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EXHIBIT 10.4 - CONSULTANT AGREEMENT
CONSULTANT AGREEMENT
This agreement is set forth this the 26th day of March, 2002 between 21st
Equity Partners, LLC, at 00000 Xxxx X Xxxxxxx Xxxxx Xxxxx 000 Xxxxxxxxx, XX
00000 referred to hereinafter as "Consultant" and Technology Connections, Inc.,
at 00000 Xxxxxxxxxx Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxxxxx, XX. This agreement
sets forth the services provided by Consultant and the compensation and duties
required of Corporation in contemplation of the corporations transformation from
a private to a publicly traded entity. All references to "We" and "Consultant"
as used herein refer to 21st Equity. All references to "You" or "Company" or
"Corporation" refer to Technology Connections, Inc.
ABOUT US
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21st Equity Partners LLC is pleased to provide services to your corporation
in support of your decision to transform your business from a private to a
publicly traded entity. As you know, the process for which a private company
makes such a transformation is traditionally an expensive proposition, making
the endeavor cost prohibitive for many outstanding emerging growth companies
such as yours. The traditional "IPO", as it is known in the markets, can require
a minimal cash outlay of several hundred thousand dollars or more, depending on
various factors involved. Thus, many deserving "micro cap" companies were
frozen out of having access to public capital because of insurmountable
bureaucratic hurdles.
Congress has long recognized that small business is an important foundation
to the U.S. Economy. The U.S. Small Business Administration recently reported
that small businesses employ over 50 percent of the U.S. Labor Force, account
for nearly half the gross domestic product, and create the majority of new jobs
in the United States. Congress and the SEC have recognized that a critical
aspect in the continued viability of small businesses is access to capital above
and beyond that which can be provided by banks.
Therefore, in 1992, the SEC passed numerous initiatives to assist small
businesses and make the process of accessing public markets less burdensome. One
of the measures adopted by the SEC to achieve this goal was the promulgation of
"Regulation S-B", the small business counterpart to "Regulation S-K."
In essence, Regulation S-B scaled down in part the very voluminous data
requirements necessary for a traditional IPO, making access to public markets
for small companies a more affordable aim.
HOW WE HELP
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CORPORATION INITIALS: _____
CONSULTANT'S INITIALS: _____
At 21EP, we provide assistance to our clients in three valuable areas,
which are crucial to making your public company viable. We help in (1) The
Process of Going Public; (2) Consultation Services for Access to Capital; and
(3) Consultation Services for Market Awareness once you have gone public. A
brief overview of each of these areas is as follows.
(1) The Process of Going Public
The Process of Going Public - The small business regulations passed in 1992
have created a highly valuable yet relatively untapped niche for small and
growing businesses deserving access to public capital markets. Part of our
mission at 21EP is to provide consulting expertise and guidance to micro cap
companies who have recognized the importance of becoming public. With several
former brokers on staff, and with our close affiliation with securities counsel
and SEC certified accountants; we are able to provide fast, efficient and
accurate information to our clients in the process of becoming public companies.
Our affiliated professionals work closely with us and you to guide you through
each step of the registration process. Generally, our clients choose to become
public companies through one of two possible routes. These are SB2 Registration
and Reverse Mergers.
The SB2 process is the small business equivalent of an IPO. This process is
sometimes appropriate with newer businesses with lower revenue streams below $5
million gross annually. A Reverse Merger sometimes allows a private company to
become publicly traded more quickly than is typical for the SB2. In this case,
your company would merge with a publicly traded company listed on the NASDAQ
bulletin board. In such a case, we would negotiate on your behalf to assure that
you maintain control of the company post merger.
(2) Access to Capital
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Making Referrals for Access to Capital - In addition to making the
registration process more accessible to small businesses, the SEC's small
business initiatives also made raising capital more accessible so that in some
cases, limited amounts of capital may be raised from the public without the
requirement of any federal registration at all. For example, Regulation A, of
the Securities Act of 1933 up to $5 million can be raised within a period of 12
months. A full-blown registration is not required for a Regulation A offering,
however, an offering circular, must be prepared and provided to investors and
filed with the SEC. Regulation A allows unedited financial statements.
Regulation D of the Securities Act of 1933 also allows for small businesses
to raise capital without registration under three separate rules.
