Exhibit 2.6
"CATEGORY 5 TECHNOLOGIES, INC. AGREES TO FURNISH SUPPLEMENTALLY A COPY OF ANY
OMITTED SCHEDULE TO THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST."
LLC MEMBERSHIP EXCHANGE AGREEMENT
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THIS LLC MEMBERSHIP EXCHANGE AGREEMENT (this "Agreement") is made and
entered into as of March 1, 2002 by and among Category 5 Technologies, Inc., a
Nevada corporation ("Category 5"), Flash Ally, LLC, a Utah limited liability
company, (the "Company"), and its members Xxxxx Xxxxxxxx and Xxxx Xxxxx,
individuals ("Sellers").
RECITALS
WHEREAS, the Company owns software that enables the automated design
and creation of Web sites utilizing Macromedia's Flash technology ("FlashAlly"),
and the Company has secured all rights from Macromedia to incorporate Flash into
the software.
WHEREAS, Sellers own all of the membership interests of the Company;
and
WHEREAS, Sellers desire to exchange all of their membership interests
in the Company, which constitute all of the membership interests in the Company
(the "Interests") for shares of common stock of Category 5, and Category 5
desires to issue shares of its common stock in exchange for the Interests, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, representations and
mutual covenants hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, agree as follows:
ARTICLE I
EXCHANGE OF LLC MEMBERSHIP INTERESTS AND SHARES
1.1 Exchange. Seller hereby agree to exchange, sell, transfer and
deliver to Category 5, and Category 5 hereby agrees to purchase and acquire from
Seller, on the Closing Date (as hereinafter defined) all of the membership
interests (the "Interests") of the Company free from any charge, lien,
encumbrance or adverse claim of any kind whatsoever.
1.2 Consideration for Interests. Category 5 shall deliver at the
Closing (as hereinafter defined), in addition to the items set forth in Section
7.3, in exchange and as consideration for the Interests, stock certificates
representing in the aggregate 2,000,000 shares of Category 5's Common Stock (the
"Category 5 Shares"), par value $.001 per share. The Category 5 Shares shall be
delivered to Sellers as follows:
(i) Tranche I Shares. At the Closing, Category shall deliver to
Sellers, in exchange for all of the Interests, 500,000 Category 5 Shares (the
"Tranche I Shares").
(ii) Tranche II Shares. At the Closing, Category 5 shall deliver to a
third-party escrow agent (the "Escrow Agent") satisfactory to both parties the
remaining 1,500,000 Category 5 Shares (the "Tranche II Shares"), to be released
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pursuant to the terms of an escrow agreement ("Escrow Agreement") among Category
5, the Company and Sellers in substantially the form attached hereto as Exhibit
A. The Sellers shall have voting rights with respect to the Tranche II shares
commencing the Closing Date. The Tranche II Shares shall secure Category 5
against undisclosed liabilities, misrepresentations and breaches of warranties,
covenants and agreements, and such Tranche II Shares shall be released to
Sellers as follows:
(a) If, during or prior to the end of the twelve (12) months
following the Closing, Category 5 and/or the Company have generated
revenues from the sale and/or license of FlashAlly outside of Category
5's seminars ("Non-Seminar Sales") equal to or exceeding $5 million,
the Escrow Agent shall release to Sellers 500,000 of the Tranche II
Shares.
(b) If, during or prior to the end of the eighteen (18) months
following the Closing, Category 5 and/or the Company have generated
revenues from Non Category 5 Seminar Sales equal to or exceeding $10
million, the Escrow Agent shall release to Sellers an additional
500,000 of the Tranche II Shares.
(c) If, during or prior to the end of the twenty-four (24) months
following the Closing, Category 5 and/or the Company have generated
revenues from Non-Category 5 Seminar Sales equal to or exceeding $15
million, the Escrow Agent shall release to Sellers the remaining
500,000 of the Tranche II Shares.
(iii) Royalty Agreement. At the Closing, Category 5 shall deliver to
the Sellers a Royalty Agreement (the "Royalty Agreement") in substantially the
form attached hereto as Exhibit B, which shall provide for payment to the
Sellers of a cash royalty as follows:
(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 1
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.
(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.
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1.3 Delivery of Shares. At the Closing, Sellers shall deliver to
Category 5, in addition to those items set forth in Section 9.2, in exchange for
the Category 5 Shares, all of the membership interests in the Company, in a form
reasonably acceptable to Category 5, free from any charge, lien, encumbrance or
adverse claim of any kind whatsoever, together with the minute books and stock
ledger of the Company.
1.4 Legends. The certificates evidencing the Category 5 Shares shall
bear the following legend and any legends required by any state securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION UNDER THE ACT THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE REASONABLE
SATISFACTION OF THE COMPANY."
