<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-QSB
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the three month period ended September 30, 1997
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File Number: 0-21419
NAM CORPORATION
- --------------------------------------------------------------------------------
(Name of small business issuer as specified in its charter)
Delaware 23-2753988
- ----------------------------------- --------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1010 Northern Boulevard
Great Neck, New York 11021
----------------------------------------
(Address of Principal Executive Offices)
(516) 829-4343
---------------------------
(Issuer's Telephone Number,
Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
As of November 12, 1997, 3,334,978 shares of common stock of the issuer were
outstanding.
Transitional small business disclosure format (check one): Yes ___ No _X_
<PAGE>
NAM CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets at
September 30, 1997 and June 30, 1997 3
Consolidated Statements of Operations
for the three month periods ended
September 30, 1997 and 1996 4
Consolidated Statements of Changes in
Stockholders' Equity for the three month
periods ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
for the three month periods ended
September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities
and Use of Proceeds 12
Item 6. Exhibits and Reports on Form 8-K 12
2
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 262,402 $ 175,486
Marketable securities 3,576,675 3,792,381
Accounts receivable (net of allowance for doubtful
accounts of $80,000) 397,958 408,260
Other receivables 26,034 34,490
Prepaid expenses 54,713 54,682
----------- ----------
Total current assets 4,317,782 4,465,299
FURNITURE AND EQUIPMENT - AT COST,
less accumulated depreciation 223,720 201,113
ORGANIZATION COSTS (net of accumulated amortization of
$24,033, and $21,885, respectively) 18,929 21,077
OTHER ASSETS 37,337 39,756
----------- ----------
$ 4,597,768 $4,727,245
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 143,571 $ 158,846
Accrued liabilities 148,859 140,192
Accrued payroll and employee benefits 116,881 174,115
Deferred revenues 147,342 138,716
----------- ----------
Total current liabilities 556,653 611,869
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - $0.001 par value; 5,000,000 shares authorized;
none issued - -
Common stock - $0.001 par value; 15,000,000 shares authorized;
3,334,978 shares issued and outstanding 3,335 3,335
Paid-in capital 4,773,971 4,772,569
Accumulated deficit (928,167) (739,547)
Unrealized gain on marketable securities 192,155 79,224
Unearned compensation (180) (205)
----------- ----------
Total stockholders' equity 4,041,114 4,115,376
----------- ----------
$ 4,597,767 $4,727,245
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30,
1997 1996
---- ----
<S> <C> <C>
Net revenues $ 863,725 $ 805,491
Operating costs and expenses
Cost of services 224,469 197,082
Sales and marketing expenses 389,551 284,945
General and administrative expenses 481,398 307,299
---------- ---------
1,095,418 789,326
---------- ---------
(Loss) income from operations (231,693) 16,165
Other income (expenses)
Investment income 42,663 -
Other income 410 1,148
Interest expense - (8,000)
---------- ---------
43,073 (6,852)
---------- ---------
(Loss) income before provision for income taxes (188,620) 9,313
Provision for income taxes - -
---------- ---------
NET (LOSS) INCOME $ (188,620) $ 9,313
========== =========
Net (loss) income per common share $ (0.06) $ 0.00
========== =========
Weighted average common stock and
common stock equivalents 3,334,978 1,947,504
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Three months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Change in
unrealized Unearned
Additional gain on compensation- Total
Common Stock paid-in Retained marketable stock bonus Stockholders'
Shares Amount capital deficit securities plan Equity
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 1,813,075 $ 1,813 $ 28,739 $(101,990) $ (308) $ (71,746)
Net income 9,313 9,313
Earned portion of stock bonus plan 26
Shares issued pursuant to restricted
stock award 61,903 62 (62)
=====================================================================================
Balance at September 30, 1996 1,874,978 $ 1,875 $ 28,677 $ (92,677) $ (282) $ (62,433)
=====================================================================================
Balance at June 30, 1997 3,334,978 $ 3,335 $4,772,569 $(739,547) $ 79,224 $ (205) $4,115,376
Net loss (188,620) (188,620)
Change in unrealized gain on marketable
securities 112,931 112,931
Compensation related to stock option plan 1,402 1,402
Earned portion of stock bonus plan 25 25
=====================================================================================
Balance at September 30, 1997 3,334,978 $ 3,335 $4,773,971 $(928,167) $ 192,155 $ (180) $4,041,114
=====================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended September 30,
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income $(188,620) $ 9,313
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities
Depreciation and amortization 15,187 20,698
Losses on sales of marketable securities 976 -
