ASSET PURCHASE AND LIABILITY ASSUMPTION AGREEMENT

 

performance, and whether now or hereafter acquired or arising in the future and any proceeds arising therefrom or relating thereto.

 

“ Accrued Freight Costs ” shall mean all shipping costs that are billed to Eligible Obligors.

 

“ Affiliate ” shall be as defined from time to time by the rules and regulations promulgated by the U.S. Securities and Exchange Commission under the Securities Act of 1933, as amended.

 

“ Asset Purchase Agreement ” shall mean that certain Asset Purchase Agreement, dated as of the date hereof, among Purchaser and the Sellers, as such agreement may be amended, supplemented, restated, amended and restated, or otherwise modified from time to time pursuant to the terms thereof.

 

“ Authorized Supplier ” shall mean any Equipment vendor that is approved in writing by Purchaser.  Purchaser may, upon written notice to the Seller Parent, cease to include any Equipment vendor as an Authorized Supplier.

 

“ Backlog Account ” shall mean an Account:  (i) that arises from a Bona Fide Customer Order received on or prior to the Termination Date; and (ii) for which the related Equipment was ordered pursuant to a Backlog Purchase Order.

 

“ Backlog Purchase Order ” shall mean a purchase order issued by a Seller to an Authorized Supplier prior to the Termination Date that is “billed to” Purchaser or a lender of Purchaser under an Other Floor Plan Financing Agreement and for which the related Equipment was not shipped to the Account debtor on or prior to the Termination Date.

 

“ Bankruptcy Event ” shall mean with respect to any Person, such Person shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled “Bankruptcy,” as now or hereafter in effect, or any successor thereto (the “ Bankruptcy Code ”); or an involuntary case is commenced against such Person and the petition is not dismissed within sixty (60) days after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of such Person, or such Person commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to such Person or there is commenced against such Person any such proceeding which remains undismissed for a period of sixty (60) days, or such Person is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or such Person suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of sixty (60) days; or such Person makes a general assignment for the benefit of creditors; or any corporate action is taken by such Person for the purpose of effecting any of the foregoing.

 

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“ Bona Fide Customer Order ” shall mean any bona fide customer order from an Eligible Obligor that has a Purchase Order Reference Number; provided , that a telephonic order shall not constitute a Bona Fide Customer Order unless accompanied by a purchase order in writing.

 

“ Change of Control ” shall mean any of the following:

 

(i)                                      with respect to the Seller Parent, an acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) of beneficial ownership (within the meaning of Rule 13-d promulgated under the Exchange Act) of 50% or more of either (a) the then outstanding shares of common stock of the Seller Parent or (b) the combined voting power of the then outstanding voting securities of the Seller Parent entitled to vote generally in the election of directors;

 

(ii)                                   with respect to the Seller Parent, individuals who, as of the date hereof, constitute the Board of Directors (the “ Board ”) of the Seller Parent (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of such Board; provided , however , that any individual who becomes a member of such Board subsequent to the date hereof whose election, or nomination for election by shareholders of the Seller Parent was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; provided , further that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board;

 

(iii)                                with respect to any Seller other than the Seller Parent, the failure of the Seller Parent to own, directly or indirectly, 100% of the capital stock or other equity interest in such Seller, except as otherwise permitted in advance in writing by Purchaser in its sole discretion; or

 

(iv)                               the liquidation, winding up, dissolution of any Seller and/or sale of substantially all of the assets of any Seller.

 

“ Collections ” shall mean, with respect to any Purchased Account:  (i) all funds that are received by or on behalf of any Seller in payment of any amounts owed in respect of such Purchased Account (including purchase price, finance charges, interest and all other charges) or Related Security, or applied to amounts owed in respect of such Purchased Account (including insurance payments and net proceeds of the sale or other disposition of repossessed goods or other collateral or property of the related Account Debtor or any other Person directly or indirectly liable for the payment of such Purchased Account and available to be applied thereon) and Unapplied Credits, and (ii) all other proceeds of such Purchased Account and/or any Related Security therefor.

 

“ Contract ” shall mean with respect to any Purchased Account, any and all contracts, instruments, agreements, invoices, notes or other writings pursuant to which

 

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such Purchase Account arises or that evidence such Purchased Account or under which an Account Debtor becomes or is obligated to make payment in respect of such Purchased Account.

