STRATEGIC AGREEMENT
Exhibit
10.5
Confidential
Treatment
Requested:
Confidential
portions of
this document have been redacted and have been filed separately with the
Commission.
This
Strategic Agreement (the
“Agreement”) is made and entered into as of the 21st
day of May 2004 by and between InterMetro Communications,
Inc., a California corporation (“IMC”), and Qualitek Services, Inc., a
California corporation (“QSI”), with respect to the following facts:
R
E C I T A L S
WHEREAS,
IMC is
engaged in the business of building a network to provide Internet Protocol
services (the “Network”).
WHEREAS,
QSI is
engaged in the business of selling networking and IT equipment, including [***]
(the “Equipment”). The term Equipment will include additional types of
networking and IT equipment if agreed to by the parties by written amendment
to
this Agreement.
WHEREAS,
IMC
believes that the Equipment will help IMC to expand its Network.
WHEREAS,
QSI
desires to provide Equipment to IMC and IMC desires to acquire Equipment from
QSI pursuant to the terms and conditions of this Agreement.
NOW,
THEREFORE, for
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged by the parties to this Agreement, and in light of the above
recitals to this Agreement, the parties to this Agreement hereby agree as
follows:
| 1. | Equipment Orders. |
During
the term of this Agreement,
QSI agrees to make available for purchase by IMC a minimum of:
(a)
[***]
(b)
[***]
(c)
[***]
Unless
otherwise agreed by the
parties in writing, IMC may order up to [***] during any calendar month. Within
ten (10) days after receipt of a written purchase order from IMC, QSI will
deliver each piece of Equipment ordered per IMC’s specifications, which may or
may not include cables, software, licenses and other essential components which
constitute the particular piece of Equipment, to the location designated by
IMC
in the purchase order at IMC’s expense; provided, however, IMC reserves the
right to approve the method and provider for delivery. Attached to this
Agreement as Exhibit A is IMC’s projection of the Equipment it plans to order
each month during the term of this Agreement. IMC reserves the right,
exercisable in its sole discretion, to modify Exhibit A upon thirty
(30) days prior notice to QSI. Exhibit A is only a projection and this
Agreement, along with Exhibit A, does not obligate IMC to purchase any Equipment
from QSI.
[***]Confidential
material redacted
and filed separately with the Commission.
-1-
This
Agreement constitutes a
security agreement and pledge agreement for all purposes under the Uniform
Commercial Code and California Law. QSI shall be the security holder of any
and
all Equipment provided to IMC under this Agreement, for which the Purchase
Price
(see below) has not been completely paid. The UCC filing will place QSI in
first
position regarding all Equipment sold to IMC. Upon full payment of the Purchase
Price, QSI will promptly file proper documentation which releases QSI’s security
interest in that particular piece of Equipment. IMC will then own that
particular piece of Equipment free and clear of any liens or encumbrances.
| 2. | Equipment Warranty and Technical Support. |
QSI
warrants that each piece of
Equipment purchased by IMC will remain in proper working condition and be free
of any defects for one (1) year from the date IMC receives delivery of the
piece of Equipment (“Warranty Period”). During the Warranty Period, if IMC
determines that a piece of Equipment is defective, QSI, at its sole expense,
will deliver a replacement piece of Equipment to the location designated by
IMC
within twenty-four (24) hours of receipt of notice of such defect from IMC.
IMC will return the defective Equipment to QSI, at QSI’s sole expense. QSI
agrees to provide its standard technical support services to IMC at no charge
so
that IMC can implement the Equipment ordered into the Network.
| 3. | Right of First Refusal. |
3.1.
Equipment
Purchases
by IMC. In the event IMC is able to procure a quote from a
third-party vendor for a piece of Equipment at a price lower than the Economic
Value, as defined in Section 4.1 of this Agreement, for such piece of
Equipment, IMC agrees to notify QSI of such quote in writing before purchasing
such piece of Equipment from the third party vendor (the “Purchase
Notification”). For a period of two (2) business days after receipt of the
Purchase Notification, QSI will have the right to match the quote. If QSI
matches the quote, IMC must purchase such piece of Equipment from QSI at the
quote price and pursuant to the other terms of this Agreement. If QSI does
not
match the quote, IMC may purchase such piece of Equipment from the third-party
vendor at the quote price.
