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EXHIBIT 10.12
CONSULTING AGREEMENT
BETWEEN
CETALON CORPORATION
AND
THE XXXXXX GROUP, LLC
THIS AGREEMENT is entered into as of the 12th day of March 2001, by and
among the following parties (hereinafter collectively referred to as the
"Parties");
The Xxxxxx Group, LLC,
a California limited liability company
AND
Cetalon Corporation, a Delaware corporation
RECITALS
Whereas, Cetalon Corporation (hereunder referred to as the "Company"), a
Delaware corporation organized by principals of The Xxxxxx Group, LLC,
(hereinafter referred to as "Xxxxxx"), directly or through its subsidiaries owns
and operates health food and vitamin shops located in Sears stores in Canada and
has an opportunity to expand the business in the United States, and the Company
would like to finance this expansion;
AND
Whereas, Xxxxxx is a management consulting and advisory firm with
management consulting and investment banking expertise and has relationships and
contacts that will assist the Company in achieving its business plan and
financing needs;
AGREEMENT
NOW THEREFORE, for good and valuable consideration , the Parties, intending
legally to be bound, hereby agree as follows
SERVICES
1. Xxxxxx will arrange for Xxxxxxx Xxxxx to serve as Chairman of the Board
of the Company for consideration equal to out-of-pocket expenses plus $10,000
per month paid directly to Xxxxxxx Xxxxx. This appointment will be subject to
the approval of the Board of Directors of the Company.
2. Xxxxxx will provide for no additional consideration Xxxx Xxxxx to serve
as Chief Executive Officer of the Company. This appointment will be subject to
the approval of the Board of Directors of the Company.
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3. Wildly will conduct a two-day strategic planning seminar with the
Company's senior management and directors or consultants. This will be followed
by the necessary market analysis to help validate the Company's chosen strategic
plan operating strategy. This will provide Xxxxxx and the Company with the
necessary documentation to communicate to new investors.
4. Xxxxxx will advise and assist the Company in preparing and constantly
updating a supporting Financial Plan designed to optimize value for the
shareholders and for presentation to analysts and new Investors.
5. Xxxxxx will advise and assist the Company to execute the resulting
tactical plan by recommending to the Board of Directors the necessary
organizational structure and assignment of responsibilities.
6. Xxxxxx will advise and assist the Company to improve the Canadian
operations in order to optimize value for the shareholders.
7. Xxxxxx will act as management consultant to the Company during the
period of this engagement.
8. Xxxxxx will act as the exclusive investment banker to the Company during
the period of this engagement. The period of exclusivity is cancelable at any
time by either party with 60 days notice in writing.
9. Xxxxxx will use its best efforts to raise up to $1,500,000 in an equity
offering by the Company to be completed within 60 days from the date of this
contract, with terms and conditions acceptable to, and subject to the approval
of, the Board Directors of the Company. This financing is designed to fund
Canadian and the initial US expansion.
10. Xxxxxx will use its best efforts to raise up to an additional
$3,000,000 in one or more equal offerings by the Company thereafter with terms
and conditions acceptable to, and subject to the approval of, the Board of
Directors of the Company. Xxxxxx will analyze and quantify alternative
structures for equity and/or debt or equity-like structures that will meet the
Company's growth plan in accordance to the strategic plan of the Company.
11. Xxxxxx will help prepare and review the placement documents necessary
to distribute to investors.
12. Xxxxxx will manage the process of negotiations and find documentation
leading up to the completion of any financing during the period of exclusivity
referred to paragraph 7 above.
13. If requested by the Company, Xxxxxx will advise and assist the Company
in a search for acquisitions. Working closely with senior management and the
Board of Directors, Xxxxxx will perform the search, the analysis, plan the
financing, raise the necessary capital, and help negotiate the merger terms.
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14. Xxxxxx will advise and recommend to the Company the optimum composition
structure, and function of the Board of Directors, including designing optimum
rules of corporate governance and Board committees.
15. Xxxxxx will advise and recommend to the Company the optimum
composition, structure, and function of the Board of Directors, including
desiring optimum rules of corporate governance and Board committees.
16. Xxxxxx will advise the Company on adequate D&O insurance to protect and
indemnify the Owners and members of the Board. The Company will put into place a
policy with not less than $5,000,000 of coverage unless otherwise agreed by the
Board.
TERM, CONDITIONS, FEES, AND PAYMENTS
17. This Agreement is subject to the final review and approval of the
independent members of the Board of Directors that are not employees of Xxxxxx
and shall be voted on by them at the first Board of Directors meeting.
18. The initial term of this engagement is for l2 months, which term is
hereby deemed to have commenced on the effective date of the 1129 Holding Inc.-
The Xxxxxx Group, LLC, Consulting Agreement, February 7, 2001. This contract is
automatically renewed for an additional 12-month term at the end of each year
unless cancelled. The contract may only be cancelled after the initial 12-month
term with 6 months notice.