Rule 504 governs offerings of up to $1,000,000 per year. No federal
registration is required, but STATE governments also regulate offerings. You
may or may not be able to be exempt from state requirements (blue sky laws)
depending on the number and type of investors. Stock sold under this rule is
generally not free trading unless one of several exceptions apply.
Rule 505 governs offerings of up to $5,000,000 per year. Rule 505 contains the
worst of both worlds - both federal and state regulation. You may or may not
be able to be exempt from state regulation depending on the number and type of
investors. Under the federal regulation, you can have up to 35 purchasers who
do not meet any suitability requirements and an unlimited number of accredited
investors. You must inform purchasers that they received restricted securities,
meaning that the securities cannot be sold for at least a year without
registering them.
Rule 506 governs offerings without dollar limitation. You might think that
this has the most regulation, but this is half right. There is more federal
regulation, but the federal Rule 506 preempts state laws. There is no state
regulation, but you usually have to file a copy of the federal form (Form D)
with the state government and pay a state filing fee or state tax in states
where securities are sold.
21st Equity works with you by providing expert consultation on various private
offerings under Regulations A and D. Some accredited investors, for example,
are more favorable to private offerings, which have "piggyback rights" to
subsequent public offerings. This is because the investor knows he or she will
have a clear "exit strategy."
We help analyze your company's individual needs and provide expert consultation
services. Where private placement memoranda are required, our expert affiliates
stand ready to help you in assembling the proper disclosures as may be required
by the various federal or state regulations. In many cases, we are able to put
your company in touch with a number of accredited investors who may be
interested in providing capital investment in your company.
(3) Market Awareness Consultation
Once your company has become public, your ability to raise capital will
depend in part on the volume and price of the company's publicly traded
securities. To this extent, an effective and continuous public relations
campaign will be necessary, whereby your company's story to the investing public
is in the most accurate and most effective light possible. We have an
established network of contacts in the public relations community with
experience in the market awareness arena. We will refer you to these
professionals. They will work with you to ensure the dissemination of truthful
and accurate information to the investing public on an ongoing basis.
Compensation and Fees
The traditional cost of going public is substantial. Even for a small
offering, out of pocket expenses can range from $250,000 to $500,000 or more.The
Complete Going Public Handbook, Prima Venture Publishing, p. 7. By the same
token, venture capitalists will often require as a prerequisite to investment
that you surrender effective control of your company.
We recognize that the magnitude of such cash outlays or loss of control to
venture capitalists can make the process cost prohibitive in the micro cap
arena. Therefore, we have structured our program to accomplish the end of
allowing you to achieve public status with a minimal cash outlay. To accomplish
this goal, you will agree to provide free trading shares of your public company
to our consultants and us.
Generally, an effective program will require that you use up to thirty percent
of outstanding free trading shares for the public relations phase which lasts
for twelve months after you become public, plus a cash outlay of $30,000.00.
However, 21st Equity will not receive 30% of free trading shares.
The total percentage paid to 21st Equity will be 4.9% of outstanding
unrestricted shares of the public traded entity. Shares for our payment will be
issued via the appropriate registration form, an SB2 registration, immediately
upon your company becoming public. Other professionals, such as public relations
firms and accounting firms will likewise be paid directly by you in outstanding
free trading shares of the company. These professionals will also be paid by
free trading shares in your company above and beyond the amount allocated to
21st Equity Partners. Shares to these professionals will be issued under an SB2
registration, which you file upon becoming public.
By accepting our services, you agree to make available up to30% of the total
outstanding shares in your company for payment to various professionals within
our network or referred by us for investor relations and market awareness. No
less than20%of the total outstanding shares will be made available at closing of
merger or at effective date of your companies SB-2 with the remaining 10%
available for additional consultants if needed.
Note: An addendum "A" will be provided to list all consultants, services, fees,
and percentages of compensation.
Free trading shares due 21st Equity will be due at the time your company becomes
public, either by the effective date of an SB2 statement with the SEC, or
immediately upon successfully merging into an existing publicly trading entity.
Finally, there is a $30,000.00 administrative fee, which will be due upon
execution of this agreement.
By accepting our services, you agree that any merger with an existing
public company will involve your company retaining outstanding control of the
merged entity. Therefore, you will retain the ability to issue free trading
shares as payment to us at the appropriate time.
