personal property, inventory and fixtures owned by it or located in or about the Premises which accrue during the term of this Lease. 2.03(b). Limitation. It is expressly agreed, however, that Tenant shall not be obligated to pay any capital levy or corporate franchise tax levy imposed upon Landlord or any estate, inheritance, succession or transfer tax upon the passing of Landlord's interest in the Premises, or any income tax, profits tax, excise tax or other tax or charge that may be payable or chargeable to the Landlord under any present or future law of the United States or State of New Jersey or imposed by any political or taxing subdivision thereof, or any governmental agency, upon or with respect to the rent received by Landlord under this Lease. 2.03(c). Tax Refund. If Landlord receives a refund of any portion of Taxes that were paid by Tenant, then Landlord shall reimburse to Tenant the refunded Taxes, less the actual costs of Landlord in contesting such Taxes. 2.04 Common Area Maintenance. 2.04(a) Payment by Tenant. Tenant shall be solely responsible for and shall promptly pay its proportionate share of all costs and charges associated with common area maintenance charges ("CAM Charges") as defined herein, within thirty (30) days after receipt of Landlord's written demand therefor. Tenant's proportionate share shall be 100%. Upon request Landlord shall provide Tenant with copies of the invoices constituting the CAM charges. CAM charges shall mean all expenses, costs and disbursements of every kind and nature incurred in connection with the maintenance, repair, replacement and operation of the common areas equipment, 2 facilities, and components (together, "common areas") of the Building, including but not limited to the following: (1) cost of wages and salaries of all employees engaged in the operation and maintenance of the common areas of the Building, including but not limited to payroll taxes, insurance and benefits; (2) cost of all supplies and materials used in the building; (3) cost any utilities which are not submetered directly to tenant spaces; (4) costs incurred under all maintenance and service agreements for the common areas of the Building, including but not limited to security (if any), trash removal, snow and ice removal and landscaping; (5) cost of repairs and general maintenance to the common areas of the Building; (6) costs of repairs replacements and general maintenance to the common areas of the Premises, including the parking areas, all sidewalks and other common facilities, and to furnish, supply and maintain in good order and repair all HVAC, plumbing, sprinkler and electrical systems serving the Premises, doors, roof drainage systems, the roof, foundation and other structural portions of the Building, provided that any capital expenditures shall be amortized on a straight line basis over the useful life of the improvement for which the expenditure is made; (7) property management fees and expenses, cost of audit and accounting services; (8) the costs of any improvements required or made necessary by changes in law after the date hereof; (9) cost of any licenses or permits required by any public authority. For purposes of this provision, CAM charges shall not include (a) the cost of capital improvements (except as expressly provided above), (b) the costs of tenant improvements, maintenance and repairs within tenant spaces, (c) ground rent or debt service, (d) depreciation, or (e) leasing commissions. SECTION 3 - AFFIRMATIVE OBLIGATIONS 3.01. Compliance with Laws. 3.01(a). Landlord's Compliance. Landlord shall comply with all applicable laws, ordinances, rules, and regulations of governmental authorities, including without limitation, the Americans With Disabilities Act of 1990 (collectively "Applicable Laws") regarding or applicable to the Premises, Building, Land and common areas except to the extent Tenant must comply under paragraph 3.01(b). Landlord's costs of complying with such laws may be billed back to Tenant through CAM. 3.01(b). Tenant's Compliance. Tenant shall comply with all Applicable Laws (i) regarding the physical condition of the Premises, but only to the extent the Applicable Laws pertain to the particular manner in which Tenant uses the Premises and (ii) that do not relate to the physical condition of the Premises but relate to the lawful use of the Premises and with which only the occupant can comply, such as laws governing maximum occupancy, workplace smoking, and illegal business operations, such as gambling. 3.02. Services and Utilities. 3.02(a). Services. Tenant shall provide at its expense, the following services: (i) Hot and cold water sufficient for drinking, lavatory, toilet, and ordinary cleaning purposes to be drawn 3 from fixtures in the Premises and/or on the floor on which the Premises are located; (ii) Electricity to the Premises that provides electric current in reasonable amounts necessary for normal office use, lighting, and HVAC; (iii) Convenient restroom facilities as part of the common areas of the Building for use of Tenant, its employees, invitees and customers; and (iv) Operation and maintenance of the common areas (including without limitation, the restrooms) in good order and repair and in a clean and neat condition. Such operation and maintenance shall include, without limitation, cleaning, HVAC, illumination, snow shoveling, deicing, repairs, replacements, lawn care, and landscaping, if applicable. 3.02(b). 24 Hour Access. Tenant, its employees, agents, and invitees shall have access to the Premises twenty-four (24) hours a day, seven (7) days a week. Landlord may temporarily close the Building only if required because of a life-threatening situation or Building-threatening situation. Landlord shall use its best efforts to close the Building during Tenant's nonbusiness hours only. 3.03 Repairs and Maintenance. 3.03(a). Tenant's Care of Premises. Tenant agrees that it shall, at its own cost and expense, make all repairs of whatever kind and nature, foreseen or unforeseen, as may be required to keep the Premises and fixtures thereon in good condition and repair. Without limiting the generality of the foregoing, Tenant shall be responsible for all exterior repairs, including walls, roof, parking area, driveways and landscaping, and shall further be solely responsible to keep the whole and every part of the interior of the Premises and all property and improvements situated therein in good repair, including without limitation all plumbing, heating and electrical installations and equipment, air conditioning equipment, hardware, doors and windows, plateglass, interior painting and decorating. In the event any repairs are covered by insurance, the same are to be paid for by the insurance proceeds aforesaid. Notwithstanding the above, Landlord shall be responsible for the repairs noted on the attached Exhibit B up to the. dollar amount shown thereon. 3.03(b). Landlord's Repairs. If Tenant refuses and neglects to repair promptly the Premises as required in paragraph 3.03(a) hereof, in a reasonable time after written demand by Landlord, then Landlord may make such repairs without liability to Tenant for any loss or damage that may occur to Tenant's merchandise, fixtures and/or other property, or to the loss of 4 business occasioned by reason thereof, and Tenant shall reimburse Landlord for the cost thereof on demand. 3.03(c). Time for Repairs. Repairs or replacements required under paragraphs 3.03(a) or 3.03(b) shall be made within a reasonable time (depending on the nature of the repair or replacement needed) after receiving notice or having actual knowledge of the need for a repair or replacement. SECTION 4 - NEGATIVE OBLIGATIONS 4.01. Alterations. 4.01(a). Consent. As used herein, the term "Alterations" means alterations, additions, substitutions, installations, changes and improvements to the Premises made after the Commencement Date, but excludes minor decorations. Tenant shall not make structural Alterations without the Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Tenant may, however, make nonstructural Alterations to the Premises without Landlord's consent, provided that such Alterations do not adversely affect the Building's value or structural strength. Landlord may condition its consent to structural Alterations on the requirement that Tenant shall remove the Alterations and repair any damage caused by such removal on or before the expiration or sooner termination of this Lease. 4.01(b). Payment and Ownership of the Alterations. Alterations made under this paragraph 4.01 shall be at Tenant's expense. All Alterations shall belong to Landlord upon the expiration or sooner termination of this Lease, except for those Alterations required to be removed by Tenant, if any, under paragraph 4.01(a). Notwithstanding the foregoing, Tenant may remove at any time its trade fixtures, furniture, equipment, and other personal property if Tenant promptly repairs any damage caused by their removal. 4.02. Assignment and Subleasing. 4.02(a). Consent Required. Tenant may assign this Lease or sublet all or any part of the Premises for any lawful purpose provided that Landlord gives its prior written consent to such assignment or subletting, which consent shall not be unreasonably withheld, conditioned or delayed. Landlord's determination that the proposed assignee or subtenant does not have the financial credibility equal to or greater than Tenant or that the proposed assignee or subtenant's use is not of a character or quality reasonably acceptable to Landlord, shall be a reasonable basis for Landlord to withhold its consent. 4.02(b). Consent Not Required. Notwithstanding the provisions of paragraph 4.02(a), Tenant shall have the right, without obtaining Landlord's consent, to sublet all or any part of the Premises or to assign this Lease to (i) any corporation, partnership, limited liability company, trust, association or business organization directly or indirectly controlled by Westwood Computer Corporation or any successor to Westwood Computer Corporation, (ii) any corporation resulting from the consolidation or merger of Tenant into or with any other entity or 5 (iii) any person, firm, entity or corporation acquiring a majority of Tenant's issued and outstanding stock or a substantial part of Tenant's physical assets. 4.02(c). Conditions. Any sublease hereunder shall be subject and subordinate to the terms and conditions of this Lease and shall not have a term extending beyond the Term of this Lease. In the event of any assignment or subleasing, Tenant shall remain liable for all tenant obligations under this Lease. Landlord's consent to one sublease or assignment shall not be deemed a waiver of the consent requirement for future assignments or subleases. SECTION 5 - INSURANCE AND INDEMNIFICATION 5.01. Insurance. 5.01(a). Building Insurance. Tenant shall keep the Building insured against damage and destruction by fire, vandalism, and other perils in the amount of the full replacement value of the Building, as the value may exist from time to time. The insurance shall include an extended coverage endorsement of the kind required by an institutional lender to repair and restore the Building. 5.01(b). Property Insurance. Tenant shall keep its personal property and trade fixtures in the Premises and Building insured with "all risks" insurance in an amount to cover one hundred percent (100%) of the replacement cost of the property and fixtures. 5.01(c). Liability Insurance. Tenant shall maintain comprehensive commercial general liability insurance, including public liability, premises and operations, completed operations, broad form property damage, contractual liability and personal injury coverages, with a minimum combined single limit of liability of no less than five million dollars ($5,000,000.00) for bodily injuries, deaths or property damage. 5.01(d). Waiver of Subrogation. Each party waives claims arising in any manner in its ("Injured Party's") favor and against the other party for loss or damage to Injured Party's property located within or constituting a part or all of the Building, but only to the extent the loss or damage is covered by the greater of (i) the Injured Party's insurance or (ii) the insurance the Injured Party is required to carry under this Section 5. This waiver also applies to each party's directors, officers, employees, shareholders, and agents. This waiver does not apply to claims caused by a party's willful misconduct. 5.01(e). Insurance Criteria. Insurance policies required by this Lease shall (i) be issued by responsible insurance companies licensed to do business in the state of New Jersey and reasonably acceptable to the nonprocuring party, (ii) name the nonprocuring party as an additional insured as its interest may appear, (iii) provide that the insurance not be canceled or materially changed in the scope or amount of coverage unless thirty (30) days' advance notice is given to the nonprocuring party, (iv) be primary policies and not as contributing with, or in excess of, the coverage that the other party may carry, (v) be permitted to be carried through a "blanket policy" or "umbrella" coverage and (vi) be maintained during the entire Term and any extensions thereof. 6 5.01(f). Evidence of Insurance. By the Commencement Date and upon each renewal of its insurance policies, Tenant shall give certificates of insurance to the other party. The certificate shall specify amounts, types of coverage, the waiver of subrogation, and the insurance criteria listed in paragraph 5.01(e). The policies shall be renewed or replaced and maintained by the party responsible for that policy. If Tenant fails to give the required certificate within thirty (30) days after notice of demand for it, the Landlord may obtain and pay for that insurance and receive reimbursement from Tenant. 5.02. Indemnification. 5.02(a). Tenant's Indemnity. Tenant hereby indemnifies, defends and holds Landlord harmless from all claims, liabilities, obligations, damages, penalties, costs and expenses (including reasonable attorneys' fees and disbursements) (collectively, "Claims") for personal injury, death, or property damage occurring in or about the Premises or Building caused by or arising out of the negligence or willful misconduct of Tenant, its agents, employees, or invitees. When a Claim is caused by the joint negligence or willful misconduct of Tenant and Landlord or Tenant and a third party unrelated to Tenant, except Tenant's agents, employees, or invitees, Tenant's duty to defend, indemnify, and hold Landlord harmless shall be in proportion to Tenant's allocable share of the joint negligence or willful misconduct. 5.02(b). Landlord's Indemnity. Landlord hereby indemnifies, defends, and holds Tenant harmless from Claims for personal injury, death, or property damage occurring in or about the Premises or Building caused by or arising out of the negligence or willful misconduct of Landlord, its agents, employees, or invitees. When a Claim is caused by the joint negligence or willful misconduct of Landlord and Tenant or Landlord and a third party unrelated to Landlord, except Landlord's agents, employees, or invitees, Landlord's duty to defend, indemnify, and hold Tenant harmless shall be in proportion to Landlord's allocable share of the joint negligence or willful misconduct. 5.02(c). Release of Claims. Notwithstanding paragraphs 5.02(a) and (b), the parties hereby release each other from any Claims either. party ("Injured Party") has against the other, but only to the extent the Claim is covered by the Injured Party's insurance or the insurance the Injured Party is required to carry under Section 5, whichever is greater. SECTION 6 - LOSS OF PREMISES 6.01. Damages. 6.01(a). Definition. As used herein, "Relevant Space" means (i) the Premises as defined in paragraph 1.02, (ii) access to the Premises, and (iii) any part of the Building that provides essential services to the Premises. 6.01(b). Repair of Damage. If the Relevant Space is damaged in part or whole from fire or any other cause and the Relevant Space can be substantially repaired and restored within one hundred twenty (120) days from the date of the damage using standard working methods and 7 procedures, Landlord shall at its expense promptly and diligently repair and restore the Relevant Space to substantially the same condition as existed before the damage. This repair and restoration shall be made within one hundred twenty (120) days from the date of the damage unless the delay is due to causes beyond Landlord's reasonable control. If the Relevant Space cannot be repaired and restored within the one hundred twenty (120) day period, then either party may, within thirty (30) days after the determination that the repairs and restoration cannot be made within one hundred twenty (120) days, terminate this Lease by giving written notice to the other party. If the parties cannot agree in writing whether the repairs and restoration will take more than one hundred twenty (120) days to make, then the determination will be made by an independent, licensed architect acceptable to both parties. The fee of such architect shall be borne equally by both parties. If the Lease is not terminated, Landlord shall at its expense promptly and diligently repair and restore the Relevant Space to substantially the same condition as existed before the damage. 6.01(c). Tenant's Other Termination Rights. If it is determined the Relevant Space can be repaired and restored within the one hundred twenty (120) day period, but Landlord fails to repair and restore the Relevant Space within one hundred twenty (120) days from the date of the damage, then Tenant may terminate this Lease at any time after the one hundred twentieth (120th) day following the date of damage. Furthermore, if the Relevant Space is damaged during the last twelve (12) months of the Term or any extension thereof, then Tenant may terminate this Lease by giving Tenant written notice within thirty (30) days of the date of damage. Tenant shall not be able to terminate this Lease if its willful misconduct causes the damage. 6.01(d). Abatement. In the event the Relevant Space is damaged, the Base Rent and Additional Rent shall abate in proportion to that part of the Premises that is unfit for use in Tenant's business. The abatement shall consider the nature and extent of interference to Tenant's ability to conduct business in the Premises and the need for access and essential services. The abatement shall continue from the date the damage occurred until ten (10) business days after Landlord completes the repairs and restoration to the Relevant Space or the part rendered unusable and notice is given to Tenant that the repairs and restoration are completed, or until Tenant again uses the Premises or the part rendered unusable, whichever is first. 6.01(e). Tenant's Property. Notwithstanding anything in this Section 6, Landlord is not obligated to repair or restore damage to Tenant's trade fixtures, furniture, equipment, or other personal property. 6.01(f). Landlord's Other Termination Rights. Landlord may terminate this Lease if a substantial part of the Building is damaged and (i) any mortgagee of the Building shall not allow adequate insurance proceeds to be utilized for repair and restoration, (ii) the damage is not covered by insurance required by paragraphs 5.01(a) and (b) or (iii) this Lease is in the last twelve (12) months of its Term or any extension thereof. To terminate, Landlord must give written notice to Tenant within thirty (30) days after the Landlord knows of the damage. The notice must specify the termination date, which shall be at least thirty (30) but not more than sixty (60) days after the date notice is given. 8 6.02. Condemnation. 6.02(a). Definitions. The terms "eminent domain", "condemnation", "taking", and the like in paragraph 6.02 include takings for public or quasi-public use and private purchases in place of condemnation by any authority authorized to exercise the power of eminent domain. 6.02(b). Entire Taking. If the entire Premises or the portions of the Building required for reasonable access to, or the reasonable use of, the Premises are taken by eminent domain, this Lease shall automatically terminate on the earlier of (i) he date title vests, or (ii) the date Tenant is dispossessed by the condemning authority. 6.02(c). Partial Taking. If the taking of a part of the Premises materially interferes with Tenant's ability to continue its business operations in substantially the same manner and space then Tenant may terminate this Lease on the earlier of (i) the date when title vests, or (ii) the date Tenant is dispossessed by the condemning authority. If there is a partial taking and this Lease continues, then this Lease shall end as to the part taken and the Base Rent and Additional Rent shall abate in proportion to the part of the Premises taken. 6.02(d). Termination by Landlord. If title to a part of the Building other than the Premises is condemned, and in the Landlord's reasonable opinion, the Building should be restored in a manner that materially alters the Premises, Landlord may terminate this Lease by giving notice to Tenant. Termination notice shall be given within sixty (60) days following the date title vested. This Lease shall end on the date specified in the termination notice, which date shall be at least thirty (30) days but not more than ninety (90) days after the date notice is given. 6.02(e). Repair. If the Lease is not terminated as provided in paragraphs 6.02(b), (c), or (d), then Landlord at its expense shall promptly repair and restore the Premises to the condition that existed immediately before the taking, except for the part taken, to render the Premises a complete architectural unit, but only to the extent of the condemnation award received for the damage. 6.02(f). Awards and Damages. Landlord reserves all rights to damages paid because of any partial or entire taking of the Premises. Tenant assigns to Landlord any right Tenant may have to the damages or award. Further, Tenant shall not make claims against Landlord or the condemning authority for damages. Notwithstanding anything in this paragraph 6.02(f) to the contrary, Tenant may claim and recover from the condemning authority a separate award for Tenant's moving expenses, business dislocation damages, Tenant's personal property and fixtures, the unamortized costs of leasehold improvements paid for by Tenant and any other award that would not substantially reduce the award payable to Landlord. SECTION 7 - DEFAULT 7.01. Tenant's Default. 7.01(a). Defaults. Each of the following constitutes a default ("Default"): 9 (i) Tenant's failure to pay Base Rent or Additional Rent provided that Tenant shall be entitled to ten (10) days written notice from Landlord of Tenant's failure to pay Base Rent or Additional Rent two times per calendar year; (ii) Tenant's failure to perform or observe any other Tenant obligation under this Lease after a period of thirty (30) days after it receives written notice from Landlord setting forth in reasonable detail the nature and extent of the failure, provided that Tenant shall not be in Default if such failure is not reasonably susceptible to cure within thirty (30) days, and Tenant has commenced to cure the failure within said thirty (30) day period and diligently prosecutes same to completion; and (iii) Tenant's failure to vacate or stay any of the following within ninety (90) days after they occur: (A) a petition in bankruptcy is filed by or against Tenant, (B) Tenant is adjudicated as bankrupt or insolvent, (C) a receiver, trustee, or liquidator is appointed for all or a substantial part of Tenant's property, or (D) Tenant makes an assignment for the benefit of creditors. 7.02. Landlord's Remedies. 7.02(a). Remedies. If Tenant commits a Default under paragraph 7.01, Landlord may, in addition to any other remedies Landlord may have under the law, (i) terminate this Lease, and Tenant shall then surrender the Premises to Landlord, and/or (ii) enter and take possession of the Premises pursuant to process of law and remove Tenant, with or without having ended the Lease. Tenant waives claims for damages by reason of Landlord's reentry or repossession and for damages by reason of any legal process. Landlord's exercise of any of its remedies or its receipt of Tenant's keys shall not be considered an acceptance or surrender of the Premises by Tenant. A surrender must be agreed to in a writing signed by both parties. 7.02(b). Rent. If Landlord terminates this Lease or ends Tenant's right to possess the Premises because of a Default, Landlord may hold Tenant liable for Base Rent, Additional Rent, and other indebtedness accrued to the date the Lease ends. Tenant shall also be liable for the Base Rent, Additional Rent and other indebtedness that otherwise would have been payable by Tenant during the remainder of the Term had there been no Default, reduced by any sums Landlord receives by reletting the Premises during the Term. 7.02(c). Other Expenses. Tenant shall also be liable for that part of the following sums paid by Landlord and attributable to that part of the Term ended due to Tenant's Default: - 10 - (i) reasonable broker's fees incurred by Landlord for reletting part or all of the Premises, prorated for that part of the reletting term ending concurrently with the then current Term of this Lease; (ii) the cost of removing and restoring Tenant's property; (iii) the cost of minor repairs, alterations, and remodeling necessary to put the Premises in a condition reasonably acceptable to a new Tenant; and (iv) other necessary and reasonable expenses incurred by Landlord in enforcing its remedies. 7.02(d). Mitigation_ In the event of a Default by Tenant, Landlord shall mitigate its damages by making reasonable efforts to relet the Premises on reasonable terms. Landlord may relet for a shorter or longer period of time than the Lease Term and make any necessary repairs or alterations. Landlord may relet on any reasonable terms including a reasonable amount of free rent. If Landlord relets for a period of time longer than the current Lease Term, then any special concessions given to the new tenant shall be allocated throughout the entire reletting Term to not unduly reduce the amount of consideration received by Landlord during the remaining period of Tenant's Term. 7.03. Landlord's Default. Landlord's failure to perform or observe any of its obligations under this Lease within thirty (30) days after Landlord receives written notice from Tenant setting forth in reasonable detail the nature and extent of the failure shall constitute a Default, provided that Landlord shall not be in default if such failure is not reasonably susceptible to cure within thirty (30) days, and Landlord has commenced to cure the failure within said thirty (30) day period. 