3.2.
Equipment
Sales by
IMC. In the event IMC desires to sell any piece of Equipment
purchased by IMC from QSI pursuant to this Agreement, IMC agrees to notify
QSI
in writing of the terms of IMC’s proposed sale of Equipment, including the sales
price (the “Sales Notification”). For a period of two (2) business days
after receipt of the Sales Notification, QSI will have the right to purchase
the
Equipment at the price and on the terms specified in the Sales Notification.
If
QSI does not purchase the Equipment from IMC within this period, IMC may sell
the Equipment at the price and on the terms specified in the Sales Notice to
a
third party.
| 4. | Equipment Purchase Price. |
4.1.
Economic
Value. For the purposes of this Agreement the parties agree to
assign the following values (the “Economic Values”) to each type of Equipment:
(a)
[***]
(b)
[***]
(c)
[***]
[***]Confidential
material redacted
and filed separately with the Commission.
-2-
The
Economic Value of any additional
type of networking or IT equipment added to this Agreement by the parties will
be set forth in a written amendment to this Agreement.
4.2
Purchase
Price. The purchase price of each piece of Equipment is [***]
Economic Value of such piece of Equipment (the “Purchase Price”) payable in cash
as set forth in Section 4.3 of this Agreement. Except as otherwise set
forth in this Agreement, with respect to each piece of Equipment purchased
by
IMC from QSI pursuant to this Agreement, the Purchase Price must be paid in
full
to QSI within [***] from the date of receipt of delivery by IMC of such piece
of
Equipment (the “Settlement Date”); provided IMC reserves the right to pay any
outstanding Purchase Price before the Settlement Date. IMC’s obligation to pay
the Purchase Price with respect to each piece of Equipment ordered and received
by IMC will survive the term of this Agreement. Notwithstanding anything else
to
the contrary in this Agreement, under no circumstances will the aggregate MQER,
as defined in Section 4.3 of this Agreement, paid by IMC to QSI with
respect to a piece of Equipment exceed the Purchase Price of such piece of
Equipment.
Notwithstanding
the foregoing, the
Purchase Price of each [***] is payable, determinable in IMC’s sole discretion,
as follows: (a) one warrant to purchase one share of IMC common stock at an
exercise price equal to the amount paid by investors for IMC’s stock in IMC’s
most recent round of financing for each dollar of Economic Value or
(b) cash in the amount of a reduced MQER calculated utilizing [***] of the
QRM, as defined in Section 4.3 of this Agreement, until QSI receives the
Purchase Price, plus one warrant to purchase one share of IMC common stock
at an
exercise price equal to the amount paid by investors for IMC’s stock in IMC’s
most recent round of financing for every two (2) dollars of Economic Value.
IMC must notify QSI in writing at the time IMC places a [***] order as to
whether (a) or (b) above described will apply to that particular [***]
order. Applicable warrants will be issued within thirty (30) days after
receipt of delivery by IMC of the applicable [***].
4.3
Calculation
of
Monthly Qualitek Equipment Revenue. With respect to each piece of
Equipment, each month IMC will pay QSI the applicable Monthly Qualitek Equipment
Revenue (“MQER”) toward the Purchase Price of such piece of Equipment. The MQER
for each piece of Equipment will be calculated by multiplying the total number
of Network minutes carried through such piece of Equipment during the previous
calendar month by one of the following Qualitek Revenue per Minute (“QRM”)
multipliers, as applicable:
| (a) | [***] |
| (b) | [***] |
IMC
shall have sixty (60) days
from the receipt of each piece of Equipment (“Ramp Period”) before that piece of
Equipment is used to calculate the Primary Minimum MQER or the Secondary Minimum
MQER, as the case may be, as defined below. If IMC sends revenue generating
traffic during the Ramp Period, IMC shall pay QSI the applicable MQER under
the
terms of this Agreement.
[***]Confidential
material redacted
and filed separately with the Commission.
-3-
Notwithstanding
anything else in
this Agreement to the contrary, with respect to the [***] pieces of
Equipment purchased by IMC (“Initial Equipment Purchase Batch”), not including
those [***] for which Section 4.2(a) is elected by IMC, the average MQER
per Equipment within the Initial Equipment Purchase Batch must be no less than
$250 (the “Primary Minimum MQER”). The Primary Minimum MQER shall be calculated
by taking the sum of all the MQER, across all pieces of Equipment, paid to
QSI
during the previous month and dividing by the total number of eligible pieces
of
Equipment within the Initial Equipment Purchase Batch. An eligible piece of
Equipment shall be defined as an Equipment piece for which its Ramp Period
has
elapsed and the Base Value of such piece of Equipment has not been paid to
QSI.
