Exhibit 10.5
THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE TRANSFERRED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OR STATE SECURITIES LAWS OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED.
WESTWOOD COMPUTER CORPORATION
SUBORDINATED PROMISSORY
NOTE
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$655,600
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Made as of: February 5,
2007
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Maturity Date: April 16,
2009
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Westwood Computer Corporation, a
New Jersey corporation (the “Company,” which term
includes any successor corporation or other business entity), for
value received, hereby promises to pay to Mary Margaret Grabel (the
“Holder”), the principal sum of Six Hundred Fifty-Five
Thousand Six Hundred Dollars ($655,600) (the “Principal
Amount”).
This Note is issued pursuant to the
consummation of the transactions contemplated by the Amended and
Restated Employment Agreement, dated as of the date hereof, by and
among the Company and the Holder (the “Employment
Agreement”).
The following is a statement of the
rights of the Holder and the terms and conditions to which this
Note is subject, and to which the Holder hereof, by acceptance of
this Note, agrees:
1.
Interest . The Company promises to pay interest (computed on
the basis of actual days elapsed and a year of 360 days) on the
unpaid Principal Amount of this Note at an interest rate equal to
five percent (5%) per annum.
2.
Prepayment . This Note may be prepaid at any time in whole
or in part without premium or penalty.
3.
Repayment . This Note shall be repaid in twenty-seven
monthly principal payments, each such payment in the amount of
3.70% of the Principal Amount, with such payments beginning on the
first day of the month immediately following issuance of this Note
with the final principal payment coming on the third anniversary of
the date of this Note. Each principal payment shall be accompanied
by all interest then accrued and unpaid on this Note.
4.
Method of Payment . The Company will pay the outstanding
principal in currency of the United States that at the time of
payment is legal tender for payment of public
and private debts. Payments
shall be made to the Holder by delivering a check at the
Holder’s address listed on the books of the Company or to
such other address designated in writing by the Holder and provided
to the Company at least ten (10) business days before the Maturity
Date.
5.
Events of Default .
(a)
An
“Event of Default” under this Note occurs
if:
(i)
the
Company defaults in the payment of the principal of this Note when
the same becomes due and payable on the Maturity Date or otherwise
and such default continues for thirty (30) days;
(ii)
the Company shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against the
Company seeking to adjudicate it bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee or other similar official for it
or for any substantial part of its property and in the case of any
such proceeding instituted against the Company such proceeding
shall not be stayed or dismissed within sixty (60) days from the
date of institution thereof; or
(iii)
the Company terminates Holder’s employment with the Company
pursuant to Section 3(f) of the Employment Agreement.
(b)
Acceleration . If an Event of Default occurs and is
continuing, the Holder, by written notice to the Company, may
declare the unpaid principal of this Note to be immediately due and
payable. The Holder by written notice to the Company may rescind an
acceleration and its consequences if (i) all existing Events of
Default, other than the nonpayment of principal of this Note which
has become due solely because of the acceleration, have been cured
or waived and (ii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction.
(c)
Interest Rate Upon Default . If an Event of Default (other
than an Event of Default specified in clauses (a)(ii) or (a)(iii)
of Section 5) occurs and is continuing, the Interest Rate on this
Note shall increase by five percent (5%) (the “Default
Interest Rate”). The Default Interest Rate shall apply only
to those periods during which an Event of Default is continuing.
Upon the Company curing any Event of Default, the Default Interest
Rate shall revert to the Interest Rate. Upon an Event of Default,
the Company promises to pay all costs and expenses of collection of
this Note and to pay all reasonable attorneys’ fees incurred
in such collection.
(d)
Waiver of Past Defaults . The Holder may waive an existing
Default or Event of Default and its consequences. Upon any such
waiver, such Default shall
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cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for
every purpose of this Note; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent
thereon.
6.
Subordination .
(a)
Definitions . The following terms have the following
meanings:
“ Affiliate ”
means any person or entity (“Person”), each of the
Persons that directly or indirectly, through one or more
intermediaries, owns or controls, is controlled by or is under
common control with, such Person. For the purpose of this
Agreement, “control” means the possession, directly or
indirectly, of the power to direct or cause the direction of
management and policies, whether through the ownership of voting
securities, by contract or otherwise.
“ Credit Agreement
” means any loan document entered into by the Company and the
Lender (including agreements relating to any interest or exchange
rate hedging agreement or other derivative obligation) and any
guaranty of the Company’s or any of the Company’s
subsidiaries’ obligations thereunder pursuant to the Senior
Loan Documents, as such agreement may hereafter be amended,
extended, supplemented, increased, renewed, refinanced or otherwise
modified, and any loan, financing or credit agreement entered into
with any Refinancing Lender.