7.04. Self-Help. If either party commits a Default ("Defaulting Party"), the other party ("Nondefaulting Party") may, without being obligated and without waiving the Default, cure the Default. The Nondefaulting Party may enter the Premises or Building to cure the Default. The Defaulting Party shall pay the Nondefaulting Party, upon demand, all costs, expenses, and disbursements incurred by the Nondefaulting Party to cure the Default. 7.05. Survival. The remedies permitted by Section 7, the parties' indemnities in paragraph 5.02, and Landlord's obligation to mitigate damages in paragraph 7.02(d) shall survive the termination of this Lease. SECTION 8 - SUBORDINATION/NONDISTURBANCE 8.01. Subordination. This Lease is automatically subordinate to prior or subsequent mortgages or deeds of trust covering the Premises, provided that Landlord shall use reasonable - 11 - efforts to cause the holder of any mortgage or deed of trust to execute a subordination, non-disturbance and attornment agreement reasonably acceptable to Tenant. 8.02. Estoppel Certificate. Either party (the "Answering Party") shall from time to time, within twenty (20) days after receiving a written request by the other party (the "Asking Party"), execute and deliver to the Asking Party a written statement. This written statement, which may be relied upon by the Asking Party and any third party with whom the Asking Party is dealing shall certify (i) the accuracy of the Lease documents, (ii) the Commencement Date and expiration date of the Term of this Lease, (iii) hat this Lease is unmodified and in full effect or in full effect as modified, stating the date and nature of the modification, (iv) whether to the Answering Party's knowledge the Asking Party is in Default or whether the Answering Party has any claims or demands against the Asking Party and, if so, specifying the Default, claim, or demand and (v) to other correct and reasonably ascertainable facts regarding the Lease, as reasonably requested by the Asking Party. 8.03. Quiet Possession. Landlord warrants that it holds legal title to the Premises and, subject to the terms and conditions of this Lease, Landlord warrants that so long as Tenant is not in Default, Tenant's peaceable and quiet possession and enjoyment of the Premises shall not be disturbed. SECTION 9 - LANDLORD'S RIGHTS 9.01. Rules. Tenant, its employees and invitees, shall comply with reasonable rules ("Rules") for the safety, care, order or cleanliness of the Building and common area that Landlord may establish from time to time, provided Tenant is given thirty (30) days' advance written notice of any such Rules. If any Rule conflicts with or is inconsistent with any provision of this Lease, the Lease provision controls. Although Landlord is not responsible for another tenant's failure to observe the Rules, Landlord shall not enforce the Rules against Tenant in a discriminatory manner. 9.02. Mechanic's Liens. Tenant shall, within thirty (30) days after receiving notice of any mechanic's lien for material or work claimed to have been furnished to the Premises on Tenant's behalf and at Tenant's request, except for work contracted by Landlord, discharge the lien or post a bond equal to the amount of the disputed claim. Tenant shall indemnify, defend, and hold Landlord harmless from losses incurred from such liens. If Tenant does not discharge the lien or post the bond within the thirty (30) day period, Landlord may pay any amounts, including interest and legal fees, to discharge the lien. Tenant shall then be liable to Landlord for the amounts paid by Landlord. 9.03. Right to Enter. 9.03(a). Permitted Entries. Landlord and its agents, servants, and employees may enter the Premises at reasonable times, and at any time if an emergency, without charge, liability, or abatement of Rent, to (i) make repairs, alterations, improvements, and additions required or permitted by this Lease, (ii) comply with Applicable Laws under paragraph 3.01, (iii) show the Premises to prospective lenders or purchasers and, during the ninety (90) days immediately - 12 - before this Lease ends, to prospective tenants, accompanied, if requested by Tenant, by a Tenant representative, (iv) post notices of nonresponsibility, and (v) post "For Sale" signs and, during the one hundred and twenty (120) days immediately before this Lease ends, post "For Lease" signs. 9.03(b). Entry Conditions. Notwithstanding paragraph 9.03(a), all entries to the Premises made by Landlord shall be subject to the following conditions: (i) except in the case of an emergency, Landlord shall give Tenant reasonable prior notice, (ii) Landlord shall comply with Tenant's reasonable security requirements and procedures, (iii) all work performed by Landlord during such entries shall be performed so as to minimize the extent and duration of any interference to Tenant's business and after completion of such work, Landlord shall restore the Premises as nearly as practicable to the condition of the Premises before commencement of such work and (iv) if Landlord's entry materially and substantially interferes with the conduct of Tenant's business (and the entry was not necessitated because of Tenant's negligence or willful misconduct), Base Rent and Additional Rent shall abate in proportion to the extent of the interference. 9.04. Holdover. If Tenant continues occupying the Premises after the Term ends, then Tenant shall pay by the first day of each month one hundred twenty-five percent (125%) the amount of Base Rent and Additional Rent due in the last full month immediately preceding the holdover period, plus any additional Rent due hereunder. Landlord shall retain all of its remedies against Tenant in the event Tenant holds over without Landlord's written consent. SECTION 10 -- OPTIONS 10.01. Options to Extend. Tenant is hereby granted the option to extend the term of this Lease for three (3) additional periods of five (5) years each (each such five-year period shall be referred to as an "Extension Term"). Each Extension Term shall be upon the same terms and conditions of this Lease, except that Base Rent shall be as set forth below. To exercise any of its options, Tenant must not be in Default at the time it exercises the option and must give notice (the "Extension Notice") to Landlord that Tenant is exercising the option at least one hundred twenty (120) days before the end of the initial Term or the then current Extension Term, as the case may be. 10.02. Extension Term Rent. The Base Rent during the Extension Term shall be one hundred fifteen percent (115%) of the Base Rent for the prior Term or prior Extension Term (as appropriate) for the Premises (the "Extended Term Rent"). SECTION 11- HAZARDOUS MATERIALS 11.01. Definition. As used herein, "Hazardous Material" means: (i)(.)"hazardous substances" or "toxic substances" as those terms are defined by the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. 'SS'9601, et seq., or the Hazardous Materials Transportation Act, 49 U.S.C. 'SS'1801, all as amended and amended after this date; (ii) "hazardous wastes," as that term is defined by the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. 'SS'6901, et seq., as amended and amended after this date; (iii) - 13 - any pollutant or contaminant or hazardous, dangerous, or toxic chemicals, materials, or substances within the meaning of any other applicable federal, state, or local law, regulation, ordinance, or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic, or dangerous waste substance or material, all as amended or amended after this date; (iv) crude oil or any fraction thereof which is liquid at standard conditions of temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute); (v) any radioactive material, including any source, special nuclear or by-product material as defined at 42 U.S.C. 'SS'2011, et seq., as amended and amended after this date; (vi) asbestos in any form or condition; and (vii) polychlorinated biphenyls (PCBs) or substances or compounds containing PCBs. 11.02. Landlord's Representation and Obligations. Landlord hereby represents, warrants and agrees that, to the best of its knowledge, and except as disclosed in the Phase I report conducted by The Whitman Companies, Inc. dated August 23, 1994, and the Phase II report conducted by Accutech Environmental Services, Inc. dated February 1, 1995, there is no Hazardous Material in or on the Premises. If during the Term of this Lease or any extensions thereof Hazardous Material not introduced by Tenant is discovered in or on the Premises, Landlord shall at Landlord's expense remove or take other accepted abatement measures with respect to the Hazardous Materials in compliance with and as required by all Applicable Laws. Landlord shall defend, indemnify and save Tenant harmless from and against any Claims arising out of any breach of any of the foregoing representations, warranties or agreements of Landlord. 11.03. Tenant's Obligations. Tenant shall not cause or allow the generation, treatment, storage or disposal of Hazardous Material on or near the Premises other than in full compliance with all applicable laws, rules and regulations. Tenant shall indemnify and hold Landlord harmless from and against all Claims, arising out of any Hazardous Material introduced to or on the Premises by Tenant. 11.04. Tenant's Acknowledgement. Tenant acknowledges the existence of the proper removal of an underground oil storage tank on the property, the discovery of oil contamination associated with leakage from that tank and the remediation and ongoing monitoring of such condition. SECTION 12 - MISCELLANEOUS 12.01. Broker's Warranty. The parties warrant that they did not deal with any broker with respect to this Lease. The party who breaches this warranty shall defend, hold harmless, and indemnify the nonbreaching party from any claims or liability arising from the breach. 12.02. Notices. Unless a Lease provision expressly authorizes verbal notice, all notices under this Lease shall be in writing and sent by registered or certified mail, postage prepaid, as follows: - 14 - To Tenant: Westwood Computer Corporation 11 Diamond Road Springfield, NJ 07081 Attention: Facilities Management Leasing Administration copy to: Thomas A. Belton, Esquire DRINKER BIDDLE & REATH LLP 105 College Road East P.O. Box 627 Princeton, NJ 08542 and To Landlord: Westwood Property Holdings LLC 11 Diamond Road Springfield, NJ 07081 Either party may change these persons or addresses by giving notice as provided above. Notice shall be considered given and received on the latest original delivery or attempted delivery date as indicated on the postage receipt(s) of all persons and addresses to which notice is to be given. 12.03. Partial Invalidity. If any Lease provision is invalid or unenforceable to any extent, then that provision and the remainder of this Lease shall continue in effect and be enforceable to the fullest extent permitted by law. 12.04. Waiver. The failure of either party to exercise any of its rights is not a waiver of those rights. A party waives only those rights specified in writing and signed by the party waiving its rights. 12.05. Headings. The section and paragraph captions and headings are for convenience of reference only and in no way shall be used to construe or limit the provisions set forth in this Lease. 12.06. Binding on Successors. This Lease shall bind the parties' heirs, successors, representatives, and permitted assigns. 12.07. Governing Law. This Lease shall be governed by the laws of the State of New Jersey. 12.08. Recording. Recording of this Lease is prohibited except as allowed in this paragraph. At the request of either party, the parties shall promptly execute and record, at the cost of the requesting party, a short form memorandum describing the Premises and stating this Lease's Term, its Commencement Date, and other information the parties agree to include. - 15 - 12.09. Survival of Remedies. The parties' remedies shall survive the ending of this Lease when the ending is caused by the Default of the other party. 12.10. Authority of Parties. Each party warrants that it is authorized to enter into this Lease, that the person signing on its behalf is duly authorized to execute this Lease, and that no other signatures are necessary. 12.11. Entire Agreement. This Lease contains the entire agreement between the parties regarding the Premises and Building. 12.12. Modification. This Lease shall be modified only by a writing signed by both parties. 12.13. Wavier of Landlord's Lien and Right of Distraint. Landlord hereby waives any landlord's liens or any rights of distraint or distress that Landlord may have under applicable law against any property of Tenant or of Tenant's parent, subsidiaries, affiliates, subtenants or licensees. [Signatures on following page] - 16 - IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written. WITNESS: WESTWOOD PROPERTY HOLDINGS LLC Illegible Keith Grabel, member ___________________________ By: ____________________________ Name: Title WITNESS: WESTWOOD COMPUTER CORPORATION Illegible Mary Grabel, CEO ___________________________ ____________________________ Name: Title - 17 - EXHIBIT .A TO LEASE LEGAL. DESCRIPTION All the real property located in the Township of Springfield, County of Union, State of New Jersey and more particularly described as follows: BEGINNING at a point in the northerly side of Diamond Road therein distant 825.54 feet easterly from the produced intersection thereof with the easterly side of Fadem Road; thence 1. along the said side of Diamond Road, tdorth 76 degrees 37 minutes 25 seconds East 213.00 feet to the lands of the Union County Park Commission; thence 2. along the same, curving northerly to the right with a radius of 696.00 feet, an arc distance of 407.77 feet; thence 3. still along the same, North 20 degrees 44 minutes 30 seconds East 42.00 feet; thence 4. still along the same, curving northerly to the left with a radius of 1,706.15 feet, an arc distance of 75.58 feet, to the lands of, now or formerly, Leslie; thence 5. along the same, curving westerly to the right with a radius of 36.79 feet, an arc distance of 55.96 feet; thence 6. still along the same, and along lands, now or formerly of W. Weber, curving westerly to the left with a radius of 303.00 feet, an arc distance of 159.17 feet; thence 7. along said Weber, South 73 degrees 22 minutes West 250.00 feet to the lands, now or formerly of Colonial Motor Court; thence 8. along the.sarne, South 16 degrees 38 minutes East 185.49 feet;thence 9. South 23 degrees 09 minutes 30 seconds East, 310.15 feet to the aforesaid side of Diamond Road,' at the point or place of BEGINNING. NOTE FOR INFORMATION: The land referred to in this Commitment is commonly known as Lot(s) 9 in Block 3801 on the Tax Map of the Township of Springfield, County of Union. EXHIBIT "B" TO LEASE Schedule of Landlord Repairs Description Maximum Contribution by Landlord - ----------- -------------------------------- Roof $173,967 HVAC $202,700 Parking lot/building facing $297,375 EX-10 5 ex10-23.txt EXHIBIT 10.23 Exhibit 10.23 LEASE COMMENCEMENT This Amendment to Lease is entered into this 14th day of--July-2003, by and between V-Sullyfield Properties II, LLC (hereinafter called "Landlord") and Westwood Computer Corporation (hereinafter called "Tenant"): WITNESSETH: Whereas, the Landlord and Tenant entered into a Lease dated April 21, 2003, for the above noted lease date, for Three Thousand Two Hundred Eight-Six (3,286) square feet located at 14121 Parke-Long Court, Suite 112, Chantilly, Virginia 20151: Now Therefore, in consideration of the mutual promises and obligations contained herein, the adequacy and sufficiency of which is hereby acknowledged, it is agreed by and between the parties that the Lease shall be hereby amended in the following manner: 1. The lease commencement date shall begin on June 1, 2003. Except as provided herein, all other terms, conditions and covenants under said Original Lease shall remain in full force and effect and cannot be modified unless said modifications is reduced to writing and signed by all parties. WITNESSES: LESSOR: V-Sullyfield Properties II, LLC /s/ Illegible By Lisbeth R. Horowitz - ----------------------------------- ------------------------------ Name: Name: Lisbeth R. Horowitz Title: Managing Member WITNESSES: LESSEE: Westwood Computer Corporation Thomas Duda By /s/ Illegible - ----------------------------------- ------------------------------ Name: Name: EX-10 6 ex10-24.txt EXHIBIT 10.24 EXECUTION COPY Exhibit 10.24 MANAGEMENT SERVICES AGREEMENT THIS IS A MANAGEMENT SERVICES AGREEMENT, dated April 16, 2004 (the "Agreement"), by and between DARR Global Holdings, Inc., a Delaware corporation ("DARR") and Westwood Computer Corporation, a New Jersey Corporation (the "Company"). BACKGROUND WHEREAS, the business of the Company is that of a value added computer equipment and services provider (the "Business"). WHEREAS, the Company desires to have DARR provide certain management and advisory services with respect to the Business on the terms hereinafter set forth. DARR is willing to provide such management and advisory services. NOW, THEREFORE, in consideration of the promises and agreements hereinafter set forth and the mutual benefits to be derived herefrom and intending to be legally bound hereby, the Company and DARR hereby agree as follows: Terms 1. Engagement. The Company hereby engages DARR, and DARR hereby agrees, to provide to the Company the management and advisory services described in Section 2 below, on the terms and subject to the conditions herein. 2. Management Services of DARR. DARR shall provide management and advisory services with respect to the business, operations and affairs of the Company, which advisory services may include, without limitation, advice regarding corporate, financial (including cash management), operating and administrative functions, and any other services reasonably requested by the Company (the "Services"). 3. Term. The initial term of this Agreement shall commence on the date hereof and shall continue in full force and effect until the fifth anniversary of the date hereof (the "Initial Term"). The Initial Term shall automatically be extended for one (1) additional year at the end of the Initial Term, and again each successive year thereafter (any extensions together with the Initial Term, the "Term"). However, either party hereto may terminate this Agreement by giving written notice of such termination to the other party at least 60 days prior to the date on which an extension to the Term of this Agreement otherwise would occur. 4. Compensation. 4.1. The Company and DARR agree that DARR shall be entitled to receive as compensation for the Services rendered during the Initial Term of this Agreement: (i) $350,000 per year (the "Management Fee") plus (ii) the yearly reimbursement of reasonable expenses incurred by DARR in providing the Services (the "Expenses"). The Management Fee shall be paid in substantially equal monthly installments during the Initial Term pursuant to the yearly totals as set forth on Schedule 4 attached hereto. The Management Fee during any year after the Initial Term shall be agreed upon by DARR and the Company in writing at least 90 days prior to the end of the Initial Term; provided, however, that if the parties hereto cannot agree upon an amount for the Management Fee after the expiration of the Initial Term, the Management Fee shall not be less than $350,000 per year. 4.2. During the first year of the Term of this Agreement, DARR shall be entitled to receive reimbursement for Expenses up to $75,000 per year without any approval on the part of the Company (the "Approved Expenses"). Any Expenses in excess of the Approved Expenses must be approved in writing by Keith Grabel, 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 Term may be adjusted upward as agreed upon in writing by DARR and the Company, but in no event shall such amount be less than $75,000. 5. Interest. Any overdue Management Fee shall bear interest at a rate per annum equal to eight percent (8%), and shall be payable on demand. 6. Indemnification. 6.1. In the event that DARR or any of its affiliates, principals, partners, directors, shareholders, employees, agents, representatives (collectively, the "Indemnified Parties") becomes involved in any capacity in any action, proceeding or investigation in connection with the performance by DARR of services hereunder or as a result of being party to this Agreement, the Company will indemnify and hold harmless the Indemnified Parties from and against any actual or threatened claims, lawsuits, actions or liabilities (including out-of-pocket expenses and the reasonable fees and expenses of counsel and other litigation costs and the cost of any preparation or investigation reasonably incurred) of any kind or nature, arising as a result of or in connection with the performance by DARR of services under this Agreement or as a result of being party to this Agreement, and will periodically upon request reimburse the Indemnified Party for its expenses as described above, except that the Company will not be obligated to so indemnify any Indemnified Party if, and to the extent that, such claims, lawsuits, actions or liabilities against such Indemnified Party directly result from the gross negligence or willful misconduct of such Indemnified Party as admitted in any settlement by such Indemnified Party or held in any final, non-appealable judicial or administrative decision. In connection with such indemnification, the Company will promptly remit or pay to DARR or any other Indemnified Party any amounts which DARR certifies to the Company in writing are payable to DARR or any other Indemnified Parties hereunder, provided that the Indemnified Party undertakes in writing to repay such amounts if it is ultimately determined that such Indemnified Party is not entitled to indemnification hereunder. The reimbursement and indemnity obligations of the Company under this Section 6 shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Indemnified Party, as the case may be, of DARR and any such affiliate and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, DARR, and any such Indemnified Party. The foregoing provisions shall survive the termination of this Agreement. - 2 - 6.2. In the event any Indemnified Party seeks indemnification hereunder in respect of a claim resulting from the assertion of liability by a third party (i.e., a party other than the Company or one of its affiliates) (an "Asserted Liability"), the Company may elect to compromise or defend, at its own expense and by its own counsel, any action or proceeding in respect of such claim if (i) the claim involves solely monetary damages, (ii) the Company expressly agrees in writing to the Indemnified Party that, as between the two, the Company is solely obligated to satisfy and discharge the claim, and (iii) the Company makes reasonably adequate provision to satisfy the Indemnified Party of the Company's ability to satisfy and discharge the claim (the foregoing collectively, the "Litigation Conditions"); provided, however, that if the parties in any action shall include both the Company and an Indemnified Party, and the Indemnified Party shall have reasonably concluded that counsel selected by Company has a conflict of interest because of the availability of different or additional defenses to the Indemnified Party, the Indemnified Party shall have the right to select separate counsel to participate in the defense of such action on its behalf, at the expense of the Company. Subject to the foregoing, if the Company elects to compromise or defend such Asserted Liability, it shall, within thirty (30) days (or sooner, if the nature of the Asserted Liability so requires) after notification of the Asserted Liability by the Indemnified Party, notify the Indemnified Party of its intent to do so, and the Indemnified Party shall cooperate, at the expense of the Company, in the compromise of, or defense against, such Asserted Liability controlled by the Company. If the Company elects not to compromise or defend the Asserted Liability, fails to notify the Indemnified Party of its election as herein provided, or fails to satisfy the Litigation Conditions, the Indemnified Party may pay, compromise or defend such Asserted Liability; provided, however, the Indemnified Party shall not compromise or settle any such Asserted Liability in a manner that would result in any liability to the Company without the prior written consent of the Company (which consent will not be unreasonably withheld or delayed). In the event the Company elects to compromise or defend an Asserted Liability, the Indemnified Party may participate, at its own expense, in the defense of such Asserted Liability. 7. Entire Agreement; Parties Bound. This Agreement contains the entire agreement between the parties concerning the management of the Business, is subject to change only by a written agreement referring to this Agreement and signed by the parties hereto, and will bind and inure to the benefit of the parties hereto and their respective successors and assigns. 8. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but which together shall constitute one and the same instrument. 9. DARR as Independent Contractor. The Company and DARR agree that DARR shall perform services hereunder as an independent contractor, retaining control over and responsibility for its own operations and personnel. Neither DARR nor its employees shall be considered employees or agents of the Company. 10. Notices. Any notice, report or payment required or permitted to be given or made under this Agreement by one party to the other shall be deemed to have been duly given or made if personally delivered or, if mailed, when mailed by registered or certified mail, postage prepaid, to the other party at the following addresses (or at such other address as shall be given in writing by one party to the other): - 3 - If to DARR: DARR Global Holding, Inc. 309 Fellowship Road, Suite 210 Mount Laurel, NJ 08054 Facsimile number: (856) 840-0885 Attention: Dinesh Desai If to the Company: Westwood Computer Corporation 11 Diamond Road Springfield, NJ 07081-3101 Facsimile number: (973) 379-4693 Attention: Keith Grabel 11. Waiver of Breach. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach of that provision or any other provision hereof. 12. Governing Law. This Agreement shall be deemed to have been made in and shall be construed and interpreted in accordance with the laws of the State of New Jersey, without regard to conflicts of law principles. [Signatures appear on following page] - 4 - IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. DARR GLOBAL HOLDINGS, INC. By: /s/ Dinesh R. Desai --------------------------------- Name: --------------------------------- Title: --------------------------------- WESTWOOD COMPUTER CORPORATION By: /s/ Mary Margaret Grabel --------------------------------- Name: --------------------------------- Title: --------------------------------- [SIGNATURE PAGE - MANAGEMENT AGREEMENT] - 5 - SCHEDULE 4 Compensation Payment Schedule