With
respect to all other pieces of
Equipment purchased by IMC, pursuant to this Agreement, in excess of the Initial
Equipment Purchase Batch, not including those [***] for which
Section 4.2(a) is elected by IMC, the average MQER per Equipment must be no
less than $500 (the “Secondary Minimum MQER”). The Secondary Minimum MQER shall
be calculated by taking the sum of all the MQER, across all pieces of Equipment,
paid to QSI during the previous month and dividing by the total number of
eligible pieces of Equipment in excess of the Initial Equipment Purchase Batch.
An eligible piece of Equipment shall be defined as an Equipment piece for which
its Ramp Period has elapsed and the Base Value of such piece of Equipment has
not been paid to QSI.
If
IMC fails to meet the Primary
Minimum MQER or the Secondary Minimum MQER for any month during the term of
this
Agreement, QSI may notify IMC of those applicable pieces of Equipment for which
the MQER is less than the Primary Minimum MQER or the Secondary Minimum MQER,
as
the case may be (the “Non Performing Equipment”). Within thirty (30) days
after receipt of such written notice from QSI, IMC, exercisable in its sole
discretion, must do one of the following:
| (i) | [***] |
| (ii) | [***] |
| (iii) | [***] |
4.4
Payment
and
Reporting. By no later than the fifteenth (15th) day
of each month, IMC will provide QSI with a
traffic report for each piece of Equipment, of which the Purchase Price has
not
been completely paid (the “Monthly Equipment Minute Report”), which details the
number of minutes carried through such piece of Equipment during the prior
month. IMC will include the MQER for such piece of Equipment with the Monthly
Equipment Minute Report.
4.5
Settlement
Date. No less than thirty (30) days prior to the Settlement
Date for each piece of Equipment, QSI must notify IMC in writing of the then
current outstanding balance of the Purchase Price owed by IMC for such piece
of
Equipment. Notwithstanding anything else to the contrary in this Agreement,
IMC,
exercisable in its sole discretion, may notify QSI no less than fifteen
(15) days prior to the Settlement Date for such piece of Equipment that it
intends to forego payment of the outstanding balance of the Purchase Price
owed
by IMC for such piece of Equipment and return such piece of Equipment to QSI
at
IMC’s sole expense. QSI will be entitled to keep any MQER previously paid by IMC
to QSI through the date such piece of Equipment is returned to QSI and any
warrants issued to QSI for such piece of Equipment pursuant to Section 5 of
this Agreement. IMC will not be liable to QSI for any unpaid portion of the
Purchase Price.
[***]Confidential
material redacted
and filed separately with the Commission.
-4-
| 5. | Warrants. |
With
respect to each piece of
Equipment, not including CBXs which are separately addressed in Sections 4.2(a)
and (b) of this Agreement, ordered and received by IMC pursuant to this
Agreement, QSI will receive one warrant to purchase one share of IMC common
stock at an exercise price equal to the amount paid by investors for IMC’s stock
in IMC’s most recent round of financing for every [***]. Warrants will be issued
within thirty (30) days after receipt of delivery by IMC of each applicable
piece of Equipment.
| 6. | Taxes and Other Obligations. |
QSI
and IMC agree that the Purchase
Price includes all obligations relating to the Equipment including the payment
of all applicable state and federal sales, use, or other taxes and/or
assessments with respect to each piece of Equipment purchased by IMC from QSI
pursuant to this Agreement. QSI represents and warrants that all Equipment
purchased by IMC from QSI is owned by QSI and is free and clear of any liens,
encumbrances, or obligations of any kind. Any obligations, including but not
limited to cash, in-kind, or other, are the sole responsibility of QSI.
| 7. | Exclusive Arrangement. |
QSI
agrees that it will not enter
into a similar business relationship with any other entity during the term
of
this Agreement.