 

“ Cost ” shall mean with respect to an item of Equipment, the aggregate amount incurred or otherwise paid by any Seller or Purchaser to the vendor or manufacturer thereof as evidenced by one or more vendor or manufacturer invoices, plus the Reserves, fees, expenses and taxes (each as set forth on Annex A ), less any special bid rebate (other than from any flooring provider) allocated to such purchase price in good faith by Purchaser.  Cost shall be generally consistent with those items included in Annex A attached hereto.  Any exceptions or modifications to the calculation or definition of Cost shall require the prior written approval of Purchaser.

 

“ Credit Insurance ” shall mean credit insurance issued under an insurance policy or account receivable credit protection provided pursuant to the terms of a factoring agreement obtained by either Purchaser or a Seller, in any case, which must be acceptable to Purchaser in its sole discretion.

 

“ Customer Stocking Letter ” shall mean a customer stocking letter substantially in the form of Annex B attached hereto.

 

“ Deferred Purchase Price ” shall have the meaning set forth in Section 3(h) below.

 

“ DSO ” shall mean receivables and inventory days sales outstanding, and shall be calculated for each Month as follows: ((current Month’s ending Accounts, vendor receivables and inventory of the Sellers (for which the Eligible Vendor Liability has been assumed by Purchaser pursuant to the terms hereof) less (the sum of the current Month’s Revenue, plus Accrued Freight Costs and sales tax charged on Purchased Accounts)) divided by (prior Month’s Revenue plus Accrued Freight Costs and sales tax charged on Purchased Accounts divided by prior Month’s days)) plus current Month’s days; provided that the inventory shall be valued at the lower of Cost or market value.  For example, if:

 

current Month’s ending Accounts, vendor receivables and inventory of the Sellers (for which the Eligible Vendor Liability has been assumed by Purchaser pursuant to the terms hereof) = $150 million;

 

current Month’s Revenue plus Accrued Freight Costs and sales tax charged on Purchased Accounts = $80 million;

 

prior Month’s Revenue plus Accrued Freight Costs and sales tax charged on Purchased Accounts = $65 million;

 

prior Month’s days = 30;

 

current Month’s days = 30; then

 

DSO = (150-80) / (65/30) + 30 = 62.3

 

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“ Eligible Account ” shall mean each Account that:

 

(i)                                      arises from a Bona Fide Customer Order; and

 

(ii)                                   arises out of the sale of Equipment in the ordinary course of business of the applicable Seller; and

 

(iii)                                does not arise out of a sale made to an Affiliate of any Seller for operational use by that Affiliate and not for subsequent sale to a customer of such Affiliate; and

 

(iv)                               has no set-off, offset, claim, counterclaim, dispute or defense, genuine or otherwise, to the payment or collection of such Account; and

 

(v)                                  is payable in U.S. dollars and the Equipment related thereto is located inside the continental United States, Canada or on a foreign military base (excluding the province of New Foundland, the Northwest Territories and the Territory of Nunavit); and

 

(vi)                               does not represent a guaranteed sale, a bill and hold transaction, a sale-and-return, a sale on approval, a cash on delivery sale or a consignment sale, or is not made pursuant to any other written agreement providing for repurchase or return; and

 

(vii)                            the Equipment giving rise to such Account has been ordered pursuant to an Eligible Purchase Order, the Eligible Vendor Liability of which has been assumed by Purchaser pursuant to this Agreement, and shipped to the Account debtor, and the Account otherwise represents a final sale; and

 

(viii)                         complies with all applicable laws; and

 

(ix)                                 is not subject to any adverse security interest, lien or encumbrance (including tax liens) other than those in favor of Purchaser; and

 

(x)                                    is eligible for Credit Insurance or otherwise approved as an Eligible Account by Purchaser in writing in advance; and

 

(xi)                                 does not contain terms providing for payment in more than thirty (30) days from the date of invoice; and

 

(xii)                              would qualify as an eligible Account under the Purchaser Senior Credit Agreement or an Other Floor Plan Financing Agreement.

 

“ Eligible Inventory ” shall mean those balances that are the result of Equipment purchased pursuant to Eligible Purchase Orders as evidenced by the costs listed on the vendor or manufacturer invoices issued with respect to any Eligible Purchase Order.  For the avoidance of doubt, Eligible Inventory shall not include any Equipment subject to Section 3(a)(4) hereof.