- 6 - EX-10 7 ex10-25.txt EXHIBIT 10.25 EXHIBIT 10.25 EMPLOYMENT AGREEMENT THIS AGREEMENT, made and entered into as of April 16, 2004 (the "Effective Date"), by and between KEITH GRABEL (the "Executive") and WESTWOOD COMPUTER CORPORATION (the "Company"). WITNESSETH THAT: WHEREAS, DARR Westwood Acquisition Corporation, a subsidiary of DARR Westwood Technology Corporation (the "Parent"), was merged with and into the Company with the Company as the surviving entity on April 16, 2004 (the "Closing"); WHEREAS, Executive is a valued employee of the Company; WHEREAS, the parties desire to enter into this Agreement pertaining to the employment of the Executive by the Company; 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 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 the Company's headquarters. (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 both the Company 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 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 "Agreement Term" shall be the period beginning on April ___, 2004 (the "Employment Commencement Date") and ending on the fifth anniversary of the Employment Commencement Date; subject, however, to earlier termination as provided herein. The initial five (5) year period of employment automatically shall be extended for one (1) additional year at the end of the initial five (5) year 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. (g) 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 fifty percent interest in such entity is owned, directly or indirectly, by the Company (or a successor to the Company). 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: - 2 - (a) The Executive shall receive, for each twelve (12) consecutive month period beginning on the Effective Date and each anniversary thereof, payable in regular installments in accordance with the Company's usual payroll practices, an annual base salary 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 Employment Agreement 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) The Executive shall receive bonus payments in the amounts set forth on Schedule 2(b), payable in quarterly installments during each year. (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: (i) 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; and (ii) any such bonus payments shall be payable in the event of disability without any reduction. 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 - 3 - 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"). 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 - 4 - 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; 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. - 5 - 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 bonus payments and 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 and (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. 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 - 6 - 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 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. 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) Any bonus payments as proscribed by this Agreement in accordance with the provisions of Paragraph 2(b) above. (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 - 7 - 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 bonus payments, if any, regardless of whether any such bonus 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 bonus payments as proscribed by this Agreement, payable immediately upon termination without regard to the timing of payments on Schedule 2(b). (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. (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 - 8 - 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 five (5) 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 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 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 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, (ii) a period of one (1) year after the Company terminates the Executive pursuant to Section 3(f), or (iii) a period of five (5) years after the Effective Date: (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 - 9 - 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, 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 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. (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 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 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. 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 and shall protect it against disclosure, misuse, espionage, loss and theft. - 10 - (b) 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 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 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 and the Subsidiaries and all other information related to 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 - 11 - (D) improvements, updates and modifications of the foregoing made from time to time. 10. Assistance with Claims. The Executive agrees that, for the period beginning on the Employment Commencement Date, 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. 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. 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. Deferred Compensation Agreement. As of the Effective Date, the Deferred Compensation Agreement by and between Westwood Computer Corporation, Inc. and Keith Grabel, dated June 25, 2001 (the "Deferred Compensation Agreement"), shall be terminated and have no further force and effect. The Executive acknowledges and agrees that he is not owed or entitled to any wages, payments, bonuses, benefits, pay in lieu of notice, salary continuation or severance, compensation, or any other remuneration of whatever kind arising from or relating to the Deferred Compensation Agreement. 13. 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. - 12 - 14. 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. 15. 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. 16. 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). 17. 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. 18. 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. 19. 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: - 13 - 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. 20. 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. 21. 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. 22. 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; 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] - 14 - 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/ Mary Margaret Grabel --------------------------------------- By: ---------------------------------- Its: ---------------------------------- - 15 - Schedule 2(a) Salary Year 1 $250,000 Year 2 $275,000 Year 3 $300,000 Year 4 $325,000 Year 5 $350,000 - 16 - Schedule 2(a)(1) Salary After Mary Margaret Grabel Termination Year 1 $500,000 Year 2 $550,000 Year 3 $600,000 Year 4 $650,000 Year 5 $700,000 - 17 - Schedule 2(b) Bonus Payments Year 1 $375,000 Year 2 $400,000 Year 3 $440,000 Year 4 $400,000 - 18 - 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 - 19 - Schedule 4(a)(ii) Termination Salary Year 1 $150,000 Year 2 $200,000 Year 3 $250,000 Year 4 $300,000 Year 5 $350,000 - 20 - EX-10 8 ex10-26.txt EXHIBIT 10.26 EXHIBIT 10.26 EMPLOYMENT AGREEMENT THIS AGREEMENT, made and entered into as of April 16, 2004 (the "Effective Date"), by and between MARY MARGARET GRABEL (the "Executive") and WESTWOOD COMPUTER CORPORATION (the "Company"). WITNESSETH THAT: WHEREAS, DARR Westwood Acquisition Corporation, a subsidiary of DARR Westwood Technology Corporation (the "Parent"), was merged with and into the Company with the Company as the surviving entity on April 16, 2004 (the "Closing"); WHEREAS, Executive is a valued employee of the Company; WHEREAS, the parties desire to enter into this Agreement pertaining to the employment of the Executive by the Company; 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 Chief Executive Officer 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 the Company's headquarters. (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 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 "Agreement Term" shall be the period beginning on April ___, 2004 (the "Employment Commencement Date") and ending on the fifth anniversary of the Employment Commencement Date; subject, however, to earlier termination as provided herein. The initial five (5) year period of employment automatically shall be extended for one (1) additional year at the end of the initial five (5) year 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. (g) 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 fifty percent interest in such entity is owned, directly or indirectly, by the Company (or a successor to the Company). 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 her services as follows: (a) The Executive shall receive, for each twelve (12) consecutive month period beginning on the Effective Date and each anniversary thereof, payable in regular installments in accordance with the Company's usual payroll practices, an annual base salary as set forth on Schedule 2(a) (the "Salary"). The Executive's Salary - 2 - 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 Employment Agreement 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"). 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. All payments and benefits to the Executive under this Agreement shall be subject to reduction for payroll and other applicable taxes. 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. - 3 - (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 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, - 4 - (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 Boards of Directors of the Company and the 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, 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. 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 - 5 - 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 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. 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 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. - 6 - 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 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 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. 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 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 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 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 - 7 - 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. (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 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, 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 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. (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 Company or any of the Subsidiaries was engaged during the twelve (12) month period prior to the Executive's Date of Termination. 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 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. - 8 - 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 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. 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 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 and the Subsidiaries and all other information related to the Company and the Subsidiaries which is not readily available to the public. - 9 - (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. 10. Assistance with Claims. The Executive agrees that, for the period beginning on the Employment Commencement Date, 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. 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. 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, - 10 - 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. - 11 - 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 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. 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; 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 - 12 - 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] - 13 - 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/ Keith Grabel ---------------------------------------- By: ----------------------------------- Its: ----------------------------------- - 14 - Schedule 2(a) Salary Year 1 $250,000 Year 2 $275,000 Year 3 $300,000 Year 4 $325,000 Year 5 $350,000 - 15 - 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 - 16 - EX-10 9 ex10-27.txt EXHIBIT 10.27 EXHIBIT 10.27 EXECUTION COPY Notice to Joyce Tischler You should consult with an attorney before signing this Agreement. You have twenty-one (21) days from the date that you receive this Agreement to decide whether to sign it. If you decide to sign this Agreement, you will then have an additional seven (7) days following the date you sign this Agreement to revoke this Agreement. This Agreement shall not become effective or enforceable until the expiration of this seven (7)-day revocation period. SEPARATION AGREEMENT This Separation Agreement ("Agreement") is between Westwood Computer Corporation ("Company") and Joyce Tischler ("Employee" and, together with the Company, the "Parties"). Intending to be legally bound, the Parties agree as follows: 1. Termination of Employment. The Employee's employment with the Company (and with any parents and/or affiliates of the Company to which the Employee might be deemed also to have been employed) shall terminate effective April 16, 2004 ("Separation Date") including, without limitation, the Employee's lifetime employment contract with the Company. 2. Severance; Healthcare Premiums; Conditions of Receipt of Benefits and Timing. a. Severance. The Company shall pay to the Employee an aggregate amount of $577,400, payable over five years in twenty quarterly payments. Such quarterly payments shall be made by the Company to the Employee on the last day of August, November, February and May of the Company's fiscal year (unless the last day of such month is a Saturday or Sunday, then payable on the first business day thereafter) beginning with the quarterly payment for May 2004 and as outlined in the table immediately below: Period Quarterly Payment ------ ----------------- Quarterly payments one $22,000 through four Quarterly payments five $33,550 through eight Quarterly payments nine $32,200 through twelve Quarterly payments $33,900 Separation Agreement Between Westwood Computer Corporation and Joyce Tischler thirteen through sixteen Quarterly payments $22,700 seventeen through twenty b. Conditions of Receipt of Benefits and Timing. The Employee shall not be entitled to receive the benefits referenced in this Section 2 unless and until the Employee signs this Agreement and the seven (7)-day revocation period referenced on the top of the first page (under the heading "Notice") expires without the Employee having exercised her right of revocation. Any payments to be paid by the Company to the Employee shall be made by mailing such payments to the Employee's address at ________________________. 3. Confidentiality; Return of Property; Cooperation with Litigation; and Enforcement. a. Confidentiality. Except as may be required by law, the Employee shall not at any time disclose the terms of this Agreement or the circumstances surrounding her termination from the Company with any person or entity, except that the Employee may disclose information about either subject matter with her attorney or current spouse provided that her attorney or spouse first agrees to maintain the confidentiality of any disclosed information as a condition of receiving the information. b. Return of Property. The Employee shall immediately return to the Company any and all property of the Company in the Employee's possession, including (without limitation) any office keys and computer equipment. c. Cooperation with Litigation. Without requiring any compensation, the Employee shall cooperate with all reasonable requests by the Company to assist the Company in the defense of any legal claims threatened or asserted against the Company and/or any of its affiliates, including (without limitation) making herself available to meet and confer with attorneys representing the Company at reasonable times and places. d. Enforcement. The Employee's breach of any of the provisions set forth in this Section 3 shall immediately relieve the Company of all of its then unperformed obligations under this Agreement (including the obligations set forth in Section 2 hereof), without affecting the continuing validity of the general release provisions set forth in Section 4 hereof, which shall remain in full force and effect. 4. General Release of Legal Claims; Agreement Not to Sue; Definition of "Released Parties"; Adequacy of Consideration. a. General Release of Legal Claims. The Employee hereby releases (on behalf of herself and her heirs, successors, assigns, and representatives) the Company and the other "Released Parties" (as defined below) from, and hereby waives, any and all legal claims and causes of actions, whether known or unknown, that she may have or may claim to - 2 - Separation Agreement Between Westwood Computer Corporation and Joyce Tischler have against any of the Released Parties, arising at any time up to and including the date that he signs this Agreement. This general release includes and covers (without limitation) all claims arising from or relating to the Employee's employment and the termination of her employment as provided for in Section 1 hereof. Among the specific claims that the Employee is agreeing to release under this general release are (without limitation and only by way of example) the following: (a) all claims arising under any law (whether federal, state, or local) prohibiting discrimination on the basis of any protected characteristic (such as age, race, sex, disability or handicap status, national origin, or religion), including (without limitation), the Age Discrimination in Employment Act ("ADEA"), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and all state and local anti-discrimination laws, including (without limitation) the New Jersey Law Against Discrimination; (b) all claims relating to wages, employee benefits, or other compensation of whatever kind, including (without limitation) all claims arising under the Employee Retirement Income Security Act; (c) all common law claims, including (without limitation) all claims for breach of contract, wrongful discharge, interference with contractual relations, and defamation; and (d) all claims arising under any law (or the common law) governing the employment relationship, including (without limitation) the New Jersey Conscientious Employee Protection Act. b. Agreement Not To Sue. The Employee shall not file suit against any of the Released Parties pleading or asserting any claims released in this Section 4. If the Employee breaches this promise, the Employee shall pay each of the applicable Released Parties his/her attorneys' fees and costs incurred in defending against such claims. (This reimbursement provision shall not apply, however, to any claims brought under ADEA challenging the validity of the release in this Section 4.) c. Definition of "Released Parties." "Released Parties" means (i) the Company; (ii) the Company's parents, subsidiaries, and affiliates; (iii) all of the foregoing entities' successors, assigns, and predecessors; (iv) all of the foregoing entities' employees, agents, shareholders, benefit plans (and such plans' administrators, insurers, trustees, fiduciaries, and the like), insurers, officers and directors, representatives, affiliates, and the like; and (v) and any other person/entity claimed to be jointly and/or severally liable with the Company (or any of the other persons and entities referenced in this paragraph) or through which the Company has acted with respect to the Employee. d. Adequacy of Consideration. The Employee agrees that this Agreement (and, in particular, this Section 4) is supported by adequate consideration to which the Employee would not be entitled if he did not sign this Agreement. 5. Acknowledgements Concerning Compensation. The Employee acknowledges and agrees that she is not owed or entitled to any wages, payments, bonuses, benefits, pay in lieu of notice, salary continuation or severance, compensation, or any other remuneration of whatever kind arising from or relating to her employment or the - 3 - Separation Agreement Between Westwood Computer Corporation and Joyce Tischler termination of her employment (as provided for in Section 1 hereof), except for: (i) the payments/benefits expressly provided for under this Agreement; (ii) her accrued base salary through the Separation Date; (iii) any accrued time-off pay (e.g., vacation) to which the Employee may be entitled under the Company's generally applicable policies governing paid time-off; (iv) and any unreimbursed business expenses incurred on or before the Separation Date (which shall be reimbursed in accordance with and subject to the Company's generally applicable reimbursement policies and practices). Except as provided for otherwise in this Agreement, the Employee's rights under any applicable employee benefit plans shall be subject to, and governed by, the terms of such plans. 6. General Terms. a. Prior Agreements. Except as expressly provide for above, all prior and existing Agreements between the Employee and the Company (whether or not written) are hereby terminated, and this Agreement shall supersede all such agreements. b. Modification. This Agreement may be modified only by a writing signed by both the Employee and a duly authorized agent of Company. c. Inurement and Assignment. This Agreement shall be binding upon the Employee and her representatives, and shall inure to the benefit of, and be enforceable by, all the Released Parties. The Company may freely assign its rights under this Agreement to any person or entity. The Employee may not assign her rights under this Agreement without the prior written consent of the Company, which consent shall not be unreasonably withheld. d. Severability. The invalidity of any provision of this Agreement shall not affect the validity of any other provision of this Agreement. All invalid provisions shall be deemed severed, without affecting the validity of any of other provision. e. Choice of Law and Forum. This Agreement shall be governed by the substantive law of the State of New Jersey, and the parties consent to the jurisdiction of the courts of New Jersey to adjudicate any and all disputes arising between them. f. Taxes. The Company shall withhold all applicable federal, state and local taxes from any amounts payable under this Agreement, whether in kind or in cash. g. Violation of Agreement. If Employee attempts to institute any judicial action or proceeding against the Company based in whole or in part on any claim or cause of action that Employee agreed to waive in Paragraph 5 of this Agreement, all benefits under this Agreement shall cease, and Employee shall be liable to repay the Company an amount equal to the value of all benefits that he received under this Agreement, and such repayment shall be a prerequisite to any such action or proceeding. If Employee files a lawsuit in court that is found to be barred in whole or in part by Paragraph 5 of this - 4 - Separation Agreement Between Westwood Computer Corporation and Joyce Tischler Agreement, Employee shall pay the legal fees incurred by the Company in defending those claims found to be barred. h. Alternative Payee. In the event that Employee dies before any of the money owing to Employee under this Agreement is paid in full, then the Company shall make such remaining payments to the Employee's spouse, or, if Employee has no spouse at the time of Employee's demise, to Employee's estate. Upon the Company's written request, Employee's spouse or estate, as applicable, shall execute and deliver to the Company a written acknowledgment that such payments are subject to the terms of this Agreement and that such person or entity shall be bound by and comply with the terms hereof. Such acknowledgment shall be provided within five days of the date requested by the Company and the Company shall be entitled to suspend payments hereunder after the passage of such five days until it receives such acknowledgment. - 5 - Separation Agreement Between Westwood Computer Corporation and Joyce Tischler The Parties have carefully read and understand all of the provisions of this Agreement. They enter into this Agreement freely, knowingly, and voluntarily. This Agreement shall not be subject to claims of fraud, coercion, or duress. In entering into this Agreement, neither of the Parties is relying upon any representations or promises not expressly set forth in this Agreement. Intending to be legally bound to this Agreement, the Parties sign their names below. /s/ Mary Margaret Grabel /s/ Joyce Tischler - ----------------------------- ---------------------------- WESTWOOD COMPUTER CORPORATION JOYCE TISCHLER By: Dated: April 16, 2004 Dated: April 16, 2004 - 6 - EX-10 10 ex10-30.txt EXHIBIT 10.30 Exhibit 10.30 THESE SECURITIES HAVE 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. PAYMENTS UNDER THIS NOTE ARE SUBJECT TO THE SUBORDINATION PROVISIONS OF SECTION 4 HEREOF $7,771.63 April 16, 2004 WESTWOOD COMPUTER CORPORATION 5% JUNIOR SUBORDINATED NOTE WESTWOOD COMPUTER CORPORATION, a New Jersey corporation (the "Company," which term includes any successor Company), for value received, hereby promises to pay to Michael John Grabel ("Holder"), the principal sum of Seven Thousand Seven Hundred Seventy-One Dollars and Sixty-Three cents ($7,771.63) (the "Principal Amount"). Interest on the unpaid balance of the Principal Amount of this Note shall be payable at a rate of five percent 5% per annum. Interest on this Note will be payable or will accrue from the issuance date hereof. Interest will be computed on the basis of a 360-day year for the actual days elapsed. This Note may be prepaid at any time in whole or in part without premium or penalty. This Note shall be binding upon the successors and assigns of the Company. 1. Method of Payment The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts (payment may be made by check payable in such money). 2. Repayments (a) This Note shall be repaid in four principal payments, (i) the first payment in the amount of thirty percent (30%) of the Principal Amount on the second anniversary of the date of this Note, (ii) the second payment in the amount of thirty percent (30%) of the Principal Amount on the third anniversary of the date of this Note, (iii) the third payment in the amount of twenty percent (20%) of the Principal Amount on the fourth anniversary of the date of this Note and (iv) the final payment in the amount of twenty percent (20%) of the Principal Amount on the fifth anniversary of the date of this Note. Each principal payment shall be accompanied by all interest then accrued and unpaid on this Note. (b) This Note is one of a duly authorized issue of 5% and 8% Subordinated Notes of the Company (respectively, the "5% Subordinated Notes" and the "8% Subordinated Notes" and, collectively, the "Shareholder Subordinated Notes") issued to the Holders under the Merger Agreement by and among the Company, DARR Westwood Technology Corporation, Westwood Computer Corporation, the Shareholders of Westwood Computer Corporation named therein and the Shareholders' Agent dated as of February 27, 2004 (the "Merger Agreement"). The obligations of the Company hereunder are, at the sole option of the Company, subject to set-off against, as a result of or in connection with any obligations of the Holder under the Merger Agreement and, at the option of the Company, all or a portion of this Note may be surrendered or transferred to the Company or a Subsidiary in satisfaction of the Holder's liability under or in respect of claims made pursuant to the Merger Agreement. This Section 2(b) shall be binding upon each Holder hereof. Any payments of amounts due under the Notes, and any set-off of amounts due, will be made pro rata in proportion to the principal amounts outstanding thereunder. 3. Due Authorization, etc. The Company hereby represents to the Holder that (a) the Company is a corporation duly formed, validly existing and in good standing under the laws of the State of New Jersey, (b) the Company has all requisite corporate power and authority to execute and deliver this Note and to carry out the terms hereof, (c) the Company has duly authorized the execution, delivery and performance of this Note, and (d) the execution, delivery and performance of this Note does not (i) violate any provision of the organizational documents of the Company, or (ii) violate any statute, rule or regulation of any governmental authority to which the Company is subject or any material agreement or instrument to which it is a party. This Note is a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium and other laws affecting creditors rights generally and except as may be limited by equitable principles. - 2 - 4. 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 4 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 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) 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 holder of such Indebtedness has an existing right, contingent - 3 - 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. "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 (a) all Indebtedness of the Company and its Subsidiaries to GE Commercial Distribution Finance Corporation ("GECDF") under the credit agreement dated as of the date hereof, 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 - 4 - and expenses of counsel), (c) any indebtedness for borrowed money (excluding indebtedness to an Affiliate of the Company), any issuance or sale of any debt securities or warrants or other rights to acquire any debt securities of the Company, guarantees of any such indebtedness or debt securities of another person, any "keep well" or other agreement to maintain any financial statement condition of another person or arrangements having the economic effect of any of the foregoing in circumstances in which the Company has either experienced (I) six consecutive months of negative pre-tax income or (II) negative pre-tax income for any eight months of a twelve month period, subject to the Dollar Limitations provided in this Section below; for purposes of this clause (c), in determining negative pre-tax income, payments made by the Company pursuant to those agreements on Schedule 1 shall not be included in the calculation of pre-tax income and the Dollar Limitation shall mean up to one million dollars ($1,000,000) from the date hereof until the first anniversary of the date of this Agreement and after the first anniversary date of this Agreement, such one million dollar limit shall be increased dollar for dollar for each amount paid by the Company pursuant to those agreements listed on Schedule 2 (d) 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 (e) all amendments, extensions, renewals, refinancings and deferrals of the Indebtedness referred to in clauses (a) through (e) 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. "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 Company's 8% Subordinated Notes, (d) the Separation Agreement by and between the Company and Joyce Tischler, (e) the Management Services Agreement by and between the Company and DARR Global Holdings, Inc. (f) the Subordinated Note in favor of - 5 - DARR Westwood LLC in the amount of $750,000 and (g) the Preferred Stock of DARR Westwood Technology Corporation owned by DARR Westwood LLC. (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 4 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. (c) No Payment on Subordinated Debt in Certain Circumstances. (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 4 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. (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 - 6 - 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), and (C) the date on which the Senior Debt is accelerated and declared immediately due and payable. (iv) Nothing contained in this Section 4 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, subject to Section 9, 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), 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 4 shall prevent interest from accruing to this Note as provided above until this Note paid in full. (vi) Nothing contained in this Section 4(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, - 7 - 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 4 (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. (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 4 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 4 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 4 shall have been applied, pursuant to the provisions of this Section 4, 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 - 8 - 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 4 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. (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 4(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 4. (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 4, 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 4 are intended to be enforceable at all times, whether before or after the commencement of a proceeding referred to in Section 4(d). (h) Obligations of Company Unconditional. Nothing contained in this Section 4 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 - 9 - 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 4 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 4 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 4(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 4 shall not be construed as preventing the occurrence of an Event of Default under Section 5. Upon any payment or distribution of assets of the Company referred to in this Section 4, 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 4. (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 4 shall limit the right of the holders of Senior Debt to recover payments as contemplated elsewhere in this Section 4. 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) (ii) or (iii) (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 - 10 - 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 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 4 of this Note. - 11 - (m) Insolvency. The provisions of this Section 4 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 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 4 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 4 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 4, 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; - 12 - (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; (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 4 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 4 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 4 constitute a continuing agreement and shall (A) remain in full force and effect, subject to the provisions and limitations contained in this Section 4, 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. 5. Events of Default (a) An "Event of Default" occurs if: (i) the Company defaults in the payment of the principal or interest of this Note when the same becomes due and payable at maturity, upon acceleration, or otherwise, whether or not such payment shall be prohibited by the provisions of Section 4, and such default continues for 30 days; - 13 - (ii) the Company, pursuant to or within the meaning of any Bankruptcy Law: A. commences a voluntary case or proceeding, B. consents to the entry of an order for relief against it in an involuntary case or proceeding, C. consents to the appointment of a Custodian of it or for all or substantially all of its property, D. makes a general assignment for the benefit of its creditors, or E. generally is unable to pay its debts as they become due; (iii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: A. is for relief against the Company in an involuntary case or proceeding, B. appoints a Custodian of the Company or for all or substantially all of its property, or C. orders the liquidation of the Company; and in each case the order or decree remains unstayed and in effect for 60 days; or (iv) the Company fails to observe or perform any covenant, condition or agreement required on its part to be observed or performed pursuant to Section 4 and such failure continues for a period of 30 days following notice thereof from the Holder. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. For purposes of this Agreement, the term "Default" shall mean any event or occurrence which with the passing of time, the giving of notice, or both, could become an Event of Default. (b) Interest Rate Upon Default. If an Event of Default (other than an Event of Default specified in clause (a)(ii) or (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. - 14 - (c) Waiver of Past Defaults. The Holders of 50% or more of the outstanding amount of the Company's "5% Subordinated Notes" (which shall mean this Note and any notes issued in form substantially similar to this Note on the date hereof and all replacements and exchanges thereof) (the "Majority Holders") 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. 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 Majority Holders; provided that without the consent of all holders of the Company's 5% Subordinated Notes then outstanding, no such waiver, modification, alteration or amendment shall be effective (i) which will change the time of payment of the principal or interest of any Note or reduce the Principal Amount thereof, (ii) which will change the percentage of the Notes required to consent to any such amendment, alteration or modification, or (iii) which will change any provisions of Section 5(b) or (c), or Section 6(b). This Note may not be amended without the consent in writing of the Lender or any Refinancing Lender (until the Senior Debt has been finally and indefeasibly paid in full) or, thereafter, the holders of 50% or more of the outstanding principal amount of the outstanding Senior Debt. (b) Effect of Amendment or Waiver. Any amendment or waiver shall apply equally to the holder of the Note and shall be binding upon it, upon each future holder of any Note and upon the Company, whether or not such 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. 