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY
The Company and each of the Sellers jointly and severally agree with,
and represent and warrant to Category 5 as follows:
2.1 Corporate Existence, Good Standing and Authority. The Company is a
limited liability company duly organized, validly existing and in good standing
under the laws of the state of Utah. The Company has full power and authority to
carry on its business as now being conducted and is entitled to own, lease or
operate the property and assets now owned, leased or operated by it. The Company
is qualified to do business, is in good standing and has all required and
appropriate licenses in each jurisdiction in which its failure to obtain or
maintain such qualification, good standing or licensing (i) would, individually
or in the aggregate, have or reasonably could be expected to have a material
adverse effect on the assets, liabilities, business, financial condition,
results of operations, or prospects of the Company (a "Material Adverse
Effect"), or (ii) would result in a material breach of any of the other
representations, warranties or covenants set forth in this Agreement. The
Company has all requisite corporate power and corporate authority to enter into
this Agreement all other agreements and documents contemplated hereby (the
"Ancillary Agreements") and to consummate the transactions contemplated hereby
and thereby. This Agreement has been, and the Ancillary Agreements, when
executed, will be, duly executed and delivered by the Company and each of the
Sellers, has been authorized by all necessary action of the Company and
constitutes a legal, valid and binding obligation of the Company and each of the
Sellers, enforceable against the Company and each of the Sellers in accordance
with its terms, except as enforcement may be limited by equitable principles or
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
creditors' rights generally.
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2.2 Capitalization. The Sellers are the only members of the Company,
and the Interests constitute all of the membership interests of the Company.
There are no options, warrants, conversion rights, rights of exchange, or other
rights, plans, agreements or other commitments providing for the purchase,
issuance or sale of any additional membership interests or any securities
convertible into or exchangeable for any membership interests of the Company.
2.3 Good and Marketable Title To Interests. All of the Interests are
owned, beneficially and of record, only by the Sellers and are free from any
charge, lien, encumbrance or adverse claim of any kind whatsoever. The Sellers
have the absolute and unrestricted right, power, authority and capacity to
transfer the Interests to Category 5 and upon the Closing, without exception,
Category 5 will acquire from the Sellers legal and beneficial ownership of, good
and valid title to, and all rights to vote, the Interests, free from any charge,
lien, encumbrance or adverse claim of any kind whatsoever.
2.4 Subsidiaries. Except as set forth on Schedule 2.4, the Company does
not presently own, directly or indirectly, any interest in any other
corporation, association, joint venture or other business entity.
2.5 Financial Statements. The balance sheet and related statements of
income and cash flows of the Company since inception through September 30, 2001
(the "Flash Financial Statements") have been provided to Category 5. The
internal books and records of the Company from which the Flash Financial
Statements were prepared do not contain any information which is false or
misleading. The Flash Financial Statements (i) were prepared in accordance with
such books and records; (ii) were prepared in accordance with the Company's
accounting policies and principles, and are in accordance with international
accounting standards ("IAS"), applied on a consistent basis; and (iii) present
fairly the Company's financial position and results of operations at the dates
and for the periods reflected therein.
2.6 Properties. The Company does not own or hold title to any real
property. The Company has beneficial ownership of and good and marketable title
to all properties and assets it owns which are used in its operations or
necessary for the conduct of its business, and such properties and assets are
not subject to no mortgages, liens, pledges, loans or encumbrances of any kind
whatsoever. With respect to property and assets it leases, the Company is in
compliance in all material respects with such leases and holds a valid leasehold
interest free of any liens, claims or encumbrances of any kind whatsoever. All
real and tangible personal property, including machinery, equipment and fixtures
currently used by the Company in the operation of its businesses is, and at the
time of Closing will be, in good operating condition and repair, ordinary wear
and tear excepted.
2.7 Litigation. No litigation, arbitration or proceeding is pending or,
to the best knowledge of the Company, threatened by or against the Company, its
properties or assets, the Interests or its officers, directors or the Sellers
before any court or any government agency, and, to the knowledge of the Company,
no facts exist which might form the basis for any such litigation, arbitration
or proceeding. To the knowledge of the Company, the Company is not the subject
of any investigation for violation of any laws, regulations or administrative
orders applicable to its businesses by any governmental authority or any other
person. There is no judgment, writ, decree, injunction, rule or order of any
court, governmental department, commission, agency, instrumentality or
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arbitrator outstanding against the Company, its properties or assets or the
Interests.
2.8 Non-Contravention. The execution and delivery of this Agreement by
the Company and consummation of the transactions contemplated hereby will not
result in or constitute any of the following: (i) a conflict, violation or
default with or an event that, with notice or lapse of time or both, would be a
default, breach, or violation of the Articles of Incorporation or Bylaws of the
Company, any contract, lease, license, permit, promissory note, conditional
sales contract, commitment, indenture, mortgage, deed of trust, or other
agreement, instrument or arrangement to which the Company is a party or by which
the Company or its assets are bound; (ii) an event that would permit any party
to terminate any agreement or instrument or to accelerate the maturity of or
permit the subordination of any indebtedness or other obligation of the Company;
(iii) the creation or imposition of any lien, charge, or encumbrance on any of
the assets of the Company; or (iv) conflict with or result in the violation or
breach of any law, rule or regulation of any governmental authority, or any
judgment, order, injunction or decree applicable to the Company or its assets.