“ Holder ” as
used in this Section 6 means a holder or owner of this Note and any
other holder or owner of Subordinated Debt.
“ Indebtedness ”
means, without duplication, with respect to any person, (a) all
indebtedness of such person for borrowed money; (b) all obligations
of such person for the deferred purchase price of property or
services; (c) all obligations of such person evidenced by notes,
bonds, debentures or other similar instruments; (d) all
indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such
person (even though the rights and remedies of the seller or lender
under such agreement in the event of default are limited to
repossession or sale of such property); (e) all obligations of such
person as lessee under leases that have been or should be, in
accordance 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
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rate hedging agreements (i) all
Indebtedness of the type referred to in clauses (a) through (h)
above guaranteed directly or indirectly in any manner by such
person, or in effect guaranteed directly or indirectly by such
person through an agreement (i) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of
such Indebtedness or to assure the holder of such Indebtedness
against loss, (iii) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property
or services irrespective of whether such property is received or
such services are rendered) or (iv) otherwise to assure a creditor
against loss; and (j) all Indebtedness of the type referred to in
clauses (a) through (h) above secured by (or for which the holder
of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any lien on property (including,
without limitation, accounts and contract rights) owned by such
person, even though such person has not assumed or become liable
for the payment of such Indebtedness, but excluding trade and other
accounts payable in the ordinary course of business in accordance
with customary trade terms and which are not overdue for more than
90 days, or as to which a dispute exists and adequate reserves in
conformity with United States generally accepted accounting
principles have been established on the books of such
person.
“ Lender ” means
any bank or other independent financial institution providing
Senior Debt to the Company.
“ Loan Parties ”
shall mean the Company and any Subsidiary which is an obligor under
the Credit Agreement or any other Senior Loan Document.
“ Non-payment Default
” means any default or event of default (other than a Payment
Default) under any agreement or instrument relating to Senior Debt.
For purposes of the immediately preceding sentence, an “event
of default” shall exist when as a result thereof the holders
of the pertinent Senior Debt are then permitted to cause such
Senior Debt to become due prior to its scheduled
maturity.
“ Payment Default
” means any default in the payment of principal of, premium,
if any, interest on, or other amounts payable on, or in connection
with Senior Debt, irrespective of whether such default in payment
results from a failure to pay any amount when originally scheduled
to be paid or upon acceleration or otherwise.
“ Post Petition
Interest ” means interest payable on any Senior Debt
following the filing of a case against any Loan Party under Title
11 of the United States Code or any other bankruptcy, insolvency or
similar law.
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“ Refinancing Lender
” shall mean any lender which shall refinance in whole or
part, the Senior Debt payable to the Lender or a successor lender
thereto and any lender which shall provide additional financing to
the Company and/or its Subsidiaries from time to time, subject to
the limitations contained in this Note.
“ Senior Creditors
” means the Lender or any Refinancing Lender until the Senior
Debt has been finally and indefeasibly paid in full and thereafter
any other holders of Senior Debt as their interests may
appear.
“ Senior Debt ”
means all Indebtedness except (i) Indebtedness that by its terms is
subordinated or pari passu in right of payment to this Note, (ii)
Indebtedness of the Company to an Affiliate of the Company and
(iii) any indebtedness of the Company or Emtec, Inc. to DARR Global
Holdings, Inc. or any of its Affiliates. Senior Debt shall include,
without limitation, (a) all Indebtedness of the Company and its
Subsidiaries to De Lage Landen Financial Services, Inc.
(“DLL”) under the credit agreement dated as of December
7, 2006, as amended, including principal, premium, if any, and
interest on such Indebtedness and all other amounts due on or in
connection with such Indebtedness, including all charges, fees,
indemnities, and expenses (including reasonable fees and expenses
of counsel), (b) any amendment, modification, extension or
replacement of any of the Company’s existing credit
facilities so long as the formula utilized to calculate the
indebtedness permitted by such facilities does not exceed 100% of
the Company’s cash, accounts receivable and inventory
(including floor plan financing inventory) and all other amounts
due on or in connection with such Indebtedness, including all
charges, fees, indemnities, and expenses (including reasonable fees
and expenses of counsel), (c) the Subordinated Note made in favor
of Four Kings Management LLC in the amount of $750,000, including
principal, fees and interest under such Note, and (d) all
amendments, extensions, renewals, refinancings and deferrals of the
Indebtedness referred to in clauses (a) through (c)
above.
“ Senior Default
” means a Payment Default or a Non-payment
Default.
“ Senior Loan
Documents ” means all documents executed in connection
with any financing provided by a Lender or Refinancing
Lender.