7. Change in Control Upon Certain Events. Upon the occurrence of a Change in Control, the Company shall, upon the expiration of any offer to purchase or repayment or redemption of any Senior Debt required as a result of such Change in Control, repay this Note in full at a price equal to the Principal Amount plus all accrued and unpaid interest. For purposes of this Section 7 the term "Change in Control" shall mean (a) any one Person (including a "group", as such term is used in Section 13(d) of the Exchange Act of 1934, as amended (the "Exchange Act")) other than DARR Westwood LLC, DARR Westwood Technology Corporation and Mary Margaret Grabel, and its affiliates, shall, directly or indirectly, own or control 50% or more of the voting or non-voting common equity of the Company or any successor thereto, or (b) all or substantially all of the assets of the Company or any Significant Subsidiary (as defined herein) shall be transferred to any Person or group of Persons (other than to the Company or any direct or indirect Subsidiary thereof). For purposes of this Section 7, the term "Person" shall mean any individual, partnership, Company, trust or unincorporated organization or a government or agency or political subdivision thereof. - 15 - 8. Covenants. (a) Preservation of Corporate Existence; etc. Subject to paragraph (f), the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence and the material rights (charter and statutory) and franchises of the Company, and of any other subsidiary of the Company (collectively, the "Subsidiaries"); provided, however, that the Company shall not be required to preserve or cause to be preserved any such material right or franchise if the board of directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not, and will not be, adverse in any material respect to the Holder, provided, further, that the Company may merge into Westwood Computer Corporation. (b) Payment of Taxes, Assessment, Charges and Claims. The Company will and will cause the Subsidiaries to duly pay or discharge or cause to be paid or discharged the following before they shall become delinquent: (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any of the Subsidiaries or upon the income, profit or property of the Company or any of the Subsidiaries, and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a material lien upon the property of the Company or any of the Subsidiaries; provided, however, that the Company or any of the Subsidiaries shall not be required to pay or discharge or cause to be paid or discharged (but shall make adequate provision for) any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves have been made. (c) Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim, and shall resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Holder but shall suffer and permit the execution of every such power as though no such law had been enacted. (d) Compliance with Laws. The Company will, and will cause the Subsidiaries to, comply in all material respects with all applicable statutes, regulations, orders and restrictions of the United States, any state, municipality or other governmental division thereof, and agencies and instrumentalities of the foregoing, in respect of the conduct of its and their businesses and the ownership of its and their properties (including, without limitation, applicable statutes, regulations, orders and restrictions relating to equal employment opportunities and environmental standards and controls), except such as are being contested in good faith that, if reasonably likely to be determined adversely to the Company, would not have a material adverse effect on the business of the Company. (e) Limitation on Restricted Payments. - 16 - (i) The Company (A) shall not effect the declaration, payment or setting apart for payment of any dividend on any part of the Company's capital stock (other than dividends or distributions in such Company's capital stock) or any cash interest payment on any Junior Indebtedness (as defined below) or effect or make any payment on account of or set apart for payment money for a sinking or other similar fund for, the purchase, prepayment, redemption or other retirement of, any of the Company's capital stock (or any rights, warrants or options to purchase or acquire any such capital stock) or Junior Indebtedness, or make any distribution in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Company or other property, and (B) shall not permit a Subsidiary or any other Company or other entity which directly or indirectly controls, or is controlled by the Company to purchase, redeem or otherwise acquire any of the Company's capital stock or Junior Indebtedness (other than distributions or dividends in the Company's capital stock to the holders of the Company's capital stock or payment of interest on Junior Indebtedness by the issuance of additional Junior Indebtedness or capital stock) or voluntarily prepay Indebtedness that is subordinated to this Note; provided, however, that subject to the terms of a Subordination Agreement dated April 16, 2004 relating to the priority of certain related party debt, no payment made with respect to the Company's capital stock or with respect to Junior Indebtedness shall be prohibited if, so long as no Event of Default has occurred and is continuing, (X) such payment is made for the retirement of the Company's capital stock or Junior Indebtedness in exchange for or out of the net proceeds of a prior or simultaneous sale of the Company's capital stock or Junior Indebtedness or capital stock issued in connection with such retirement which is subordinate in right of payment to this Note at least to the extent the Junior Indebtedness or capital stock being retired is subordinate to this Note, or (Y) such payment is pursuant to a "cashless exercise" of an option or warrant to acquire the Company's capital stock. (ii) The Company will not permit any Subsidiary to effect the declaration, payment or setting apart for payment of any dividend on any part of such Subsidiary's capital stock (other than dividends or distributions in such Subsidiary's capital stock) except for payments of any dividend to the Company or any other Subsidiary. (iii) None of the Company's Junior Indebtedness shall provide for the mandatory payment of principal by way of redemption, sinking fund or otherwise (including, without limitation, at the option of the holder thereof) and the Company will make no optional payment with respect thereto, prior to the payment of all principal of and interest on this Note. (iv) "Junior Indebtedness" means any Indebtedness of the Company whether outstanding on the date hereof or incurred thereafter, that is subordinated in right of payment to this Note either by its terms or by operation of law. (f) When Company May Merge, etc. The Company will not directly or indirectly, merge into or have merged into it, or consolidate with any other company (other than the merger of a wholly-owned subsidiary into the Company (or another wholly-owned subsidiary)), and will not directly or indirectly, sell, assign, lease, transfer or otherwise dispose of (each, a "Transfer") all or substantially all of its properties and assets as, or substantially as, an entirety to any other company or other entity or person (other than to the Company or a wholly-owned subsidiary) except that so long as no - 17 - Event of Default exists immediately before or would exist immediately after such transaction the Company may merge into or have merged into it, or be consolidated with, any other company or may Transfer all or substantially all its properties and assets as, or substantially as, an entirety, to any other company if, after consummation of such transaction: (i) in the case of any such consolidation or merger, the company resulting from such consolidation, or any company other than the company into which such merger shall be made, shall be a company organized under the laws of the United States, or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable therefor; and (ii) in the case of any such Transfer of all or substantially all the property or assets of the Company, the company to which such property or assets shall be Transferred shall be a company organized under the laws of the United States or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, as a part of the purchase price thereof, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable thereof. Notwithstanding the foregoing, the Company; may merge with and into Westwood Computer Corporation. 9. Transfer and Exchange When this Note is presented to the Company with a request to register the transfer, the Company shall register a transfer as requested, if the requirements for such transfer are met; provided, however, that if this Note is presented or surrendered for registration of transfer or exchange it shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by the Holder or his attorney duly authorized in writing. The Company may charge for its out-of-pocket expenses incurred in connection with any transfer or exchange of the Note. All transfers of this Note (and any replacement thereof) must comply with the requirements of Section 4 and subject to the limitations set forth in Section 14. 10. Replacement Notes If a mutilated Note is surrendered to the Company or if the Holder of this Note 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 for its out-of-pocket expenses incurred in replacing this Note. - 18 - If the Note is surrendered to the Company in settlement of a claim as contemplated by Section 15, the Company shall issue a replacement Note of like tenor to the Holder provided that the amount of the Note shall be reduced by the amount of such claim. If the Holder desires to transfer a portion of the Note to a Subsidiary in settlement of a claim as contemplated by Section 15, the Holder shall surrender the Note to the Company, whereupon the Company shall issue a replacement Note of like tenor to the Subsidiary in the amount of the claim and shall issue a replacement Note of like tenor to the Holder provided that the amount of the originally tendered Note shall be reduced by the amount of such claim. 11. No Recourse Against Others No director, officer, employee or shareholder, 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. 12. Notice 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, to it at 11 Diamond Road, Springfield, NJ 07081, Attention: Stephen Donnelly, with a required copy to Dechert LLP, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, PA 19103, Attention: Carmen J. Romano, or to such other address as may be furnished in writing to the Holder; and if to the Holder, to it at its address listed on the transfer books of the Company. Unless otherwise indicated herein, notices hereunder shall be effective when delivered, if delivered personally, or, if sent by mail, when sent. 13. Governing Law This Note shall be deemed a contract under, and shall be governed and construed in accordance with, the laws of the State of New Jersey without giving effect to principles of conflicts of laws. 14. Successors, etc.; Entire Agreement; Assignment This Note shall be binding upon and shall inure to the benefit of and be enforceable by the respective successors and assigns of the Company and the registered Holder thereof. This Note constitutes the entire agreement between the parties, superseding all prior understandings and writings, with respect to the indebtedness represented hereby. This Note shall not be transferred without the prior written consent of the Company. Any assignment or transfer made by the Holder in violation of this section shall be null and void. 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. - 19 - IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer. Dated: April 16, 2004 WESTWOOD COMPUTER CORPORATION By: /s/ Mary Grabel -------------------------- Name: Title: - 20 - Schedule 1 Management Services Agreement by and between Westwood Computer Corporation and DARR Global Holdings, Inc. Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of DARR Westwood LLC Any dividends or redemption proceeds payable to DARR Westwood LLC for the 8% Cumulative Compounding Preferred Stock of DARR Westwood Technology Corporation - 21 - Schedule 2 Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of Four Kings Management LLC 5% Junior Subordinated Note in the amount of $161,151 made by Westwood Computer Corporation in favor of Keith Grabel 5% Junior Subordinated Note in the amount of $132,183 made by Westwood Computer Corporation in favor of Mary Margaret Grabel 8% Junior Subordinated Note in the amount of $483,453 made by Westwood Computer Corporation in favor of Keith Grabel 8% Junior Subordinated Note in the amount of $396,549 made by Westwood Computer Corporation in favor of Mary Margaret Grabel Separation Agreement by and between Westwood Computer Corporation and Joyce Tischler - 22 - EX-10 11 ex10-31.txt EXHIBIT 10.31 Exhibit 10.31 THESE SECURITIES HAVE 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. PAYMENTS UNDER THIS NOTE ARE SUBJECT TO THE SUBORDINATION PROVISIONS OF SECTION 4 HEREOF $12,588.89 April 16, 2004 WESTWOOD COMPUTER CORPORATION 5% JUNIOR SUBORDINATED NOTE WESTWOOD COMPUTER CORPORATION, a New Jersey corporation (the "Company," which term includes any successor Company), for value received, hereby promises to pay to Megan Patricia Grabel ("Holder"), the principal sum of Twelve Thousand Five Hundred and Eighty-Eight Dollars and Eighty-Nine cents ($12,588.89) (the "Principal Amount"). Interest on the unpaid balance of the Principal Amount of this Note shall be payable at a rate of five percent 5% per annum. Interest on this Note will be payable or will accrue from the issuance date hereof. Interest will be computed on the basis of a 360-day year for the actual days elapsed. This Note may be prepaid at any time in whole or in part without premium or penalty. This Note shall be binding upon the successors and assigns of the Company. 1. Method of Payment The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts (payment may be made by check payable in such money). 2. Repayments (a) This Note shall be repaid in four principal payments, (i) the first payment in the amount of thirty percent (30%) of the Principal Amount on the second anniversary of the date of this Note, (ii) the second payment in the amount of thirty percent (30%) of the Principal Amount on the third anniversary of the date of this Note, (iii) the third payment in the amount of twenty percent (20%) of the Principal Amount on the fourth anniversary of the date of this Note and (iv) the final payment in the amount of twenty percent (20%) of the Principal Amount on the fifth anniversary of the date of this Note. Each principal payment shall be accompanied by all interest then accrued and unpaid on this Note. (b) This Note is one of a duly authorized issue of 5% and 8% Subordinated Notes of the Company (respectively, the "5% Subordinated Notes" and the "8% Subordinated Notes" and, collectively, the "Shareholder Subordinated Notes") issued to the Holders under the Merger Agreement by and among the Company, DARR Westwood Technology Corporation, Westwood Computer Corporation, the Shareholders of Westwood Computer Corporation named therein and the Shareholders' Agent dated as of February 27, 2004 (the "Merger Agreement"). The obligations of the Company hereunder are, at the sole option of the Company, subject to set-off against, as a result of or in connection with any obligations of the Holder under the Merger Agreement and, at the option of the Company, all or a portion of this Note may be surrendered or transferred to the Company or a Subsidiary in satisfaction of the Holder's liability under or in respect of claims made pursuant to the Merger Agreement. This Section 2(b) shall be binding upon each Holder hereof. Any payments of amounts due under the Notes, and any set-off of amounts due, will be made pro rata in proportion to the principal amounts outstanding thereunder. 3. Due Authorization, etc. The Company hereby represents to the Holder that (a) the Company is a corporation duly formed, validly existing and in good standing under the laws of the State of New Jersey, (b) the Company has all requisite corporate power and authority to execute and deliver this Note and to carry out the terms hereof, (c) the Company has duly authorized the execution, delivery and performance of this Note, and (d) the execution, delivery and performance of this Note does not (i) violate any provision of the organizational documents of the Company, or (ii) violate any statute, rule or regulation of any governmental authority to which the Company is subject or any material agreement or instrument to which it is a party. This Note is a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium and other laws affecting creditors rights generally and except as may be limited by equitable principles. - 2 - 4. 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 4 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 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) 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 holder of such Indebtedness has an existing right, contingent - 3 - 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. "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 (a) all Indebtedness of the Company and its Subsidiaries to GE Commercial Distribution Finance Corporation ("GECDF") under the credit agreement dated as of the date hereof, 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 - 4 - and expenses of counsel), (c) any indebtedness for borrowed money (excluding indebtedness to an Affiliate of the Company), any issuance or sale of any debt securities or warrants or other rights to acquire any debt securities of the Company, guarantees of any such indebtedness or debt securities of another person, any "keep well" or other agreement to maintain any financial statement condition of another person or arrangements having the economic effect of any of the foregoing in circumstances in which the Company has either experienced (I) six consecutive months of negative pre-tax income or (II) negative pre-tax income for any eight months of a twelve month period, subject to the Dollar Limitations provided in this Section below; for purposes of this clause (c), in determining negative pre-tax income, payments made by the Company pursuant to those agreements on Schedule 1 shall not be included in the calculation of pre-tax income and the Dollar Limitation shall mean up to one million dollars ($1,000,000) from the date hereof until the first anniversary of the date of this Agreement and after the first anniversary date of this Agreement, such one million dollar limit shall be increased dollar for dollar for each amount paid by the Company pursuant to those agreements listed on Schedule 2 (d) 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 (e) all amendments, extensions, renewals, refinancings and deferrals of the Indebtedness referred to in clauses (a) through (e) 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. "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 Company's 8% Subordinated Notes, (d) the Separation Agreement by and between the Company and Joyce Tischler, (e) the Management Services Agreement by and between the Company and DARR Global Holdings, Inc. (f) the Subordinated Note in favor of - 5 - DARR Westwood LLC in the amount of $750,000 and (g) the Preferred Stock of DARR Westwood Technology Corporation owned by DARR Westwood LLC. (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 4 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. (c) No Payment on Subordinated Debt in Certain Circumstances. (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 4 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. (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 - 6 - 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), and (C) the date on which the Senior Debt is accelerated and declared immediately due and payable. (iv) Nothing contained in this Section 4 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, subject to Section 9, 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), 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 4 shall prevent interest from accruing to this Note as provided above until this Note paid in full. (vi) Nothing contained in this Section 4(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, - 7 - 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 4 (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. (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 4 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 4 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 4 shall have been applied, pursuant to the provisions of this Section 4, 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 - 8 - 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 4 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. (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 4(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 4. (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 4, 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 4 are intended to be enforceable at all times, whether before or after the commencement of a proceeding referred to in Section 4(d). (h) Obligations of Company Unconditional. Nothing contained in this Section 4 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 - 9 - 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 4 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 4 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 4(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 4 shall not be construed as preventing the occurrence of an Event of Default under Section 5. Upon any payment or distribution of assets of the Company referred to in this Section 4, 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 4. (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 4 shall limit the right of the holders of Senior Debt to recover payments as contemplated elsewhere in this Section 4. 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) (ii) or (iii) (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 - 10 - 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 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 4 of this Note. - 11 - (m) Insolvency. The provisions of this Section 4 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 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 4 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 4 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 4, 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; - 12 - (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; (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 4 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 4 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 4 constitute a continuing agreement and shall (A) remain in full force and effect, subject to the provisions and limitations contained in this Section 4, 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. 5. Events of Default (a) An "Event of Default" occurs if: (i) the Company defaults in the payment of the principal or interest of this Note when the same becomes due and payable at maturity, upon acceleration, or otherwise, whether or not such payment shall be prohibited by the provisions of Section 4, and such default continues for 30 days; - 13 - (ii) the Company, pursuant to or within the meaning of any Bankruptcy Law: A. commences a voluntary case or proceeding, B. consents to the entry of an order for relief against it in an involuntary case or proceeding, C. consents to the appointment of a Custodian of it or for all or substantially all of its property, D. makes a general assignment for the benefit of its creditors, or E. generally is unable to pay its debts as they become due; (iii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: A. is for relief against the Company in an involuntary case or proceeding, B. appoints a Custodian of the Company or for all or substantially all of its property, or C. orders the liquidation of the Company; and in each case the order or decree remains unstayed and in effect for 60 days; or (iv) the Company fails to observe or perform any covenant, condition or agreement required on its part to be observed or performed pursuant to Section 4 and such failure continues for a period of 30 days following notice thereof from the Holder. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. For purposes of this Agreement, the term "Default" shall mean any event or occurrence which with the passing of time, the giving of notice, or both, could become an Event of Default. (b) Interest Rate Upon Default. If an Event of Default (other than an Event of Default specified in clause (a)(ii) or (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. - 14 - (c) Waiver of Past Defaults. The Holders of 50% or more of the outstanding amount of the Company's "5% Subordinated Notes" (which shall mean this Note and any notes issued in form substantially similar to this Note on the date hereof and all replacements and exchanges thereof) (the "Majority Holders") 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. 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 Majority Holders; provided that without the consent of all holders of the Company's 5% Subordinated Notes then outstanding, no such waiver, modification, alteration or amendment shall be effective (i) which will change the time of payment of the principal or interest of any Note or reduce the Principal Amount thereof, (ii) which will change the percentage of the Notes required to consent to any such amendment, alteration or modification, or (iii) which will change any provisions of Section 5(b) or (c), or Section 6(b). This Note may not be amended without the consent in writing of the Lender or any Refinancing Lender (until the Senior Debt has been finally and indefeasibly paid in full) or, thereafter, the holders of 50% or more of the outstanding principal amount of the outstanding Senior Debt. (b) Effect of Amendment or Waiver. Any amendment or waiver shall apply equally to the holder of the Note and shall be binding upon it, upon each future holder of any Note and upon the Company, whether or not such 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. 7. Change in Control Upon Certain Events. Upon the occurrence of a Change in Control, the Company shall, upon the expiration of any offer to purchase or repayment or redemption of any Senior Debt required as a result of such Change in Control, repay this Note in full at a price equal to the Principal Amount plus all accrued and unpaid interest. For purposes of this Section 7 the term "Change in Control" shall mean (a) any one Person (including a "group", as such term is used in Section 13(d) of the Exchange Act of 1934, as amended (the "Exchange Act")) other than DARR Westwood LLC, DARR Westwood Technology Corporation and Mary Margaret Grabel, and its affiliates, shall, directly or indirectly, own or control 50% or more of the voting or non-voting common equity of the Company or any successor thereto, or (b) all or substantially all of the assets of the Company or any Significant Subsidiary (as defined herein) shall be transferred to any Person or group of Persons (other than to the Company or any direct or indirect Subsidiary thereof). For purposes of this Section 7, the term "Person" shall mean any individual, partnership, Company, trust or unincorporated organization or a government or agency or political subdivision thereof. - 15 - 8. Covenants. (a) Preservation of Corporate Existence; etc. Subject to paragraph (f), the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence and the material rights (charter and statutory) and franchises of the Company, and of any other subsidiary of the Company (collectively, the "Subsidiaries"); provided, however, that the Company shall not be required to preserve or cause to be preserved any such material right or franchise if the board of directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not, and will not be, adverse in any material respect to the Holder, provided, further, that the Company may merge into Westwood Computer Corporation. (b) Payment of Taxes, Assessment, Charges and Claims. The Company will and will cause the Subsidiaries to duly pay or discharge or cause to be paid or discharged the following before they shall become delinquent: (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any of the Subsidiaries or upon the income, profit or property of the Company or any of the Subsidiaries, and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a material lien upon the property of the Company or any of the Subsidiaries; provided, however, that the Company or any of the Subsidiaries shall not be required to pay or discharge or cause to be paid or discharged (but shall make adequate provision for) any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves have been made. (c) Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim, and shall resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Holder but shall suffer and permit the execution of every such power as though no such law had been enacted. (d) Compliance with Laws. The Company will, and will cause the Subsidiaries to, comply in all material respects with all applicable statutes, regulations, orders and restrictions of the United States, any state, municipality or other governmental division thereof, and agencies and instrumentalities of the foregoing, in respect of the conduct of its and their businesses and the ownership of its and their properties (including, without limitation, applicable statutes, regulations, orders and restrictions relating to equal employment opportunities and environmental standards and controls), except such as are being contested in good faith that, if reasonably likely to be determined adversely to the Company, would not have a material adverse effect on the business of the Company. (e) Limitation on Restricted Payments. - 16 - (i) The Company (A) shall not effect the declaration, payment or setting apart for payment of any dividend on any part of the Company's capital stock (other than dividends or distributions in such Company's capital stock) or any cash interest payment on any Junior Indebtedness (as defined below) or effect or make any payment on account of or set apart for payment money for a sinking or other similar fund for, the purchase, prepayment, redemption or other retirement of, any of the Company's capital stock (or any rights, warrants or options to purchase or acquire any such capital stock) or Junior Indebtedness, or make any distribution in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Company or other property, and (B) shall not permit a Subsidiary or any other Company or other entity which directly or indirectly controls, or is controlled by the Company to purchase, redeem or otherwise acquire any of the Company's capital stock or Junior Indebtedness (other than distributions or dividends in the Company's capital stock to the holders of the Company's capital stock or payment of interest on Junior Indebtedness by the issuance of additional Junior Indebtedness or capital stock) or voluntarily prepay Indebtedness that is subordinated to this Note; provided, however, that subject to the terms of a Subordination Agreement dated April 16, 2004 relating to the priority of certain related party debt, no payment made with respect to the Company's capital stock or with respect to Junior Indebtedness shall be prohibited if, so long as no Event of Default has occurred and is continuing, (X) such payment is made for the retirement of the Company's capital stock or Junior Indebtedness in exchange for or out of the net proceeds of a prior or simultaneous sale of the Company's capital stock or Junior Indebtedness or capital stock issued in connection with such retirement which is subordinate in right of payment to this Note at least to the extent the Junior Indebtedness or capital stock being retired is subordinate to this Note, or (Y) such payment is pursuant to a "cashless exercise" of an option or warrant to acquire the Company's capital stock. (ii) The Company will not permit any Subsidiary to effect the declaration, payment or setting apart for payment of any dividend on any part of such Subsidiary's capital stock (other than dividends or distributions in such Subsidiary's capital stock) except for payments of any dividend to the Company or any other Subsidiary. (iii) None of the Company's Junior Indebtedness shall provide for the mandatory payment of principal by way of redemption, sinking fund or otherwise (including, without limitation, at the option of the holder thereof) and the Company will make no optional payment with respect thereto, prior to the payment of all principal of and interest on this Note. (iv) "Junior Indebtedness" means any Indebtedness of the Company whether outstanding on the date hereof or incurred thereafter, that is subordinated in right of payment to this Note either by its terms or by operation of law. (f) When Company May Merge, etc. The Company will not directly or indirectly, merge into or have merged into it, or consolidate with any other company (other than the merger of a wholly-owned subsidiary into the Company (or another wholly-owned subsidiary)), and will not directly or indirectly, sell, assign, lease, transfer or otherwise dispose of (each, a "Transfer") all or substantially all of its properties and assets as, or substantially as, an entirety to any other company or other entity or person (other than to the Company or a wholly-owned subsidiary) except that so long as no - 17 - Event of Default exists immediately before or would exist immediately after such transaction the Company may merge into or have merged into it, or be consolidated with, any other company or may Transfer all or substantially all its properties and assets as, or substantially as, an entirety, to any other company if, after consummation of such transaction: (i) in the case of any such consolidation or merger, the company resulting from such consolidation, or any company other than the company into which such merger shall be made, shall be a company organized under the laws of the United States, or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable therefor; and (ii) in the case of any such Transfer of all or substantially all the property or assets of the Company, the company to which such property or assets shall be Transferred shall be a company organized under the laws of the United States or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, as a part of the purchase price thereof, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable thereof. Notwithstanding the foregoing, the Company; may merge with and into Westwood Computer Corporation. 9. Transfer and Exchange When this Note is presented to the Company with a request to register the transfer, the Company shall register a transfer as requested, if the requirements for such transfer are met; provided, however, that if this Note is presented or surrendered for registration of transfer or exchange it shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by the Holder or his attorney duly authorized in writing. The Company may charge for its out-of-pocket expenses incurred in connection with any transfer or exchange of the Note. All transfers of this Note (and any replacement thereof) must comply with the requirements of Section 4 and subject to the limitations set forth in Section 14. 10. Replacement Notes If a mutilated Note is surrendered to the Company or if the Holder of this Note 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 for its out-of-pocket expenses incurred in replacing this Note. - 18 - If the Note is surrendered to the Company in settlement of a claim as contemplated by Section 15, the Company shall issue a replacement Note of like tenor to the Holder provided that the amount of the Note shall be reduced by the amount of such claim. If the Holder desires to transfer a portion of the Note to a Subsidiary in settlement of a claim as contemplated by Section 15, the Holder shall surrender the Note to the Company, whereupon the Company shall issue a replacement Note of like tenor to the Subsidiary in the amount of the claim and shall issue a replacement Note of like tenor to the Holder provided that the amount of the originally tendered Note shall be reduced by the amount of such claim. 11. No Recourse Against Others No director, officer, employee or shareholder, 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. 12. Notice 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, to it at 11 Diamond Road, Springfield, NJ 07081, Attention: Stephen Donnelly, with a required copy to Dechert LLP, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, PA 19103, Attention: Carmen J. Romano, or to such other address as may be furnished in writing to the Holder; and if to the Holder, to it at its address listed on the transfer books of the Company. Unless otherwise indicated herein, notices hereunder shall be effective when delivered, if delivered personally, or, if sent by mail, when sent. 13. Governing Law This Note shall be deemed a contract under, and shall be governed and construed in accordance with, the laws of the State of New Jersey without giving effect to principles of conflicts of laws. 14. Successors, etc.; Entire Agreement; Assignment This Note shall be binding upon and shall inure to the benefit of and be enforceable by the respective successors and assigns of the Company and the registered Holder thereof. This Note constitutes the entire agreement between the parties, superseding all prior understandings and writings, with respect to the indebtedness represented hereby. This Note shall not be transferred without the prior written consent of the Company. Any assignment or transfer made by the Holder in violation of this section shall be null and void. 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. - 19 - IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer. Dated: April 16, 2004 WESTWOOD COMPUTER CORPORATION By: /s/ Mary Grabel ---------------------- Name: Title: - 20 - Schedule 1 Management Services Agreement by and between Westwood Computer Corporation and DARR Global Holdings, Inc. Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of DARR Westwood LLC Any dividends or redemption proceeds payable to DARR Westwood LLC for the 8% Cumulative Compounding Preferred Stock of DARR Westwood Technology Corporation - 21 - Schedule 2 Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of Four Kings Management LLC 5% Junior Subordinated Note in the amount of $161,151 made by Westwood Computer Corporation in favor of Keith Grabel 5% Junior Subordinated Note in the amount of $132,183 made by Westwood Computer Corporation in favor of Mary Margaret Grabel 8% Junior Subordinated Note in the amount of $483,453 made by Westwood Computer Corporation in favor of Keith Grabel 8% Junior Subordinated Note in the amount of $396,549 made by Westwood Computer Corporation in favor of Mary Margaret Grabel Separation Agreement by and between Westwood Computer Corporation and Joyce Tischler - 22 - EX-10 12 ex10-32.txt EXHIBIT 10.32 Exhibit 10.32 THESE SECURITIES HAVE 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. PAYMENTS UNDER THIS NOTE ARE SUBJECT TO THE SUBORDINATION PROVISIONS OF SECTION 4 HEREOF $132,183.32 April 16, 2004 WESTWOOD COMPUTER CORPORATION 5% JUNIOR SUBORDINATED NOTE WESTWOOD COMPUTER CORPORATION, a New Jersey corporation (the "Company," which term includes any successor Company), for value received, hereby promises to pay to Mary Margaret Grabel ("Holder"), the principal sum of One Hundred Thirty-Two Thousand One Hundred Eighty-Three Dollars and Thirty-Two cents ($132,183.32) (the "Principal Amount"). Interest on the unpaid balance of the Principal Amount of this Note shall be payable at a rate of five percent 5% per annum. Interest on this Note will be payable or will accrue from the issuance date hereof. Interest will be computed on the basis of a 360-day year for the actual days elapsed. This Note may be prepaid at any time in whole or in part without premium or penalty. This Note shall be binding upon the successors and assigns of the Company. 1. Method of Payment The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts (payment may be made by check payable in such money). 2. Repayments (a) This Note shall be repaid in four principal payments, (i) the first payment in the amount of thirty percent (30%) of the Principal Amount on the second anniversary of the date of this Note, (ii) the second payment in the amount of thirty percent (30%) of the Principal Amount on the third anniversary of the date of this Note, (iii) the third payment in the amount of twenty percent (20%) of the Principal Amount on the fourth anniversary of the date of this Note and (iv) the final payment in the amount of twenty percent (20%) of the Principal Amount on the fifth anniversary of the date of this Note. Each principal payment shall be accompanied by all interest then accrued and unpaid on this Note. (b) This Note is one of a duly authorized issue of 5% and 8% Subordinated Notes of the Company (respectively, the "5% Subordinated Notes" and the "8% Subordinated Notes" and, collectively, the "Shareholder Subordinated Notes") issued to the Holders under the Merger Agreement by and among the Company, DARR Westwood Technology Corporation, Westwood Computer Corporation, the Shareholders of Westwood Computer Corporation named therein and the Shareholders' Agent dated as of February 27, 2004 (the "Merger Agreement"). The obligations of the Company hereunder are, at the sole option of the Company, subject to set-off against, as a result of or in connection with any obligations of the Holder under the Merger Agreement and, at the option of the Company, all or a portion of this Note may be surrendered or transferred to the Company or a Subsidiary in satisfaction of the Holder's liability under or in respect of claims made pursuant to the Merger Agreement. This Section 2(b) shall be binding upon each Holder hereof. Any payments of amounts due under the Notes, and any set-off of amounts due, will be made pro rata in proportion to the principal amounts outstanding thereunder. 3. Due Authorization, etc. The Company hereby represents to the Holder that (a) the Company is a corporation duly formed, validly existing and in good standing under the laws of the State of New Jersey, (b) the Company has all requisite corporate power and authority to execute and deliver this Note and to carry out the terms hereof, (c) the Company has duly authorized the execution, delivery and performance of this Note, and (d) the execution, delivery and performance of this Note does not (i) violate any provision of the organizational documents of the Company, or (ii) violate any statute, rule or regulation of any governmental authority to which the Company is subject or any material agreement or instrument to which it is a party. This Note is a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium and other laws affecting creditors rights generally and except as may be limited by equitable principles. - 2 - 4. 