2.9 Absence of Certain Changes. Except as set forth in Schedule 2.9,
since September 30, 2001, there has not been:
(a) Any Material Adverse Effect;
(b) Any increase in the compensation paid or payable by the
Company, other than in the ordinary course of business, to any of its
officers, directors, employees, agents or Sellers;
(c) Any split-up or other recapitalization in respect of the
capital stock of the Company or any direct or indirect redemption,
purchase or other acquisition of any such capital stock or any
agreement to do any of the foregoing;
(d) Any issuance, transfer, sale or pledge by the Company of any
Interests of its capital stock or other securities or of any
commitment, option, right or privilege under which the Company is or
may become obligated to issue any Interests of its capital stock or
other securities;
(e) Any indebtedness incurred by the Company, except such as may
have been incurred or entered into in the ordinary course of business;
(f) Any loan made or agreed to be made by the Company, nor has the
Company become liable or agreed to become liable as a guarantor with
respect to any loan;
(g) Any waiver or compromise by the Company of any right or rights
of material value or any payment, direct or indirect, of any material
debt, liability or other obligation;
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(h) Any sale, assignment, or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets of material value
other than licenses granted in the ordinary course of business;
(i) Any purchase or other acquisition of, or any sale, lease,
disposition of, mortgage, pledge or subjection to any lien or
encumbrance on, any material property or asset, tangible or intangible,
of the Company or any agreement to do any of the foregoing;
(j) Any actual or threatened amendment, termination or loss of (i)
any material contract, lease, license or other agreement to which the
Company is a party; or (ii) any certificate or other authorization
required for the continued operation by the Company of any material
portion of any of its business;
(k) Any resignation or termination of employment of any officer or
employee of the Company;
(l) Any change in or amendment to the charter documents of the
Company; or
(m) Any agreement or commitment by the Company to do any of the
things described in this Section 2.9.
2.10 Employees. The Company has complied in all material respects with
all applicable laws, rules and regulations relating to employment, including
those relating to wages, hours, collective bargaining and the payment and
withholding of taxes and other sums as required by appropriate governmental
authorities.
2.11 Compliance with Law; Consents. The business and operations of the
Company have been and are being conducted in compliance with all laws, rules,
regulations and licensing requirements applicable thereto, except where failure
to be so in compliance would not have a Material Adverse Effect. The Company is
unaware of any facts which might form the basis for a claim that any material
violation of such laws exists. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority or any third party on the part of
the Company or the Sellers is required in connection with the execution,
delivery and performance by the Company or the Sellers of this Agreement, the
consummation of the transactions contemplated hereby or Category 5's operation
of the business of the Company following the Closing Date.
2.12 Contracts and Other Agreements. Schedule 2.12 sets forth a list of
all contracts and other agreements to which the Company is a party or by or to
which it or its assets or properties are bound or subject, whether or not made
in the ordinary course of business, that have or would be reasonably expected to
have a material effect on the Business of Company. True and complete copies of
all the contracts and other agreements (and all amendments, waivers or other
modifications thereto and all appendices and attachments) set forth on the
Company Disclosure Schedule have been furnished to Category 5. Each of such
contracts is valid, existing, in full force and effect, binding upon the
Company, and to the best knowledge of the Company, binding upon the other
parties thereto in accordance with their terms (subject in each case to the
application of general principles of equity or by the effect of bankruptcy,
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insolvency, reorganization, moratorium or similar laws generally affecting
creditors' rights), and the Company is not in default under any of them, nor, to
the best knowledge of the Company, is any other party to any such contract or
other agreement in default thereunder, nor does any condition exist that with
notice or lapse of time or both would constitute a default thereunder, except,
in each case, such defaults as would not, individually or in the aggregate, have
a material adverse effect on the Business of Company.
2.13 Affiliate Relationships. Other than as provided on Schedule 2.13,
the Company does not have any material financial interest, direct or indirect,
in any supplier or service provider to, or customer of, the Company or other
party to any contract or other arrangement which is material to the Company. For
purposes of this Section 2.13, the term the Company shall be deemed to include
the Company, the Sellers and any person, firm or corporation which, directly or
indirectly, alone or together with others, controls, is controlled by, or is
under common control with the Company.
2.14 No Termination of Business Relationship. None of the entities with
which the Company has a material business relationship or any other present
material customer of the Company has given notice of any intention to cancel or
otherwise terminate a material business relationship with the Company and the
Company has no knowledge of any event (including, without limitation, the
transactions contemplated hereby) which would precipitate the cancellation or
termination of, or entitle any such entity or customer to terminate, such a
material business relationship.
2.15 Intellectual Property Rights. To the Company's best knowledge ,
the Company has exclusive license to all patents, patent rights, trademarks,
trademark rights, service marks, service xxxx rights, trade names, trade name
rights and copyrights (collectively, the "Intellectual Property") necessary for
its business without any conflict with or infringement of the valid rights of
others and the lack of which could have a Material Adverse Effect, and the
Company has not received any notice of infringement upon or conflict with the
asserted rights of others. Schedule 2.15 contains a complete list of patents,
patent applications, trade names, trademarks, service marks, brandmarks
copyrights, registrations owned or used by the Company and any applications for
the foregoing. All Intellectual Property is vested in (or, if applicable, leased
or licensed by) the Company free and clear of any equities, claims, liens,
encumbrances or restrictions of any kind whatsoever. All Intellectual Property
which is licensed to the Company by others are identified in Schedule 2.15, and
all such licenses will continue in full force and effect upon the consummation
of the transactions contemplated hereby. The Company has a valuable body of
trade secrets, including know-how, concepts, computer programs and other
technical data (the "Proprietary Information") for the operation of its
business. To the Company's best knowledge, the Company has the right to use the
Proprietary Information free and clear of any rights, liens, encumbrances or
claims of others. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business. The Company does not believe it is or will be
necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company, except
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for inventions that have been assigned or licensed to the Company as of the date
hereof. Each employee, officer and consultant of the Company has executed a
Proprietary Information and Inventions Agreement in the form provided by
Category 5. To the Company's best knowledge, no employee, officer or consultant
is in violation thereof, and the Company will use its best efforts to prevent
any such violation.