 

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“ Eligible Obligor ” shall mean only those Account debtors (i) for which the amount of Accounts owed by such Account debtors is entitled to the benefits of Credit Insurance or (ii) which have been approved in writing in advance by Purchaser; provided , however , that for the purposes of this Agreement, no Account debtor shall be deemed an Eligible Obligor in the event that (y) such Account debtor was deemed to be an Eligible Obligor based on information that was provided fraudulently and (z) any Seller had actual knowledge or should have had reason to know that such information was provided fraudulently.

 

“ Eligible Purchase Order ” shall mean a purchase order (i) issued by a Seller to an Authorized Supplier for Equipment, (ii) for which such Seller has a Bona Fide Customer Order from an Eligible Obligor with an estimated shipping date or acceptance date within thirty (30) days of the date of such Bona Fide Customer Order, and (iii) for which the sale of the related Equipment to the Eligible Obligor will create an Eligible Account.

 

“ Eligible Vendor Liability ” shall mean, with respect to any Purchased Account, the liability to an Authorized Supplier for the purchase price of Equipment purchased by a Seller from such Authorized Supplier pursuant to the related Eligible Purchase Order.

 

“ Equipment ” shall mean computers and communications equipment and related equipment and software.

 

“ Fee Grid ” shall mean the grid attached hereto as Schedule I .

 

“ Fee Parameters ” shall have the meaning set forth in Section 3(g) below.

 

“ Final Liquidation Date ” shall have the meaning set forth in the MSA.

 

“ Finance and Servicing Fee ” shall have the meaning set forth in Section 3(f) hereof.

 

“ GAAP ” shall mean Generally Accepted Accounting Principles in the United States of America from time to time applied on a reasonable and consistent basis.

 

“ Gross Profit ” shall mean with respect to each sale of Equipment creating a Purchased Account, Revenue generated by the sale of such Equipment less Cost for such Equipment.

 

“ Gross Profit Margin ” shall mean, for any period, Gross Profit for such period divided by total Revenue for such period, as set forth on Annex A hereto.

 

“ Intercreditor Agreement ” shall mean an intercreditor agreement to be entered into by and between the senior lender of the Sellers and Purchaser, in form and substance reasonably satisfactory to Purchaser.

 

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“ LIBOR Rate ” shall mean the rate of interest published in the Wall Street Journal as the London Interbank Offered Rates for one Month as quoted on the first day of the Month.

 

“ Lockbox Account ” shall mean the lockbox account at the depository bank party to the Lockbox Agreement and identified as the “Concentration Account” in the Lockbox Agreement, or such other account as directed by Purchaser from time to time.

 

“ Lockbox Agreement ” shall mean that certain Lockbox Agreement, dated as of the date hereof, among Purchaser, the Sellers, LaSalle Bank, National Association, as the depository bank, and The CIT Group/Commercial Services, Inc., as collateral agent, as such agreement may be amended, supplemented, restated, amended and restated, or otherwise modified from time to time pursuant to the terms thereof.

 

“ Material Adverse Effect ” shall mean a material adverse effect upon (i) the business, operations, properties, assets, or condition (financial or otherwise) of the Sellers, taken as a whole, (ii) the ability of any Seller to perform its obligations under this Agreement or any other Transaction Document, (iii) the legality, validity, binding effect or enforceability against any Seller of this Agreement or any other Transaction Document, or (iv) the ability of Purchaser to enforce any of its rights or remedies under this Agreement or any other Transaction Document.

 

“ Month ” shall mean each calendar month commencing with the month in which this Agreement becomes effective.

 

“ MSA ” shall mean that certain Master Servicing Agreement, dated as of the date hereof, among Purchaser and the Sellers, as such agreement may be amended, supplemented, restated, amended and restated, or otherwise modified from time to time pursuant to the terms thereof.

 

“ Other Floor Plan Financing Agreements ” shall mean one or more agreements entered into by Purchaser with one or more lenders providing for the financing of Equipment, in any case, as may be amended, supplemented, restated, amended and restated, or otherwise modified from time to time pursuant to the terms thereof.

 

“ Payment Date ” shall mean, with respect to the Purchase Price for all Purchased Assets sold pursuant to this Agreement during any Month or the Finance and Servicing Fee earned during any Month, the last day of such Month plus the number of DSO days for the succeeding month, or if such day shall not be a business day, the immediately succeeding business day.

