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EXHIBIT 10.6
[LETTERHEAD OF LTCW]
July 30, 1999
XxxxXxxx.xxx, Inc.
000 Xxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Gentlemen:
We have been discussing with you the proposed operating agreement
pursuant to which we have agreed to provide certain operational and fulfillment
services to you at the rates specified below (which the parties determine to be
fair market value) through a mutually acceptable agreement (the "Operating
Agreement"). This letter sets forth our understanding in principle with respect
to our relationship and will govern our relationship until we execute a
definitive Operating Agreement.
I. GENERAL
Parties agree in good faith to negotiate and document an Operating
Agreement based on the terms contained herein and to finalize such
agreement within 60 days of the signing of this Letter of Intent.
If either party so requests, the parties agree to use the services of
Xxxxxxxx Consulting or another firm acceptable to both parties to
assist in the development of the comprehensive Operating Agreement. The
parties shall split the cost of these services equally, provided that
neither party shall be required to pay more than $25,000.
A. Term
The initial term shall be 5 years. Subject to earlier termination as
provided below, this agreement shall be automatically renewed for
additional one-year periods, provided that (1) LTCC provide notice of
its intent to renew at least six months prior to the end of the
then-current term and (2) within 60 days after such notice, LTCW does
not object to such renewal.
The arrangement shall be cancelable by either party if the other party
materially breaches the agreement and does not materially cure the
breach within 60 days of receiving written notice of the breach.
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XxxxXxxx.xxx ("LTCC") shall have the right to discontinue using any one
or more of the services provided by Let's Talk Cellular and Wireless,
Inc. ("LTCW") for any reason upon 6 months written notice. Unless such
discontinuation is for a material breach, LTCW shall be reimbursed for
its reasonable direct termination costs using the following procedure.
After receiving such notice, LTCW shall within 60 days provide a
written estimate of the reasonable direct costs it estimates in good
faith it will incur as a result of the discontinuation, consisting of
direct labor costs, direct materials/equipment costs, direct costs of
segregated space specifically purchased/leased for use by LTCC, and
reasonable severance costs that LTCC agrees to. Costs associated with
long term contracts not previously approved by LTCC will be excluded.
LTCC agrees (at its discretion) to either pay reasonable termination
costs up to the limit of the estimate or continue to utilize LTCW to
provide these services. LTCW shall use best efforts to minimize such
termination costs.
Either party may terminate the agreement upon the bankruptcy of the
other party. LTCW may terminate the agreement six months after the sale
of LTCC if LTCC is sold to a competitor in the "bricks and mortar"
retail business. In any event, whether upon termination of this
Agreement or termination of a service, LTCW will use best efforts to
achieve a smooth transition of services to LTCC.
B. Exclusivity
The provisions of this Section B shall survive any termination of the
agreement. LTCW shall not provide similar services to or assist or
promote any other company that sells or intends to sell wireless
products or services on the Internet.
LTCW shall not assist, or sell or advertise its products or services
via, any other commerce-enabled website. LTCW shall not operate an
ecommerce-enabled website.
LTCC shall not own or operate "bricks and mortar" retail stores.
Subject to the foregoing, LTCW has the right to have a website that is
descriptive only. LTCC shall create and maintain for LTCW, LTCW
descriptive information on LTCC's website consisting of a listing of
LTCW stores, a locator function (either zip code driven or comparable
locator function as mutually agreed upon), and a company history, a
company profile, a general description of product categories,
biographies of senior management, press releases, a customer service
policy, and three store pictures (one kiosk, one inline store, and one
shopping center). LTCW may request that LTCC delete this information at
any time, but LTCC shall provide this service if so requested by LTCW
at no charge for the term of this agreement. If the parties mutually
agree that LTCC will include anything on LTCC's website in addition to
the foregoing, LTCW shall pay for the additional items on a Cost Plus
basis. Each page of such LTCW website shall contain a prominent link to
LTCC's website, along with a brief one sentence description of LTCC's
offerings that is mutually agreed upon.
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LTCC shall not give any space or other benefits on its site to any
competitive products of any other "brick and mortar" retailer in the
business of providing wireless phones or services which competes with
the then-current LTCW wireless phone service offerings.