2.16 No Undisclosed Liabilities. The Company does not have, and as of
the Closing Date will not have, any liabilities, obligations or commitments of
any nature (absolute, accrued, contingent or otherwise) matured or unmatured
("Liabilities") except (i) Liabilities which are adequately reflected or fully
reserved against in the Flash Financial Statements; (ii) Liabilities which have
been incurred in the ordinary course of business and consistent with past
practice since September 30, 2001; (iii) Liabilities disclosed in the Schedules
hereto; and (iv) Liabilities arising under contracts or other agreements which
because of the dollar amount involved are not required to be listed in Schedule
2.12.
2.17 Representations Complete. None of the representations and
warranties made by the Sellers or the Company herein, nor any statement made in
any Exhibit, Schedule or certificate furnished pursuant to this Agreement,
contains or will contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein, or necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading.
2.19 Broker's and Finder's Fees. Neither the Company nor the Sellers
has incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finder's fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby that may
become the obligations or liabilities of Category 5.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each of the Sellers agree with, and represent and warrant to Category 5
as follows:
3.1 Good and Marketable Title to Interests. The Sellers have and will
have on the Closing Date, full right, power, and authority to sell, transfer and
deliver the Interests as provided in this Agreement.
3.2 Purchase Entirely for Own Account. Each Seller understands that
Category 5 is entering into this Agreement with each Seller in reliance upon
such Seller's representation to Category 5, which by such Seller's execution of
this Agreement such Seller hereby confirms, that the Category 5 Shares to be
received by such Seller, (for purposes of Article III, the "Securities") will be
acquired for investment for such Seller's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Seller has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, each Seller further represents that such Seller does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
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respect to any of the Securities. Each Seller represents that it has full power
and authority to enter into this Agreement.
3.3 Disclosure of Information. Each Seller believes that it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Securities. Each Seller further represents that it has
had an opportunity to ask questions and receive answers from Category 5
regarding Category 5 and its business and operations and the terms and
conditions of the offering of the Securities.
3.4 Investment Experience. Each Seller acknowledges that it is able to
fend for itself, can bear the economic risk of its investment and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Securities.
3.5 Accredited Seller. Each Seller is an "accredited investor" within
the meaning of Regulation D promulgated under the Securities Act of 1993, as now
in effect.
3.6 Restricted Securities. Each Seller understands that the Category 5
Shares it is purchasing are characterized as "restricted securities" under the
United States securities laws inasmuch as they are being acquired from Category
5 in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances. In this connection, each Seller represents that it is familiar
with Rule 144 promulgated under the Act, as now in effect, and understands the
resale limitations imposed thereby and by the Act. Each Selling Seller agrees
that it will (i) not sell, assign or transfer any of the Category 5 Shares to
anyone other than Category 5 or to a transferee who has agreed to be bound by
the Exchange Agreement, (ii) not make any disposition of all or any portion of
the Category 5 Shares unless such disposition is in compliance with all
applicable federal and state securities law, and (iii) not, to the extent
requested by an underwriter of common stock (or other securities) of Category 5
during a one-year period following the Closing, sell or otherwise transfer or
dispose of any such securities during a reasonable and customary period of time,
as agreed to by Category 5 and the underwriters.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CATEGORY 5
Category 5 represents and warrants to the Sellers and the Company that:
4.1 Corporate Existence, Good Standing and Authority. Category 5 has
been duly incorporated and is validly existing and in good standing under the
laws of the State of Nevada. Category 5 has full corporate power and authority
to enter into, deliver, perform its obligations under and carry out this
Agreement and the Ancillary Agreements to which it is a party. This Agreement
constitutes, and all agreements and Ancillary Agreements will constitute, valid
and legally binding obligations of Category 5 enforceable in accordance with
their terms, subject as to enforcement to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
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4.2 Category 5 Shares Fully Paid and Non-Assessable. The Category 5
Shares deliverable pursuant to Section 1.2 when issued and delivered as herein
provided, will be validly issued and outstanding shares of Category 5 Common
Stock, fully paid and non-assessable, free and clear of all liens, encumbrances,
restrictions and claims of every kind.
4.3 Consents and Approvals. Except as otherwise described herein, no
consent, approval, authorization, order, registration or qualification of or
with any court or any regulatory authority or any other governmental body is
required for the consummation by Category 5 of the transactions contemplated by
this Agreement has been obtained or will be obtained prior to or upon the
Closing Date.