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 4 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 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) 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 holder of such Indebtedness has an existing right, contingent - 3 - 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. "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 (a) all Indebtedness of the Company and its Subsidiaries to GE Commercial Distribution Finance Corporation ("GECDF") under the credit agreement dated as of the date hereof, 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 - 4 - and expenses of counsel), (c) any indebtedness for borrowed money (excluding indebtedness to an Affiliate of the Company), any issuance or sale of any debt securities or warrants or other rights to acquire any debt securities of the Company, guarantees of any such indebtedness or debt securities of another person, any "keep well" or other agreement to maintain any financial statement condition of another person or arrangements having the economic effect of any of the foregoing in circumstances in which the Company has either experienced (I) six consecutive months of negative pre-tax income or (II) negative pre-tax income for any eight months of a twelve month period, subject to the Dollar Limitations provided in this Section below; for purposes of this clause (c), in determining negative pre-tax income, payments made by the Company pursuant to those agreements on Schedule 1 shall not be included in the calculation of pre-tax income and the Dollar Limitation shall mean up to one million dollars ($1,000,000) from the date hereof until the first anniversary of the date of this Agreement and after the first anniversary date of this Agreement, such one million dollar limit shall be increased dollar for dollar for each amount paid by the Company pursuant to those agreements listed on Schedule 2 (d) 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 (e) all amendments, extensions, renewals, refinancings and deferrals of the Indebtedness referred to in clauses (a) through (e) 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. "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 Company's 8% Subordinated Notes, (d) the Separation Agreement by and between the Company and Joyce Tischler, (e) the Management Services Agreement by and between the Company and DARR Global Holdings, Inc. (f) the Subordinated Note in favor of - 5 - DARR Westwood LLC in the amount of $750,000 and (g) the Preferred Stock of DARR Westwood Technology Corporation owned by DARR Westwood LLC. (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 4 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. (c) No Payment on Subordinated Debt in Certain Circumstances. (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 4 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. (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 - 6 - 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), and (C) the date on which the Senior Debt is accelerated and declared immediately due and payable. (iv) Nothing contained in this Section 4 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, subject to Section 9, 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), 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 4 shall prevent interest from accruing to this Note as provided above until this Note paid in full. (vi) Nothing contained in this Section 4(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, - 7 - 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 4 (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. (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 4 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 4 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 4 shall have been applied, pursuant to the provisions of this Section 4, 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 - 8 - 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 4 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. (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 4(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 4. (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 4, 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 4 are intended to be enforceable at all times, whether before or after the commencement of a proceeding referred to in Section 4(d). (h) Obligations of Company Unconditional. Nothing contained in this Section 4 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 - 9 - 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 4 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 4 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 4(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 4 shall not be construed as preventing the occurrence of an Event of Default under Section 5. Upon any payment or distribution of assets of the Company referred to in this Section 4, 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 4. (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 4 shall limit the right of the holders of Senior Debt to recover payments as contemplated elsewhere in this Section 4. 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) (ii) or (iii) (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 - 10 - 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 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 4 of this Note. - 11 - (m) Insolvency. The provisions of this Section 4 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 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 4 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 4 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 4, 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; - 12 - (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; (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 4 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 4 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 4 constitute a continuing agreement and shall (A) remain in full force and effect, subject to the provisions and limitations contained in this Section 4, 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. 5. Events of Default (a) An "Event of Default" occurs if: (i) the Company defaults in the payment of the principal or interest of this Note when the same becomes due and payable at maturity, upon acceleration, or otherwise, whether or not such payment shall be prohibited by the provisions of Section 4, and such default continues for 30 days; - 13 - (ii) the Company, pursuant to or within the meaning of any Bankruptcy Law: A. commences a voluntary case or proceeding, B. consents to the entry of an order for relief against it in an involuntary case or proceeding, C. consents to the appointment of a Custodian of it or for all or substantially all of its property, D. makes a general assignment for the benefit of its creditors, or E. generally is unable to pay its debts as they become due; (iii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: A. is for relief against the Company in an involuntary case or proceeding, B. appoints a Custodian of the Company or for all or substantially all of its property, or C. orders the liquidation of the Company; and in each case the order or decree remains unstayed and in effect for 60 days; or (iv) the Company fails to observe or perform any covenant, condition or agreement required on its part to be observed or performed pursuant to Section 4 and such failure continues for a period of 30 days following notice thereof from the Holder. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. For purposes of this Agreement, the term "Default" shall mean any event or occurrence which with the passing of time, the giving of notice, or both, could become an Event of Default. (b) Interest Rate Upon Default. If an Event of Default (other than an Event of Default specified in clause (a)(ii) or (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. - 14 - (c) Waiver of Past Defaults. The Holders of 50% or more of the outstanding amount of the Company's "5% Subordinated Notes" (which shall mean this Note and any notes issued in form substantially similar to this Note on the date hereof and all replacements and exchanges thereof) (the "Majority Holders") 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. 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 Majority Holders; provided that without the consent of all holders of the Company's 5% Subordinated Notes then outstanding, no such waiver, modification, alteration or amendment shall be effective (i) which will change the time of payment of the principal or interest of any Note or reduce the Principal Amount thereof, (ii) which will change the percentage of the Notes required to consent to any such amendment, alteration or modification, or (iii) which will change any provisions of Section 5(b) or (c), or Section 6(b). This Note may not be amended without the consent in writing of the Lender or any Refinancing Lender (until the Senior Debt has been finally and indefeasibly paid in full) or, thereafter, the holders of 50% or more of the outstanding principal amount of the outstanding Senior Debt. (b) Effect of Amendment or Waiver. Any amendment or waiver shall apply equally to the holder of the Note and shall be binding upon it, upon each future holder of any Note and upon the Company, whether or not such 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. 7. Change in Control Upon Certain Events. Upon the occurrence of a Change in Control, the Company shall, upon the expiration of any offer to purchase or repayment or redemption of any Senior Debt required as a result of such Change in Control, repay this Note in full at a price equal to the Principal Amount plus all accrued and unpaid interest. For purposes of this Section 7 the term "Change in Control" shall mean (a) any one Person (including a "group", as such term is used in Section 13(d) of the Exchange Act of 1934, as amended (the "Exchange Act")) other than DARR Westwood LLC, DARR Westwood Technology Corporation and Mary Margaret Grabel, and its affiliates, shall, directly or indirectly, own or control 50% or more of the voting or non-voting common equity of the Company or any successor thereto, or (b) all or substantially all of the assets of the Company or any Significant Subsidiary (as defined herein) shall be transferred to any Person or group of Persons (other than to the Company or any direct or indirect Subsidiary thereof). For purposes of this Section 7, the term "Person" shall mean any individual, partnership, Company, trust or unincorporated organization or a government or agency or political subdivision thereof. - 15 - 8. Covenants. (a) Preservation of Corporate Existence; etc. Subject to paragraph (f), the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence and the material rights (charter and statutory) and franchises of the Company, and of any other subsidiary of the Company (collectively, the "Subsidiaries"); provided, however, that the Company shall not be required to preserve or cause to be preserved any such material right or franchise if the board of directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not, and will not be, adverse in any material respect to the Holder, provided, further, that the Company may merge into Westwood Computer Corporation. (b) Payment of Taxes, Assessment, Charges and Claims. The Company will and will cause the Subsidiaries to duly pay or discharge or cause to be paid or discharged the following before they shall become delinquent: (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any of the Subsidiaries or upon the income, profit or property of the Company or any of the Subsidiaries, and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a material lien upon the property of the Company or any of the Subsidiaries; provided, however, that the Company or any of the Subsidiaries shall not be required to pay or discharge or cause to be paid or discharged (but shall make adequate provision for) any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves have been made. (c) Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim, and shall resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Holder but shall suffer and permit the execution of every such power as though no such law had been enacted. (d) Compliance with Laws. The Company will, and will cause the Subsidiaries to, comply in all material respects with all applicable statutes, regulations, orders and restrictions of the United States, any state, municipality or other governmental division thereof, and agencies and instrumentalities of the foregoing, in respect of the conduct of its and their businesses and the ownership of its and their properties (including, without limitation, applicable statutes, regulations, orders and restrictions relating to equal employment opportunities and environmental standards and controls), except such as are being contested in good faith that, if reasonably likely to be determined adversely to the Company, would not have a material adverse effect on the business of the Company. (e) Limitation on Restricted Payments. - 16 - (i) The Company (A) shall not effect the declaration, payment or setting apart for payment of any dividend on any part of the Company's capital stock (other than dividends or distributions in such Company's capital stock) or any cash interest payment on any Junior Indebtedness (as defined below) or effect or make any payment on account of or set apart for payment money for a sinking or other similar fund for, the purchase, prepayment, redemption or other retirement of, any of the Company's capital stock (or any rights, warrants or options to purchase or acquire any such capital stock) or Junior Indebtedness, or make any distribution in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Company or other property, and (B) shall not permit a Subsidiary or any other Company or other entity which directly or indirectly controls, or is controlled by the Company to purchase, redeem or otherwise acquire any of the Company's capital stock or Junior Indebtedness (other than distributions or dividends in the Company's capital stock to the holders of the Company's capital stock or payment of interest on Junior Indebtedness by the issuance of additional Junior Indebtedness or capital stock) or voluntarily prepay Indebtedness that is subordinated to this Note; provided, however, that subject to the terms of a Subordination Agreement dated April 16, 2004 relating to the priority of certain related party debt, no payment made with respect to the Company's capital stock or with respect to Junior Indebtedness shall be prohibited if, so long as no Event of Default has occurred and is continuing, (X) such payment is made for the retirement of the Company's capital stock or Junior Indebtedness in exchange for or out of the net proceeds of a prior or simultaneous sale of the Company's capital stock or Junior Indebtedness or capital stock issued in connection with such retirement which is subordinate in right of payment to this Note at least to the extent the Junior Indebtedness or capital stock being retired is subordinate to this Note, or (Y) such payment is pursuant to a "cashless exercise" of an option or warrant to acquire the Company's capital stock. (ii) The Company will not permit any Subsidiary to effect the declaration, payment or setting apart for payment of any dividend on any part of such Subsidiary's capital stock (other than dividends or distributions in such Subsidiary's capital stock) except for payments of any dividend to the Company or any other Subsidiary. (iii) None of the Company's Junior Indebtedness shall provide for the mandatory payment of principal by way of redemption, sinking fund or otherwise (including, without limitation, at the option of the holder thereof) and the Company will make no optional payment with respect thereto, prior to the payment of all principal of and interest on this Note. (iv) "Junior Indebtedness" means any Indebtedness of the Company whether outstanding on the date hereof or incurred thereafter, that is subordinated in right of payment to this Note either by its terms or by operation of law. (f) When Company May Merge, etc. The Company will not directly or indirectly, merge into or have merged into it, or consolidate with any other company (other than the merger of a wholly-owned subsidiary into the Company (or another wholly-owned subsidiary)), and will not directly or indirectly, sell, assign, lease, transfer or otherwise dispose of (each, a "Transfer") all or substantially all of its properties and assets as, or substantially as, an entirety to any other company or other entity or person (other than to the Company or a wholly-owned subsidiary) except that so long as no - 17 - Event of Default exists immediately before or would exist immediately after such transaction the Company may merge into or have merged into it, or be consolidated with, any other company or may Transfer all or substantially all its properties and assets as, or substantially as, an entirety, to any other company if, after consummation of such transaction: (i) in the case of any such consolidation or merger, the company resulting from such consolidation, or any company other than the company into which such merger shall be made, shall be a company organized under the laws of the United States, or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable therefor; and (ii) in the case of any such Transfer of all or substantially all the property or assets of the Company, the company to which such property or assets shall be Transferred shall be a company organized under the laws of the United States or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, as a part of the purchase price thereof, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable thereof. Notwithstanding the foregoing, the Company; may merge with and into Westwood Computer Corporation. 9. Transfer and Exchange When this Note is presented to the Company with a request to register the transfer, the Company shall register a transfer as requested, if the requirements for such transfer are met; provided, however, that if this Note is presented or surrendered for registration of transfer or exchange it shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by the Holder or his attorney duly authorized in writing. The Company may charge for its out-of-pocket expenses incurred in connection with any transfer or exchange of the Note. All transfers of this Note (and any replacement thereof) must comply with the requirements of Section 4 and subject to the limitations set forth in Section 14. 10. Replacement Notes If a mutilated Note is surrendered to the Company or if the Holder of this Note 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 for its out-of-pocket expenses incurred in replacing this Note. - 18 - If the Note is surrendered to the Company in settlement of a claim as contemplated by Section 15, the Company shall issue a replacement Note of like tenor to the Holder provided that the amount of the Note shall be reduced by the amount of such claim. If the Holder desires to transfer a portion of the Note to a Subsidiary in settlement of a claim as contemplated by Section 15, the Holder shall surrender the Note to the Company, whereupon the Company shall issue a replacement Note of like tenor to the Subsidiary in the amount of the claim and shall issue a replacement Note of like tenor to the Holder provided that the amount of the originally tendered Note shall be reduced by the amount of such claim. 11. No Recourse Against Others No director, officer, employee or shareholder, 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. 12. Notice 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, to it at 11 Diamond Road, Springfield, NJ 07081, Attention: Stephen Donnelly, with a required copy to Dechert LLP, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, PA 19103, Attention: Carmen J. Romano, or to such other address as may be furnished in writing to the Holder; and if to the Holder, to it at its address listed on the transfer books of the Company. Unless otherwise indicated herein, notices hereunder shall be effective when delivered, if delivered personally, or, if sent by mail, when sent. 13. Governing Law This Note shall be deemed a contract under, and shall be governed and construed in accordance with, the laws of the State of New Jersey without giving effect to principles of conflicts of laws. 14. Successors, etc.; Entire Agreement; Assignment This Note shall be binding upon and shall inure to the benefit of and be enforceable by the respective successors and assigns of the Company and the registered Holder thereof. This Note constitutes the entire agreement between the parties, superseding all prior understandings and writings, with respect to the indebtedness represented hereby. This Note shall not be transferred without the prior written consent of the Company. Any assignment or transfer made by the Holder in violation of this section shall be null and void. 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. - 19 - IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer. Dated: April 16, 2004 WESTWOOD COMPUTER CORPORATION By: /s/ Mary Grabel ---------------------- Name: Title: - 20 - Schedule 1 Management Services Agreement by and between Westwood Computer Corporation and DARR Global Holdings, Inc. Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of DARR Westwood LLC Any dividends or redemption proceeds payable to DARR Westwood LLC for the 8% Cumulative Compounding Preferred Stock of DARR Westwood Technology Corporation - 21 - Schedule 2 Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of Four Kings Management LLC 5% Junior Subordinated Note in the amount of $161,151 made by Westwood Computer Corporation in favor of Keith Grabel 5% Junior Subordinated Note in the amount of $132,183 made by Westwood Computer Corporation in favor of Mary Margaret Grabel 8% Junior Subordinated Note in the amount of $483,453 made by Westwood Computer Corporation in favor of Keith Grabel 8% Junior Subordinated Note in the amount of $396,549 made by Westwood Computer Corporation in favor of Mary Margaret Grabel Separation Agreement by and between Westwood Computer Corporation and Joyce Tischler - 22 - EX-10 13 ex10-34.txt EXHIBIT 10.34 Exhibit 10.34 THESE SECURITIES HAVE 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. PAYMENTS UNDER THIS NOTE ARE SUBJECT TO THE SUBORDINATION PROVISIONS OF SECTION 4 HEREOF $23,314.84 April 16, 2004 WESTWOOD COMPUTER CORPORATION 8% JUNIOR SUBORDINATED NOTE WESTWOOD COMPUTER CORPORATION, a New Jersey corporation (the "Company," which term includes any successor Company), for value received, hereby promises to pay to Michael John Grabel ("Holder"), the principal sum of Twenty-Three Thousand Three Hundred Fourteen Dollars and Eighty-Four cents ($23,314.84) (the "Principal Amount"). Interest on the unpaid balance of the Principal Amount of this Note shall be payable at a rate of eight percent 8% per annum. Interest on this Note will be payable or will accrue from the issuance date hereof. Interest will be computed on the basis of a 360-day year for the actual days elapsed. This Note may be prepaid at any time in whole or in part without premium or penalty. This Note shall be binding upon the successors and assigns of the Company. 1. Method of Payment The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts (payment may be made by check payable in such money). 2. Repayments (a) This Note shall be repaid in six principal payments each such payment in the amount of 16.67% of the Principal Amount, (i) the first payment on the six month anniversary of the date of this Note, (ii) the second payment on the one year anniversary of the date of this Note, (iii) the third payment on the eighteen month anniversary of the date of this Note (iv) the fourth payment on the two year anniversary of the date of this Note, (v) the fifth payment on the thirty month anniversary of the date of this Note and (vi) the final payment on the three year anniversary of the date of this Note . Each principal payment shall be accompanied by all interest then accrued and unpaid on this Note. (b) This Note is one of a duly authorized issue of 5% and 8% Subordinated Notes of the Company (respectively, the "5% Subordinated Notes" and the "8% Subordinated Notes" and, collectively, the "Shareholder Subordinated Notes") issued to the Holders under the Merger Agreement by and among the Company, DARR Westwood Technology Corporation, Westwood Computer Corporation, the Shareholders of Westwood Computer Corporation named therein and the Shareholders' Agent dated as of February 27, 2004 (the "Merger Agreement"). The obligations of the Company hereunder are, at the sole option of the Company, subject to set-off against, as a result of or in connection with any obligations of the Holder under the Merger Agreement and, at the option of the Company, all or a portion of this Note may be surrendered or transferred to the Company or a Subsidiary in satisfaction of the Holder's liability under or in respect of claims made pursuant to the Merger Agreement. This Section 2(b) shall be binding upon each Holder hereof. Any payments of amounts due under the Notes, and any set-off of amounts due, will be made pro rata in proportion to the principal amounts outstanding thereunder. 3. Due Authorization, etc. The Company hereby represents to the Holder that (a) the Company is a corporation duly formed, validly existing and in good standing under the laws of the State of New Jersey, (b) the Company has all requisite corporate power and authority to execute and deliver this Note and to carry out the terms hereof, (c) the Company has duly authorized the execution, delivery and performance of this Note, and (d) the execution, delivery and performance of this Note does not (i) violate any provision of the organizational documents of the Company, or (ii) violate any statute, rule or regulation of any governmental authority to which the Company is subject or any material agreement or instrument to which it is a party. This Note is a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium and other laws affecting creditors rights generally and except as may be limited by equitable principles. - 2 - 4. 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 4 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 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) 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 holder of such Indebtedness has an existing right, contingent - 3 - 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. "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 (a) all Indebtedness of the Company and its Subsidiaries to GE Commercial Distribution Finance Corporation ("GECDF") under the credit agreement dated as of the date hereof, 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 - 4 - and expenses of counsel), (c) any indebtedness for borrowed money (excluding indebtedness to an Affiliate of the Company), any issuance or sale of any debt securities or warrants or other rights to acquire any debt securities of the Company, guarantees of any such indebtedness or debt securities of another person, any "keep well" or other agreement to maintain any financial statement condition of another person or arrangements having the economic effect of any of the foregoing in circumstances in which the Company has either experienced (I) six consecutive months of negative pre-tax income or (II) negative pre-tax income for any eight months of a twelve month period, subject to the Dollar Limitations provided in this Section below for purposes of this clause (c), in determining negative pre-tax income, payments made by the Company pursuant to those agreements on Schedule 1 shall not be included in the calculation of pre-tax income and the Dollar Limitation shall mean up to one million dollars ($1,000,000) from the date hereof until the first anniversary of the date of this Agreement and after the first anniversary date of this Agreement, such one million dollar limit shall be increased dollar for dollar for each amount paid by the Company pursuant to those agreements listed on Schedule 2, (d) 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 (e) all amendments, extensions, renewals, refinancings and deferrals of the Indebtedness referred to in clauses (a) through (e) 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. "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 Separation Agreement by and between the Company and Joyce Tischler, (d) the Management Services Agreement by and between the Company and DARR Global Holdings, Inc., (e) the Subordinated Note in favor of DARR Westwood LLC in the amount of $750,000 - 5 - and (f) the Preferred Stock of DARR Westwood Technology Corporation owned by DARR Westwood LLC. (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 4 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. (c) No Payment on Subordinated Debt in Certain Circumstances. (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 4 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. (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 - 6 - 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), and (C) the date on which the Senior Debt is accelerated and declared immediately due and payable. (iv) Nothing contained in this Section 4 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, subject to Section 9, 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), 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 4 shall prevent interest from accruing to this Note as provided above until this Note paid in full. (vi) Nothing contained in this Section 4(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, - 7 - 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 4 (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. (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 4 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 4 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 4 shall have been applied, pursuant to the provisions of this Section 4, 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 - 8 - 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 4 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. (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 4(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 4. (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 4, 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 4 are intended to be enforceable at all times, whether before or after the commencement of a proceeding referred to in Section 4(d). (h) Obligations of Company Unconditional. Nothing contained in this Section 4 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 - 9 - 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 4 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 4 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 4(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 4 shall not be construed as preventing the occurrence of an Event of Default under Section 5. Upon any payment or distribution of assets of the Company referred to in this Section 4, 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 4. (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 4 shall limit the right of the holders of Senior Debt to recover payments as contemplated elsewhere in this Section 4. 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) (ii) or (iii) (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 - 10 - 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 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 4 of this Note. - 11 - (m) Insolvency. The provisions of this Section 4 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 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 4 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 4 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 4, 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; - 12 - (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; (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 4 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 4 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 4 constitute a continuing agreement and shall (A) remain in full force and effect, subject to the provisions and limitations contained in this Section 4, 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. 5. Events of Default (a) An "Event of Default" occurs if: (i) the Company defaults in the payment of the principal or interest of this Note when the same becomes due and payable at maturity, upon acceleration, or otherwise, whether or not such payment shall be prohibited by the provisions of Section 4, and such default continues for 30 days; - 13 - (ii) the Company, pursuant to or within the meaning of any Bankruptcy Law: A. commences a voluntary case or proceeding, B. consents to the entry of an order for relief against it in an involuntary case or proceeding, C. consents to the appointment of a Custodian of it or for all or substantially all of its property, D. makes a general assignment for the benefit of its creditors, or E. generally is unable to pay its debts as they become due; (iii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: A. is for relief against the Company in an involuntary case or proceeding, B. appoints a Custodian of the Company or for all or substantially all of its property, or C. orders the liquidation of the Company; and in each case the order or decree remains unstayed and in effect for 60 days; or (iv) the Company fails to observe or perform any covenant, condition or agreement required on its part to be observed or performed pursuant to Section 4 and such failure continues for a period of 30 days following notice thereof from the Holder. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. For purposes of this Agreement, the term "Default" shall mean any event or occurrence which with the passing of time, the giving of notice, or both, could become an Event of Default. (b) Interest Rate Upon Default. If an Event of Default (other than an Event of Default specified in clause (a)(ii) or (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. - 14 - (c) Waiver of Past Defaults. The Holders of 50% or more of the outstanding amount of the Company's "8% Subordinated Notes" (which shall mean this Note and any notes issued in form substantially similar to this Note on the date hereof and all replacements and exchanges thereof) (the "Majority Holders") 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. 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 Majority Holders; provided that without the consent of all holders of the Company's 8% Subordinated Notes then outstanding, no such waiver, modification, alteration or amendment shall be effective (i) which will change the time of payment of the principal or interest of any Note or reduce the Principal Amount thereof, (ii) which will change the percentage of the Notes required to consent to any such amendment, alteration or modification, or (iii) which will change any provisions of Section 5(b) or (c), or Section 6(b). This Note may not be amended without the consent in writing of the Lender or any Refinancing Lender (until the Senior Debt has been finally and indefeasibly paid in full) or, thereafter, the holders of 50% or more of the outstanding principal amount of the outstanding Senior Debt. (b) Effect of Amendment or Waiver. Any amendment or waiver shall apply equally to the holder of the Note and shall be binding upon it, upon each future holder of any Note and upon the Company, whether or not such 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. 7. Change in Control Upon Certain Events. Upon the occurrence of a Change in Control, the Company shall, upon the expiration of any offer to purchase or repayment or redemption of any Senior Debt required as a result of such Change in Control, repay this Note in full at a price equal to the Principal Amount plus all accrued and unpaid interest. For purposes of this Section 7 the term "Change in Control" shall mean (a) any one Person (including a "group", as such term is used in Section 13(d) of the Exchange Act of 1934, as amended (the "Exchange Act")) other than DARR Westwood LLC, DARR Westwood Technology Corporation and Mary Margaret Grabel, and its affiliates, shall, directly or indirectly, own or control 50% or more of the voting or non-voting common equity of the Company or any successor thereto, or (b) all or substantially all of the assets of the Company or any Significant Subsidiary (as defined herein) shall be transferred to any Person or group of Persons (other than to the Company or any direct or indirect Subsidiary thereof). For purposes of this Section 7, the term "Person" shall mean any individual, partnership, Company, trust or unincorporated organization or a government or agency or political subdivision thereof. - 15 - 8. Covenants. (a) Preservation of Corporate Existence; etc. Subject to paragraph (f), the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence and the material rights (charter and statutory) and franchises of the Company, and of any other subsidiary of the Company (collectively, the "Subsidiaries"); provided, however, that the Company shall not be required to preserve or cause to be preserved any such material right or franchise if the board of directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not, and will not be, adverse in any material respect to the Holder, provided, further, that the Company may merge into Westwood Computer Corporation. (b) Payment of Taxes, Assessment, Charges and Claims. The Company will and will cause the Subsidiaries to duly pay or discharge or cause to be paid or discharged the following before they shall become delinquent: (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any of the Subsidiaries or upon the income, profit or property of the Company or any of the Subsidiaries, and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a material lien upon the property of the Company or any of the Subsidiaries; provided, however, that the Company or any of the Subsidiaries shall not be required to pay or discharge or cause to be paid or discharged (but shall make adequate provision for) any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves have been made. (c) Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim, and shall resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Holder but shall suffer and permit the execution of every such power as though no such law had been enacted. (d) Compliance with Laws. The Company will, and will cause the Subsidiaries to, comply in all material respects with all applicable statutes, regulations, orders and restrictions of the United States, any state, municipality or other governmental division thereof, and agencies and instrumentalities of the foregoing, in respect of the conduct of its and their businesses and the ownership of its and their properties (including, without limitation, applicable statutes, regulations, orders and restrictions relating to equal employment opportunities and environmental standards and controls), except such as are being contested in good faith that, if reasonably likely to be determined adversely to the Company, would not have a material adverse effect on the business of the Company. (e) Limitation on Restricted Payments. - 16 - (i) The Company (A) shall not effect the declaration, payment or setting apart for payment of any dividend on any part of the Company's capital stock (other than dividends or distributions in such Company's capital stock) or any cash interest payment on any Junior Indebtedness (as defined below) or effect or make any payment on account of or set apart for payment money for a sinking or other similar fund for, the purchase, prepayment, redemption or other retirement of, any of the Company's capital stock (or any rights, warrants or options to purchase or acquire any such capital stock) or Junior Indebtedness, or make any distribution in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Company or other property, and (B) shall not permit a Subsidiary or any other Company or other entity which directly or indirectly controls, or is controlled by the Company to purchase, redeem or otherwise acquire any of the Company's capital stock or Junior Indebtedness (other than distributions or dividends in the Company's capital stock to the holders of the Company's capital stock or payment of interest on Junior Indebtedness by the issuance of additional Junior Indebtedness or capital stock) or voluntarily prepay Indebtedness that is subordinated to this Note; provided, however, that subject to the terms of a Subordination Agreement dated April 16, 2004 relating to the priority of certain related party debt, no payment made with respect to the Company's capital stock or with respect to Junior Indebtedness shall be prohibited if, so long as no Event of Default has occurred and is continuing, (X) such payment is made for the retirement of the Company's capital stock or Junior Indebtedness in exchange for or out of the net proceeds of a prior or simultaneous sale of the Company's capital stock or Junior Indebtedness or capital stock issued in connection with such retirement which is subordinate in right of payment to this Note at least to the extent the Junior Indebtedness or capital stock being retired is subordinate to this Note, or (Y) such payment is pursuant to a "cashless exercise" of an option or warrant to acquire the Company's capital stock. (ii) The Company will not permit any Subsidiary to effect the declaration, payment or setting apart for payment of any dividend on any part of such Subsidiary's capital stock (other than dividends or distributions in such Subsidiary's capital stock) except for payments of any dividend to the Company or any other Subsidiary. (iii) None of the Company's Junior Indebtedness shall provide for the mandatory payment of principal by way of redemption, sinking fund or otherwise (including, without limitation, at the option of the holder thereof) and the Company will make no optional payment with respect thereto, prior to the payment of all principal of and interest on this Note. (iv) "Junior Indebtedness" means any Indebtedness of the Company whether outstanding on the date hereof or incurred thereafter, that is subordinated in right of payment to this Note either by its terms or by operation of law. (f) When Company May Merge, etc. The Company will not directly or indirectly, merge into or have merged into it, or consolidate with any other company (other than the merger of a wholly-owned subsidiary into the Company (or another wholly-owned subsidiary)), and will not directly or indirectly, sell, assign, lease, transfer or otherwise dispose of (each, a "Transfer") all or substantially all of its properties and assets as, or substantially as, an entirety to any other company or other entity or person (other than to the Company or a wholly-owned subsidiary) except that so long as no - 17 - Event of Default exists immediately before or would exist immediately after such transaction the Company may merge into or have merged into it, or be consolidated with, any other company or may Transfer all or substantially all its properties and assets as, or substantially as, an entirety, to any other company if, after consummation of such transaction: (i) in the case of any such consolidation or merger, the company resulting from such consolidation, or any company other than the company into which such merger shall be made, shall be a company organized under the laws of the United States, or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable therefor; and (ii) in the case of any such Transfer of all or substantially all the property or assets of the Company, the company to which such property or assets shall be Transferred shall be a company organized under the laws of the United States or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, as a part of the purchase price thereof, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable thereof. Notwithstanding the foregoing, the Company; may merge with and into Westwood Computer Corporation. 