C. Development by LTCW of Additional Capabilities required by
LTCC
Except as otherwise specified in this agreement, if it is necessary for
LTCW to expend resources to modify or enhance its systems, distribution
facilities, procedures, or employee capabilities in order to
accommodate the business requirements and growth of LTCC, then LTCW
shall provide LTCC with a detailed proposal which clearly outlines the
proposed capability to be developed, estimated cost, and an approximate
timing. If it agrees and provides written approval, LTCC agrees to pay
for these resources as set forth on the proposal, such costs not to
exceed the estimate provided unless agreed to by both parties in
writing.
"Cost Plus" shall mean that fees are determined as provided in the
remainder of this Section C.
All fees for personnel from LTCW who have been authorized to work for
LTCC shall be billed using the following methodology and is subject to
modification as provide below:
Hourly Salary Cost (based on 2000 hours)
plus
20% of Hourly Salary Cost for benefits
plus, 25% of Hourly Salary Cost for overhead absorption
For purposes of this agreement, overhead absorption is deemed to
reimburse LTCW for providing LTCC with substantially the same
administrative, systems and support services it performs for its
employees, which LTCW hereby agrees to do, including: including payroll
processing, deposits, payroll tax returns, payroll related audits and
preparing W-2 and 1099 forms, HR services, insurance, employee
benefits, communications services (excluding dedicated lines to LTCC
remote locations such as San Francisco), computer workstation support
services, normal costs associated with office space, office equipment
use, and senior management supervision.
Six months after LTCC's site launch, both parties will have the
opportunity to reassess the overhead rate and agree on a revised rate
under the principle that LTCW should be able to recover its incremental
direct costs over the long term.
No fees shall be charged for the time of vice presidents or above.
Direct travel, related travel expenditures and professional service
fees shall be billed at actual cost plus a 4% administrative fee.
If LTCC pays for equipment or other items, LTCC shall own such
equipment and items unless otherwise agreed.
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Direct equipment and incremental distribution center non-payroll costs
shall be billed at actual cost plus a 10% administrative fee.
LTCW will invoice LTCC on a monthly basis with 15 day payment terms.
Six months after an IPO or the sale of LTCC, LTCW shall have the right
to increase the fee for its services to include a profit margin of 10%
over the Cost Plus pricing except for direct equipment, travel, and
professional services.
D. Inspection
LTCC and its accountants, agents and representatives, shall have the
right to examine the books and records of LTCW that relate to the costs
and expenses referred to in this agreement, provided that such
examination may be conducted during normal business hours and upon
reasonable notice.
E. Provision of General Accounting Services
For the first 6 months of this agreement, LTCW shall provide general
accounting services to LTCC on a Cost Plus basis. LTCC shall retain all
responsibility for its financial statements.
F. MIS and Administrative Support
LTCW will provide support and will exert all diligent efforts to
satisfy the requirements specified by LTCC on a Cost Plus basis. LTCW
shall adopt reasonable time reporting procedures to accurately capture
time and expenses chargeable to LTCC.
G. Dispute Resolution
Dispute resolution clause will be agreed during development of the
Operating Agreement. Consider mediation by an accountant.
H. Other
LTCW recognizes that one of LTCC's key success factors is its ability
to build an effective operation in a matter of a few months and will
assist in training of LTCC personnel. LTCW shall identify and train up
to a reasonable number (determined by LTCC) of liaison personnel
responsible for ensuring that LTCW is providing the necessary services
and working at resolving the inevitable bugs and problems.
II. PURCHASING/INVENTORY MANAGEMENT
LTCW shall provide to LTCC a sufficient segregated space in the Dallas
distribution center for storage of LTCC's inventory, and all movement
of inventory in and out of this space by LTCW will utilize business
practices and systems designed to provide effective control and
tracking of the LTCC inventory. If either party has a stock-out, it can
request
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a transfer from the other party's inventory and the parties will work
in good faith to transfer inventory unless it adversely affects one
party's operations.
LTCW purchasing department shall communicate with the LTCC Operations
Liaison to determine recommended optimal inventory levels and
recommended purchases. LTCC shall submit purchase orders to LTCW, who
shall place orders with its vendors on behalf of LTCC and according to
instructions of LTCC.
LTCC (at its discretion) can place orders directly with vendors, and in
such cases shall provide LTCW with sufficient information to facilitate
the receiving and inventory management process.
LTCC will use diligent efforts to establish its own credit lines with
vendors. If unable to do so, LTCC may (at the reasonable discretion of
LTCW management) utilize LTCW credit lines if invoice amounts are paid
to LTCW 5 days prior to being due. However, if LTCW does not have
adequate availability on its credit lines, LTCC shall pay C.O.D.