Services Provided
The services that our network provides to you are in two phases.
Phase One is the "Pre-Public" Phase, whereby our network of accountants and
attorneys will work with us and with you to ensure that all proper documentation
is prepared and filed with the Securities and Exchange Commission prior to going
public. In some cases, our professionals also work with you in assembling
private placement memoranda and give advice for proper compliance in the event
of private placements.
Phase Two is the "Public Relations" Phase. This phase kicks in upon bringing
your company public. Here, we make referrals to public relations and market
awareness experts to keep your company's story alive and viable before the
investing public for a year.
A more detailed description of services provided in each phase is as follows.
XXXXX 0
XXX-XXXXXX XXXXX
"Xxx-Xxxxxx" Xxxxx - As a Micro Cap Corporation, the process of bringing your
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company public will take one of two routes. Working in conjunction with us,
either you will file an SB2 registration with the Securities and Exchange
Commission, or you will become public as a result of a merger with an existing
public corporation on the OTC Bulletin Board. The procedure may vary depending
on which route is recommended.
SB2 Route - If your company is brought public as a result of an initial
registration under the SEC's new small business initiatives, you will be
required to file a Form "SB2" with the United States Securities and Exchange
Commission. To be eligible to use the SB2, generally your company will qualify
if you have gross revenues of less than $25 million and a public float of less
than $25 million. While this form is less voluminous than the traditional S-1
(IPO) filing, the form nevertheless requires specific information such as an
overview of your company, risk factors, management discussion and analysis and
accounting data.
Upon your decision to become public by this route, our legal and accounting
network will spend considerable hours preparing the document for filing. By
separate agreement with these professionals, we cover the cost of legal fees,
thus allowing you to avoid the very expensive cash outlay for legal fees, which
would normally accompany such a task cost prohibitive.
Annual Financial Statements. Regulation SB requires that small
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business issuers shall file an audited balance sheet as of the end of the most
recent fiscal year, or as of a date within 135 days if the issuers existed for a
period less than one fiscal year, and audited statements of income, cash flows
and changes in stockholders' equity for each of the two fiscal years preceding
the date of such audited balance sheet (or such shorter period as the registrant
has been in business). Therefore, if your company does not have audited
financial statements, these will be necessary for filing the SB2. [Our company
will cover the cost of audited financial statements necessary to prepare your
company for filing.][You will be responsible for the costs of audited financial
statements].
Form 15C211 - Once your SB2 has been approved, you will need a trading
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symbol. Our professionals will file the form with the SEC on your behalf at no
additional costs to you.
Blue Sky Registration - In addition to federal registration with the
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SEC, many state securities statutes require that your company be registered in
their state or subject to a statutorily recognized exemption before trading can
commence. Again, our legal and accounting professionals work together to achieve
proper Blue Sky Registration whether your company is brought public by an SB2 or
Reverse Merger.
Merger Route - Some companies elect to go public through merger with
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another already existing public company. In many cases, the ideal target for
-
such a merger will be a public company, which is fully reporting and current
with all of its filings and is trading on the OTC Bulletin Board. Sometimes
these companies no longer have the level of business activity that they once
had, often times because they have sold their subsidiaries to larger companies.
Preparation of Merger Agreements and Letters of Intent. Should you elect to
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go public through merger with such a company, it will not be necessary to file
an initial SB2. However, an appropriate merger agreement will need to be drafted
memorializing the terms of the merger between your company and the publicly
traded entity. Additionally, in some but not all cases a letter of intent will
be required prior to execution of the merger agreement. We will retain counsel
to prepare the merger agreements, the letter of intent, and any other documents
necessary to effectuate the merger agreement on your behalf at no additional
costs to you.
Audited Financials - Unlike an SB2 filing, which requires audited
-------------------
financials to be filed before the effective date of going public, audited
financials are not necessary prior to merger with a public company. However,
audited financials generally must be provided within 60 days of merger. To avoid
time constraints, we require that you provide audited financials within 45 days
of merger.
Name Change and 15c211 Registration - Once you have merged with the public
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company, the combined entity will generally do a name change. Most likely, you
will wish to use the name of your existing corporation. Our professionals will
work with you to ensure that all proper documentation is filed to change the
name of the public entity, which you now control to the name of your existing
corporation, or to another name, which you may choose. As with the SB2 process
of going public, our legal and accounting professionals will take care of the
legal paperwork necessary to effectuate the name change and 15c211 registration
getting your new public company a ticker symbol.