9. Transfer and Exchange When this Note is presented to the Company with a request to register the transfer, the Company shall register a transfer as requested, if the requirements for such transfer are met; provided, however, that if this Note is presented or surrendered for registration of transfer or exchange it shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by the Holder or his attorney duly authorized in writing. The Company may charge for its out-of-pocket expenses incurred in connection with any transfer or exchange of the Note. All transfers of this Note (and any replacement thereof) must comply with the requirements of Section 4 and subject to the limitations set forth in Section 14. - 18 - 10. Replacement Notes If a mutilated Note is surrendered to the Company or if the Holder of this Note 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 for its out-of-pocket expenses incurred in replacing this Note. If the Note is surrendered to the Company in settlement of a claim as contemplated by Section 15, the Company shall issue a replacement Note of like tenor to the Holder provided that the amount of the Note shall be reduced by the amount of such claim. If the Holder desires to transfer a portion of the Note to a Subsidiary in settlement of a claim as contemplated by Section 15, the Holder shall surrender the Note to the Company, whereupon the Company shall issue a replacement Note of like tenor to the Subsidiary in the amount of the claim and shall issue a replacement Note of like tenor to the Holder provided that the amount of the originally tendered Note shall be reduced by the amount of such claim. 11. No Recourse Against Others No director, officer, employee or shareholder, 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. 12. Notice 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, to it at 11 Diamond Road, Springfield, NJ 07081, Attention: Stephen Donnelly, with a required copy to Dechert LLP, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, PA 19103, Attention: Carmen J. Romano, or to such other address as may be furnished in writing to the Holder; and if to the Holder, to it at its address listed on the transfer books of the Company. Unless otherwise indicated herein, notices hereunder shall be effective when delivered, if delivered personally, or, if sent by mail, when sent. 13. Governing Law This Note shall be deemed a contract under, and shall be governed and construed in accordance with, the laws of the State of New Jersey without giving effect to principles of conflicts of laws. 14. Successors, etc.; Entire Agreement; Assignment This Note shall be binding upon and shall inure to the benefit of and be enforceable by the respective successors and assigns of the Company and the registered Holder - 19 - thereof. This Note constitutes the entire agreement between the parties, superseding all prior understandings and writings, with respect to the indebtedness represented hereby. This Note shall not be transferred without the prior written consent of the Company. Any assignment or transfer made by the Holder in violation of this section shall be null and void. 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. - 20 - IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer. Dated: April 16, 2004 WESTWOOD COMPUTER CORPORATION By: /s/ Mary Grabel ---------------------- Name: Title: - 21 - Schedule 1 Management Services Agreement by and between Westwood Computer Corporation and DARR Global Holdings, Inc. Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of DARR Westwood LLC Any dividends or redemption proceeds payable to DARR Westwood LLC for the 8% Cumulative Compounding Preferred Stock of DARR Westwood Technology Corporation - 22 - Schedule 2 Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of Four Kings Management LLC 5% Junior Subordinated Note in the amount of $161,151 made by Westwood Computer Corporation in favor of Keith Grabel 5% Junior Subordinated Note in the amount of $132,183 made by Westwood Computer Corporation in favor of Mary Margaret Grabel 8% Junior Subordinated Note in the amount of $483,453 made by Westwood Computer Corporation in favor of Keith Grabel 8% Junior Subordinated Note in the amount of $396,549 made by Westwood Computer Corporation in favor of Mary Margaret Grabel Separation Agreement by and between Westwood Computer Corporation and Joyce Tischler - 23 - EX-10 14 ex10-35.txt EXHIBIT 10.35 Exhibit 10.35 THESE SECURITIES HAVE 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. PAYMENTS UNDER THIS NOTE ARE SUBJECT TO THE SUBORDINATION PROVISIONS OF SECTION 4 HEREOF $37,766.58 April 16, 2004 WESTWOOD COMPUTER CORPORATION 8% JUNIOR SUBORDINATED NOTE WESTWOOD COMPUTER CORPORATION, a New Jersey corporation (the "Company," which term includes any successor Company), for value received, hereby promises to pay to Megan Patricia Grabel ("Holder"), the principal sum of Thirty-Seven Thousand Seven Hundred Sixty-Six Dollars and Fifty-Eight cents ($37,766.58) (the "Principal Amount"). Interest on the unpaid balance of the Principal Amount of this Note shall be payable at a rate of eight percent 8% per annum. Interest on this Note will be payable or will accrue from the issuance date hereof. Interest will be computed on the basis of a 360-day year for the actual days elapsed. This Note may be prepaid at any time in whole or in part without premium or penalty. This Note shall be binding upon the successors and assigns of the Company. 1. Method of Payment The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts (payment may be made by check payable in such money). 2. Repayments (a) This Note shall be repaid in six principal payments each such payment in the amount of 16.67% of the Principal Amount, (i) the first payment on the six month anniversary of the date of this Note, (ii) the second payment on the one year anniversary of the date of this Note, (iii) the third payment on the eighteen month anniversary of the date of this Note (iv) the fourth payment on the two year anniversary of the date of this Note, (v) the fifth payment on the thirty month anniversary of the date of this Note and (vi) the final payment on the three year anniversary of the date of this Note . Each principal payment shall be accompanied by all interest then accrued and unpaid on this Note. (b) This Note is one of a duly authorized issue of 5% and 8% Subordinated Notes of the Company (respectively, the "5% Subordinated Notes" and the "8% Subordinated Notes" and, collectively, the "Shareholder Subordinated Notes") issued to the Holders under the Merger Agreement by and among the Company, DARR Westwood Technology Corporation, Westwood Computer Corporation, the Shareholders of Westwood Computer Corporation named therein and the Shareholders' Agent dated as of February 27, 2004 (the "Merger Agreement"). The obligations of the Company hereunder are, at the sole option of the Company, subject to set-off against, as a result of or in connection with any obligations of the Holder under the Merger Agreement and, at the option of the Company, all or a portion of this Note may be surrendered or transferred to the Company or a Subsidiary in satisfaction of the Holder's liability under or in respect of claims made pursuant to the Merger Agreement. This Section 2(b) shall be binding upon each Holder hereof. Any payments of amounts due under the Notes, and any set-off of amounts due, will be made pro rata in proportion to the principal amounts outstanding thereunder. 3. Due Authorization, etc. The Company hereby represents to the Holder that (a) the Company is a corporation duly formed, validly existing and in good standing under the laws of the State of New Jersey, (b) the Company has all requisite corporate power and authority to execute and deliver this Note and to carry out the terms hereof, (c) the Company has duly authorized the execution, delivery and performance of this Note, and (d) the execution, delivery and performance of this Note does not (i) violate any provision of the organizational documents of the Company, or (ii) violate any statute, rule or regulation of any governmental authority to which the Company is subject or any material agreement or instrument to which it is a party. This Note is a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium and other laws affecting creditors rights generally and except as may be limited by equitable principles. - 2 - 4. 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 4 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 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) 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 holder of such Indebtedness has an existing right, contingent - 3 - 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. "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 (a) all Indebtedness of the Company and its Subsidiaries to GE Commercial Distribution Finance Corporation ("GECDF") under the credit agreement dated as of the date hereof, 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 - 4 - and expenses of counsel), (c) any indebtedness for borrowed money (excluding indebtedness to an Affiliate of the Company), any issuance or sale of any debt securities or warrants or other rights to acquire any debt securities of the Company, guarantees of any such indebtedness or debt securities of another person, any "keep well" or other agreement to maintain any financial statement condition of another person or arrangements having the economic effect of any of the foregoing in circumstances in which the Company has either experienced (I) six consecutive months of negative pre-tax income or (II) negative pre-tax income for any eight months of a twelve month period, subject to the Dollar Limitations provided in this Section below for purposes of this clause (c), in determining negative pre-tax income, payments made by the Company pursuant to those agreements on Schedule 1 shall not be included in the calculation of pre-tax income and the Dollar Limitation shall mean up to one million dollars ($1,000,000) from the date hereof until the first anniversary of the date of this Agreement and after the first anniversary date of this Agreement, such one million dollar limit shall be increased dollar for dollar for each amount paid by the Company pursuant to those agreements listed on Schedule 2, (d) 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 (e) all amendments, extensions, renewals, refinancings and deferrals of the Indebtedness referred to in clauses (a) through (e) 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. "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 Separation Agreement by and between the Company and Joyce Tischler, (d) the Management Services Agreement by and between the Company and DARR Global Holdings, Inc., (e) the Subordinated Note in favor of DARR Westwood LLC in the amount of $750,000 - 5 - and (f) the Preferred Stock of DARR Westwood Technology Corporation owned by DARR Westwood LLC. (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 4 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. (c) No Payment on Subordinated Debt in Certain Circumstances. (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 4 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. (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 - 6 - 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), and (C) the date on which the Senior Debt is accelerated and declared immediately due and payable. (iv) Nothing contained in this Section 4 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, subject to Section 9, 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), 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 4 shall prevent interest from accruing to this Note as provided above until this Note paid in full. (vi) Nothing contained in this Section 4(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, - 7 - 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 4 (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. (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 4 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 4 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 4 shall have been applied, pursuant to the provisions of this Section 4, 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 - 8 - 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 4 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. (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 4(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 4. (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 4, 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 4 are intended to be enforceable at all times, whether before or after the commencement of a proceeding referred to in Section 4(d). (h) Obligations of Company Unconditional. Nothing contained in this Section 4 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 - 9 - 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 4 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 4 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 4(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 4 shall not be construed as preventing the occurrence of an Event of Default under Section 5. Upon any payment or distribution of assets of the Company referred to in this Section 4, 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 4. (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 4 shall limit the right of the holders of Senior Debt to recover payments as contemplated elsewhere in this Section 4. 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) (ii) or (iii) (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 - 10 - 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 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 4 of this Note. - 11 - (m) Insolvency. The provisions of this Section 4 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 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 4 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 4 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 4, 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; - 12 - (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; (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 4 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 4 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 4 constitute a continuing agreement and shall (A) remain in full force and effect, subject to the provisions and limitations contained in this Section 4, 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. 5. Events of Default (a) An "Event of Default" occurs if: (i) the Company defaults in the payment of the principal or interest of this Note when the same becomes due and payable at maturity, upon acceleration, or otherwise, whether or not such payment shall be prohibited by the provisions of Section 4, and such default continues for 30 days; - 13 - (ii) the Company, pursuant to or within the meaning of any Bankruptcy Law: A. commences a voluntary case or proceeding, B. consents to the entry of an order for relief against it in an involuntary case or proceeding, C. consents to the appointment of a Custodian of it or for all or substantially all of its property, D. makes a general assignment for the benefit of its creditors, or E. generally is unable to pay its debts as they become due; (iii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: A. is for relief against the Company in an involuntary case or proceeding, B. appoints a Custodian of the Company or for all or substantially all of its property, or C. orders the liquidation of the Company; and in each case the order or decree remains unstayed and in effect for 60 days; or (iv) the Company fails to observe or perform any covenant, condition or agreement required on its part to be observed or performed pursuant to Section 4 and such failure continues for a period of 30 days following notice thereof from the Holder. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. For purposes of this Agreement, the term "Default" shall mean any event or occurrence which with the passing of time, the giving of notice, or both, could become an Event of Default. (b) Interest Rate Upon Default. If an Event of Default (other than an Event of Default specified in clause (a)(ii) or (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. - 14 - (c) Waiver of Past Defaults. The Holders of 50% or more of the outstanding amount of the Company's "8% Subordinated Notes" (which shall mean this Note and any notes issued in form substantially similar to this Note on the date hereof and all replacements and exchanges thereof) (the "Majority Holders") 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. 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 Majority Holders; provided that without the consent of all holders of the Company's 8% Subordinated Notes then outstanding, no such waiver, modification, alteration or amendment shall be effective (i) which will change the time of payment of the principal or interest of any Note or reduce the Principal Amount thereof, (ii) which will change the percentage of the Notes required to consent to any such amendment, alteration or modification, or (iii) which will change any provisions of Section 5(b) or (c), or Section 6(b). This Note may not be amended without the consent in writing of the Lender or any Refinancing Lender (until the Senior Debt has been finally and indefeasibly paid in full) or, thereafter, the holders of 50% or more of the outstanding principal amount of the outstanding Senior Debt. (b) Effect of Amendment or Waiver. Any amendment or waiver shall apply equally to the holder of the Note and shall be binding upon it, upon each future holder of any Note and upon the Company, whether or not such 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. 7. Change in Control Upon Certain Events. Upon the occurrence of a Change in Control, the Company shall, upon the expiration of any offer to purchase or repayment or redemption of any Senior Debt required as a result of such Change in Control, repay this Note in full at a price equal to the Principal Amount plus all accrued and unpaid interest. For purposes of this Section 7 the term "Change in Control" shall mean (a) any one Person (including a "group", as such term is used in Section 13(d) of the Exchange Act of 1934, as amended (the "Exchange Act")) other than DARR Westwood LLC, DARR Westwood Technology Corporation and Mary Margaret Grabel, and its affiliates, shall, directly or indirectly, own or control 50% or more of the voting or non-voting common equity of the Company or any successor thereto, or (b) all or substantially all of the assets of the Company or any Significant Subsidiary (as defined herein) shall be transferred to any Person or group of Persons (other than to the Company or any direct or indirect Subsidiary thereof). For purposes of this Section 7, the term "Person" shall mean any individual, partnership, Company, trust or unincorporated organization or a government or agency or political subdivision thereof. - 15 - 8. Covenants. (a) Preservation of Corporate Existence; etc. Subject to paragraph (f), the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence and the material rights (charter and statutory) and franchises of the Company, and of any other subsidiary of the Company (collectively, the "Subsidiaries"); provided, however, that the Company shall not be required to preserve or cause to be preserved any such material right or franchise if the board of directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not, and will not be, adverse in any material respect to the Holder, provided, further, that the Company may merge into Westwood Computer Corporation. (b) Payment of Taxes, Assessment, Charges and Claims. The Company will and will cause the Subsidiaries to duly pay or discharge or cause to be paid or discharged the following before they shall become delinquent: (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any of the Subsidiaries or upon the income, profit or property of the Company or any of the Subsidiaries, and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a material lien upon the property of the Company or any of the Subsidiaries; provided, however, that the Company or any of the Subsidiaries shall not be required to pay or discharge or cause to be paid or discharged (but shall make adequate provision for) any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves have been made. (c) Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim, and shall resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Holder but shall suffer and permit the execution of every such power as though no such law had been enacted. (d) Compliance with Laws. The Company will, and will cause the Subsidiaries to, comply in all material respects with all applicable statutes, regulations, orders and restrictions of the United States, any state, municipality or other governmental division thereof, and agencies and instrumentalities of the foregoing, in respect of the conduct of its and their businesses and the ownership of its and their properties (including, without limitation, applicable statutes, regulations, orders and restrictions relating to equal employment opportunities and environmental standards and controls), except such as are being contested in good faith that, if reasonably likely to be determined adversely to the Company, would not have a material adverse effect on the business of the Company. (e) Limitation on Restricted Payments. - 16 - (i) The Company (A) shall not effect the declaration, payment or setting apart for payment of any dividend on any part of the Company's capital stock (other than dividends or distributions in such Company's capital stock) or any cash interest payment on any Junior Indebtedness (as defined below) or effect or make any payment on account of or set apart for payment money for a sinking or other similar fund for, the purchase, prepayment, redemption or other retirement of, any of the Company's capital stock (or any rights, warrants or options to purchase or acquire any such capital stock) or Junior Indebtedness, or make any distribution in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Company or other property, and (B) shall not permit a Subsidiary or any other Company or other entity which directly or indirectly controls, or is controlled by the Company to purchase, redeem or otherwise acquire any of the Company's capital stock or Junior Indebtedness (other than distributions or dividends in the Company's capital stock to the holders of the Company's capital stock or payment of interest on Junior Indebtedness by the issuance of additional Junior Indebtedness or capital stock) or voluntarily prepay Indebtedness that is subordinated to this Note; provided, however, that subject to the terms of a Subordination Agreement dated April 16, 2004 relating to the priority of certain related party debt, no payment made with respect to the Company's capital stock or with respect to Junior Indebtedness shall be prohibited if, so long as no Event of Default has occurred and is continuing, (X) such payment is made for the retirement of the Company's capital stock or Junior Indebtedness in exchange for or out of the net proceeds of a prior or simultaneous sale of the Company's capital stock or Junior Indebtedness or capital stock issued in connection with such retirement which is subordinate in right of payment to this Note at least to the extent the Junior Indebtedness or capital stock being retired is subordinate to this Note, or (Y) such payment is pursuant to a "cashless exercise" of an option or warrant to acquire the Company's capital stock. (ii) The Company will not permit any Subsidiary to effect the declaration, payment or setting apart for payment of any dividend on any part of such Subsidiary's capital stock (other than dividends or distributions in such Subsidiary's capital stock) except for payments of any dividend to the Company or any other Subsidiary. (iii) None of the Company's Junior Indebtedness shall provide for the mandatory payment of principal by way of redemption, sinking fund or otherwise (including, without limitation, at the option of the holder thereof) and the Company will make no optional payment with respect thereto, prior to the payment of all principal of and interest on this Note. (iv) "Junior Indebtedness" means any Indebtedness of the Company whether outstanding on the date hereof or incurred thereafter, that is subordinated in right of payment to this Note either by its terms or by operation of law. (f) When Company May Merge, etc. The Company will not directly or indirectly, merge into or have merged into it, or consolidate with any other company (other than the merger of a wholly-owned subsidiary into the Company (or another wholly-owned subsidiary)), and will not directly or indirectly, sell, assign, lease, transfer or otherwise dispose of (each, a "Transfer") all or substantially all of its properties and assets as, or substantially as, an entirety to any other company or other entity or person (other than to the Company or a wholly-owned subsidiary) except that so long as no - 17 - Event of Default exists immediately before or would exist immediately after such transaction the Company may merge into or have merged into it, or be consolidated with, any other company or may Transfer all or substantially all its properties and assets as, or substantially as, an entirety, to any other company if, after consummation of such transaction: (i) in the case of any such consolidation or merger, the company resulting from such consolidation, or any company other than the company into which such merger shall be made, shall be a company organized under the laws of the United States, or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable therefor; and (ii) in the case of any such Transfer of all or substantially all the property or assets of the Company, the company to which such property or assets shall be Transferred shall be a company organized under the laws of the United States or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, as a part of the purchase price thereof, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable thereof. Notwithstanding the foregoing, the Company; may merge with and into Westwood Computer Corporation. 9. Transfer and Exchange When this Note is presented to the Company with a request to register the transfer, the Company shall register a transfer as requested, if the requirements for such transfer are met; provided, however, that if this Note is presented or surrendered for registration of transfer or exchange it shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by the Holder or his attorney duly authorized in writing. The Company may charge for its out-of-pocket expenses incurred in connection with any transfer or exchange of the Note. All transfers of this Note (and any replacement thereof) must comply with the requirements of Section 4 and subject to the limitations set forth in Section 14. - 18 - 10. Replacement Notes If a mutilated Note is surrendered to the Company or if the Holder of this Note 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 for its out-of-pocket expenses incurred in replacing this Note. If the Note is surrendered to the Company in settlement of a claim as contemplated by Section 15, the Company shall issue a replacement Note of like tenor to the Holder provided that the amount of the Note shall be reduced by the amount of such claim. If the Holder desires to transfer a portion of the Note to a Subsidiary in settlement of a claim as contemplated by Section 15, the Holder shall surrender the Note to the Company, whereupon the Company shall issue a replacement Note of like tenor to the Subsidiary in the amount of the claim and shall issue a replacement Note of like tenor to the Holder provided that the amount of the originally tendered Note shall be reduced by the amount of such claim. 11. No Recourse Against Others No director, officer, employee or shareholder, 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. 12. Notice 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, to it at 11 Diamond Road, Springfield, NJ 07081, Attention: Stephen Donnelly, with a required copy to Dechert LLP, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, PA 19103, Attention: Carmen J. Romano, or to such other address as may be furnished in writing to the Holder; and if to the Holder, to it at its address listed on the transfer books of the Company. Unless otherwise indicated herein, notices hereunder shall be effective when delivered, if delivered personally, or, if sent by mail, when sent. 13. Governing Law This Note shall be deemed a contract under, and shall be governed and construed in accordance with, the laws of the State of New Jersey without giving effect to principles of conflicts of laws. 14. Successors, etc.; Entire Agreement; Assignment This Note shall be binding upon and shall inure to the benefit of and be enforceable by the respective successors and assigns of the Company and the registered Holder - 19 - thereof. This Note constitutes the entire agreement between the parties, superseding all prior understandings and writings, with respect to the indebtedness represented hereby. This Note shall not be transferred without the prior written consent of the Company. Any assignment or transfer made by the Holder in violation of this section shall be null and void. 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. - 20 - IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer. Dated: April 16, 2004 WESTWOOD COMPUTER CORPORATION By: /s/ Mary Grabel ---------------------- Name: Title: - 21 - Schedule 1 Management Services Agreement by and between Westwood Computer Corporation and DARR Global Holdings, Inc. Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of DARR Westwood LLC Any dividends or redemption proceeds payable to DARR Westwood LLC for the 8% Cumulative Compounding Preferred Stock of DARR Westwood Technology Corporation - 22 - Schedule 2 Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of Four Kings Management LLC 5% Junior Subordinated Note in the amount of $161,151 made by Westwood Computer Corporation in favor of Keith Grabel 5% Junior Subordinated Note in the amount of $132,183 made by Westwood Computer Corporation in favor of Mary Margaret Grabel 8% Junior Subordinated Note in the amount of $483,453 made by Westwood Computer Corporation in favor of Keith Grabel 8% Junior Subordinated Note in the amount of $396,549 made by Westwood Computer Corporation in favor of Mary Margaret Grabel Separation Agreement by and between Westwood Computer Corporation and Joyce Tischler - 23 - EX-10 15 ex10-36.txt EXHIBIT 10.36 Exhibit 10.36 THESE SECURITIES HAVE 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. PAYMENTS UNDER THIS NOTE ARE SUBJECT TO THE SUBORDINATION PROVISIONS OF SECTION 4 HEREOF $396,549.13 April 16, 2004 WESTWOOD COMPUTER CORPORATION 8% JUNIOR SUBORDINATED NOTE WESTWOOD COMPUTER CORPORATION, a New Jersey corporation (the "Company," which term includes any successor Company), for value received, hereby promises to pay to Mary Margaret Grabel ("Holder"), the principal sum of Three Hundred Ninety-Six Thousand Five Hundred Forty-Nine Dollars and Thirteen cents ($396,549.13) (the "Principal Amount"). Interest on the unpaid balance of the Principal Amount of this Note shall be payable at a rate of eight percent 8% per annum. Interest on this Note will be payable or will accrue from the issuance date hereof. Interest will be computed on the basis of a 360-day year for the actual days elapsed. This Note may be prepaid at any time in whole or in part without premium or penalty. This Note shall be binding upon the successors and assigns of the Company. 1. Method of Payment The Company will pay principal and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts (payment may be made by check payable in such money). 2. Repayments (a) This Note shall be repaid in six principal payments each such payment in the amount of 16.67% of the Principal Amount, (i) the first payment on the six month anniversary of the date of this Note, (ii) the second payment on the one year anniversary of the date of this Note, (iii) the third payment on the eighteen month anniversary of the date of this Note (iv) the fourth payment on the two year anniversary of the date of this Note, (v) the fifth payment on the thirty month anniversary of the date of this Note and (vi) the final payment on the three year anniversary of the date of this Note. Each principal payment shall be accompanied by all interest then accrued and unpaid on this Note. (b) This Note is one of a duly authorized issue of 5% and 8% Subordinated Notes of the Company (respectively, the "5% Subordinated Notes" and the "8% Subordinated Notes" and, collectively, the "Shareholder Subordinated Notes") issued to the Holders under the Merger Agreement by and among the Company, DARR Westwood Technology Corporation, Westwood Computer Corporation, the Shareholders of Westwood Computer Corporation named therein and the Shareholders' Agent dated as of February 27, 2004 (the "Merger Agreement"). The obligations of the Company hereunder are, at the sole option of the Company, subject to set-off against, as a result of or in connection with any obligations of the Holder under the Merger Agreement and, at the option of the Company, all or a portion of this Note may be surrendered or transferred to the Company or a Subsidiary in satisfaction of the Holder's liability under or in respect of claims made pursuant to the Merger Agreement. This Section 2(b) shall be binding upon each Holder hereof. Any payments of amounts due under the Notes, and any set-off of amounts due, will be made pro rata in proportion to the principal amounts outstanding thereunder. 3. Due Authorization, etc. The Company hereby represents to the Holder that (a) the Company is a corporation duly formed, validly existing and in good standing under the laws of the State of New Jersey, (b) the Company has all requisite corporate power and authority to execute and deliver this Note and to carry out the terms hereof, (c) the Company has duly authorized the execution, delivery and performance of this Note, and (d) the execution, delivery and performance of this Note does not (i) violate any provision of the organizational documents of the Company, or (ii) violate any statute, rule or regulation of any governmental authority to which the Company is subject or any material agreement or instrument to which it is a party. This Note is a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium and other laws affecting creditors rights generally and except as may be limited by equitable principles. - 2 - 4. 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 4 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 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) 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 holder of such Indebtedness has an existing right, contingent - 3 - 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. "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 (a) all Indebtedness of the Company and its Subsidiaries to GE Commercial Distribution Finance Corporation ("GECDF") under the credit agreement dated as of the date hereof, 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 - 4 - and expenses of counsel), (c) any indebtedness for borrowed money (excluding indebtedness to an Affiliate of the Company), any issuance or sale of any debt securities or warrants or other rights to acquire any debt securities of the Company, guarantees of any such indebtedness or debt securities of another person, any "keep well" or other agreement to maintain any financial statement condition of another person or arrangements having the economic effect of any of the foregoing in circumstances in which the Company has either experienced (I) six consecutive months of negative pre-tax income or (II) negative pre-tax income for any eight months of a twelve month period, subject to the Dollar Limitations provided in this Section below for purposes of this clause (c), in determining negative pre-tax income, payments made by the Company pursuant to those agreements on Schedule 1 shall not be included in the calculation of pre-tax income and the Dollar Limitation shall mean up to one million dollars ($1,000,000) from the date hereof until the first anniversary of the date of this Agreement and after the first anniversary date of this Agreement, such one million dollar limit shall be increased dollar for dollar for each amount paid by the Company pursuant to those agreements listed on Schedule 2, (d) 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 (e) all amendments, extensions, renewals, refinancings and deferrals of the Indebtedness referred to in clauses (a) through (e) 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. "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 Separation Agreement by and between the Company and Joyce Tischler, (d) the Management Services Agreement by and between the Company and DARR Global Holdings, Inc., (e) the Subordinated Note in favor of DARR Westwood LLC in the amount of $750,000 - 5 - and (f) the Preferred Stock of DARR Westwood Technology Corporation owned by DARR Westwood LLC. (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 4 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. (c) No Payment on Subordinated Debt in Certain Circumstances. (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 4 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. (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 - 6 - 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), and (C) the date on which the Senior Debt is accelerated and declared immediately due and payable. (iv) Nothing contained in this Section 4 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, subject to Section 9, 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(a)(ii) (other than Section 5(a)(ii)(E)) or 5(a)(iii), 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 4 shall prevent interest from accruing to this Note as provided above until this Note paid in full. (vi) Nothing contained in this Section 4(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, - 7 - 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 4 (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. (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 4 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 4 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 4 shall have been applied, pursuant to the provisions of this Section 4, 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 - 8 - 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 4 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. (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 4(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 4. (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 4, 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 4 are intended to be enforceable at all times, whether before or after the commencement of a proceeding referred to in Section 4(d). (h) Obligations of Company Unconditional. Nothing contained in this Section 4 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 - 9 - 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 4 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 4 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 4(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 4 shall not be construed as preventing the occurrence of an Event of Default under Section 5. Upon any payment or distribution of assets of the Company referred to in this Section 4, 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 4. (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 4 shall limit the right of the holders of Senior Debt to recover payments as contemplated elsewhere in this Section 4. 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) (ii) or (iii) (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 - 10 - 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 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 4 of this Note. - 11 - (m) Insolvency. The provisions of this Section 4 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 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 4 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 4 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 4, 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; - 12 - (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; (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 4 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 4 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 4 constitute a continuing agreement and shall (A) remain in full force and effect, subject to the provisions and limitations contained in this Section 4, 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. 