[LOGO] MAXIM GROUP
PRIVATE AND CONFIDENTIAL
July 17, 2003
Xx. Xxxxxx X. Xxxx, Chairman
Recom Managed Systems, Inc
0000 Xxxxxx Xxxxxx Xxxxxxxxx
Xxxxxx Xxxx, XX 00000
Dear Xx. Xxxx:
We are pleased to propose that Recom Managed Systems, Inc ("Recom" or the
"Company") retain Maxim Group LLC ("Maxim") as its non-exclusive investment
banker, strategic advisor and financial advisor. The principal elements of the
agreement ("Agreement") between Maxim and the Company are:
1. SERVICES TO BE RENDERED: The services that Maxim will render to the
Company under the terms of this Agreement, subject to termination under
Section 3, will include the following:
a) Maxim will provide the following strategic advisory services
("Advisory Services"):
i) advise Recom with respect to its strategic planning process
and business plans including an analysis of markets, products,
positioning, financial models, organization and staffing,
potential strategic alliances, capital requirements, valuation
and funding. To prepare for this advisory function, Xxxxx will
perform a due diligence review of Recom;
ii) work closely with Xxxxx's management team to develop a set of
long and short-term goals with special focus on enhancing
corporate and shareholder value. This will also include
assisting Recom in completing a "gap analysis," i.e., helping
Recom determine key business developments and actions,
including review of financing requirements and Recom's capital
structure, intended to help enhance shareholder value and
Recom's exposure to the investment community and;
iii) review the Company's presentation and marketing materials and
other materials used to present the Company to the investment
community.
Members NASD & SIPC
000 Xxxxxxxxx Xxx. * New York, NY 10174
* tel (000) 000-0000 * (000) 000-0000 * fax (000) 000-0000 *
xxx.xxxxxxxx.xxx
New York, NY * Long Island, NY * Chicago, IL
b) Maxim will help Recom develop and evaluate financing or capital
raising alternatives including public and private issues of equity
or debt, as appropriate from time to time ("Banking Services").
i) Public Offerings: In the event of a public offering, Xxxxx
will have the right of first refusal to act as lead or
co-underwriter. Xxxxx will work with the Company to manage the
process of identifying, evaluating and selecting any other
underwriters. Xxxxx will prepare a comprehensive letter of
intent for the proposed transaction that will be provided to
Recom and will supplement the terms of this Agreement. If
Xxxxx is not selected as the lead manager in a public
offering, Xxxxx will use its best efforts to ensure that Xxxxx
receives at least 50% of the share allocation and 50% of the
total underwriting fees.
ii) Private Placements: Xxxxx will have the right of first refusal
to act as placement agent for any private placement. Prior to
entering into the Letter of Intent to act as placement agent
for Recom, Xxxxx will issue a potential list of investors to
Maxim. Xxxxx will prepare a comprehensive "best efforts"
letter of intent for the proposed transaction that will be
provided to Recom and will supplement the terms set forth in
EXHIBIT A attached hereto.
c) Maxim will provide Recom with merger and acquisition services (the
"M&A Services"). Xxxxx will assist the Company in determining
acquisition or strategic partnering strategies and tactics from time
to time, as appropriate. Xxxxx will advise and assist Recom in
identifying, evaluating, negotiating and structuring acquisitions,
or strategic investments or partnerships which may be accomplished
through a purchase or sale of all or a portion of the stock or
assets, a merger or reverse merger, joint venture, licensing or
marketing agreement or arrangement or other business combination or
arrangement ("Transaction") with any entity ("Candidate"). A
strategic investment will include any investment or exchange of
cash, equity, warrants, assets or debt as part of a business
relationship with a third party, or any investment made directly by
a third party in the Company subject to a term sheet or agreement
not marketed or syndicated beyond a specific investor.
d) If requested by Xxxxx, Xxxxx will communicate its willingness to
provide an opinion of fairness (a "Fairness Opinion") of a
particular Transaction to the Company, and if Maxim determines that
it is able to provide such Fairness Opinion, it will allow it to be
used in connection with materials filed or submitted to the
Securities and Exchange Commission, or included in information
mailed to shareholders of Recom in connection with each transaction.