| 8. | Confidentiality. |
In
connection with the Agreement,
the parties may disclose certain information related to their operations or
business (the “Confidential Information”). The receiving party will not utilize
any Confidential Information received from the disclosing party for any purpose
other than for the benefit of the disclosing party or in order to facilitate
the
transactions contemplated by this Agreement. The receiving party will not
utilize the Confidential Information provided to it by the disclosing party
to
compete with the disclosing party, nor will the receiving party engage in
reverse engineering of the disclosing party’s Confidential Information or any
other conduct which would directly or indirectly result in one party
misappropriating or improperly utilizing the rights, property, assets, or
Confidential Information of the other party. The receiving party will not
disclose the Confidential Information to any third party without the express
prior written consent of the disclosing party. The receiving party will maintain
the confidentiality of such Confidential Information using at least the same
degree of care customarily used by the receiving party to protect its own
Confidential Information, but under no circumstances will the receiving party
use less than a reasonable degree of care. At the time of the termination of
this Agreement (for any reason), the receiving party will return all
Confidential Information provided by the disclosing party to the receiving
party. The disclosing party will retain ownership of all its Confidential
Information, whether or not disclosed to the receiving party.
[***]Confidential
material redacted
and filed separately with the Commission.
-5-
| 9. | Term and Termination. |
This
Agreement will be effective as
of the date first above written, and will continue for a period of two
(2) years thereafter (the “Initial Term”) unless sooner terminated by
either party pursuant to this Agreement. Thereafter, this Agreement will
automatically be renewed for consecutive six (6) month periods unless
terminated as follows:
| (a) | by either party giving not less than sixty (60) days written notice of cancellation to the other party prior to the end of the then current term; or |
| (b) | by either party upon three (3) days written notice to the other party if the other party materially breaches this Agreement and does not cure the breach within thirty (30) days of receipt of written notice of the breach. |
| 10. | Liability. |
Neither
party will be liable for any
indirect, incidental, special, consequential, exemplary, or punitive damages,
including but not limited to damages for lost profits or lost revenues, whether
or not caused by the acts or omissions or negligence of its employees or agents,
and regardless of whether such party has been informed of the possibility or
likelihood of such damages.
| 11. | Notices. |
Notice
or other advice required to
be given under this Agreement will be deemed given three (3) days after it
is deposited, postage prepaid, in the United States Mail, or sent via a
nationally recognized overnight courier (such as FedEx) to the parties’
respective notice addresses set forth below. If either party changes its address
during the term of this Agreement, it will so advise the other party in writing
and all notices and advice thereafter required to be given will be sent to
such
new address. In addition to the forms of notice above, the notice as it pertains
to Section 2 of this Agreement will be deemed given immediately by IMC via
email and/or fax to QSI.
| 12. | Waivers. |
If
any party shall at any time waive
any rights hereunder resulting from any breach by the other party of any of
the
provisions of this Agreement, such waiver is not to be construed as a continuing
waiver of other breaches of the same or other provisions of this Agreement.
Resort to any remedies referred to herein shall not be construed as a waiver
of
any other rights and remedies to which such party is entitled under this
Agreement or otherwise.
-6-
| 13. | Assignment. |
This
Agreement may be assigned by
either party with the advanced written consent of the other party, such consent
not to be unreasonably denied or delayed. Notwithstanding the foregoing, either
party may assign this Agreement to a parent, subsidiary, or
successor-in-interest whether by merger, consolidation, acquisition,
reorganization, or transfer of all or substantially all of its assets or
otherwise without obtaining the prior written consent of the other party. This
Agreement will benefit and be binding upon the parties hereto and their
respective successors and permitted assigns. In the event of any assignment,
the
assignor will remain liable to the other party for any loss, damage, or claim
arising from the assignee’s failure to perform as required hereunder.
| 14. | Entire and Sole Agreement. |
This
Agreement constitutes the
entire agreement between the parties and supersedes all other agreements,
representations, warranties, statements, promises and undertakings, whether
oral
or written, with respect to the subject matter of this Agreement. This Agreement
may be modified or amended only by a written agreement signed by the parties
against whom the amendment is sought to be enforced.
| 15. | Choice of Law and Venue. |
This
Agreement will be governed by
the laws of California without giving effect to applicable conflict of laws
provisions. With respect to any litigation arising out of or relating to this
Agreement, each party agrees that it will be filed in and heard by the state
or
federal courts with jurisdiction to hear such suits located in Los Angeles
County, California.
