SERVICE AGREEMENT
AGREEMENT dated as of February 10, 1997, by and between D and N
Consulting Corporation, a Delaware corporation (the "Service Company"), and CVF
Corp., a Nevada Corporation ("Newco").
1. PAYMENT OF OPERATING EXPENSES. The Service Company agrees to be
responsible for all administrative requirements of Newco, including, but
not limited to, costs of maintaining the books of Newco, preparing periodic
reports to the Board of Directors of Newco and providing office facilities
and travel expenses, and except those expenses to be borne by Newco which
are described in Section 3 below. The Service Company will also be
responsible for compensating its employees and directors and any other
person or entity employed for the purpose of providing services to Newco
pursuant to this Service Agreement.
2. SERVICE FEE
(a) Subject as set forth below, Newco will pay the Service Company an
annual service fee (the "Service Fee") based on an annual budget
prepared by the Service Company which will be reasonable and
commensurate with administering the business of Newco and approved by
the Board of Directors of Newco. Any fees or other amounts received
by the Service Company, or its respective directors or officers from
investee companies of Newco as financing commitment fees, consulting
fees, directors' fees or otherwise for services rendered to the
investee companies shall be credited against the Service Fee.
(b) The Service Fee for each fiscal year shall be determined in the last
30 days of Newco's prior fiscal year, based upon the budget prepared
by the Service Company and approved by the Board of Directors of
Newco. For the remainder of 1995, the Service Company shall be paid a
Service Fee of $160,000 per quarter.
(c) The Service Fee will be calculated and paid quarterly in advance on
the first day of January, April, July and October of each year.
(d) If the Service Fee shall be payable for any period which is less than
one year, such payments shall be adjusted on a pro rata basis based
upon the number of days that this Service Agreement is in effect
during such period. If this Service Agreement is terminated as of a
date that is not the last day of March, June, September or December in
any calendar year, then the Service Company shall refund to Newco the
unearned portion of the Service Fee, calculated on a pro rata basis.
(e) The Service Company may, at its option, direct Newco to pay the
Service Fee and any expenses payable to the Service Company to either
Xxxxxxx Xxxxxx or Xxxxxx Xxxxx.
3. EXCEPTIONS TO PAYMENT OF SERVICE FEE.
(a) After fifteen months have elapsed from the date of this Service
Agreement, the Service Company's right to the Service Fee in any
quarter will depend on the trading price of the shares of Newco Common
Stock (the "Newco Common Shares"). If the 90 day weighted average
trading price (the "Trading Price") over the course of the prior
quarter does not, at any time in the prior fiscal quarter of Newco,
exceed the target price (the "Target Price") set out below, the
Service Company will not be entitled to the Service Fee during the
next quarter.
For purposes of this Service Agreement, the Target Price equals $3.05.
In the event that Newco shall at any time after the Closing subdivide
or change the outstanding number of Newco Common Shares, the Target
Price shall be proportionately adjusted.
If at any time in any fiscal quarter the Trading Price of Newco Common
Shares is greater than the Target Price but less than double the
Target Price, then the Service Company will be entitled to a
percentage of the Service Fee for all future quarters (based on the
proportion that the excess of the Trading Price over the Target Price
is of the Target Price).
If, at any time after fifteen months have elapsed from the date of
this Service Agreement, the Trading Price exceeds double the Target
Price, the Service Company will no longer be responsible for any
costs in relation to Newco and the Common Shares pledged by the
Service Company to Newco will be released and the Stock Pledge
Agreement cancelled.
(b) In lieu of satisfying its financial obligations under this Service
Agreement, the Service Company may put its 10.2% Common Share interest
(the "Share Interest") in Newco, or any portion thereof, to
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Newco for the PRO RATA cancellation of the Service Company's financial
obligations. The Service Company's financial obligations will
decrease proportionately to the percentage of the Share Interest that
is put to Newco. For instance, if fifty percent of the Share Interest
is put to Newco, then fifty percent of the financial obligations of
Newco will be paid by the Service Company and fifty percent by Newco.
If and when the entire Share Interest is put to Newco, the Service
Company's financial obligations under the Service Agreement will
terminate. Thereafter, Newco will reimburse the Service company for
100 percent of its financial obligations.
4. EXCEPTIONS TO PAYMENT OF EXPENSES BY THE SERVICE COMPANY.
(a) Notwithstanding Section 1, the following specific ongoing expenses of
Newco will not be paid by the Service Company but will be paid by
Newco:
(i) legal fees;
(ii) audit fees;
(iii) interest, taxes, brokerage and other fees and expenses directly
related to the implementation of purchase, sale or other
transactions for Newco's investments or for Newco Common
Shares, including documentation and expenses related to
investor relations; and
(iv) fees (legal or other) associated with compliance with the rules
and regulations of the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended.
(v) insurance premiums, if any, incurred to protect Newco.
5. SERVICE COMPANY DUTIES. The Service Company covenants that it will
maintain a staff trained and experienced in the business of identifying and
providing assistance to new and emerging growth-oriented businesses and
adequate for the performance of the Service Company's duties under this
Service Agreement. Services to be rendered by the Service Company shall
include assistance within the areas of expertise of its staff and, when
considered appropriate by the Service Company, the services of its officers
and employees as directors, consultants and advisors to investee companies.
Services to be provided to a investee company by officers and employees of
the Service Company will be performed in good faith, consistent with the
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obligations of the Service Company to Newco. Subject to the control and
direction of Newco's Board of Directors, the Service Company shall be
authorized to manage the operations of and act in the name of and bind
Newco. Selection of the Newco investments, shall be made by the Service
Company after consultation with and approval by Newco's Board of Directors.
6. TERM. Commencing on the date hereof, services will be performed for Newco
for an initial term of five years (the "Initial Term"). This service
agreement will automatically renew for successive one year terms upon six
(6) months prior written notice by either party to the other party.
7. TERMINATION.
(a) During the Initial Term, Newco shall be entitled to terminate the
Service Agreement at any time for cause. For purposes of this Service
Agreement, "cause" shall mean (i) the Service Company's material
breach or material failure to perform the services set forth in this
Service Agreement and (ii) the Service Company's or any of its
directors' or officers' conviction for fraud, embezzlement,
misappropriation or other felony related to the services to be
performed under this Service Agreement.
(b) After the Initial Term, this Service Agreement may be terminated with
or without cause and without penalty upon six (6) months prior written
notice by either party to the other party.
8. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
Delaware. The parties hereto irrevocably attorn to the jurisdiction of the
courts of Delaware.
9. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the
provisions hereof shall enure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties
hereto; provided, however, that the Service Company may not assign its
obligations hereunder to any party (other than a successor by merger to the
Service Company) without the written consent of the Board of Directors of
Newco.
10. SEVERABILITY. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
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11. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which when so executed and delivered shall constitute a complete and
original instrument but all of which together shall constitute one and the
same agreement, and it shall be necessary when making proof of this
Agreement or any counterpart thereof to account for any other counterpart.
12. ENTIRE AGREEMENT; AMENDMENT. This Agreement can be modified or amended
only by a writing signed by the parties hereto and only with the written
consent of the Board of Directors of Newco. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard
to the subject matter hereof.
IN WITNESS WHEREOF the undersigned have executed this Agreement as of the
date first above written.
D AND N CONSULTING CORPORATION
By: /s/ Xxxxxxx Xxxxxx
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CVF CORP.
By: /s/ Xxxxxxx Xxxxxx
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