19. For the initial twelve-month period of the engagement, the Company
will pay a management-consulting fee equal to $35,000 per month. After the
initial twelve-month consulting period, if the engagement is extended by the
Company, the Company will pay Xxxxxx a monthly management-consulting fee equal
to $35,000 per month for consulting services during the period of such
extension.
20. As provided in paragraph 1 hereinabove and subject to such approvals
contained thereto, the Company will pay out-pocket expenses plus $10,000 per
month directly to Xxxxxxx Xxxxx as Chairman of the Company.
21. Xxxxxx may be reimbursed for all out-of-pocket third-party legal,
accounting, and research expenses incurred directly related to the completion of
the Sears transaction immediately upon completion.
22. Xxxxxx will also be reimbursed for any other authorized expenses.
Xxxxxx expenses must be authorized in advance by the Company.
23. Xxxxxx will be reimbursed for all third-party expenses approved by the
Company. Third part, expenses must be authorized in advance by the Company.
24. In regard to any equity or debt capital received by the Company during
the term of this Agreement, the Company will pay Xxxxxx a cash consulting fee or
finders' fee equal to ten percent (10%) of the first ten million dollars of
aggregate gross proceeds received by the
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Company and seven and one-half percent (7.5%) of the aggregate gross proceeds
received by the Company in excess of ten million dollars.
25. If the Company requests Xxxxxx to negotiate with lenders or leasing
companies, and the Company completes a transaction with such lenders or leasing
companies, the Company will pay Xxxxxx a cash consulting fee or finders' fee
equal to four percent (4%) of the first five million dollars borrowed by the
Company and two and one-half percent (2.5%) of any amount over five million
dollars borrowed or leased by the Company. This fee applies to borrowings during
the term of this Agreement or within twelve months thereafter on any debt,
subordinated debt, leasing facility, mezzanine debt, or any other debt facility.
If warrants or other equity or equity-like structures are attached or included
in a transaction with lenders, the Company will pay a fee equal to ten percent
(10%) of the total amount of funds received by the Company for the equity or
warrant portion only.
26. The cash fees for "services" described in Section 24 above that relates
to mergers and acquisitions will be five percent (5%) of the first $5,000,000 of
total value of the transaction and two and one half percent of any amount above
$5,000,000.
DISPUTES AND CONTROVERSIES
27. The Parties agree that all disputes, claims, and other matters in
controversy arising out of or relating to this Agreement, or the performance or
breach thereof, shall be submitted to binding arbitration in accordance with the
provisions and procedures of this paragraph; provided, however, that the
arbitrator shall not be empowered to award punitive, exemplary or consequential
damages.
28. Any arbitration referred to in paragraph 26 above shall be held in
Orange County, California in accordance with applicable law except as provided
to the contrary hereunder. Such arbitration shall be held before and decided by
a single neutral arbitrator. The single neutral arbitrator shall be selected
from a list of retired judges of the Court of Orange by a process mutually
agreed upon by the parties.
29. The parties shall mutually agree upon the date and location of the
arbitration subject to the availability of the arbitrator, except that the
arbitrator shall give not less than (30) days notice of the hearing unless the
parties mutually agree to shorten time for notice.
30. The parties shall be entitled to undertake discovery in the arbitration
in accordance with California law. In conjunction with these processes, the
parties shall be entitled to request and obtain production of documents in
discovery in the arbitration in accordance with the same rights, remedies and
procedures, and shall be subject to all of the same duties, liabilities and
obligations as if the subject matter of the arbitration were pending in a civil
action before a Superior Court of the State of California. The parties hereby
agree that any discovery talked hereunder shall be permitted without first
securing leave of the arbitrator and shall be kept to a reasonable minimum.
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31. The decision of the arbitrator appointed pursuant to this agreement
shall be final and binding.
32. The arbitration proceedings themselves and any discovery taken in
connection with the arbitration, shall be kept strictly confidential and shall
not be disclosed to any third party.
33. The arbitrator may award to any prevailing party, as determined by the
arbitrator, part or all of the prevailing party's costs and fees. "Cost and
fees" means all reasonable pre-award expenses of the arbitration, including the
arbitrators fees, administrative fees, travel expenses, out-of-pocket expenses
such as photocopy, telecopy and telephone charges, witness fees and attorneys'
fees.
CONFIDENTIALITY
34. Xxxxxx acknowledges and agrees that it will receive and become aware of
certain information which is proprietary to the Company, including, without
limitation, prices, costs, personnel, knowledge, data and techniques, other
non-public information concerning the business or finances of the Company, and
other information the disclosure of which might harm or destroy the competitive
advantage of the Company (all of the foregoing shall hereinafter be referred to
as the "Proprietary Information"). Notwithstanding the foregoing, the
Proprietary Information shall not include any information which is generally
known or becomes part of the public domain through no fault of Xxxxxx, or is
required to be disclosed in the context of any administrative or judicial
proceeding.