5. Events of Default (a) An "Event of Default" occurs if: (i) the Company defaults in the payment of the principal or interest of this Note when the same becomes due and payable at maturity, upon acceleration, or otherwise, whether or not such payment shall be prohibited by the provisions of Section 4, and such default continues for 30 days; - 13 - (ii) the Company, pursuant to or within the meaning of any Bankruptcy Law: A. commences a voluntary case or proceeding, B. consents to the entry of an order for relief against it in an involuntary case or proceeding, C. consents to the appointment of a Custodian of it or for all or substantially all of its property, D. makes a general assignment for the benefit of its creditors, or E. generally is unable to pay its debts as they become due; (iii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: A. is for relief against the Company in an involuntary case or proceeding, B. appoints a Custodian of the Company or for all or substantially all of its property, or C. orders the liquidation of the Company; and in each case the order or decree remains unstayed and in effect for 60 days; or (iv) the Company fails to observe or perform any covenant, condition or agreement required on its part to be observed or performed pursuant to Section 4 and such failure continues for a period of 30 days following notice thereof from the Holder. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. For purposes of this Agreement, the term "Default" shall mean any event or occurrence which with the passing of time, the giving of notice, or both, could become an Event of Default. (b) Interest Rate Upon Default. If an Event of Default (other than an Event of Default specified in clause (a)(ii) or (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. - 14 - (c) Waiver of Past Defaults. The Holders of 50% or more of the outstanding amount of the Company's "8% Subordinated Notes" (which shall mean this Note and any notes issued in form substantially similar to this Note on the date hereof and all replacements and exchanges thereof) (the "Majority Holders") 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. 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 Majority Holders; provided that without the consent of all holders of the Company's 8% Subordinated Notes then outstanding, no such waiver, modification, alteration or amendment shall be effective (i) which will change the time of payment of the principal or interest of any Note or reduce the Principal Amount thereof, (ii) which will change the percentage of the Notes required to consent to any such amendment, alteration or modification, or (iii) which will change any provisions of Section 5(b) or (c), or Section 6(b). This Note may not be amended without the consent in writing of the Lender or any Refinancing Lender (until the Senior Debt has been finally and indefeasibly paid in full) or, thereafter, the holders of 50% or more of the outstanding principal amount of the outstanding Senior Debt. (b) Effect of Amendment or Waiver. Any amendment or waiver shall apply equally to the holder of the Note and shall be binding upon it, upon each future holder of any Note and upon the Company, whether or not such 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. 7. Change in Control Upon Certain Events. Upon the occurrence of a Change in Control, the Company shall, upon the expiration of any offer to purchase or repayment or redemption of any Senior Debt required as a result of such Change in Control, repay this Note in full at a price equal to the Principal Amount plus all accrued and unpaid interest. For purposes of this Section 7 the term "Change in Control" shall mean (a) any one Person (including a "group", as such term is used in Section 13(d) of the Exchange Act of 1934, as amended (the "Exchange Act")) other than DARR Westwood LLC, DARR Westwood Technology Corporation and Mary Margaret Grabel, and its affiliates, shall, directly or indirectly, own or control 50% or more of the voting or non-voting common equity of the Company or any successor thereto, or (b) all or substantially all of the assets of the Company or any Significant Subsidiary (as defined herein) shall be transferred to any Person or group of Persons (other than to the Company or any direct or indirect Subsidiary thereof). For purposes of this Section 7, the term "Person" shall mean any individual, partnership, Company, trust or unincorporated organization or a government or agency or political subdivision thereof. - 15 - 8. Covenants. (a) Preservation of Corporate Existence; etc. Subject to paragraph (f), the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence and the material rights (charter and statutory) and franchises of the Company, and of any other subsidiary of the Company (collectively, the "Subsidiaries"); provided, however, that the Company shall not be required to preserve or cause to be preserved any such material right or franchise if the board of directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not, and will not be, adverse in any material respect to the Holder, provided, further, that the Company may merge into Westwood Computer Corporation. (b) Payment of Taxes, Assessment, Charges and Claims. The Company will and will cause the Subsidiaries to duly pay or discharge or cause to be paid or discharged the following before they shall become delinquent: (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any of the Subsidiaries or upon the income, profit or property of the Company or any of the Subsidiaries, and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a material lien upon the property of the Company or any of the Subsidiaries; provided, however, that the Company or any of the Subsidiaries shall not be required to pay or discharge or cause to be paid or discharged (but shall make adequate provision for) any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves have been made. (c) Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim, and shall resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Holder but shall suffer and permit the execution of every such power as though no such law had been enacted. (d) Compliance with Laws. The Company will, and will cause the Subsidiaries to, comply in all material respects with all applicable statutes, regulations, orders and restrictions of the United States, any state, municipality or other governmental division thereof, and agencies and instrumentalities of the foregoing, in respect of the conduct of its and their businesses and the ownership of its and their properties (including, without limitation, applicable statutes, regulations, orders and restrictions relating to equal employment opportunities and environmental standards and controls), except such as are being contested in good faith that, if reasonably likely to be determined adversely to the Company, would not have a material adverse effect on the business of the Company. (e) Limitation on Restricted Payments. - 16 - (i) The Company (A) shall not effect the declaration, payment or setting apart for payment of any dividend on any part of the Company's capital stock (other than dividends or distributions in such Company's capital stock) or any cash interest payment on any Junior Indebtedness (as defined below) or effect or make any payment on account of or set apart for payment money for a sinking or other similar fund for, the purchase, prepayment, redemption or other retirement of, any of the Company's capital stock (or any rights, warrants or options to purchase or acquire any such capital stock) or Junior Indebtedness, or make any distribution in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Company or other property, and (B) shall not permit a Subsidiary or any other Company or other entity which directly or indirectly controls, or is controlled by the Company to purchase, redeem or otherwise acquire any of the Company's capital stock or Junior Indebtedness (other than distributions or dividends in the Company's capital stock to the holders of the Company's capital stock or payment of interest on Junior Indebtedness by the issuance of additional Junior Indebtedness or capital stock) or voluntarily prepay Indebtedness that is subordinated to this Note; provided, however, that subject to the terms of a Subordination Agreement dated April 16, 2004 relating to the priority of certain related party debt, no payment made with respect to the Company's capital stock or with respect to Junior Indebtedness shall be prohibited if, so long as no Event of Default has occurred and is continuing, (X) such payment is made for the retirement of the Company's capital stock or Junior Indebtedness in exchange for or out of the net proceeds of a prior or simultaneous sale of the Company's capital stock or Junior Indebtedness or capital stock issued in connection with such retirement which is subordinate in right of payment to this Note at least to the extent the Junior Indebtedness or capital stock being retired is subordinate to this Note, or (Y) such payment is pursuant to a "cashless exercise" of an option or warrant to acquire the Company's capital stock. (ii) The Company will not permit any Subsidiary to effect the declaration, payment or setting apart for payment of any dividend on any part of such Subsidiary's capital stock (other than dividends or distributions in such Subsidiary's capital stock) except for payments of any dividend to the Company or any other Subsidiary. (iii) None of the Company's Junior Indebtedness shall provide for the mandatory payment of principal by way of redemption, sinking fund or otherwise (including, without limitation, at the option of the holder thereof) and the Company will make no optional payment with respect thereto, prior to the payment of all principal of and interest on this Note. (iv) "Junior Indebtedness" means any Indebtedness of the Company whether outstanding on the date hereof or incurred thereafter, that is subordinated in right of payment to this Note either by its terms or by operation of law. (f) When Company May Merge, etc. The Company will not directly or indirectly, merge into or have merged into it, or consolidate with any other company (other than the merger of a wholly-owned subsidiary into the Company (or another wholly-owned subsidiary)), and will not directly or indirectly, sell, assign, lease, transfer or otherwise dispose of (each, a "Transfer") all or substantially all of its properties and assets as, or substantially as, an entirety to any other company or other entity or person (other than to the Company or a wholly-owned subsidiary) except that so long as no - 17 - Event of Default exists immediately before or would exist immediately after such transaction the Company may merge into or have merged into it, or be consolidated with, any other company or may Transfer all or substantially all its properties and assets as, or substantially as, an entirety, to any other company if, after consummation of such transaction: (i) in the case of any such consolidation or merger, the company resulting from such consolidation, or any company other than the company into which such merger shall be made, shall be a company organized under the laws of the United States, or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable therefor; and (ii) in the case of any such Transfer of all or substantially all the property or assets of the Company, the company to which such property or assets shall be Transferred shall be a company organized under the laws of the United States or any state, municipality or other governmental division thereof, shall expressly assume, unconditionally and in writing, as a part of the purchase price thereof, the due and punctual payment of the principal of and interest on this Note and the performance and observance of each and every covenant and condition in and of this Note on the part of the Company to be performed or observed to the same extent that the Company is bound by and liable thereof. Notwithstanding the foregoing, the Company; may merge with and into Westwood Computer Corporation. 9. Transfer and Exchange When this Note is presented to the Company with a request to register the transfer, the Company shall register a transfer as requested, if the requirements for such transfer are met; provided, however, that if this Note is presented or surrendered for registration of transfer or exchange it shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by the Holder or his attorney duly authorized in writing. The Company may charge for its out-of-pocket expenses incurred in connection with any transfer or exchange of the Note. All transfers of this Note (and any replacement thereof) must comply with the requirements of Section 4 and subject to the limitations set forth in Section 14. - 18 - 10. Replacement Notes If a mutilated Note is surrendered to the Company or if the Holder of this Note 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 for its out-of-pocket expenses incurred in replacing this Note. If the Note is surrendered to the Company in settlement of a claim as contemplated by Section 15, the Company shall issue a replacement Note of like tenor to the Holder provided that the amount of the Note shall be reduced by the amount of such claim. If the Holder desires to transfer a portion of the Note to a Subsidiary in settlement of a claim as contemplated by Section 15, the Holder shall surrender the Note to the Company, whereupon the Company shall issue a replacement Note of like tenor to the Subsidiary in the amount of the claim and shall issue a replacement Note of like tenor to the Holder provided that the amount of the originally tendered Note shall be reduced by the amount of such claim. 11. No Recourse Against Others No director, officer, employee or shareholder, 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. 12. Notice 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, to it at 11 Diamond Road, Springfield, NJ 07081, Attention: Stephen Donnelly, with a required copy to Dechert LLP, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, PA 19103, Attention: Carmen J. Romano, or to such other address as may be furnished in writing to the Holder; and if to the Holder, to it at its address listed on the transfer books of the Company. Unless otherwise indicated herein, notices hereunder shall be effective when delivered, if delivered personally, or, if sent by mail, when sent. 13. Governing Law This Note shall be deemed a contract under, and shall be governed and construed in accordance with, the laws of the State of New Jersey without giving effect to principles of conflicts of laws. 14. Successors, etc.; Entire Agreement; Assignment This Note shall be binding upon and shall inure to the benefit of and be enforceable by the respective successors and assigns of the Company and the registered Holder - 19 - thereof. This Note constitutes the entire agreement between the parties, superseding all prior understandings and writings, with respect to the indebtedness represented hereby. This Note shall not be transferred without the prior written consent of the Company. Any assignment or transfer made by the Holder in violation of this section shall be null and void. 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. - 20 - IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly authorized officer. Dated: April 16, 2004 WESTWOOD COMPUTER CORPORATION By: /s/ Mary Grabel ---------------------- Name: Title: - 21 - Schedule 1 Management Services Agreement by and between Westwood Computer Corporation and DARR Global Holdings, Inc. Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of DARR Westwood LLC Any dividends or redemption proceeds payable to DARR Westwood LLC for the 8% Cumulative Compounding Preferred Stock of DARR Westwood Technology Corporation - 22 - Schedule 2 Subordinated Note in the amount of $750,000 made by DARR Westwood Acquisition Corporation in favor of Four Kings Management LLC 5% Junior Subordinated Note in the amount of $161,151 made by Westwood Computer Corporation in favor of Keith Grabel 5% Junior Subordinated Note in the amount of $132,183 made by Westwood Computer Corporation in favor of Mary Margaret Grabel 8% Junior Subordinated Note in the amount of $483,453 made by Westwood Computer Corporation in favor of Keith Grabel 8% Junior Subordinated Note in the amount of $396,549 made by Westwood Computer Corporation in favor of Mary Margaret Grabel Separation Agreement by and between Westwood Computer Corporation and Joyce Tischler - 23 - EX-10 16 ex10-38.txt EXHIBIT 10.38 FIRST AMENDMENT TO LEASE Exhibit 10.38 This FIRST AMENDMENT OF LEASE ("Amendment") dated as of April 16, 2004 by and between WESTWOOD PROPERTY HOLDINGS LLC, a New Jersey limited liability company (the "Landlord") and WESTWOOD COMPUTER CORPORATION, a New Jersey corporation, with offices at 11 Diamond Road, Springfield, New Jersey ("Tenant"). WITNESSETH: WHEREAS, Landlord and Tenant entered into a certain Lease dated as of July 1, 2003 (the "Lease"), pursuant to which Landlord, as lessor, leased to Tenant, as lessee, a certain building and improvements thereon (the "Premises") located at 11 Diamond Road, Springfield, New Jersey (the "Building"), which Premises contains approximately 44,000 square feet of space which comprises the entire Building; and WHEREAS, Tenant and Landlord desire to amend the Lease to decrease the Term (as defined in the Lease) thereof upon the terms and conditions hereinafter set forth; and WHEREAS, Tenant and Landlord desire to amend the Lease to decrease the amount of the Base Rent (as defined in the Lease), upon the terms and conditions hereinafter set forth; and WHEREAS, Tenant and Landlord desire to modify the Lease in certain other respects upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and the covenants contained herein, and for other good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Definitions. Unless otherwise specifically defined herein, all capitalized terms used shall have the meanings given such terms in the Lease, as the same has been amended from time to time. Hereafter, the term "Lease" shall be deemed to mean the Lease, as modified by this Amendment. 2. Modification. The Lease is hereby modified as follows: a. Section 1.04 of the Lease is hereby deleted in its entirety and replaced with the following: "1.04 Term. The term of this Lease (the "Term") shall commence on July 1, 2003 (the "Commencement Date") and shall end April 30, 2009, unless sooner terminated herein." b. Section 2.01 of the Lease is hereby deleted in its entirety and replaced with the following: `2.01 Base Rent. Tenant covenants and agrees to pay Landlord in lawful currency of the United States in advance on the first (1st) day of each month during the Term without any previous notice or demand therefor and without any offset or deduction, the following annual base rent in the following monthly installments (the "Base Rent"): Lease Year Annual Base Rent Monthly Installments -------------------------------------------------------------------------- Through 4/30/04 $233,000.00 $19,416.66 5/1/04--4/30/09 $180,000.00 $15,000.00 As used herein, the term "Lease Year" shall refer to the first twelve (12) months of the Term and thereafter to each (12) month period during the Term. If the Term does not begin on the first day or end on the last day of a month, the Base Rent for that partial month shall be prorated by multiplying the monthly Base Rent by a fraction, the numerator of which is the number of days of the partial month included in the Term and the denominator of which is the total number of days in the full calendar month:' c. Section 3.03(a) of the Lease is hereby deleted in its entirety and replaced with the following: '3.03(a). Tenant's Care of Premises. Tenant agrees that it shall, at its own cost and expense, make all repairs of whatever kind and nature, foreseen or unforeseen, as may be required to keep the Premises and fixtures thereon in good condition and repair. Without limiting the generality of the foregoing, Tenant shall be responsible for all exterior repairs, including walls, roof, parking area, driveways and landscaping, and shall further be solely responsible to keep the whole and every part of the interior of the Premises and all property and improvements situated therein in good repair, including without limitation all plumbing, heating and electrical installations and equipment, air conditioning equipment, hardware, doors and windows, plateglass, interior painting and decorating. In the event any repairs are covered by insurance, the same are to be paid for by the insurance proceeds aforesaid. In addition to the foregoing, Tenant shall be responsible for such improvements and replacements to the roof, HVAC, parking lot and building exterior (Capital Improvements) as may be reasonably required to keep such portions of the Premises in good condition and repair, subject to an aggregate limitation of $265,000 of Capital Improvement expenditures by Tenant for the balance of the Term after the date of this Amendment. Landlord shall be responsible for any excess Capital Improvements subject to an aggregate limitation of $409,042 of Capital Improvement expenditures during the Term (including the period before the date of this Amendment)'.' d. Exhibit B to the Lease is hereby deleted in its entirety. Tenant has received the reduction in the Base Rent reflected above in exchange for assuming from Landlord $265,000 of the obligations previously required of Landlord in Exhibit B. 3. Reaffirmation. This Amendment modifies the Lease only as expressly set forth in Section 2 above. As hereby modified, the Lease is in all respects ratified, confirmed and approved. All of the terms, covenants and provisions of the Lease shall continue in full force 2 and effect and in the event of any conflict or ambiguity between the terms, covenants and provisions of this Amendment and those of the Lease, the terms, covenants and provisions of this Amendment shall control. 4. Authority; Binding Agreement. Tenant represents, warrants and covenants that it has full power, authority and legal right to execute and deliver this Amendment and to keep and observe all of the terms herein set forth to be observed and performed by it. Tenant represents, warrants and covenants that this Amendment is a valid, legal and binding obligation of Tenant, enforceable in accordance with the terms hereof. 5. Amendments. The Lease and this Amendment may not be modified, amended, changed or terminated except by an agreement in writing signed by the Landlord and Tenant. 6. Successors and Assigns. The Lease, as hereby modified, and this Amendment shall be binding upon and inure to the benefit of the Landlord and the Tenant and their respective successors and assigns. 7. Counterparts. This Amendment may be executed in any number of counterparts and such counterparts, when taken together, shall constitute one and the same instrument. 8. Construction. If any term, covenant or condition of this Amendment shall be held to be invalid, illegal or unenforceable in any respect, this Amendment to Lease shall be construed without such provision. 9. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New Jersey without reference to conflict of law provisions. 3 IN WITNESS WHEREOF, the Landlord and Tenant have executed this First Amendment to Lease as of the day and year first above written. LANDLORD: WESTWOOD PROPERTY HOLDINGS LLC By: e: T' le: TENANT: [ILLEGIBLE] ---------------------- WESTWOOD COMPUTER CORPORATION By: Mary Margaret Grabel -------------------------- Name: Title: 4 ACKNOWLEDGEMENT STATE OF NEW JERSEY ) ) .: COUNTY OF Middlesex ) BE IT REMEMBERED, that on this 16 day of April, 2004, before me, the subscriber, personally appeared Keith Grabel who I am satisfied is the President of Westwood Property Holdings LLC, the Landlord mentioned in the within instrument, to whom I first made known the contents thereof, and thereupon he/she acknowledged that he/she signed, sealed and delivered the same as the__________________________of Westwood Property Holdings LLC, for the uses and purposes therein expressed. Michelle Zelinski -------------------------- ACKNOWLEDGEMENT STATE OF NEW JERSEY ) SS.: COUNTY OF MIDDLESEX ) BE IT REMEMBERED, that on this 16 day of April, 2004, before me, the subscriber, personally appeared Mary Margaret Grabel who I am satisfied is the____________ of Westwood Computer Corporation, the Tenant mentioned in the within instrument, to whom I first made known the contents thereof, and thereupon he/she acknowledged that he/she signed, sealed and delivered the same as the___________________________of Westwood Computer Corporation, for the uses and purposes therein expressed. Michelle Zelinski -------------------------- 6 EX-10 17 ex10-45.txt EXHIBIT 10.45 LEASE AGREEMENT Exhibit 10.45 THIS LEASE AGREEMENT ("Lease") is effective the first day of March, 2005 between TWENTY KEYLAND CORP. ("Landlord") and WESTWOOD COMPUTER CORPORATION ("Tenant") Landlord is renting to Tenant 3500+/- square feet at that property commonly known as 20 Keyland Court, Bohemia, New York, as cross-hatched on Exhibit A hereto (the "Rental Space"). NOW THEREFORE, intending to be legally bound hereby, these parties agree as follows: 1. The term of this Lease shall begin on March 1, 2005 and end on February 28, 2006 ("Term") except that Tenant may renew for up to 2 successive one-year terms (each a "Renewal Term") by giving Landlord notice of its intent to renew no later than 60 days prior to the end of the Term, or Renewal Term, then in effect. 2. The base rent ("Base Rent") for the Term is $22,000.00, payable in advance on the first day of each month as follows: $1833.33 per month. The Base Rent shall increase 3% for any Renewal Term. Any payment made after the 5th of the month shall have added to it a 5% late charge; Tenant shall be in breach of this Lease should it fail to make any Base Rent payment by the 20a' day of each applicable month. 3. It is agreed that the Rental Space shall be used for office and storage purposes and otherwise as permitted under applicable land use regulations. Tenant shall also have shared use of that tailgate loading dock at the property and warehouse space adjacent to the Rental Space as needed. 4. The Rental Space shall not be utilized for any unlawful or hazardous purpose and Tenant agrees to comply with all reasonable requirements of any insurance company insuring the Rental Space and all laws relating to its use of the Rental Space. The Tenant agrees to continually utilize the Rental Space during the Term and shall not permit the Rental Space to become vacant for extended periods. 5. The Tenant may not assign or sublet this Lease without the written consent of the Landlord. The Landlord shall not unreasonably withhold such consent. 6. Each party hereto shall be liable for any loss, injury or damage to any person or property caused by its act and/or omission or that of its employees, agents or invitees. Each party hereto shall defend, indemnify and hold the other harmless from any claims, demands, losses, costs and for expenses ("Claims") arising from its act and/or omission or that of its employees, agents or invitees. Landlord will defend, indemnify and hold Tenant harmless against all Claims arising out of the Landlord's failure to maintain the common areas of the property or its failure to comply with any of its obligations under this Lease. 7. Notwithstanding anything to the contrary in this Lease or elsewhere, Landlord and Tenant hereby release each other from any and all liability and responsibility to each other or anyone claiming through or under them by way of subrogation or otherwise for any loss or damage to property covered by any fire and/or extended coverage insurance then in force, and waive such claims against each other or anyone claiming through or under them by way of subrogation or otherwise (including for any insurance deductible sums), even if such fire or other casualty shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible, provided, however, that this waiver and release shall be applicable and in force only to the extent that such insurance carrier provides coverage therefore. 8. The Tenant at all times while this Lease is in effect shall obtain and maintain comprehensive general liability and property damage insurance on the Rental Space. Landlord at all times while this Lease is in effect shall maintain comprehensive general liability insurance and full replacement value property damage insurance on the property of which the Rental Space forms a part. Each party hereto may demand and receive written proof to its reasonable satisfaction of such insurances from the other party. 9. In addition to payment of the Base Rent, Tenant shall pay when due all utilities, real estate taxes and repairs associated with its use of the Rental Space only ("Additional Rent"). To the extent the amount of any such Additional Rent cannot be determined by separate metering, or other similar breakout, of same, Tenant shall pay its pro-rata share of same as a fraction, the numerator of which is 3500 and the denominator of which is 10,000 square feet (representing the entire square footage of the property of which the Rental Space forms a part). To the extent any bills for same are presented to Landlord, Landlord shall promptly provide same to Tenant. Landlord shall maintain at its expense all common areas and all structural components of the property, including of the Rental Space, such as the roof and all exterior walls. Notwithstanding the above, Tenant shall pay only its share of the cost of repair of any system (such as HVAC) servicing only the Rental Space as a fraction, the numerator of which is the number of years (or part thereof) Tenant occupies the Rental Space and the denominator of which is the number of expected years of useful life of such system. By way of example: if HVAC for the Rental Space needs repair at $1000, Tenant has occupied the Rental Space for 2 years and the useful life of such HVAC is 10 years, then Tenant shall pay 20% of $1000, or $200, with the balance paid by Landlord. 10. The Landlord may declare Tenant in default hereof for Tenant's breach of any material provision of this Lease, upon which Landlord may apply to evict Tenant from the Rental Space. Tenant's liability for same shall include Landlord's eviction costs. Upon an eviction, the Tenant shall be liable for the payment of the Base Rent for the rest of the Term, or applicable Renewal Term, unless and until the Landlord re-rents the Rental Space. The Landlord shall use due diligence in attempting to re-rent the Rental Space. However, if the Landlord re-rents the Rental Space for a rental which is less than Tenant's Base Rent, the Landlord may require that the Tenant pay the difference until the end of the Term or the applicable Renewal Term. Tenant may declare Landlord in default hereof for Landlord's breach of any material provision of this Lease and may sue for damages, including costs. 11. Any notice given under this Lease must be in writing and shall be given either by personal delivery or certified mail, return receipt requested. The Landlord and Tenant shall make available each to the other a proper address for notification. 12. At the end of the Term or Renewal Term Tenant shall leave the Rental Space broom clean and repair any damage caused by moving. The Rental Space shall be returned to the Landlord in the same good order and condition as it was in at the beginning of the Term except for reasonable wear and tear. 13. A party's failure to enforce any provision of this Lease shall not prevent it from enforcing this Lease for any violations occurring at a later time. This Lease is binding upon the Landlord and the Tenant and their successors and assigns. The Lease may not be changed except in a writing which is signed by both parties. 14. Should the Rental Space become entirely unusable due to fire or other casualty or loss ("Loss"), Tenant shall not be required to pay any rent during the time it cannot use same; should only some of the Rental Space become unusable due to a Loss, Tenant shall pay all rent for that portion which it can use. Landlord shall endeavor to repair all damage within 30 days of a Loss; however, in the event of a substantial Loss as reasonably determined by Landlord, it may, on 30 days prior notice to Tenant, cancel this Lease, after which Tenant shall no longer be liable under same. 15. Should Landlord sell the property of which the Rental Space forms a part during the Term, the purchaser shall take subject to this Lease. Should Landlord sell same during either of the Renewal Terms, Tenant agrees to vacate the Rental Space on 90 days prior written notice to it, after which it shall have no further liability relating to this Lease. IN WITNESS WHEREOF, the Landlord and Tenant sign below, intending to be legally bound hereby. ATTEST: LANDLORD: Illegible Illegible ___________________________ By: ______________________________ President ATTEST: TENANT Illegible Illegible ___________________________ By: ______________________________ Secretary EX-10 18 ex10-47.txt EXHIBIT 10.47 Exhibit 10.47 REVOCABLE LICENSE A.M. Property Holding Corp. (Licensor) hereby grants an extension of the previous License Agreement for a new two (2) year period at 352 7th Avenue commencing 6/01/05 and terminating 5/31/07 for the use of the Penthouse to Westwood Computer Corp. Licensee shall pay a fee of $7000.00 per month on the first day of each month for the issuance of this License. Licensor, its Agents, servants and/or employees shall not be liable for any loss or damage to the property of the Licensee. No Landlord-tenant relationship is intended to be created by the execution of this license agreement, and no such relationship shall be deemed to have been created by the execution of this agreement. Licensor shall maintain with Licensor the current 3-months security ($18,750.00) against damage or theft to premises. Licensor will not be responsible for any loss of equipment or inventory due to break-in. Licensee name will appear as: Westwood Computer Corp on any signs and directories. Licensee, at its sole cost and expense shall maintain at all times during the term of this License Agreement and at all times when license is in possession of the demised premises, a comprehensive policy of general liability insurance in which Licensor, Licensors Managing Agent and Licensee are additional insured's, for any and all claims arising during the term of this license agreement for damages of inquiries to inventory fixtures, goods, wares, merchandise and property and/or for any personal injury or loss of life, in, upon, or about the demised premises protecting Licensor or Licensors Managing Agent. Such Policy is to be written be a good and solvent insurance company, satisfactory to Licensor, in the amount of ONE MILLION DOLLARS ($1,000,000) per occurrence (combined single limit), TWO MILLION DOLLARS ($2,000,000) in aggregate. Licensee agrees to deliver to Licensor a certificate of endorsement of aforesaid insurance policy and upon Licensee's failure to provide and keep in force the aforementioned insurance, it shall be regarded as material default, entitling Licensor to exercise any and all remedies provided by this License Agreement. Licensee agrees that if any of the charges incurred by License are not paid within 30 days then the License Agreement is terminated immediately thus giving Licensor the right to enter the premises and vacate all Licensees property. If Licensee is terminated due to Licensee's failure to adhere to any terms of this License, the Licensee will lose all security. Licensee is required to render monthly rent payments on the first of every month, after receiving a written bill, however a 5-day grace period is acceptable. If payment is not received by the 5th of the month, a late charge will be incurred of $300.00. Licensee will remove all property and vacate the premises upon 5 business days after license is terminated or Licensor, if he chooses to, can remove all property from the premises and charge all costs to licensee. Licensee agrees to leave office broom clean, with no marking on the walls, without any damages to Licensor's property upon termination of this lease agreement. Electricity for penthouse shall be invoiced at Licensor's cost + 20%. There will also be a monthly electric fee of $20.00. Licensee hereby agrees to pay its pro rata share (1.92%) of Real Estate Tax increases with a base year of 02/03. Licensee hereby agrees to pay its pro rata share of all fuel costs above $.70 per gallon including taxes. Licensee acknowledges it has received existing licensee controlled wall A/C units in good working condition, and licensee will be solely responsible for maintaining and for replacing such A/C units during the license period. By signing a copy of this License Agreement, you indicate your approval of the terms and conditions. Oral representation not valid. Security is to be refunded 30 days after Licensee leaves the premises. This agreement will supersede any previously signed agreements. A.M. Property Holding Corp. Westwood Computer Corporation /s/ Illegible Keith Grabel - ---------------------------- --------------------------------- Paul Wasserman V.P. Keith Grabel, President Licensor Licensee Mary Grabel --------------------------------- Mary Grabel, CEO/Treasurer - ---------------------------- --------------------------------- Date Date EX-10 19 ex10-50.txt EXHIBIT 10.50 EXHIBIT 10.50 GUARANTY THIS GUARANTY (this "Guaranty"), dated as of September ___, 2005, is made by Emtec, Inc., a Delaware corporation (the "Guarantor") in favor of _____________________. Background WHEREAS, the Guarantor is a Delaware corporation and indirect holder of all outstanding capital stock of Westwood Computer Corporation (the "Company"). The Company and the Holder are parties to that certain Subordinated Note, dated as of April 16, 2004 (the "Promissory Note"); and WHEREAS, pursuant to the Promissory Note, the Company agrees to pay to the Holder the principal amount of $_________; and WHEREAS, in connection with the transactions contemplated by that certain Merger Agreement by and among Guarantor, Emtec Viasub, LLC and Darr Westwood Technology Corporation dated as of July 14, 2005, the Guarantor has agreed to execute and deliver to the Holder a guaranty guaranteeing the obligations of the Holder under the Promissory Note; and WHEREAS, Guarantor has determined that (i) it will derive substantial direct and indirect benefit from the transactions contemplated by the Merger Agreement and (ii) it was and will be solvent both before and after giving effect to the transactions contemplated by the Merger Agreement and this Guaranty. 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: Section 1. Definitions. All terms used in this Guaranty which are not otherwise defined herein shall have the meanings set forth in the Promissory Note. Section 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. Section 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. Section 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. Section 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. Section 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. Section 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. Section 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:________________________________ Name: Title: EX-21 20 ex21-1.txt EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF REGISTRANT AUGUST 31, 2005 Registrant: Emtec, Inc. (Delaware) Subsidiaries: Emtec, Inc. (New Jersey) Emtec Viasub LLC (Delaware) Subsidiary: Westwood Computer Corporation (New Jersey) Subsidiary: Westwood Solutions LLC (New Jersey) EX-31 21 ex31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 I, Dinesh R. Desai, certify that: 1. I have reviewed this annual report on Form 10-K of Emtec, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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 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 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 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 the 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: December 14, 2005 /s/ Dinesh R. Desai -------------------- Dinesh R. Desai Chairman, and Chief Executive Officer (Principal Executive Officer) EX-31 22 ex31-2.txt EXHIBIT 31.2 EXHIBIT 31.2 I, Stephen C. Donnelly, certify that: 1. I have reviewed this annual report on Form 10-K of Emtec, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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 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 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 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 the 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: December 14, 2005 /s/ Stephen C. Donnelly ------------------------ Stephen C. Donnelly Chief Financial Officer (Principal Financial Officer) EX-32 23 ex32-1.txt EXHIBIT 32.1 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 Annual Report of Emtec, Inc. (the "Company") on Form 10-K for the period ending August 31, 2005 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. 'SS' 1350, as adopted pursuant to 'SS' 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 ----------------------- Dinesh R. Desai Chief Executive Officer December 14, 2005 EX-32 24 ex32-2.txt EXHIBIT 32.2 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 Annual Report of Emtec, Inc. (the "Company") on Form 10-K for the period ending August 31, 2005 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. 'SS' 1350, as adopted pursuant to 'SS' 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 ----------------------- Stephen C. Donnelly Chief Financial Officer December 14, 2005 -----END PRIVACY-ENHANCED MESSAGE-----