Earned portion of stock bonus plan 25 26
Compensation related to stock option plan 1,402 -
Changes in operating assets and liabilities
Decrease in accounts receivable 10,302 57,507
Decrease in other receivables 8,456 27,681
(Increase) in prepaid expenses (31) (44,331)
Decrease (increase) in other assets 2,419 (1,000)
Increase (decrease) in accounts payable and accrued liabilities 8,655 (15,037)
Decrease in accrued payroll and employee benefits (57,234) (25,748)
Increase (decrease) in deferred revenues 8,626 (7,590)
---------- --------
Net cash (used in) provided by operating activities (189,837) 21,519
---------- --------
Cash flows from investing activities
Purchases of marketable securities (332,101) -
Proceeds from sales of marketable securities 463,737 -
Proceeds from maturities of marketable securities 200,000 -
Decrease in payable for securities purchased (15,263) -
Purchases of furniture and equipment (39,620) (2,990)
---------- --------
Net cash provided by (used in) investment activities 276,753 (2,990)
---------- --------
Cash flows from financing activities
(Increase) in deferred offering costs - (54,811)
---------- --------
Net cash used in financing activities - (54,811)
---------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 86,916 (36,282)
Cash and cash equivalents at beginning of period 175,486 31,474
---------- --------
Cash and cash equivalents at end of period $ 262,402 $ (4,808)
========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
NAM CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
Three months ended September 30, 1997
(Unaudited)
1. The consolidated balance sheet as of September 30, 1997 and the related
consolidated statements of operations for the three month periods ended
September 30, 1997 and 1996 have been prepared by NAM Corporation, including
the accounts of its wholly-owned subsidiaries. In the opinion of management,
all adjustments necessary to present fairly the financial position as of
September 30, 1997 and for all periods presented, consisting of normal
recurring adjustments, have been made. Results of operations for the three
month period ended September 30, 1997 are not necessarily indicative of the
operating results expected for the full year.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended June
30, 1997 included in the Company's Annual Report on Form 10-KSB. The
accounting policies used in preparing these consolidated financial statements
are the same as those described in the June 30, 1997 consolidated financial
statements.
2. The Company entered into an employment agreement with its Chief Executive
Officer retroactive to July 1, 1997 as the prior agreement expired on June 30,
1997. The new agreement expires June 30, 2002 and provides for an annual base
salary of $225,000, an annual cost of living increase to reflect increases in
the Urban Consumer Price Index and an annual bonus at the discretion of the
Company's Board of Directors. The agreement also provides for life, medical
and disability insurance, auto and business expense reimbursements. If this
agreement is terminated as a result of a change in duties of the executive or
due to a change in control, the officer will be entitled to a lump sum
severance payment equal to three times his then current base salary.
3. Certain prior period amounts were reclassified to conform with the
presentation shown in the Company's Form 10-KSB for the fiscal year ended June
30, 1997.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act").
The Company desires to avail itself of certain "safe harbor" provisions of the
Act and therefore is including this special note to enable it to do so.
Forward-looking statements contained herein involve risks and uncertainties.
The Company's actual results and experience could differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including changes in the markets and/or regions currently served by the
Company and in those markets and/or regions that the Company may expand into;
changes in the insurance industry; the Company's inability to retain current
or new hearing officers; and changes in the public court system.
General
The Company provides alternative dispute resolution ("ADR") services to
insurance companies, law firms, corporations and municipalities. To date, the
Company has focused the majority of its marketing efforts on developing
relationships, and expanding existing relationships, with insurance companies
which the Company believes are some of the largest consumers of ADR services.
The Company opened for business in March 1992 in New York and currently
has offices in New York, Pennsylvania, Massachusetts, Tennessee, South
Carolina and the Midwest. The Midwest region, with headquarters in Wisconsin,
commenced operations in the third quarter of the 1997 fiscal year.
The Company's objective is to become one of the leading providers of ADR
services nationally. To accomplish this goal, the Company plans to open up new
offices, which may include the acquisition of existing ADR companies. In
addition, the Company intends to increase its marketing of its ADR services to
litigants in other types of disputes, including complex commercial issues,
construction, employment, matrimonial and worker's compensation cases.