Blue Sky Registration - In addition to federal registration with the
---------------------
SEC, many state securities statutes require that your company be registered in
their state or subject to a statutorily recognized exemption before trading can
commence. Again, our legal and accounting professionals work together to achieve
proper Blue Sky Registration whether your company is brought public by an SB2 or
Reverse Merger.
Making Referrals for Access to Capital - Depending on the company's needs,
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this service may also be provided to you in the "Pre Public" Phase. In this
case, we work with your C.E.O. and/or C.F.O. to determine what if any short-term
capital needs the company has. We then work with you to determine the best
strategy for meeting those needs, focusing on your options under Regulation A or
Regulation D of the Securities Act of 1933.
Once we have mutually decided an offering exemption, we will work with you
to set the amount and to put you in touch with a network of accredited
investors. Our professionals will work with you to prepare a Private Placement
Memorandum in support of your offering. Should we recommend and should you
embark upon a Regulation A offering, our legal and accounting professionals will
assist you in preparing the appropriate offering circular.
In cases where the private offerings have "piggyback" registration rights
to an SB2, our professionals will insure that investors buying under the
private offering are registered under the SB2 to insure liquidity of their
investment once your company goes public.
PHASE 2
PUBLIC RELATIONS PHASE
"Public Relations" Phase - For your company to be successful as a public
company, your stock must have two components. It must have volume and it must
have value. Immediately upon going public, it will be necessary to get your
company's story to the investing public without delay. This will require
additional free trading shares.
Here at 21st Equity, we are a consultation firm. As such, we do not engage
in the business of stock promotion. However, over the years we have compiled a
proprietary list of reputable market awareness professionals and public
relations firms who have the ability and who have proven track records of
assisting micro cap companies seeking a presence on the public exchanges.
These professionals also will work on behalf of your company for free
trading shares. Enough free trading shares will be needed to ensure that your
market awareness program can be funded for one year. By providing a long-term
commitment to market awareness, you place your company in the best position to
raise capital and to be noticed by established institutional investors.
The total number of shares you will agree to make available for market
awareness and public relations will depend on whether your company is being
brought public via an SB2 registration or a reverse merger.
Shares Required to Support Public Relations/Market Awareness in SB2 Filing
- In an SB2 filing, you will be required to allocate up to 25.1% of your shares
for market awareness and public relations. This is in addition to the 4.9% you
will pay to 21st Equity for our services. Thus the total number of shares to be
set aside and held in escrow will be 30% of outstanding shares of your company.
It is possible, depending on the progress of the public awareness campaign
and the performance of the company, that some of these shares will not be used
and will be returned to the company. However, our experience has shown that this
percentage is a good estimate of the amount, which will be needed to sustain a
public awareness campaign for twelve months.
Shares Required to Support Public Relations/Market Awareness For Reverse Merger
- If you are going public via a reverse merger with an existing public company,
you will be required to allocate 20% of your shares for market awareness and
public relations. This is in addition to the 4.9% you will pay to 21st Equity
for our services. Thus the total number of shares to be set aside and held in
escrow will be 24.9% of outstanding shares of your company.
Few shares are required to be set aside in the case of a reverse merger because
the public company with which you are merging will generally already have had
some public exposure.
Again it is possible, depending on the progress of the public awareness campaign
and the performance of the company, that some of these shares will not be used
and will be returned to the company. However, our experience has shown that this
percentage is a good estimate of the amount, which will be needed to sustain a
public awareness campaign for twelve months.
While we provide consulting services in connection with your company's "public
relations" dealings with NASD broker/dealers and the investing public. (At no
time shall the Consultant provide services which would require Consultant to be
registered and licensed with any federal or state regulatory body or
self-regulating agency.)
Additional Services Provided By Us
In addition to the services enumerated above, we provide the following
general services to you at no additional costs.