| 16. | Counterparts. |
This
Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one
and
the same instrument.
| 17. | Binding Arbitration. |
Any
dispute under this Agreement
will be resolved by binding arbitration conducted in accordance with the rules
and procedures of the American Arbitration Association as they are then in
effect in the County of Los Angeles, State of California. In order to select
an
arbitrator, each party to the dispute will select an arbitrator of its choice,
and those selected arbitrators will then select by mutual agreement a single
arbitrator for the proceeding. The decision of the arbitrator shall be final
and
binding on the parties to this Agreement, and judgment thereon may be entered
in
the Superior Court for the County of Los Angeles or any other court having
jurisdiction. Each party to this Agreement will advance one-half of the
arbitrator’s fees; however, all costs of the arbitration proceeding to enforce
this Agreement, including attorneys’ fees and witness expenses, shall be paid by
the party against whom the arbitrator rules. It is expressly agreed that the
parties to any such arbitration may take discovery as contemplated and provided
for by California Code of Civil Procedure §1283.05. Notwithstanding anything
herein to the contrary, the parties hereto will not be required to submit a
claim to arbitration if the claim is for temporary or preliminary equitable
or
injunctive relief that could not practicably be heard in a timely fashion
through the arbitration process.
-7-
| 18. | Attorneys’ Fees and Costs. |
In
the event that either party must
resort to legal action in order to enforce the provisions of this Agreement
or
to defend such action, the prevailing party shall be entitled to receive
reimbursement from the nonprevailing party for all reasonable attorneys’ fees
and all other costs incurred in commencing or defending such action, or in
enforcing this Agreement, including but not limited to post judgment costs.
| 19. | Remedies. |
Except
as otherwise expressly
provided herein, none of the remedies set forth in this Agreement are intended
to be exclusive, and each party shall have all other remedies now or hereafter
existing at law, in equity, by statute or otherwise. The election of any one
or
more remedies shall not constitute a waiver of the right to pursue other
available remedies.
| 20. | Section Headings. |
The
section headings in this
Agreement are included for convenience only, are not a part of this Agreement
and shall not be used in construing it.
| 21. | Severability. |
In
the event that any provision or
any part of this Agreement is held to be illegal, invalid or unenforceable,
such
illegality, invalidity or unenforceability shall not affect the validity or
enforceability of any other provision or part of this Agreement.
| 22. | Independent Contractor. |
Each
party shall act at all times
hereunder as an independent contractor with respect to the other party, and
not
as an employee, partner, agent or co-venturer of or with the party. Except
as
set forth herein, neither party shall have nor exercise control or direction
whatsoever over the operations of the other party, and neither party shall
have
nor exercise any control or direction whatsoever over the employees, agents
or
subcontractors hired by the other party. Each party hereto shall refrain from
making any representation tending to create an apparent employment, partnership
or joint venture relationship between the parties. Neither party’s employees,
agents or subcontractors shall have any claim against the other party for any
compensation or remuneration other than as specifically provided in this
Agreement. Both parties further waive and agree to indemnify the other party
against any claims for vacation pay, sick leave, retirement or pension benefits,
social security contributions, worker’s compensation insurance or benefits,
disability or unemployment benefits, welfare and pension benefits and
obligations of the other party under the Employee Retirement Income Security
Act
of 1974, or other benefits of any kind customarily afforded to any employee.
| 23. | Publicity. Each party shall obtain the other party’s written consent prior to any publication, presentation, public announcement or press release concerning the relationship between the parties or the existence or terms and conditions of this Agreement. |
-8-
IN
WITNESS WHEREOF,
this Agreement has been entered into as of the date first above
written.
| IMC: |
INTERMETRO
COMMUNICATIONS, INC.,
a
California
corporation
|
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|
By:
|
/S/ XXXXXXX
XXXXX
|
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|
Xxxxxxx
Xxxx, Chief Executive
Xxxxxxx
|
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|
Xxxxxxx
|
||||||||
|
Xxxx Xxxxx
Xxx
|
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| XXX: |
QUALITEK
SERVICES,
INC.,
a
California
corporation
|
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|
By:
|
/S/ X.X.
XXXXX
|
|||||||
|
X.X.
Xxxxx, Chief Executive
Officer
|
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|
Address
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City State
Zip
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