2. COMPENSATION AND EXPENSES.
a) As compensation for providing the Advisory Services hereunder, Xxxxx
will pay Maxim a retainer of $50,000, $20,000 payable upon the
execution of this agreement, $15,000 payable one month from the date
of this Agreement and $15,000 payable two months from the date of
this Agreement. Upon the execution of this Agreement, Recom will
issue Maxim warrants to purchase 100,000 shares of Recom Common
Stock for a period of five years from the date of this Agreement at
an exercise price per share of 120% of the closing Bid price on the
date preceding the date of this Agreement. Further, until the
termination of this Agreement as provided for in Section 3
hereunder, Xxxxx agrees to pay Xxxxx a monthly retainer of $7,500
beginning on the first day of the month commencing September 1,
2003. If both parties agree to continue the Agreement after August
31, 2004, Xxxxx will pay to Maxim an agreed upon amount until the
expiration of the Agreement.
2
b) Terms and fees for Banking Services performed under section 1(b) or
provision of a Fairness Opinion under 1(d) will be separately
proposed by Xxxxx with respect to each transaction when and if
services are provided.
c) For any M&A Transaction completed by the Company with a Candidate,
Recom shall pay Maxim a fee ("Success Fee") upon closing equal to
the greater of: (i) the sum of 2 1/2% of the aggregate transaction
value; or (ii) $75,000.00, provided that Maxim either introduces
and/or performs specific services for the Transaction. The aggregate
transaction value shall include the sum of cash and the fair market
value at the time of the closing of a Transaction of equity
securities; warrants; contingent payments; deferred payments;
non-compete agreements; liabilities assumed, acquired, retired or
de-feased (other than normal working capital liabilities); the face
value of any debt securities issued in such a Transaction; the fair
market value of any licensing, marketing or other business
agreements or arrangements; and any other valuable consideration
issued in connection with a Transaction.
d) The Company will reimburse Maxim in a timely manner for any
reasonable out-of-pocket expenses relating to activities under this
Agreement not to exceed $2,000.00 per month. Any expenses in excess
of the $2,000 monthly amount must be pre-approved by the Company.
e) In no case will any fee obligations of the Company to any other
financial advisor or any other person in connection with this
transaction reduce the fees owed by the Company to Maxim under this
Agreement.
3. TERM OF AGREEMENT. The term of this agreement is indefinite. However, if
by October 31, 2003 Xxxxx has not raised the Company a gross amount of
$1,000,000, as placement agent in the placement contemplated by and under
this document, the Company will have the right to terminate the agreement
upon thirty (30) days written notice. Also, after August 31, 2004 the
Company or Maxim may terminate this Agreement upon 30 days written notice.
Any future obligation that could be reasonably expected to survive this
Agreement will survive termination of this Agreement. Specific surviving
conditions will include, but not be limited to: (i) payment of Success
Fees earned under section 2(c) during the Term and completed within 18
months of the termination of this Agreement, and (ii) Section 4, Indemnity
3
4. INDEMNITY. The Company agrees to indemnify and hold harmless Maxim,
including any affiliated companies, and their respective officers,
directors, controlling persons and employees and any persons retained in
connection with this Agreement in accordance with the terms set forth in
the attached letter.
5. DISCLAIMERS.
a) It is understood by Maxim and the Company that the Company's ability
to raise capital will be affected by various factors at the time of
a proposed offering, including but not limited to, stock market
conditions, competitive positioning of Recom's products, achieving
business plan goals that have been mutually agreed upon by Maxim and
the Company, short- and long-term business prospects, the plans and
performance of the management team and the capital structure of the
Company. In the event that Xxxxx does not deem itself able to act as
a manager for a proposed placement or offering, subject to Xxxxx's
sole reasonable discretion, it will advise the Company on an
appropriate course of action.
b) In performing its M&A Services hereunder, Xxxxx may rely entirely on
publicly available information and such other information as may be
furnished to Maxim by the Company or a Candidate, and has not and
does not assume any responsibility for independent verification of
such information or independent appraisal or valuation of assets.