For inventory ordered by LTCW, LTCC shall pay a fee equal to 4% of the
net invoiced cost from the vendor. This fee is intended to cover LTCW's
costs related to purchasing, warehousing, insurance, utilities, MIS,
and receiving. For inventory ordered by LTCC, LTCC shall pay a fee of
2.5%. These percentages will be reviewed for possible adjustment six
months after launch.
LTCC is entitled to receive the same terms as LTCW on orders placed
through LTCW ("Order Terms"). These terms include price protection,
return capabilities, warranties, and stock balancing. In addition, LTCC
shall be entitled to receive its pro rata portion of any MDF funds
earned on its purchases of inventory. At LTCC's request, LTCW shall use
best efforts to assist LTCC in obtaining the Order Terms in a separate
agreement between LTCC and a third party with whom LTCW has an
agreement.
For items that are difficult to obtain, the parties shall have an
"allocation formula" that will be proportional to the volume of the
item that each party has on order; provided that for the first year of
this agreement, LTCC will receive at least a 30% allocation of these
items.
III. ORDER FULFILLMENT
LTCW employees at the distribution center will provide customer
fulfillment services. These services include picking the items when an
order is received, programming the telephone or pager, packing the item
purchased, and shipping.
LTCW will use best efforts to create an order fulfillment capability
designed to ship all in-stock orders received by 2 P.M. CST the same
day.
LTC shall charge "Cost Plus" pricing for fulfillment services.
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IV. CUSTOMER SERVICE
Both parties will work together to create the most efficient customer
relationship management process. This process will be based on the
principles of mutual respect for and responsiveness to each other's
customers.
The Operating Agreement will define a mutually agreeable process which
will address the following transactions; but in any event LTCW will
provide such services without charge (other than direct out-of-pocket
costs) during the six month period following launch and thereafter at a
mutually agreeable fee that does not exceed Cost Plus.
-LTCC customers returning merchandise to LTCW stores
-LTCC customers obtaining refunds at stores
-LTCC customers exchanging merchandise at stores
-LTCC customers picking up their orders at stores
-Follow-on sales at the stores to LTCC customers
-Loaner phones
For telephone/email customer service, LTCW will hire one or more
customer service rep(s) and provide training to those person(s), in
Dallas, as reasonably requested by LTCC. All training costs, as well as
the costs of actually performing customer service at the distribution
center, will be billed to LTCC on a Cost Plus basis. Notwithstanding
the foregoing, during the first six months from the launch, LTCC shall
not be obligated to pay LTCW any commissions with respect to the
foregoing services. After the first six months, such services will
continue but the parties shall mutually agree upon a reasonable method
(other than sales commissions) for compensating LTCW employees or
consultants for customer service.
V. PAGING SALES AND SERVICE
LTCC currently intends to aggressively sell pagers on its site. Like
LTCW, LTCC may be a paging reseller, and may purchase numbers from LTCW
under its paging contracts, at LTCC's discretion.
LTCW shall provide a complete "turn-key" management of LTCC's paging
operations. This will include activation, billing, collection, and
customer service.
LTCW shall charge LTCC a one-time activation fee per pager sold, a
monthly fee per pager for processing, plus all airtime costs invoiced
from its carriers at cost. These fees (excluding airtime costs) will be
set at the "average cost" per pager for LTCW for the previous quarter
plus 10%.
LTCW shall make a monthly remittance of the LTCC paging revenues
collected, net of the charge for services provided.
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VI. CARRIER COMMISSION RECEIVABLES MANAGEMENT AND AUDIT
LTCW will provide commission processing services. These services will
include verifying the accuracy of commission paid, disconnects charged,
customer disconnect recoveries, co-op earned and accounts receivable
management. LTCW will forward the commission, etc. earned on LTCC
activations to LTCC within 10 days of receipt from the carriers.
LTCW will provide these services on a Cost Plus basis.
LTCC will employ a "Revenue Management' liaison to coordinate with LTCW
on these functions. Initially, at LTCC's discretion, this liaison may
be LTCW employees billed to LTCC on a Cost Plus basis.
VII. CARRIER CONTRACTS
LTCC will attempt to negotiate its own carrier relationships and
contracts. LTCW shall provide all assistance requested by LTCC with
respect to the foregoing (including providing contacts at the carrier).