4.4 No Breach. The execution and delivery of this Agreement by Category
5 and consummation of the transactions contemplated hereby will not result in or
constitute any of the following: (i) a conflict, violation or default with or an
event that, with notice or lapse of time or both, would be a default, breach, or
violation of the Certificate of Incorporation or Bylaws of Category 5, any
contract, lease, license, permit, promissory note, conditional sales contract,
commitment, indenture, mortgage, deed of trust, or other agreement, instrument
or arrangement to which Category 5 is a party or by which Category 5 or its
assets are bound; (ii) an event that would permit any party to terminate any
agreement or instrument or to accelerate the maturity of or permit the
subordination of any indebtedness or other obligation of the Category 5; (iii)
the creation or imposition of any lien, charge, or encumbrance on any of the
assets of the Category 5; or (iv) conflict with or result in the violation or
breach of any law, rule or regulation of any governmental authority, or any
judgment, order, injunction or decree applicable to Category 5 or its assets.
4.5 Financial Statements. The consolidated audited financial statements
of Category 5 and its subsidiaries as filed with the Securities and Exchange
Commission (the "SEC") on Form 10K for the year ended June 30, 2001, (the
"Category 5 Audited Financial Statements") and the unaudited consolidated
financial statements of Category 5 and its subsidiaries as filed with the SEC on
Form 10-Q for the three and six months ended December 31, 2001 (the "Category 5
Unaudited Financial Statements")comply as to form in all material respects with
applicable accounting requirements and with applicable rules and regulations of
the Securities and Exchange Commission. The Category 5 Audited Financial
Statements and the Category 5 Unaudited Financial Statements (i) were prepared
in accordance with Category 5's internal books and records; (ii) were prepared
in accordance with Category 5's accounting policies and principles, and are in
accordance with generally accepted accounting principles ("GAAP"), applied on a
consistent basis; and (iii) present fairly Category 5's financial position and
results of operations at the dates for the periods reflected therein.
4.6 Properties. Category 5 does not own or hold title to any real
property. Category 5 has beneficial ownership of and good and marketable title
to all properties and assets it owns which are used in its operations or
necessary for the conduct of its business, and such properties and assets are
not subject to any mortgages, liens, pledges, loans or encumbrances of any kind
whatsoever. With respect to property and assets it leases, Category 5 is in
compliance in all material respects with such leases and holds a valid leasehold
interest free of any liens, claims or encumbrances of any kind whatsoever. All
real and tangible personal property, including machinery, equipment and fixtures
currently used by Category 5 in the operation of its businesses is, and at the
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time of Closing will be, in good operating condition and repair, ordinary wear
and tear excepted.
4.7 Litigation. Except as set forth in Schedule 4.7 hereto or in which
an adverse outcome would not have a Material Adverse Effect, no litigation or
proceeding is pending or, to the knowledge of Category 5, threatened by or
against Category 5, its assets or the Category 5 Shares before any court or any
government agency, and, to the best knowledge of Category 5, no facts exist
which might form the basis for any such litigation or proceeding. To the
knowledge of Category 5, Category 5 is not the subject of any investigation for
violation of any laws, regulation or administrative orders applicable to its
business by any governmental authority or any other person. There is no
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against Category 5 or the Category 5 Shares.
4.8 Representations Complete. None of the representations and
warranties made by Category 5 herein, nor any statement made in any Exhibit,
Schedule or certificate furnished pursuant to this Agreement, contains or will
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated therein, or necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
4.9 Broker's and Finder's Fees. Category 5 has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finder's fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
ARTICLE V
COVENANTS OF THE SELLERS
5.1 Non-Competition Agreements. Sellers hereby agree to not compete
with Category 5, the Company, and/or FlashAlly following the Closing, and
Sellers agree to enter into a non-competition agreement (the "Non-Competition
Agreement") substantially in the form attached hereto as Exhibit C.
5.2 Best Efforts. Each of the Sellers will use his best efforts to
perform and fulfill all obligations on their respective parts to be performed
and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be effected substantially in accordance
with its terms. Each of the Sellers shall each cooperate with Category 5 in such
actions and in securing requisite approvals and shall deliver such further
documents as Category 5 may reasonably request as necessary to evidence such
transactions.
ARTICLE VI
COVENANTS OF CATEGORY 5
6.1 Employee Matters. The Company shall enter into employment
agreements with Xxxx Xxxxx (the "Employment Agreement"), substantially in the
form attached hereto as Exhibit D.
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6.2 Board Seat. The Company shall appoint a nominee of Sellers to the
Board of Directors of the Company, effective as of the Closing. Sellers shall
deliver the name and written background of the nominee to the Company prior to
the Closing. The Company covenants to submit such nominee as one of its slate of
directors to be elected to the Board at the Company's next Annual Meeting of
Shareholders.
6.3 Best Efforts. Category 5 will use its best efforts to perform and
fulfill all obligations on its part to be performed and fulfilled under this
Agreement, to the end that the transactions contemplated by this Agreement shall
be effected substantially in accordance with its terms.
ARTICLE VII
CLOSING
7.1 Time and Place. The purchase and sale of the Interests hereunder
(the "Closing") shall occur on the date of execution of this Agreement by all of
the parties hereto (the "Closing Date").