6. ENTIRE AGREEMENT AND GOVERNING LAW. This Agreement may not be amended or
modified except in writing, and shall be governed by and construed in
accordance with the laws of the State of New York. Any dispute between the
parties arising out of or related to this Agreement shall be submitted to
binding arbitration administered by, and pursuant to the rules of, the
American Arbitration Association ("AAA") in the State of New York, with
the expenses of the arbitration to be shared equally by the parties,
subject to the arbitrator's authority to apportion such expenses in favor
of the prevailing party under applicable law.
If the foregoing correctly sets forth your understanding, please so indicate by
signing and returning to us the enclosed copy of this letter along with a check
for $20,000 representing the initial retainer fee under the Agreement. We look
forward to working with you and the rest of Xxxxx's management.
Sincerely,
/s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx
Managing Director
4
MAXIM GROUP, LLC.
By: /s/ Xxxxxxx X. Xxxxxx Date: December 29, 2003
---------------------------------
Xxxxxxx X. Xxxxxx
Managing Director
RECOM MANAGED SYSTEMS, INC
By: /s/ Xxxxxx X. Xxxx Date: December 29, 2003
---------------------------------
Xxxxxx X. Xxxx, Chairman
5
December 29, 2003
Maxim Group, LLC
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Gentlemen:
This letter will confirm that we have engaged Maxim Group, LLC to
advise and assist us in connection with the matters referred to in our letter
dated December 29, 2003 (the "Engagement Letter"). In consideration of your
agreement to act on our behalf in connection with such matters, we agree to
indemnify and hold harmless you and your affiliates and you and their respective
officers, directors, employees and agents and each other person, if any,
controlling you or any of your affiliates (you and each such other person being
an "Indemnified Person") from and against any losses, claims, damages or
liabilities related to, arising out of or in connection with the engagement (the
"Engagement") under the Engagement Letter, and will reimburse each Indemnified
Person for all expenses (including fees and expenses of counsel) as they are
incurred in connection with investigating, preparing, pursuing or defending any
action, claim, suit, investigation or proceeding related to, arising out of or
in connection with the Engagement, whether or not pending or threatened and
whether or not any Indemnified Person is a party. We will not, however, be
responsible for any losses, claims, damages or liabilities (or expenses relating
thereto) that are finally judicially determined to have resulted from the bad
faith or gross negligence of any Indemnified Person. We also agree that no
Indemnified Person shall have any liability (whether direct or indirect, in
contract or tort or otherwise) to us for or in connection with the Engagement
except for any such liability for losses, claims, damages or liabilities
incurred by us that are finally judicially determined to have resulted from the
bad faith or gross negligence of such Indemnified Person.
We will not, without your prior written consent, settle, compromise,
consent to the entry of any judgment in or otherwise seek to terminate any
action, claim, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not any Indemnified Person is a party thereto)
unless such settlement, compromise, consent or termination includes a release of
each Indemnified Person from any liabilities arising out of such action, claim,
suit or proceeding. No Indemnified Person seeking indemnification, reimbursement
or contribution under this agreement will, without our prior written consent,
settle, compromise, consent to the entry of any judgment in or otherwise seek to
terminate any action, claim, suit, investigation or proceeding referred to in
the preceding paragraph.
6
If the indemnification provided for in the first paragraph of this
agreement is judicially determined to be unavailable (other than in accordance
with the third sentence of the first paragraph hereof) to an Indemnified Person
in respect of any losses, claims, damages or liabilities referred to herein,
then, in lieu of indemnifying such Indemnified Person hereunder, we shall
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses, claims, damages or liabilities (and expense relating thereto)
(i) in such proportion as is appropriate to reflect the relative benefits to
you, on the one hand, and us, on the other hand, of the Engagement or (ii) if
the allocation provided by clause (i) above is not available, in such proportion
as is appropriate to reflect not only the relative benefits referred to in such
clause (i) but also the relative fault of each of you and us, as well as any
other relevant equitable considerations; provided, however, in no event shall
your aggregate contribution to the amount paid or payable exceed the aggregate
amount of fees actually received by you under the Engagement Letter. For the
purposes of this agreement, the relative benefits to us and you of the
Engagement shall be deemed to be in the same proportion as (a) the total value
paid or contemplated to be paid or received or contemplated to be received by us
or our shareholders, as the case may be, in the transaction or transactions that
are the subject of the Engagement, whether or not any such transaction is
consummated, bears to (b) the fees paid to you in connection with the
Transaction.