During the term of this Agreement, we will provide those services
customarily provided for a public relations firm to a Corporation, including but
not necessarily limited to the following:
(a) Consultation and review of all corporate matters in preparation of the
company becoming a "public company" for trading on the NASDAQ OTC-BB; and
(b) Preparing all documentation for a private placement of the company's
securities through its association with securities counsel and SEC Certified
Public Accountants (to provide a public market of shares for trading once
company is on the OTC-BB); and
(c) Draft and file all forms, through its association with securities
counsel and SEC Certified Public Accountants, necessary to become a reporting
company under the federal Securities Exchange Act of 1934; and
(d) Draft, file and respond, through its association with securities counsel
and SEC Certified Public Accountants, to all comments regarding the company's
registration of shares pursuant to a 1933 Act filing an SB-2 registration.
(e) Assist company with SEC compliant Audit services
(f) Coordination of filings with the company's auditors; and
(g) In the event that Corporation goes public by merger with an existing
public corporation, to provide consulting services pre and post merger phase
(h) Through its association with securities counsel and SEC Certified Public
Accountants, filing of necessary documents with Standard & Poors to secure
appropriate S&P reporting status for registration under various states "Blue Sky
Laws."
(i) Edgarization transmissions.
(j) Aiding a Corporation in developing a marketing plan directed at
informing the public as to the business of the Corporation;
(k) and Providing assistance and expertise in devising an advertising
campaign in conjunction with the marketing campaign as set forth above; and
(l) Advise the Corporation in dealing with institutional investors as it
pertains to the Company's offerings of its securities; and
(m) Aid and advise the Corporation in establishing a means of securing
nationwide interest in the Corporation's securities; and
(n) Aid and assist the Corporation in developing an (investor friendly)
"web site"; and
(o) Aid and consult the Corporation in the preparation and
dissemination of all "due diligence" packages requested by and furnished to NASD
registered broker/dealers and/or other institutional and/or fund managers
requesting such information from the Corporation;
COMPLIANCE
4. In the event the shares of the Corporation are not presently trading
on any recognized market, the said shares delivered by Corporation to Consultant
will, at that particular time, be "free trading," or, if a registration is
contemplated, the shares shall have "piggy back" registration rights and will,
at the expense of the Corporation, be included in said registration.
REPRESENTATIONS OF CORPORATION
5. The Corporation, upon entering this Agreement, hereby warrants and
guarantees to the Consultant that all statements, either written or oral, made
by the Corporation to the Consultant are true and accurate, and contain no
misstatements of a material fact. The Corporation acknowledges that the
information it delivers to the Consultant will be used by the Consultant in
preparing materials regarding the Company's business, including but not
necessarily limited to, its financial condition, for dissemination to the
public. Therefore, in accordance with Paragraph 6, below, the Corporation shall
hold harmless the Consultant from any and all errors, omissions, misstatements,
negligent or intentional misrepresentations, in connection with all information
furnished by Corporation to Consultant, in accordance with and pursuant to the
terms and conditions of this Agreement for whatever purpose or purposes the
Consultant sees fit to use said information. The Corporation further represents
and warrants that as to all matters set forth within this Agreement, the
Corporation has had independent legal counsel and will continue to maintain
independent legal counsel to advise the Corporation of all matters concerning,
but not necessarily limited to, corporate law, corporate relations, investor
relations, all manners concerning and in connection with the Company's
activities regarding the Securities Act of 1933 and 1934, and state Blue Sky
laws.
LIMITED LIABILITY
6. With regard to the services to be performed by the Consultant
pursuant to the terms of this Agreement, the Consultant shall not be liable to
the Corporation, or to anyone who may claim any right due to any relationship
with the Corporation, or any acts or omissions in the performance of services on
the part of the Consultant, or on the part of the agents or employees of the
Consultant, except when said acts or omissions of the Consultant are due to its
willful misconduct or culpable negligence.
TERMINATION
7. This Agreement may be terminated by either party upon the giving of
not less than sixty (60) days written notice, delivered to the parties at such
address or addresses as set forth in Paragraph 8, below. In the event this
Agreement is terminated by the Corporation, all compensation paid by Corporation
to the Consultant shall be deemed earned. In the event this Agreement is
terminated by Consultant, a portion of the compensation paid by Corporation to
Consultant shall be "back-charged" to Consultant, and payable to the Corporation
as follows:
(a) In the event the Agreement is terminated by the Consultant in
months 1 through 6, Consultant shall repay to Corporation two thirds (2/3rds) of
the fees paid pursuant to Paragraph 3 above.