7.2 Deliveries of the Sellers. At the Closing, the Sellers will deliver
or cause to be executed and delivered to Category 5:
(a) Amended Operating Agreement. An Amended Operating Agreement of
the Company, reflecting ownership of all of the Interests by Category
5;
(b) Articles. The Articles of Formation of the Company, certified
by the appropriate government agency as of a recent date;
(c) Books and Records. Any and all of the minute books and similar
records of the Company;
(d) Employment Agreement. The executed Employment Agreement;
(e) Non-Competition Agreements. Executed Non-Competition
Agreements;
(f) Escrow Agreement. The executed Escrow Agreement;
(g) Royalty Agreement. The executed Royalty Agreement; and
(g) Other Documents. Such other documents and instruments as
Category 5 or its counsel reasonably shall deem necessary to consummate
the transactions contemplated hereby.
All documents delivered to Category 5 shall be in form and substance
reasonably satisfactory to Category 5 and its counsel.
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7.3 Deliveries of Category 5. At the Closing, Category 5 will execute
and deliver or cause to be executed and delivered simultaneously with delivery
of the items referred to in Section 7.2 above:
(a) Payment of the Consideration. The Tranche I Shares, delivered
to Sellers;
(b) Escrowed Shares. The Tranche II Shares, delivered to the
Escrow Agent;
(c) Employment and Non-Competition Agreements. The executed
Employment Agreement and the Non-Competition Agreements;
(d) Escrow Agreement. The executed Escrow Agreement;
(e) Royalty Agreement. The executed Royalty Agreement; and;
(f) Other Documents. Such other documents and instruments as
Category 5 or its counsel reasonably shall deem necessary to consummate
the transactions contemplated hereby.
ARTICLE VIII
TRANCHE II CLOSINGS
8.1 Tranche II Closings. The release of the Tranche II Shares from
Escrow (each, a "Tranche II Closing") shall occur at Category 5's offices in
Salt Lake City, Utah, on the 30th day following confirmation by Category 5 that
Flash has met the conditions set forth in Section 1.2(ii) above and in the
Escrow Agreement for release of the Tranche II Shares. It is anticipated that
there will be 3 separate Tranche II Closings.
8.2 Conditions to Category 5's Obligations at the Tranche II Closing.
The obligation of Category 5 to direct the Escrow Agent to release the Tranche
II Shares to Sellers is subject to the satisfaction of the following conditions,
unless waived in writing by Category 5:
(a) Representations. All representations of the Sellers in this
Agreement or the Schedules and Exhibits hereto, or in any written
statement or certificate that shall be delivered to Category 5 under
this Agreement, other than those representations which reference a
specific date therein, shall be true on and as of such Tranche II
Closing Date as though such representations and warranties were made on
and as of that date, and the Sellers shall have delivered a
certificate, dated such Tranche II Closing date so certifying.
(b) No Violations; No Actions. Consummation of the transactions
contemplated by the Tranche II Closing shall not violate any order,
decree or judgment of any court or governmental body having competent
jurisdiction and no action or proceeding shall have been instituted or
threatened by any person, entity or governmental agency which has a
reasonable probability of resulting in (i) an order, judgment or decree
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restraining, prohibiting or rendering unlawful the consummation of the
transactions contemplated by the Tranche II Closing or (ii) other
relief in connection therewith.
(c) Employment. Xxxx Xxxxx shall not have voluntarily terminated
his employment with the Company as of such Tranche II Closing.
8.3 Deliveries of Category 5 at Tranche II Closing. At the Tranche II
Closing Category 5 will execute and deliver or cause to be executed and
delivered to the Sellers Instructions to the Escrow Agent to release the
applicable number of Tranche II Shares.
ARTICLE IX
OBLIGATIONS OF SELLERS AND CATEGORY 5 AFTER CLOSING
9.1 Indemnification by the Sellers. The Sellers shall indemnify and
hold harmless Category 5 and its respective officers, directors, employees,
successors and assigns in respect of any and all claims, actions, suits or other
proceedings and any and all losses, costs, expenses, liabilities, fines,
penalties, interest, and damages, whether or not arising out of any claim,
action, suit or other proceeding (and including reasonable counsel and
accountants' fees and expenses and all other reasonable costs and expenses of
investigation, defense or settlement of claims and amounts paid in settlement)
incurred by, imposed on or borne by Category 5 (collectively "Damages")
resulting from:
(a) The breach of any of the representations or warranties made by
the Company or the Sellers in this Agreement;
(b) The breach or the failure of performance by the Company or the
Sellers of any of the covenants that they are to perform hereunder;
(c) The payment of any taxes (including interest and penalties) of
any kind or nature imposed, whether before or after the Closing, by any
government or subdivision thereof upon the business, assets or
employees or independent contractors of the Company or otherwise
resulting from or relating to the respective businesses or operations
of the Company prior to the Closing or any of its properties or assets
as they existed as of or any time prior to the Closing Date and the
transactions contemplated by this Agreement;
(d) The death of or injury to any person or damage to property
that occurred prior to the Closing and arose out of or in connection
with the business or operations of the Company (whether asserted,
discovered or established before or after the Closing), and whether or
not it is the subject matter of a claim or action disclosed in the
Schedules to this Agreement; and
(e) All employment-related claims and causes of action, and all
other claims and causes of actions, that have arisen or arise out of in
connection with the operations of the businesses of the Company
conducted prior to the Closing (whether asserted, discovered or
established before or after the Closing).
