Exhibit 10.38
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ROYALTY AGREEMENT
This ROYALTY AGREEMENT ("Agreement") is entered into as of this 1st day
of March, 2002, by and between Category 5 Technologies, Inc., a Nevada
corporation (the "Company") and the individuals set forth on the signature page
hereto ("Sellers").
WHEREAS, the Company owns software that enables the automated design
and creation of Web sites utilizing Macromedia's Flash technology ("FlashAlly").
Further, the Company has the rights to market said technology exclusively in the
network marketing, multi-level marketing, direct selling, seminar,
telemarketing, and infomercial arenas; and
WHEREAS, C5 has agreed to purchase from Sellers, and Sellers have
agreed to sell to C5, all right, title and interest in Flash Ally, pursuant to
that certain LLC Membership Exchange Agreement of even date herewith (the
"Purchase Agreement"); and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Purchase Agreement that C5 the Sellers enter into this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties agree
as follows:
1. Royalty. C5 hereby agrees to pay to Sellers a cash royalty from the
proceeds of the sale or license of FlashAlly software in existence as of the
date hereof ("FlashAlly"), in the following amounts and on the following terms:
(a) 75% of the net income generated from the sale or license of
FlashAlly to or through any of the entities set forth on Schedule I
attached hereto (the "Existing Leads"), for a period of not fewer than
12 months from the Closing.
(b) If, at any time after 12 months, the 15-day average closing
price for Category 5 Common Stock equals or exceeds $5.00 per share,
then the royalty shall decrease to 50% of the net income generated from
sales of FlashAlly to or through the Existing Leads.
(c) If, at any time after 12 months, the 15 day average closing
price for Category 5 Common Stock equals or exceeds $10.00 per share,
then the royalty shall decrease to 25% of the net income generated from
sales of FlashAlly to or through the Existing Leads.
(d) If, at any time after 12 months, the 15-day average closing
price for Category 5 Common Stock equals or exceeds $15.00 per share,
then the royalty shall terminate.
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(e) Commencing at Closing, and continuing until the earlier of one
year (12 months) from Closing or until the 15-day average closing price
for Category 5 Common Stock equals or exceeds $10.00 per share,
Category 5 shall pay to the shareholders of Flash a royalty of $15 per
person per year for sales of FlashAlly through Category 5 or affiliate
seminars.
2. Definitions. The term "net income" as used in this agreement shall
mean the revenue received by C5 from sales and/or licensing of FlashAlly
software, less the cost of goods sold, the selling, general and administrative
costs involved with the sale, delivery and ongoing support of FlashAlly
software, the tax payable on profits from such sales, and any other expenses
associated with the sale, delivery and ongoing support of FlashAlly software.
3. Payments. Payments under this Agreement shall be made to Sellers no
later than thirty (30) days following receipt of 'funds by C5.
4. Binding Effect. This Agreement shall be binding upon C5, Sellers,
and their successors and assigns.
5. Arbitration. Any dispute or controversy arising out of or relating
to any interpretation, construction, performance or breach of this Agreement,
shall be settled by arbitration to be held Salt Lake City, Utah, in accordance
with the rules then in effect of the American Arbitration Association. The
arbitrator may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator shall be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's decision
in any court having jurisdiction; provided, however, that the arbitrator shall
not have the power to alter or amend this Agreement.
6. Governing Law. This Agreement shall be construed in accordance with,
and all actions arising under or in connection therewith shall be governed by,
the internal laws of the State of Utah (without reference to conflict of law
principles).
7. Attorneys' Fees. Should either I or the Company, or any heir,
personal representative, successor or permitted assign of either party, resort
to legal proceedings to enforce this Agreement, the prevailing party (as defined
in Utah statutory law) in such legal proceeding Mall be awarded, in addition to
such other relief as may be granted, attorneys' fees and costs incurred in
connection with such proceeding.
8. Severability. If any term, provision, covenant or condition of this
Agreement, or Me application thereof to any person, place or circumstance, shall
be held to be invalid, unenforceable or void, the remainder of this Agreement
and such term, provision, covenant or condition as applied to other persons,
places and circumstances shall remain in full force and effect.
9. Notices. Any notice, request, consent or approval required or
permitted to be given under this Agreement or pursuant to law shall be
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sufficient if it is in writing, and if and when it is hand delivered or sent by
regular mail with postage prepaid, to the address set forth in the Purchase
Agreement.
10. Assignment. This Agreement may not be assigned without the
Company's prior written consent.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
CATEGORY 5 TECHNOLOGIES, INC.
By:
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Name:___________________
Title:____________________
SELLERS:
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Name:
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Name:
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SCHEDULE I
Existing Leads
1. The ▇▇▇▇▇▇▇▇ Group (MLM)
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2. Ninnon Direct (Japan and Pacific Rim)
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3. The ▇▇▇▇▇▇▇▇ Groun (Telesales)
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