 

“ Person ” shall mean any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, limited partnership, governmental authority or other entity.

 

“ Purchased Accounts ” shall mean, collectively, the Eligible Accounts that are sold from time to time to Purchaser pursuant to, and subject to the terms and

 

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conditions of, this Agreement.  Upon the effectiveness of a Purchase Supplement, the Eligible Accounts set forth therein shall constitute “Purchased Accounts” hereunder.  To the extent Purchaser elects to purchase a Backlog Account pursuant to Section 3(i) hereof, such Backlog Account shall be deemed to be a Purchased Account.

 

“ Purchased Assets ” shall mean the Purchased Accounts, the Related Security and the Collections.

 

“ Purchase Date ” shall mean each date on which a purchase of Purchased Assets occurs pursuant to Section 2(a) hereof.

 

“ Purchase Order Reference Number ” shall mean the customer reference number identifying a purchase order issued by an Account debtor.

 

“ Purchase Price ” shall mean, with respect to any Purchased Account and all other related Purchased Assets, 100% of the gross book value of such Purchased Account.

 

“ Purchase Supplement ” shall mean a supplement to this Agreement that (i) is duly authenticated (within the meaning of the UCC) by a Seller, (ii) may be in physical or electronic form, (iii) includes a list by invoice sequences of Accounts offered for purchase thereby, which invoice sequences shall have the unique sequence identifier identifying such Account as being sold to Purchaser, as set forth in the Lockbox Agreement, (iv) includes evidence satisfactory to Purchaser that each Account offered for purchase thereby is an Eligible Account and (v) is otherwise acceptable in form and substance to Purchaser in its sole discretion.

 

“ Purchaser ” shall have the meaning set forth in the preamble to this Agreement.

 

“ Purchaser Senior Credit Agreement ” shall mean any factoring agreement, credit agreement, inventory and working capital financing agreement or similar agreement between Purchaser and one or more purchasers or lenders, as applicable, as such agreement may be amended, restated, supplemented, replaced or otherwise modified from time to time.

 

“ Purchaser Senior Creditor ” shall mean any factor or lender that enters into the Purchaser Senior Credit Agreement.

 

“ Rebates ” shall mean credits, rebates, bonuses and discounts offered, owing or payable by any Authorized Supplier, manufacturer, distributor, vendor or flooring provider in connection with any Eligible Purchase Order or the related Equipment, except for any volume or marketing rebates.

 

“ Related Security ” means, with respect to any Purchased Account:

 

(i)                                      all of the applicable Seller’s interest in any Equipment or other goods (including returned and repossessed Equipment and goods) and documentation of title evidencing the shipment or storage of any Equipment or other goods (including

 

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returned and repossessed goods), relating to any sale giving rise to such Purchased Account, and all credits from vendors of the Equipment upon the return, recall or repurchase thereof to or by such vendor, and all Rebates;

 

(ii)                                   all books and records relating to, and all instruments and chattel paper that may evidence, such Purchased Account or Equipment;

 

(iii)                                all other security interests or liens and property subject thereto from time to time purporting to secure payment of such Purchased Account, whether pursuant to the Contract related to such Purchased Account or otherwise, together with all UCC financing statements or similar filings relating thereto;

 

(iv)                               all of the applicable Seller’s rights, interests and claims under the Contracts and all guaranties, letters of credit, indemnities, insurance (including credit insurance on any Purchased Account) and other agreements (including the related Contract) or arrangements of whatever character from time to time supporting or securing payment of such Purchased Account or, where applicable, such Equipment, or otherwise relating to such Purchased Account or Equipment, whether pursuant to the Contract related to such Purchased Account or otherwise;

 

(v)                                  any warranties or other similar rights with respect to any of the Equipment; and

 

(vi)                               all proceeds and products of any of the foregoing.

 

“ Renegotiation Notice ” shall have the meaning set forth in Section 3(g) below.

 

“ Reserves ” shall mean provisions periodically included in Revenue for sales returns, cost for inventory shrink and obsolescence and cost for vendor accounts receivables, in each case, made in accordance with GAAP.

 

“ Revenue ” shall mean with respect to each sale of Equipment related to a Purchased Account, (i) the purchase price invoiced to the end user for such Equipment less (ii) the sum of any Accrued Freight Costs plus any sales tax.

 

“ Schedule of Exceptions ” shall mean Schedule IV attached hereto.