(b) In the event the Consultant terminates this Agreement during months
7 through 10, the Corporation shall be entitled to a return of fifty percent
(50%) of the fees paid in accordance with Paragraph 3 above; thereafter, all
fees paid shall be deemed earned.
(c) In the event of a termination by either party, any repayment of
funds or stock due from Consultant to Corporation may be paid either in cash or
the equivalent number of shares of the Corporation received by Consultant from
the Corporation in accordance with Paragraph 3 above, payable at the option of
the Consultant. The valuation of said shares for purposes of repayment of
shares, shall be the bid price of said shares as of the date shares are tendered
back to the Corporation. If there is no bid price, then the price shall be
agreed to, by separate writing, to be determined by the parties upon the
execution of this agreement.
NOTICES
8. Notices to be sent pursuant to the terms and conditions of this
Agreement, shall be sent as follows:
As to Consultant: As to Corporation:
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___________________ ___________________
President President
21st Equity Partners LLC Technology Connections, Inc.
00000 XXXX X XXXXXXX XXXXX XXX 000 00000 XXXXXXXXXX XXXXXXXXX XXXXX
Xxxxxxxxx, XX 00000 Xxxxxxxxx, X.X. 00000
Attorneys' Fees
9. In the event any litigation or controversy, including arbitration,
arises out of or in connection with this Agreement between the parties hereto,
the prevailing party in such litigation, arbitration or controversy, shall be
entitled to recover from the other party or parties, all reasonable attorneys'
fees, expenses and suit costs, including those associated within the appellate
or post judgment collection proceedings.
ARBITRATION
10. In connection with any controversy or claim arising out of or
relating to this Agreement, the parties hereto agree that such controversy shall
be submitted to arbitration, in conformity with the Federal Arbitration Act
(Section 9 U.S. Code Section 901 et seq), and shall be conducted in accordance
with the Rules of the American Arbitration Association. Any judgment rendered as
a result of the arbitration of any dispute herein, shall upon being rendered by
the arbitrators be submitted to a Court of competent jurisdiction within the
State of North Carolina or in any state where a party to this action maintains
its principal business or is a Corporation incorporated in said state.
GOVERNING LAW
11. This Agreement shall be construed under and in accordance with the
laws of the State of North Carolina, and all obligations of the parties created
under it are performed in Charlotte, North Carolina. Further, in any controversy
arising out of this Agreement, wherein arbitration is elected, the venue for
said arbitration shall be in Mecklenburg County, North Carolina, and all parties
hereby consent to that venue as the proper jurisdiction for said proceedings
provided herein.
PARTIES BOUND
12. This Agreement shall be binding on and inure to the benefit of the
contracting parties and their respective heirs, executors, administrations,
legal representatives, successors, and assigns when permitted by this Agreement.
LEGAL CONSTRUCTION
13. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, the invalidity, illegality, or unenforceability shall not affect
any other provision, and this Agreement shall be construed as if the invalid,
illegal, or unenforceable provision had never been contained in it.
PRIOR AGREEMENTS SUPERSEDED
14. This Agreement constitutes the sole and only Agreement of the
contracting parties and supersedes any prior understandings or written or oral
agreements between the respective parties. Further, this Agreement may only be
modified or changed by written agreement signed by all parties hereto.
MULTIPLE COPIES OR COUNTERPARTS OF AGREEMENT
15. The original and one or more copies of this Agreement may be
executed by one or more of the parties hereto. In such event, all of such
executed copies shall have the same force and effect as the executed original,
and all of such counterparts taken together shall have the effect of a fully
executed original. Further, this Agreement may be signed by the parties and
copies hereof delivered to each party by way of facsimile transmission, and such
facsimile copies shall be deemed original copies for all purposes if original
copies of the parties' signatures are not delivered.
HEADINGS
16. Headings used throughout this Agreement are for reference and
convenience, and in no way define, limit or describe the scope or intent of this
Agreement or effect its provisions.
IN WITNESS WHEREOF, the parties have set their hands and seal as of the
date written above.
Technology Connections, Inc.
BY: /s/ Xxxxx X. Xxxxx
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President
21st Equity Partners LLC
BY: /s/ Xxxxx Xxxx
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President