⁽¹⁾	We assumed this lease on January 9, 2002 in connection with our acquisition of Devise Associates, Inc. We have sub-leased this office space though June 30, 2008 for an approximate monthly rental payment of $15,700.

⁽²⁾	This space is strictly a warehouse facility, currently on a month to month lease term.

	1. Westwood for the fiscal year ended August 31, 2003;

	2. Westwood for the period from September 1, 2003 to April 16, 2004 (the Darr Predecessor Period);

	3. Darr (following the Westwood Merger on April 16, 2004) for the period from April 17, 2004 to August 31, 2004 (Darr Successor Period);

	4. Darr for the fiscal year ended August 31, 2005 (including Emtec, following the Merger, for the period from August 6, 2005 to August 31, 2005).

	(5)	Former executive officers of Emtec, Inc. prior to August 5, 2005. Compensation amounts for the two earliest years are based upon former March fiscal year end of Emtec. Compensation amount for the current year is for the period of April 1, 2005 through August 31, 2005. John Howlett is president of Emtec’s Northeast region effective August 5, 2005. Ron Seitz is president of Emtec’s Southeast region effective August 5, 2005.

	(6)	Reflects employer contributions for life insurance premiums and for disability insurance premiums.

	(7)	Reflects employer contribution for life insurance premiums.

⁽⁵⁾	Owned jointly with Rosemary Howlett, Mr. Howlett’s spouse.

⁽⁶⁾	Excludes 332,858 shares owned by Carla Seitz, Mr. Seitz’s spouse. Mr. Seitz disclaims any beneficial interest in these shares.

⁽⁷⁾	Includes 319,584 shares issuable upon exercise of a warrant equal to 2% of outstanding common stock of the Company.

⁽⁸⁾	Excludes 352,765 shares owned by Ronald A. Seitz, Mrs. Seitz’s spouse. Mrs. Seitz disclaims any beneficial ownership in these shares.

Exhibit No.		Description

	10.6	IBM Business Partner Agreement, dated May 31, 2000, between International Business Machines Corporation and Registrant.⁽³⁾

	10.7	Microsoft Certified Partner Agreement, dated December 20, 2000, between Microsoft and Registrant.⁽³⁾

	10.8	Letter Agreement, dated April 24, 2001, between Novell Inc. and Registrant.⁽³⁾

	10.9	Citrix Solutions Network Gold Renewal Membership Agreement, dated April 30, 2001, between Citrix Systems, Inc. and Registrant.⁽³⁾

	10.10	Loan and Security Agreement, dated November 21, 2001, by and between Fleet Capital Corporation and Registrant.⁽¹²⁾

	10.11	Agreement for Wholesale Financing, dated November 21, 2001, by and between IBM Credit Corporation and Registrant.⁽¹²⁾

	10.12	Subordination Agreement, dated as of November 21, 2001, among Registrant, MRA Systems, Inc., dba GE Access, and Fleet Capital Corporation.⁽¹²⁾

	10.13	Intercreditor Agreement, dated as of November 21, 2001, between Fleet Capital Corporation and Ingram Micro, Inc., and accepted by Registrant.⁽¹²⁾

	10.14	Asset Acquisition Agreement, dated December 5, 2001, by and between Devise Associates, Inc. and Registrant.⁽⁴⁾

	10.15	Lease Agreement, dated January 9, 2002, between Registrant and Vandergrand Properties Co., L.P., for New York, New York facility.⁽⁸⁾

	10.16	Lease Agreement, dated March 1, 2002, between Registrant and G. F. Florida Operating Alpha, Inc., for Jacksonville, Florida facility.⁽⁸⁾

	10.17	Asset Acquisition Agreement, dated August 12, 2002, by and between Acentra Technologies, Inc. and Registrant.⁽⁶⁾

	10.18	Remarketer/Integrator Agreement, dated August 15, 2002, between Dell Marketing L.P. and Registrant.⁽⁶⁾

	10.19	Asset Acquisition Agreement, dated August 31, 2002, by and between Turnkey Computer Systems, Inc. and Registrant.⁽⁷⁾

	10.20	Lease Agreement, dated November 15, 2002, between Registrant and Hamilton Transit Corporate Center, for warehouse facility in Trenton, New Jersey.⁽⁹⁾

	10.21	Lease Agreement, dated April 21, 2003, between V-Sullyfield Properties II LLC and Westwood Computer Corporation, for Chantilly, Virginia facility.

	10.22	Lease Agreement, dated July 1, 2003, between Westwood Property Holdings LLC and Westwood Computer Corporation, for Springfield, New Jersey facility.

	10.23	Amendment to Lease Agreement, dated July 14, 2003, between V-Sullyfield Properties II LLC and Westwood Computer Corporation, for Chantilly, Virginia facility.

	10.24	Management Services Agreement, dated April 16, 2004, by and between DARR Global Holdings, Inc., and Westwood Computer Corporation.

	10.25	Employment Agreement, dated as of April 16, 2004, by and between Keith Grabel and Westwood Computer Corporation.

	10.26	Employment Agreement, dated as of April 16, 2004, by and between Mary Margaret Grabel and Westwood Computer Corporation.

Exhibit No.		Description

	10.27	Separation Agreement, dated April 16, 2004, between Westwood Computer Corporation and Joyce Tischler.

	10.28	Subordinated Note, dated April 16, 2004, in the amount of $750,000, made by DARR Westwood Acquisition Corporation in favor of DARR Westwood LLC.⁽¹⁷⁾

	10.29	Subordinated Note, dated April 16, 2004, in the amount of $750,000, made by DARR Westwood Acquisition Corporation in favor of Four Kings Management LLC.⁽¹⁷⁾

	10.30	5% Junior Subordinated Note, dated April 16, 2004, in the amount of $7,771.63, made by Westwood Computer Corporation in favor of Michael John Grabel.

	10.31	5% Junior Subordinated Note, dated April 16, 2004, in the amount of $12,588.89, made by Westwood Computer Corporation in favor of Megan Patricia Grabel.

	10.32	5% Junior Subordinated Note, dated April 16, 2004, in the amount of $132,183.32, made by Westwood Computer Corporation in favor of Mary Margaret Grabel.

	10.33	5% Junior Subordinated Note, dated April 16, 2004, in the amount of $161,151.16, made by Westwood Computer Corporation in favor of Keith Grabel.⁽¹⁷⁾

	10.34	8% Junior Subordinated Note, dated April 16, 2004, in the amount of $23,314.84, made by Westwood Computer Corporation in favor of Michael John Grabel.

	10.35	8% Junior Subordinated Note, dated April 16, 2004, in the amount of $37,766.58, made by Westwood Computer Corporation in favor of Megan Patricia Grabel.

	10.36	8% Junior Subordinated Note, dated April 16, 2004, in the amount of $396,549.13, made by Westwood Computer Corporation in favor of Mary Margaret Grabel.

	10.37	8% Junior Subordinated Note, dated April 16, 2004, in the amount of $483,452.45, made by Westwood Computer Corporation in favor of Keith Grabel.⁽¹⁷⁾

	10.38	First Amendment to Lease Agreement, dated April 16, 2004, between Westwood Property Holdings LLC and Westwood Computer Corporation, for Springfield, New Jersey facility.

	10.39	Lease Agreement, dated May 20, 2004, between Registrant and Facstore, for office space in Cranford, New Jersey.⁽¹⁰⁾

	10.40	Lease Agreement, dated June 1, 2004, between Registrant and Hamilton Transit Corporate Center, for office space in Trenton, New Jersey.⁽¹⁰⁾

	10.41	Lease Agreement, dated September 2, 2004, between Registrant and GS&T Properties, LLC, for Suwanee, Georgia facility.⁽¹¹⁾

	10.42	Sublease Agreement, dated November 24, 2004, between Registrant and vFinance, Inc., for office space in New York, New York.⁽¹¹⁾

	10.43	Amendment to Loan and Security Agreement, dated as of December 10, 2004, between Bank of America Business Capital Corporation and Registrant.⁽¹³⁾

	10.44	Lease Agreement, dated January 1, 2005, between Registrant and Select Office Suites, for a sales office space in New York, New York.⁽¹¹⁾

	10.45	Lease Agreement, dated March 1, 2005, between Twenty Keyland Corporation and Westwood Computer Corporation, for Bohemia, New York facility.

Exhibit No.		Description


	10.47	Revocable License Agreement, dated June 1, 2005, between A.M. Property Holding Corporation and Westwood Computer Corporation, for New York, New York facility.

	10.48	Employment Agreement, dated as of July 14, 2005, between Registrant and John Howlett.⁽¹⁴⁾

	10.49	Employment Agreement, dated as of July 14, 2005, between Registrant and Ronald Seitz.⁽¹⁴⁾

	10.50	Form of Guaranty issued by Registrant in favor of Four Kings Management LLC, Keith Grabel, Mary Margaret Grabel, Megan Patricia Grabel, Michael John Grabel, Darr Westwood LLC, and Joyce Tischler, dated September, 2005.

	10.51	Business Financing Agreement, dated August 5, 2005, by and between GE Commercial Distribution Finance Corporation and subsidiaries of Registrant.⁽¹⁵⁾

	10.52	Agreement for Wholesales Financing, dated August 5, 2005, by and between GE Commercial Distribution Finance Corporation and subsidiaries of Registrant.⁽¹⁵⁾

	10.53	Addendum to Agreement for Wholesales Financing and Business Financing Agreement, dated August 5, 2005, by and between GE Commercial Distribution Finance Corporation and subsidiaries of Registrant.⁽¹⁵⁾

	10.54	Common Stock Purchase Warrant between Registrant and DARR Westwood LLC, dated August 5, 2005.⁽¹⁶⁾

	10.55	Common Stock Purchase Warrant between Registrant and Margaret Grabel, dated August 5, 2005.⁽¹⁶⁾

	10.56	8% Subordinated Promissory Note, dated August 5, 2005, issued by Darr Westwood Technology Corporation in favor of Darr Westwood LLC.⁽¹⁷⁾

	10.57	Assignment of State of New Jersey Contract from Acentra Technologies, Inc. to Registrant.⁽⁶⁾

	14.1	Code of Ethics.⁽¹⁰⁾

	21.1	List of Subsidiaries.

	31.1	Certification of Dinesh R. Desai, Principal Executive Officer of Registrant, dated December 14, 2005. Rule 13a-14(a)/15 d-14(a).

	31.2	Certification of Stephen C. Donnelly, Principal Financial Officer of Registrant, dated December 14, 2005. Rule 13a-14(a)/15 d-14(a).

	32.1	Certificate of Dinesh R. Desai, Principal Executive Officer of Registrant, dated December 14, 2005. Section 1350.

	32.2	Certificate of Stephen C. Donnelly, Principal Financial Officer of Registrant, dated December 14, 2005. Section 1350.

⁽¹⁾	Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated January 17, 2001, filed on January 31, 2001, and incorporated herein by reference.

⁽²⁾	Previously filed as an exhibit to Registrant’s Registration Statement on Form 10, filed on May 21, 2001, and incorporated herein by reference.

⁽³⁾	Previously filed as an exhibit to Amendment No. 1 to Registration Statement on Form 10, filed on July 12, and incorporated herein by reference.

⁽⁴⁾	Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated December 5, 2001, filed on December 20, 2001, and incorporated herein by reference.

⁽⁵⁾	Previously filed as an exhibit to Registrant’s Form 10-K dated March 31, 2001, filed on July 12, 2001, and incorporated herein by reference.

⁽⁶⁾	Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated August 12, 2002, filed on August 26, 2002, and incorporated herein by reference.

⁽⁷⁾	Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated August 31, 2002, filed on September 13, 2002, and incorporated herein by reference.

⁽⁸⁾	Previously filed as an exhibit to Registrant’s Form 10-K, dated March 31, 2002, filed on June 30, 2002, and incorporated herein by reference.

⁽⁹⁾	Previously filed as an exhibit to Registrant’s Form 10-K, dated March 31, 2003, filed on July 15, 2003, and incorporated herein by reference.

⁽¹⁰⁾	Previously filed as an exhibit to Registrant’s Form 10-K, dated March 31, 2004, filed on July 14, 2004, and incorporated herein by reference.

⁽¹¹⁾	Previously filed as an exhibit to Registrant’s Form 10-K, dated March 31, 2005, filed on July 14, 2005, and incorporated herein by reference.

⁽¹²⁾	Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated November 21, 2001, filed on November 26, 2001, and incorporated herein by reference.


⁽¹³⁾	Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated December 10, 2004, filed on December 14, 2004, and incorporated herein by reference.

⁽¹⁴⁾	Previously filed as an exhibit to Registrant’s Current Report on Form 8-K, dated July 14, 2005, filed on July 20, 2005, and incorporated herein by reference.

⁽¹⁵⁾	Previously filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q, dated June 30, 2005, filed on August 19, 2005, and incorporated herein by reference.

⁽¹⁶⁾	Previously filed as an exhibit to Registrant’s Tender Offer Statement on Form SC TO-I, filed September 7, 2005, and incorporated herein by reference.

⁽¹⁷⁾	Previously filed as an exhibit to Amendment to Registrant’s Tender Offer Statement on Form SC TO-I/A, filed September 22, 2005, and incorporated herein by reference.

		2005		2004

Assets

Current Assets

Cash & cash equivalents	$	1,021,237	$	1,215,917
Receivables:
Trade, less allowance for doubtful accounts		34,541,373		17,732,321
Others		3,385,891		1,191,658
Inventories, net		5,770,590		524,262
Prepaid expenses		433,238		79,388
Deferred tax asset - current		603,533		172,232


Total Current Assets		45,755,862		20,915,778

Net property and equipment		917,159		350,236
Deferred tax asset - long term		—		154,344
Customer relationships, net		8,592,844		276,276
Goodwill		8,974,610		—

Restricted cash		5,650,000		—
Other assets		119,443		41,004


Total Assets	$	70,009,918	$	21,737,638

Liabilities and Shareholders’ Equity

Current Liabilities

Line of credit		4,412,526		299,250
Accounts payable - trade		29,738,061		14,259,738
Accounts payable - related party		133,333		33,333
Current portion of long term debt - related party		524,874		349,694
Income taxes payable		828,659		97,786
Accrued liabilities		4,190,728		1,021,994
Due to former stockholders		631,415		664,567
Customer deposits		1,268,672		—
Deferred revenue		1,125,205		385,422


Total Current Liabilities		42,853,473		17,111,784

Accrued severance		380,356		473,489
Deferred tax liability		2,838,298		—
Long term debt - related party		3,010,219		2,405,084


Total Liabilities		49,082,346		19,990,357


Shareholders’ Equity
Redeemable preferred stock,$0.01 par value		—		10
Common Stock $0.01 par value; 25,000,000 shares authorized; 17,232,134 and 9,528,110 shares issued and outstanding at August 31, 2005 and 2004		172,321		95,281

Additional paid-in capital		19,908,779		1,529,709
Retained earnings		846,472		122,281


Total Shareholders’ Equity		20,927,572		1,747,281


Total Liabilities and Shareholders’ Equity	$	70,009,918	$	21,737,638

	Year Ended August 31, 2005			Period from April 17, 2004 to August 31, 2004 (Successor Period)			Period from September 1, 2003 to April 16, 2004 (Predecessor Period)			(Unaudited) Year Ended August 31, 2003

Revenues	$	162,632,042		$	41,641,604		$	88,229,719		$	97,449,611
Cost of revenues		148,587,442			37,617,860			79,596,368			87,843,440

Gross profit		14,044,600			4,023,744			8,633,351			9,606,171

Operating expenses:
Selling, general, and administrative expenses		11,872,766			3,418,755			7,292,265			8,623,016
Management fee – related party		350,000			116,664			—			—
Rent expense – related party		180,000			60,000			155,333			—
Depreciation and amortization		174,944			23,739			51,266			125,054

Total operating expenses		12,577,710			3,619,158			7,498,864			8,748,070


Operating income		1,466,890			404,586			1,134,487			858,101

Other expense (income):
Forgiveness of debt		—			—			(405,652	)		—
Interest income – related party		—			—			(21,483	)		—
Interest income – other		(120,520	)		(25,783	)		(44,479	)		(48,613	)
Interest expense		611,479			184,665			72,819			42,324
Other expense (income)		(303,604	)		—			—			—
Loss on sales of land and building		—			—			—			102,253


Income before income taxes		1,279,535			245,704			1,533,282			762,137
Provision for income taxes		452,550			123,423			647,445			294,747

Net income		826,985			122,281			885,837			467,390


Preferred stock dividends		(72,794	)		(30,000	)		—			—


Net income allocable to common stockholders	$	754,191		$	92,281		$	885,837		$	467,390


Net income per common share
Basic and Diluted	$	0.08		$	0.01		$	0.09		$	0.05

Weighted Average Shares Outstanding
Basic		10,075,520			9,528,110			9,528,110			9,597,871

Diluted		10,108,803			9,528,110			9,528,110			9,597,871

	Year Ended August 31, 2005			Period from April 17, 2004 to August 31, 2004 (Successor Period)			Period from September 1, 2003 to April 16, 2004 (Predecessor Period)			(Unaudited) Year Ended August 31, 2003

Cash Flows From Operating Activities

Net income for the year	$	826,985		$	122,281		$	885,837		$	467,390

Adjustments to Reconcile Net Income to Net Cash (Used In) Provided by Operating Activities

Forgiveness of debt		—			—			(405,652	)		—
Depreciation and amortization		196,755			23,739			51,266			125,054
Loss on sale of land and building		—			—			—			102,253
Deferred income tax (benefit) expense		(147,382	)		50,578			58,303			(203,517	)
Put option valuation		(303,604	)		—			—			—

Changes In Operating Assets and Liabilities
Receivables		(2,118,382	)		(6,854,567	)		579,725			4,918,052
Inventories		(3,090,989	)		(75,838	)		622,947			1,290,429
Prepaid expenses and other assets		(21,380	)		7,706			(22,063	)		45,233
Accounts payable		5,875,608			8,707,348			(1,238,723	)		(1,056,019	)
Customer deposits		(43,935	)		—			—			—
Income Taxes Payable		148,501			—			—			—
Accrued liabilities		1,362,375			(637,962	)		765,315			149,630
Deferred compensation		—			—			—			489,465
Deferred revenue		(74,611	)		16,815			(125,914	)		291,583


Net Cash (Used In) Provided By Operating Activities	$	2,609,941		$	1,360,100		$	1,171,041		$	6,619,553


Cash Flows From Investing Activities

Purchases of property and equipment	$	(491,310	)	$	(147,705	)	$	(45,616	)	$	(67,593	)
Repurchase of treasury stock		—			—			—			(13,670	)
Payments from note receivable		—			—			—			(2,706	)
Acquisition of businesses, net of cash acquired		(678,875	)		(4,917,499	)		—			—


Net Cash Used In Investing Activities	$	(1,170,185	)	$	(5,065,204	)	$	(45,616	)	$	(83,969	)


Cash Flows From Financing Activities

Net Increase (decrease) in line of credit	$	4,054,524		$	299,250		$	(7,121,955	)	$	—
Proceeds from issuance of common stock		16,671			625,000			—			—
Proceeds from issuance of preferred stock		—			1,000,000			—			—
Proceeds from long-term debt		—			1,500,000			—			—
Repayment of amount due to former stockholders		(33,152	)		—			—			—
Increase in restricted cash		(5,350,000	)		—			—			—
Repayment of debt		(322,479	)		—			—			(44,445	)


Net Cash Provided By (Used In) Financing Activities	$	(1,634,436	)	$	3,424,250		$	(7,121,955	)	$	(44,445	)

Net (decrease) increase in Cash and Cash Equivalents	$	(194,680	)	$	(280,854	)	$	(5,996,530	)	$	6,491,139

Beginning Cash and Cash Equivalents	$	1,215,917		$	1,496,771		$	7,493,301		$	1,002,162

Ending Cash and Cash Equivalents	$	1,021,237		$	1,215,917		$	1,496,771		$	7,493,301

	Preferred Stock						Common Stock					Additional Paid-in Capital			Retained Earnings			Treasury Stock, at Cost			Total Stockholders’ Equity

	Shares			Amount			Shares		Amount

Predecessor period
Balance at September 1, 2002 (Unaudited)							9,667,645		$	96,676		$	770,285		$	3,664,339		$	(1,767	)	$	4,529,533
Purchase of treasury stock							(139,535	)		(1,395	)		1,395						(13,670	)		(13,670	)
Net income																467,390						467,390

Balance at August 31, 2003 (Unaudited)							9,528,110		$	95,281		$	771,680		$	4,131,729		$	(15,437	)	$	4,983,253

Capital contribution							—			—			903,811			—			—			903,811
Noncash distribution							—			—			—			(399,587	)		—			(399,587	)
Net income							—			—			—			885,837			—			885,837

Balance at April 16, 2004							9,528,110		$	95,281		$	1,675,491		$	4,617,979		$	(15,437	)	$	6,373,314


Successor period
Balance at April 17, 2004		1,000		$	10		9,528,110		$	95,281		$	1,529,709			—			—		$	1,625,000
Net income		—			—		—			—			—			122,281			—			122,281


Balance at August 31, 2004		1,000		$	10		9,528,110		$	95,281		$	1,529,709		$	122,281		$	—		$	1,747,281

Common stock deemed to be issued in reverse merger							7,676,024			76,760			19,362,670									19,439,430
Dividends on preferred stock																(102,794	)					(102,794	)
Conversion of preferred stock into debt		(1,000	)		(10	)							(999,990	)								(1,000,000	)
Common stock issued upon exercise of options- post merger							28,000			280			16,390									16,670
Net income																826,985						826,985

Balance at August 31, 2005		—		$	—		17,232,134		$	172,321		$	19,908,779		$	846,472		$	—		$	20,927,572

Fiscal Years

	2006	$	975,743
	2007		810,249
	2008		688,430
	2009		383,428
	2010		155,069

	Total	$	3,012,919

Deferred Tax Assets/(Liabilities)		2005			2004

Differences between book and tax basis:
Deferred tax assets:
Trade receivables	$	249,595		$	90,074
Inventories		358,996			36,548
Accrued liabilities		80,726			45,609
Goodwill		74,998			—
Property and equipment		44,113			—
Accrued Liabilities		372,939			189,551

	$	1,181,367		$	411,784

Deferred tax liabilities:
Customer Relationships	$	(3,330,347	)	$	—
Property and equipment		—			(35,208	)
Deferred revenue		(85,785	)		—

	$	(3,416,134	)	$	(35,208	)

Net Deferred tax (liability) asset	$	(2,234,765	)	$	376,576

	2005		2004

Accrued payroll	$	1,042,864	$	263,952
Accrued commissions		511,858		334,551
Accrued state sales taxes		579,056		—
Accrued third party service fees		627,526		—
Industrial funding fee		216,126		—
Other accrued expenses		1,213,298		423,491

	$	4,190,728	$	1,021,994