When allowed under carrier agreement, LTCC may activate customers under
the LTCW agreements and vice versa. LTCW will use its best effort to
obtain the rights to allow this. Both parties shall use their best
efforts to obtain the rights for LTCC to have the same carrier
relationships and contracts that LTCW has.
LTCC will be responsible for managing its carrier relationships and
contracts, and LTCW shall provide all assistance requested by LTCC with
respect to the foregoing.
Any services provided by LTCW employees in relation to LTCC carrier
agreements will be billed to LTCC on a Cost Plus basis.
Both parties will use all diligent efforts to ensure that LTCC is able
to activate wireless customers in all geographies within the
continental United States in which it desires to do so.
LTCW will assist LTCC with respect to equipment and paging vendor and
service provider contracts and relationships to the same extent as
provided in this Section VII with respect to carriers.
VIII. ADVERTISING
General
LTCC will be entitled to utilize 5% of the space/time of all LTCW
advertising. LTCW will have the right to reasonably review/reject any
content to be included in its advertising, but it may do so only
reasonably and for good cause.
If LTCC wants more than 5% of any space/time in an advertising
campaign, LTCW shall provide more space as long as it does not, in the
opinion of LTCW management, interfere with the effectiveness of the
LTCW advertising. In these cases, LTCC will pay its pro
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rata share of the advertising cost (net invoiced cost, including
production), less its 5% "free" space ("Claims").
Claims will be reimbursed as follows:
- Claims must be submitted to LTCC within 90 days of the
advertising run.
- Claims must include a copy of the invoice including run dates
and a sample of the advertising.
- Payment will be rendered by LTCC within 10 days of invoice for
an undisputed claim.
- If prepayment is required, LTCC will be notified of this prior
to committing to the advertising, and will prepay its pro rata
share if it decides to participate.
Print
LTCC will be included under the LTCW logo with a mutually reasonably
agreeable tag line determined by LTCC (e.g., visit...) on all print,
POP material, and in-store promotional materials.
LTCC will be entitled to one 8 1/2 x 14 permanent promotional sign at
kiosks, and two 22" x 28" permanent promotional signs at in-line stores
(3 at the non-mall stores). LTCC has the right to approve all signs,
which approval shall not be unreasonably withheld, and LTCC will pay
all costs of designing and producing the signs.
LTCC will be entitled to have its address included on all LTCW bags,
business cards, and stationery and the like at no cost as these item
are re-ordered.
Radio
LTCC will be entitled to 5% of the airtime unless it decides to
participate at a higher level.
Television
LTCC will have its logo displayed at least 25% of the size of the LTCW
logo for an equal amount of time at no extra charge.
X. BINDING NATURE
This Letter of Intent is a binding contract between the parties hereto
and will govern their working relationship unless and until the
anticipated definitive Operating Agreement is executed. If the parties
cannot negotiate and document a definitive Operating Agreement prior to
60 days from the date hereof, then the parties shall submit to
mediation to finalize the Operating Agreement, but if no definitive
Operating Agreement is reached, this LOI will continue in effect
according to its terms.
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XI. CONSENT TO JURISDICTION; GOVERNING LAW
This letter of intent and Operating Agreement will provide that it will
be governed by the laws of the State of New York.
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If the foregoing correctly sets forth our understanding, please sign
all copies of this Letter of Intent where indicated below and return at least
one copy to __________________________.
Very truly yours,
XXXXXXXX.XXX,INC.
By: /s/ Xxxxx Xxxxx
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Xxxxx Xxxxx
President and Chief Executive Officer
Accepted as of the date
first above written:
LET'S TALKCELLULAR & WIRELESS, INC.
By:
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Name:
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Title:
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SIGNATURE PAGE TO XXXXXXXX.XXX, INC.
LETTER OF INTENT
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If the foregoing correctly sets forth our understanding, please sign
all copies of this Letter of Intent where indicated below and return at least
one copy to __________________________.
Very truly yours,
XXXXXXXX.XXX,INC.
By:
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Xxxxx Xxxxx
President and Chief Executive Officer
Accepted as of the date
first above written:
LET'S TALKCELLULAR & WIRELESS, INC.
By: /s/ Xxxxx X. Xxxxxxxxx
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Name: Xxxxx X. Xxxxxxxxx
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Title: CEO
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SIGNATURE PAGE TO XXXXXXXX.XXX, INC.
LETTER OF INTENT