 

“ Seller Storage Site ” shall have the meaning set forth in Section 3(a) hereof.

 

“ Sellers ” shall have the meaning set forth in the preamble to this Agreement.

 

“ Termination Date ” shall mean the date on which this Agreement is terminated in accordance with Sections 3(g) or 11 hereof.

 

“ Termination Event ” shall have the meaning set forth in Section 11(b) below.

 

“ Termination Fee ” shall have the meaning set forth in Section 11(e) below.

 

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“ Termination Option ” shall have the meaning set forth in Section 11(g) below.

 

“ Transaction Documents ” shall mean, collectively, this Agreement, the Lockbox Agreement, the MSA, the Asset Purchase Agreement, any Purchase Supplement and all other instruments, documents and agreements executed by or on behalf of any Seller and delivered concurrently herewith or at any time hereafter to Purchaser in connection with the Purchased Accounts and other transactions contemplated by this Agreement, all as amended, supplemented, restated, amended and restated, or otherwise modified from time to time pursuant to the terms thereof.

 

“ UCC ” shall mean the Uniform Commercial Code as in effect in the State of New York from time to time.

 

“ Unapplied Credits ” shall mean any credits to an Account that are unapplied for six (6) consecutive Months and which, in the reasonable judgment of Purchaser, will not be applied in the future.

 

“ Vendor Services ” shall have the meaning set forth in Section 3(c) hereof.

 

(b)                                  Other Defined Terms; Accounting Terms; GAAP .  Terms used in this Agreement that are defined in the UCC but not defined in this Section 1 shall have the meanings given such terms in the UCC.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise or as otherwise expressly provided in this Agreement: (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, amended and restated, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein); (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns; (iii) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof; (iv) all references herein to Sections, Annexes and Schedules shall be construed to refer to Sections of, and Annexes and Schedules to, this Agreement (unless expressly referring to another agreement); (v) all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP; and (vi) all calculations and other information required to be made or delivered pursuant to this Agreement shall be prepared in accordance with GAAP as in effect at the time of such preparation.

 

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2.                                        Sale .

 

(a)                                   Purchase .  Upon the terms and subject to the conditions set forth herein, each of the Sellers hereby agrees to sell, convey, transfer and assign to Purchaser, and Purchaser hereby agrees to purchase and accept such conveyance, transfer and assignment from each of the Sellers, on the terms and subject to the conditions set forth herein, of all of the applicable Seller’s right, title and interest, whether now owned or hereafter acquired, in, to and under certain Purchased Accounts identified in a duly authenticated Purchase Supplement, the Related Security and the Collections; provided that the Termination Date has not occurred.

 

(b)                                  Purchase Price .  The price for each Purchased Account and all other related Purchased Assets shall equal the Purchase Price, which shall be payable as set forth in Sections 3(b) and (h) below.

 

3.                                        Product Financing and Assumption of Liability .

 

(a)                                   Product Financing .  Purchaser hereby agrees to finance the purchase price of any Equipment purchased by a Seller pursuant to an Eligible Purchase Order, which may be financed by Purchaser under the Purchaser Senior Credit Agreement, any Other Floor Plan Financing Agreements or under separate terms.  All Eligible Purchase Orders shall have a unique sequence number mutually agreed to among the Sellers and Purchaser.  Subject to clause (b) below, the Sellers shall repay the purchase price of any Equipment financed by Purchaser upon demand together with the Finance and Servicing Fee attributable to such Equipment as if it related to a Purchased Account, as determined by Purchaser in good faith; provided , that such amount shall be immediately due and payable in U.S. dollars and in immediately available funds, without any demand or other notice by Purchaser, on the first date on which any of the following occurs:  (i) the underlying purchase order is no longer an Eligible Purchase Order; (ii) the resulting Account is not an Eligible Account or is not purchased under this Agreement by Purchaser; and (iii) unless otherwise pre-approved by Purchaser in writing, the related Equipment has not been shipped within thirty (30) days of the date of the related Bona Fide Customer Order.  In addition, each of the Sellers hereby agree as follows:

 

(1)                                   To secure the prompt payment and performance of its obligation to repay Purchaser for the purchase price of any such Equipment, each of the Sellers hereby grants to Purchaser a valid and first priority, perfected security interest and lien in all of such Seller’s right, title and interest in, to and under, whether or not existing or hereafter acquired and wheresoever located, all such Equipment and the proceeds thereof (including any Account created from the sale thereof).  Each of the Sellers hereby authorizes Purchaser to file any UCC financing statements or continuation statements in any jurisdiction as Purchaser may deem necessary or desirable in order to perfect and maintain such security interest.