35. Xxxxxx agrees that it will not, directly or indirectly, disclose any
Proprietary Information to third parties, copy or use any Proprietary
Information, or publish any Proprietary Information, except for the purpose of
fulfilling its obligations to the Company.
INDEMNIFICATION
36. Except as may be prohibited by applicable law, the Company shall
indemnify and hold harmless Xxxxxx including each member, Executive Committee
member and officer thereof, their respective partners, officers, directors,
shareholders and trustees and the partners, officers, directors, shareholders
and trustees of such parties and in the discretion of the Executive Committee,
may indemnify and hold harmless any Affiliate thereof, and any employee or agent
of, or adviser to, each member, Executive Committee member and officer, and
their respective Affiliates (such Persons, to the extent they are required to be
indemnified hereunder or are provided indemnity hereunder by the Executive
Committee, are herein collectively referred to as "Indemnified Parties") from
and against any and all losses, claims, demands, costs, damages, liabilities,
expenses of and nature (including reasonable attorneys' fees and expenses),
judgments, fines, settlements and other amounts (collectively, the
"Liabilities") arising from, or related or incidental to, any and all claims,
demands, actions, suits or proceedings, civil, criminal, administrative or
investigative, in which such Indemnified Party may be involved, or threatened to
be involved, as a party or otherwise, and arising out of or related to this
agreement or the services to be provided by Xxxxxx under this Agreement without
limitation, liabilities under
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California law if such Indemnified Party acted in good faith and in a manner it
reasonably believed to be in, or not opposed to, the interests office the
Company, and, with respect to any criminal proceeding, did not in good faith
believe its conduct was unlawful; provided, however, that such Indemnified Party
shall not be indemnified against any such Liabilities and the Indemnified Party
shall repay all amounts previously advanced by the Company pursuant hereto, that
were caused by such Indemnified. Party's actual fraud, gross negligence or
wanton or willful misconduct, unless the court in which such proceeding was
brought shall determine the Indemnified Party is fairly and reasonably entitled
to indemnify in which case such indemnification shall be provided only to the
extent permitted by such court. Notwithstanding the foregoing, to the extent
that an Indemnified Party has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in this paragraph, or in
connection with any appeal therein, or in defense of any claim, issue or matter
therein, the Company shall indemnify such Indemnified Party against the
expenses, including, without limitation, reasonable attorneys' and accountants'
fees and expenses, incurred by such Indemnified Party in connection therewith.
The termination of any pending or threatened action, suit or proceeding by
judgment, order settlement, conviction, or upon a plea of nolo contendere or its
equivalent shall not, in and of itself, create a presumption or otherwise
constitute evidence that the Indemnified Party did not satisfy standards
indemnification set forth in this paragraph.
37. Liabilities incurred by any Indemnified Party in defending any pending
or threatened claim, demand, action, suite or proceeding shall, from time to
time, be paid by the Company in advance of the final disposition or settlement
of such claim, demand, action, suit or proceeding upon receipt of an undertaking
by or on behalf of the Indemnified Party to repay such amounts (or a
proportionate share of such amounts determined in accordance with clause (c) of
this paragraph if applicable) if it is ultimately determined that The
Indemnified Party is not to be indemnified by The Company as provided in this
agreement.
38. If for any reason (other than the gross negligence or the wanton or
willful misconduct or bed fish office Indemnified Party), the foregoing
indemnification is unavailable to such Indemnified Party, then the Company shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Liabilities in such proportion as is appropriate to reflect not only the
relative benefits received by the Company, on the one hand, and such Indemnified
Party on the other hand, but also the relative fault of the Company and such
Indemnified Party as well as any relevant equitable considerations.
39. The indemnification (or contribution) and advancement of amounts
provided by this agreement shall not be deemed exclusive of, but shall be in
addition to, any other rights to which those persons seeking indemnification (or
contribution) or advancement of amounts may otherwise be entitled and shall
continue as to any Indemnified Party notwithstanding the dissolution or other
cessation to exist of such Indemnified Party or the withdrawal, adjudication of
bankruptcy or insolvency of such Indemnified Party, such Indemnified Party's no
longer serving m the capacity entitling it to indemnification under the
provisions of this agreement. or the termination of the Company.
40. The advancement, indemnity and contribution obligations of the Company
under this Agreement shall be in addition to any obligation which the Company
may otherwise have,
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shall be binding upon and inure to the benefit of any successors assigns, heirs
and personal representatives of the Company and each of the Indemnified Parties
and shall not be deemed to create any rights for the benefit of any other party.
The provisions of this paragraph shall survive any termination of this
Agreement.
41. This Agreement shall constitute the whole and entire agreement of the
parties hereto with respect to the matters set forth herein and shall not be
modified or amended in any respect.
42. This Agreement is governed by and to be construed in accordance with
the laws of the State of California without regard to conflict of laws
principles.
So Agreed:
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Xxxxxxx X.X. Xxxxx Xx. A. Xxxx X. Xxxxx, Xx.
Cetalon Corporation The Xxxxxx Group, LLC
President Chief Executive Officer