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Damages shall exclude any amount with respect to which Category 5 or
the Company as the case may be shall have received under any insurance policy
which provides coverage for the liability to which such amount relates.
9.2 Indemnification by Category 5. Category 5 shall indemnify and hold
harmless the Sellers, in respect of any and all claims, losses, costs, expenses,
liabilities, fines, penalties, interest, and damages (including reasonable
counsel and accountants' fees and expenses and all other reasonable costs and
expenses of investigation, defense or settlement of claims and amounts paid in
settlement) incurred by, imposed on or borne by the Sellers resulting from:
(a) The breach of any of the representations or warranties made by
Category 5 in this Agreement; or
(b) The breach or the failure of performance by Category 5 of any
of the covenants that it is to perform hereunder.
9.3 Indemnification Procedure for Claims. Whenever any claim shall
arise for indemnification hereunder, the party entitled to indemnification (the
"indemnified party") shall promptly notify the other party or parties (the
"indemnifying party") of the claim and, when known, the facts constituting the
basis for such claim; provided, that the indemnified party's failure to give
such notice shall not affect any rights or remedies of an indemnified party
hereunder with respect to indemnification for damages except to the extent that
the indemnifying party is materially prejudiced thereby. In the event of any
claim for indemnification hereunder resulting from or in connection with any
claim or legal proceedings by a third party, the notice to the indemnifying
party shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. The indemnified party shall not settle or
compromise any claim by a third party for which it is entitled to
indemnification hereunder, without the prior written consent of the indemnifying
party (which shall not be unreasonably withheld) unless suit shall have been
instituted against it and the indemnifying party shall not have taken control of
such suit after notification thereof as provided in Section 10.8 this Agreement.
9.4 Defense by Indemnifying Party. In connection with any claim giving
rise to indemnity hereunder or resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
indemnifying party at its sole cost and expense may, upon written notice to the
indemnified party, assume the defense of any such claim or legal proceeding if
it acknowledges to the indemnified party in writing its obligations to indemnify
the indemnified party with respect to all elements of such claim, and thereafter
diligently conducts the defense thereof with counsel reasonably acceptable to
the indemnified party. The indemnified party shall be entitled to participate in
(but not control) the defense of any such action, with its counsel and at its
own expense. If the indemnifying party does not assume or fails to conduct in a
diligent manner the defense of any such claim or litigation resulting therefrom,
(i) the indemnified party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, without limitation, settling such
claim or litigation, after giving notice of the same to the indemnifying party,
on such terms as the indemnified party may deem appropriate, and (ii) the
indemnifying party shall be entitled to participate in (but not control) the
15
defense of such action, with its counsel and at its own expense. If the
indemnifying party thereafter seeks to question the manner in which the
indemnified party defended such third party claim or the amount or nature of any
such settlement, the indemnifying party shall have the burden to prove by a
preponderance of the evidence that the indemnified party did not defend or
settle such third party claim in a reasonably prudent manner. Each party agrees
to cooperate fully with the other, such cooperation to include, without
limitation, attendance at depositions and the provision of relevant documents as
may be reasonably requested by the indemnifying party; provided, that the
indemnifying party will hold the indemnified party harmless from all of its
expenses, including reasonable attorneys' fees, incurred in connection with such
cooperation by the indemnified party.
9.5 Manner of Indemnification. All indemnification hereunder shall be
effected by payment of cash or delivery of a certified or official bank check to
the indemnified party.
9.6 Limitations on Indemnification. Notwithstanding any provision of
this Agreement to the contrary, the Sellers shall have no obligation to
indemnify any person entitled to indemnity under Section 11.1 unless the persons
so entitled to indemnity thereunder have suffered Damages in an aggregate amount
in excess of $25,000 (the "Deductible") and then only to the extent of such
excess.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival. The representations and warranties of the Company and
the Sellers set forth in this Agreement or in any instrument or document
furnished in connection herewith shall survive the Closing and all
representations and warranties set forth herein or in any instrument or document
furnished in connection herewith will expire on the third anniversary of the
Closing Date. No claim or action for indemnity pursuant to Sections 9.1 or 9.2
hereof for breach of any representation or warranty shall be asserted or
maintained by any party hereto after the expiration of such representation or
warranty pursuant to the provisions of this Section 10.1 except for claims made
in writing prior to such expiration and actions (whether instituted before or
after such expiration) based on any claim made in writing prior to such
expiration. Each party hereto may rely on the representations and warranties
made by the other parties hereto notwithstanding any investigation of the facts
constituting the basis of the representations and warranties of any party by any
other party hereto.
10.2 Further Assurances. At the request of any of the parties hereto,
and without further consideration, the other parties agree to execute such
documents and instruments and to do such further acts as may be necessary or
desirable to effectuate the transactions contemplated hereby.
10.3 Each Party to Bear Own Costs. Each of the parties shall pay all
costs and expenses incurred or to be incurred by it in negotiating and preparing
this Agreement and in closing and carrying out the transactions contemplated by
this Agreement.