 

(2)                                   Each of the Sellers shall arrange that all Equipment ordered by it be either shipped directly to the applicable Eligible Obligor or, in the event that in the reasonable judgment of such Seller such direct shipment is not practicable, be stored, pending shipment to such customers, at the sole cost and expense of such Seller, in a commercially reasonable manner, at a location controlled by or under contract with such Seller that has been pre-approved by Purchaser in writing (a “ Seller Storage Site ”).  The applicable Seller shall provide Purchaser with prompt notice of the use of and the Equipment stored in any Seller Storage Site and the location, owner and operator of any

 

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such Seller Storage Site.  Each of the Sellers agrees to use its best efforts to cause any third party lessor or warehouseman of any Seller Storage Site to acknowledge Purchaser’s and any Purchaser Senior Creditor’s interest in the Equipment located at such lessor’s or warehouseman’s Seller Storage Site.

 

(3)                                   Each of the Sellers agrees that any Equipment which is billed to any Account debtor but has not yet been shipped by such Seller shall be kept physically segregated from all other Equipment in such Seller’s possession and such Equipment shall be identifiable as “sold”.  Each of the Sellers further agrees that any Equipment purchased by such Seller with its own resources or credit provided from sources other than Purchaser shall be shall be identifiable as “Property of Dyntek, Inc.” or “Property of Dyntek Services, Inc.”, as applicable, and shall be kept physically segregated from all other Equipment in such Seller’s possession.

 

(4)                                   No purchase of Equipment to support customer stocking levels or bill and holds (or the like) are eligible to be financed under this Section 3(a) unless (y) a Seller provides prior written consent or (z) the Equipment so purchased is supported by a Customer Stocking Letter.

 

(b)                                  Assumption of Liability; Payment of Purchase Price .  Upon the purchase of a Purchased Account, Purchaser hereby assumes all related Eligible Vendor Liability and no Seller shall have any further obligation to pay all or any portion of such Eligible Vendor Liability.  The assumption of Eligible Vendor Liability in any Month shall (i) constitute partial payment of the Purchase Price for the Purchased Assets sold under this Agreement during such Month in an amount equal to the aggregate amount of all such assumed Eligible Vendor Liability and (ii) terminate the obligation of the Sellers to repay the purchase price of the related Equipment in connection with the product financing by Purchaser pursuant to clause (a) above.

 

(c)                                   Vendor Servicing .  Purchaser agrees to service and administer the payment of Eligible Purchase Orders to the applicable Authorized Supplier (the “ Vendor Services ”).  For the avoidance of doubt, the Vendor Services shall not include any Services (as such term is defined in the MSA).

 

(d)                                  No Warranty .  Each of the Sellers hereby acknowledges and agrees that Purchaser does not warrant any Equipment and Purchaser shall not be responsible for any Equipment that is defective or fails to conform to the warranties extended by the Authorized Supplier or manufacturer of such Equipment.

 

(e)                                   Unapplied Credits; Vendor Credits, Rebates and Discounts .  Each of the Sellers hereby acknowledges and agrees that any and all (a) Unapplied Credits and (b) Rebates are and shall be the property of Purchaser.

 

(f)                                     Finance and Servicing Fee .  Purchaser shall be entitled to a finance and servicing fee (the “ Finance and Servicing Fee ”) in respect of the product financing and Vendor Services provided by Purchaser under this Section 3 during each Month in an amount equal to the product of (y) 1 minus the applicable percentage set forth on the Fee Grid based upon the Gross Profit Margin and the DSO for each Month times (z) the aggregate Gross Profit for such Month; provided , that, notwithstanding anything to the contrary contained herein, in the event

 

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the LIBOR Rate exceeds 3.50% during any Month, the applicable percentage set forth on the Fee Grid for purposes of calculating the Finance and Servicing Fee for the immediately succeeding Month shall be decreased by the amount by which the LIBOR Rate exceeded 3.50%.  In addition to the payment of the Finance and Servicing Fee, as consideration for the product financing and Vendor Services provided by Purchaser under this Section 3 , the Sellers shall also provide certain Services (as defined under the MSA) in connection with the Purchased Assets pursuant to the MSA.