“ Significant
Subsidiary ” means any subsidiary of the Company that
would be a “significant subsidiary” as defined in Rule
1.02(v) of Regulation S-X promulgated pursuant to the Securities
Act.
“ Subsidiary ”
means any entity more than 50% of the outstanding voting power of
the voting stock or other voting interest of which is controlled,
directly or indirectly, by the Company.
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“ Subordinated Debt
” means all obligations of the Company now or hereafter
existing (a) under this Note (whether created directly or acquired
by assignment or otherwise), as it may hereafter be amended,
extended, supplemented or otherwise modified from time to time,
whether for principal, interest (including, without limitation,
Post-Petition Interest), fees, expenses or otherwise, (b) all
obligations of any of the Loan Parties in respect of (i) any
Indebtedness incurred by any of the Loan Parties to extend,
increase, refund or refinance, in whole or in part, the
Subordinated Debt, including interest and premium on any such
Indebtedness, (ii) any loan or credit agreement entered into by any
of the Loan Parties in connection with any such Indebtedness, as
such agreement may be amended, extended, supplemented or otherwise
modified from time to time, and (iii) all other amounts payable in
respect of any such Indebtedness or agreement, including, without
limitation, amounts payable (A) in respect of any indemnity and (B)
in respect of any breach of a representation or a warranty, (c) the
Subordinated Note in favor of DARR Global Holdings, Inc. in the
amount of $1,002,900, (d) the Subordinated Note in favor of DARR
Westwood LLC in the amount of $750,000 and (e) the Promissory Note
in favor of DARR Westwood LLC in the amount of
$1,102,794.
(b)
Subordinated Debt Subordinated to Senior Debt . The Company,
for itself and its successors, and each Holder, by its acceptance
thereof, agrees that the Subordinated Debt is and shall be
subordinated in right of payment to the prior final and
indefeasible payment in full of all Senior Debt. For the purposes
of this Note, Senior Debt shall not be deemed to have been finally
and indefeasibly paid in full until the holders or owners of the
Senior Debt shall have indefeasibly received payment of all Senior
Debt in cash and as long as the Lender or any Refinancing Lender
shall have any obligation to lend or advance under the Senior Loan
Documents. This Section 6 shall constitute a continuing offer to
all persons who, in reliance upon such provisions, become holders
of, or continue to hold, Senior Debt, and such provisions are made
for the benefit of the holders of Senior Debt, and such holders are
made obligees hereunder and any one or more of them may enforce
such provisions.
(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 6 shall be made to holders of Senior Debt as their
interests may appear.
(ii)
In the event that (i) any Payment Default shall have occurred and
be continuing, unless and until such default shall have been cured
or waived in writing, or (ii) any judicial proceeding shall be
pending with respect to any such Payment
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Default, then no payment
(including any payment which may be payable by reason of the
payment of any other indebtedness of the Company being subordinated
to payment of the Subordinated Debt) shall be made by or on behalf
of the Company for or on account of any Subordinated Debt (but not
including any payment by accrual), and the Holder shall not take or
receive from the Company or any Subsidiary, directly or indirectly,
in cash or other property, or by set-off or in any other manner,
including, without limitation, from or by way of collateral,
payment of all or any of the Subordinated Debt. The Holder shall
immediately deliver to the Lender or any Refinancing Lender (or the
Representative (as defined below) of the Senior Creditors if the
Senior Debt has been finally and indefeasibly paid in full) any
monies, securities or other property received by the Holder or its
equivalent in cash, with proper endorsement or assignment if
necessary, and prior to such delivery shall hold in trust, such
monies, securities or other properties solely as trustee for and
for the benefit of the Senior Creditors as set forth in this
sentence.
(iii)
Upon written notice from the Lender or any Refinancing Lender (or,
if the Senior Debt has been paid finally and indefeasibly in full,
the representative selected by holders of 50% or more of the Senior
Debt of the applicable Senior Creditor (the
“Representative”)) to the Company and the Holder of a
Non-payment Default and such Non-payment Default shall not have
been cured or waived in writing, no payment (including any payment
which may be payable by reason of the payment of any other
Indebtedness of the Company being subordinated to payment of the
Subordinated Debt) shall be made by or on behalf of the Company for
or on account of any Subordinated Debt, and the Holder shall not
take or receive from the Company, directly or indirectly, in cash
or other property or by set-off or in any other manner, including,
without limitation, from or by way of collateral, payment of all or
any of the Subordinated Debt, during the period (the “Payment
Blockage Period”) commencing on the date of receipt by the
Company of such notice (which shall give prompt notice to the
Holder), and ending (unless earlier terminated by notice from the
Lender or any Refinancing Lender (or, if the Senior Debt has been
paid