10.4 Headings. The subject headings of the Articles and Sections of
this Agreement are included for purposes of convenience only, and shall not
affect the construction or interpretation of any of its provisions.
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10.5 Entire Agreement; Waivers. This Agreement and the Exhibits and
Schedules hereto constitute the entire agreement between the parties pertaining
to the contemporaneous agreements, representations, and understandings of the
parties. No supplement, modification, or amendment of this Agreement shall be
binding unless executed in writing by all parties. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
10.6 Third Parties. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
10.7 Successors and Assigns. This Agreement shall not be assigned by
the Company or the Sellers without the written consent of Category 5. This
Agreement shall be binding on, and shall inure to the benefit of, the parties to
it and their respective heirs, legal representatives, successors, and assigns.
10.8 Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given when so delivered in person, by overnight courier, by facsimile
transmission (with receipt confirmed by telephone or by automatic transmission
report) or two business days after being sent by registered or certified mail
(postage prepaid, return receipt requested) as follows:
To the Company at: Flash Ally, LLC
000 Xxxxx Xxxxxx Xxxxxx Xxxx
Xxx Xxxxx, XX 00000
To the Sellers: Xxxx Xxxxx
000 Xxxxx Xxxxxx Xxxxxx Xxxx
Xxx Xxxxx, XX 00000
To Category 5 at: Category 5 Technologies, Inc.
0000 X. Xxxxxxx Xxxx., Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Fax: 000-000-0000
Any party may change its address for purposes of this paragraph by
giving notice of the new address to each of the other parties in the manner set
forth above.
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10.9 Arbitration. Any controversy or claim arising out of or relating
to this Agreement shall be determined by arbitration administered by the
American Arbitration Association under its International Arbitration Rules.
10.10 Attorneys' Fees. If any party to this Agreement shall bring any
action, suit, counterclaim or appeal for any relief against the other,
declaratory or otherwise, to enforce the terms hereof or to declare rights
hereunder (collectively, an "Action"), the Prevailing Party shall be entitled to
recover as part of any such Action its reasonable attorneys' fees and costs,
including any fees and costs incurred in bringing and prosecuting such Action
and/or enforcing any order, judgment, ruling or award granted as part of such
Action. "Prevailing party" within the meaning of this Section 10.10 includes,
without limitation, a party who agrees to dismiss an Action upon the other
party's payment of all or a portion of the sums allegedly due or performance of
the covenants allegedly breached, or who obtains substantially the relief sought
by it.
10.11 Governing Law. The terms of this Agreement shall be governed by
the laws of the State of Utah applicable to agreements entered into, to be
wholly performed in and among residents exclusively of, Utah.
10.12 Consent to Jurisdiction and Forum Selection. The parties agree
that all actions or proceedings arising in connection with this Agreement shall
be tried and litigated exclusively in the State and Federal courts located in
Utah. The aforementioned choice of venue is intended by the parties to be
mandatory and not permissive in nature, thereby precluding the possibility of
litigation between the parties with respect to or arising out of this Agreement
in any jurisdiction other than that specified in this Section 10.12. Each party
hereby waives any right it may have to assert the doctrine of forum non
conveniens or similar doctrine or to object to venue with respect to any
proceeding brought in accordance with this paragraph, and stipulates that the
State and Federal courts located in Utah shall have in personam jurisdiction and
venue over each of them for the purposes of litigating any dispute, controversy
or proceeding arising out of or related to this Agreement. Each party hereby
authorizes and accepts service of process sufficient for personal jurisdiction
in any action against it as contemplated by this Section 10.12 by registered or
certified mail, return receipt requested, postage prepaid, to its address for
the giving of notices as set forth in this Agreement, or in the manner set forth
in Section 10.8 of this Agreement for the giving of notice. Any final judgment
rendered against a party in any action or proceeding shall be conclusive as to
the subject of such final judgment and may be enforced in other jurisdictions in
any manner provided by law.
10.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
10.14 Severability. All provisions contained herein are severable and
in the event that any of them shall be held to be to any extent invalid or
otherwise unenforceable by any court of competent jurisdiction, such provision
shall be construed as if it were written so as to effectuate to the greatest
possible extent the parties' expressed intent; and in every case the remainder
of this Agreement shall not be affected thereby and shall remain valid and
enforceable, as if such affected provision were not contained herein.
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10.15 Publicity. The parties shall cooperate with each other in the
development and distribution of all news releases and other public disclosures
relating to the transactions contemplated hereby. None of the parties shall
issue or make, or cause to have issued or made, any press release or
announcement concerning the transactions contemplated hereby without the advance
approval in writing of the form and substance thereof by the other parties,
unless otherwise required by applicable law.
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IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase and Exchange Agreement as of the date first above written.
CATEGORY 5 TECHNOLOGIES, INC.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
FLASH ALLY, LLC
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
SELLERS
------------------------------
Xxxx Xxxxx
------------------------------
Xxxxx Xxxxxxxx
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Schedule 1
----------
Existing Agreements
-------------------
1. The Xxxxxxxx Group (MLM)
------------------------
2. Nippon Direct (Japan and Pacific Rim)
-------------------------------------
3. The Xxxxxxxx Group (Telesales)
------------------------------
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