 

(g)                                  Fee Parameter .  The Fee Grid has been calculated based on the parameters contained in the table immediately below (the “ Fee Parameters ”).  If, at any time, the actual values deviate from those in the “Forecast Level” column by more than the amount specified in the “Acceptable Range” column, Purchaser, in its election, may elect to terminate this Agreement in accordance with Section 11 or may re-open negotiations regarding the amount and calculation of the Financing and Servicing Fee by providing the Seller Parent with notice of its desire to re-open negotiations (such notice, the “ Renegotiation Notice ”).  Each of the Sellers and Purchaser agrees to conduct such negotiations, if any, in good faith.

 

 

(h)                                  Payment and Settlement of Purchase Price and Finance and Servicing Fee .

 

(1)                                   On each Payment Date (a) Purchaser shall pay to the Seller Parent, for the benefit of the Sellers, the remaining Purchase Price for all Purchased Assets sold pursuant to this Agreement during the related Month (after deducting the aggregate amount of all Eligible Vendor Liability assumed by Purchaser during such Month) and (b) the Sellers shall pay to Purchaser the Finance and Servicing Fee earned in respect of such Month; provided , that the Purchase Price shall be payable on such Payment Date only to the extent that Purchaser has retained and not paid to the Seller Parent, for the benefit of the Sellers, as of such Payment Date and after giving effect to the payment of such Purchase Price, at least $750,000 (or such lesser amount as further set forth in Schedule II hereof) in aggregate deferred Purchase Price (such retained amount, the “ Deferred Purchase Price ”).  Any Deferred Purchase Price retained by Purchaser shall be payable to the Seller Parent, for the benefit of the Sellers, on the earliest to occur of (i) the Final Liquidation Date, (ii) the date on which the Termination Option is consummated, and (iii) such earlier date as determined by Purchaser in its sole discretion.

 

(2)                                   The Parties hereby agree that the remaining Purchase Price and the Finance and Servicing Fee for any Month shall be netted and settled in U.S. dollars on the applicable Payment Date.  In addition, any payment of Purchase Price shall be reconciled

 

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prior to payment to deduct any other amounts then due and payable to Purchaser under any Transaction Document.  Any net payments to the Seller Parent or Purchaser shall be made by wire transfer in immediately available funds to the account of either party as such party may indicate in a written notice delivered to the other from time to time.

 

(3)                                   Notwithstanding anything to the contrary in this Section 3(h) , but subject to the provisions of Section 11 , in the event that this Agreement is terminated by Purchaser or the Seller Parent pursuant to Section 11 , (a) the amount of the Deferred Purchase Price payable to the Sellers shall be retained by Purchaser so long as any amounts hereunder or under any other Transaction Document may be due and owing to Purchaser, including, without limitation, pursuant to Sections 3 , 8 , 9 , 11 , or 14 and (b) the amount of the Deferred Purchase Price payable to the Sellers shall be reduced by any such amount due and owing to Purchaser hereunder or under any other Transaction Document.  Any amount of the Deferred Purchase Price remaining after all amounts payable to Purchaser hereunder or under any other Transaction Document have been paid in full in immediately available funds shall be promptly paid to the Seller Parent, for the benefit of the Sellers.

 

(4)                                   If the Seller Parent disagrees with any amounts retained or reduced by Purchaser pursuant to this Section 3(h) , the Seller Parent may provide written notice to Purchaser setting forth the disputed amount and the reasons for such dispute and Purchaser shall enter into good faith discussions with the Seller Parent to resolve such dispute.

 

(i)                                      Backlog Accounts .  Upon the occurrence of the Termination Date, Purchaser, at its sole discretion, may elect to (i) purchase any or all Backlog Accounts, in which case, any such Backlog Account shall be deemed to be a Purchased Account and shall be subject to the terms hereof notwithstanding the fact that such Account shall be created after the Termination Date and/or (ii) cancel any or all Backlog Purchase Orders or cause to be terminated any or all transaction authorizations (or the like) in connection with any or all Backlog Purchase Orders.

 

4.                                        Effectiveness; True Sale; Disclaimer of Liability .  Each of the Sellers and Purchaser agree that the sale and assignment of each Purchased Asset pursuant hereto shall be effected imme