The provisions of this agreement shall apply to the Engagement and any
modification thereof and shall remain in full force and effect regardless of any
termination or the completion of your services under the Engagement Letter.
This agreement and the Engagement Letter shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts executed and to be performed in that state.
Very truly yours,
Recom Managed Systems, Inc
By: ___________________________
Xxxxxx X. Xxxx, Chairman
ACCEPTED AND AGREED TO as of the date of ___________, 2003.
MAXIM GROUP, LLC
By: ___________________________
Xxxxxxx Xxxxxx
Managing Director
7
EXHIBIT A
RECOM MANAGED SYSTEMS, INC
SUMMARY OF TERMS AND CONDITIONS
ISSUER: Recom Managed Systems, Inc (the "Company")
AMOUNT: Minimum $1,000,000 Maximum $3,000,000
("Offering")
SECURITY: Series A Convertible Preferred Stock (the
"Preferred")
OFFERING PRICE: The Preferred per share offering price shall
be $3.00 ("Offering Price").
USE OF PROCEEDS: The Company shall use the proceeds for
general working capital purposes and
obtaining a listing on a national exchange.
It is understood that the Company will not
use the proceeds from the Placement to repay
debts, other than those debts classified as
General Payables.
REGISTRATION RIGHTS: Customary for transactions of this nature,
including, but not limited to demand
registration rights and the Company's
agreement to register all underlying
securities within a reasonable period after
the closing.
CONVERSION: The Preferred shall be convertible on a one
for one basis (1:1) into Common Shares of
the Company (the "Common Stock").
The Preferred shares will convert
automatically into Common Stock upon 45 days
written notice to the holders of the
Preferred, if the Common Stock of the
Company trades at a price equal to or
greater than 2.5 times the Offering Price
for a period of no less than 30 consecutive
trading days.
Automatic conversion can only occur if (i)
the Common Stock of the Company is listed on
a qualified nation exchange (NASDAQ, AMEX,
NYSE) and (ii) the Common Shares underlying
the conversion are subject to an effective
registration statement with the SEC pursuant
to the Securities Act of 1933, as amended.
WARRANTS: Investors in the Preferred will also receive
warrant coverage on the basis of one Common
Stock Purchase Warrant (the "Warrants") for
each two shares of Preferred shares
purchased (i.e., 50% warrant coverage so
that an individual purchasing 100 shares of
the Preferred shall receive Warrants to
purchase an additional 50 Common Shares).
The Warrant will expire Five (5) years from
the final closing date of the Placement and
have an exercise price equal to $5.00.
8
FINANCIAL
STATEMENTS
AND REPORTING: The Company will provide all information and
materials, including, without limitation,
all internal management documents, reports
of operations, reports of adverse
developments, copies of any management
letters, communications with shareholders or
directors, and press releases and
registration statements, as well as access
to all senior managers as requested by
Xxxxx.
PLACEMENT AGENT FEES:
a) An amount in cash equal to eight
percent (8.0%) of the principal
amount of any Placement placed
and/or committed, payable at the
time of each closing of the
Financing.
b) The Company will issue to Maxim
warrants to purchase securities of
the Company equal to ten percent
(10.0%) of the number of preferred
shares, common shares and/or
warrants ("Securities") issued in
the Placement, exercisable at an
exercise price equal to $4.80. Such
Warrants will be issued pursuant to
a Warrant Agreement to be signed by
Maxim and the Company, which
agreement shall provide, among
other things, that the Warrants
shall expire five (5) years from
the date of issuance, include
customary registration rights, and
provisions for cashless exercise,
and such other terms as are normal
and customary for warrants of this
type.
c) The Company will pay Maxim at each
closing, a non-accountable expense
allowance equal to 2% of the gross
amount raised at such closing.
OTHER PROVISIONS: The purchase agreement shall include
standard and customary representations and
warranties of the Company, and the other
agreements prepared to implement this
financing shall contain other standard and
customary provisions.
9