First Quarter Ended September 30, 1997 Compared to First Quarter Ended September
30, 1996
Revenues. Revenues increased 7% to $863,725 for the first
quarter ended September 30, 1997 from $805,491 for the comparable prior
period. Management attributes this growth in sales to an overall increase in
the number of cases heard, which is partially attributable to the opening of
the Midwest region in the third
8
<PAGE>
quarter of the 1997 fiscal year. In particular, revenue generated by the Boston
office increased by over 50% from the prior period. Offsetting such increases
were declines in revenues from the Pennsylvania and South Carolina offices.
Management believes that these offices will continue to experience a lower
volume of cases heard during the 1998 fiscal year. The Company has restaffed the
Pennsylvania office in an attempt to reverse this trend. In addition, the
Company is pursuing exclusive agreements with the home offices of large
corporations/insurance companies in order to obtain contracts on a national
basis.
Cost of Services. Cost of services increased 14% to $224,469 for the
first quarter ended September 30, 1997 from $197,082 for the first quarter
ended September 30, 1996. The higher volume of business serviced resulted in
greater hearing officer fees. In addition, cost of services as a percentage of
revenues increased to 26% in the first quarter of fiscal year 1998 from 24% in
the first quarter of fiscal year 1997. The ratio of cost of services to
revenues will fluctuate based on the number of hours per case, as well as the
ability (or inability) of an office to take advantage of volume arrangements
with hearing officers which usually lower the cost per case.
Sales and Marketing. Sales and marketing costs increased 37% to $389,551
for the first quarter ended September 30, 1997 from $284,945 for the first
quarter ended September 30, 1996. This expense category includes amounts
directly related to the production of sales; that is, salaries and commissions
for sales executives, sales managers and account executives and applicable
payroll taxes and employee benefits; advertising; promotions and travel and
entertainment. Sales and marketing costs as a percentage of revenues increased
to 45% in the first quarter of fiscal year 1998 from 35% in the first quarter
of fiscal year 1997. Most of this increase (approximately $91,000) relates to
salary and related items. Firstly, higher sales commissions were incurred
based on the higher volume of business. Secondly, primarily during the second
half of fiscal year 1997, personnel were hired and upgraded to staff and
support the Company's expansion plans. In particular, sales management was
strengthened at the Company's headquarters in New York to better prepare the
Company for higher revenue levels. Finally, the Midwest region, with personnel
in Wisconsin and Illinois, opened during the third quarter of fiscal 1997.
Additionally, advertising costs rose by approximately $12,000 to $20,900 for
the three months ended September 30, 1997. Higher spending levels are planned
for the remainder of the 1998 fiscal year as the Company moves forward with
its advertising campaign intended to create an increased awareness of the
Company through a variety of media. There can be no assurance that such
expenditures will produce higher revenues.
9
<PAGE>
General and Administrative. General and administrative costs increased
57% to $481,398 for the first quarter ended September 30, 1997 from $307,299 for
the first quarter ended September 30, 1996. Furthermore, general and
administrative costs as a percentage of revenues increased to 56% in the first
quarter of fiscal year 1998 from 38% for the comparable prior period. This
category includes salaries of executives, accounting, data processing and
administration/clerical and related payroll taxes and employee benefits, as well
as all other overhead costs. Of the total increase, salary-related costs
increased by approximately $66,000 as the Company upgraded and expanded
personnel, particularly at its headquarters in New York, primarily during the
second half of fiscal year 1997. All corporate activities, including marketing,
finance, data processing, billing and collections, purchasing and scheduling of
hearings, are centralized in New York. Management believes that this structure
enhances the control environment as well as produces a more streamlined and
efficient approach as the Company grows. Higher costs with respect to
professional fees, insurance, stock market fees and the printing of new
brochures were incurred due to the expansion of the Company and its status as a
publicly traded entity. Such costs increased by approximately $94,000 in total.
Other Income (Expenses). Other income (expenses) changed from a net
expense of ($6,852) for the first quarter ended September 30, 1996 to income of
$43,073 for the first quarter ended September 30, 1997. In the current fiscal
period, other income was composed primarily of investment income generated from
available proceeds received from the Company's initial public offering in
November 1996. In the prior fiscal period, other expenses was composed primarily
of interest expense from a past private placement financing. This debt was
satisfied in full as of November 20, 1996 with proceeds from the Company's
initial public offering.
Provision for Income Taxes. There was no provision for taxes during the
three month periods ended September 30, 1997 and 1996 due to losses incurred
during the periods and the existence of net operating loss carryforwards for
Federal tax purposes.
Net (Loss) Income. For the three months ended September 30, 1997, the
Company had a net loss of ($188,620) as compared to net income of $9,313 for the
three months ended September 30, 1996. As discussed above, this change was
primarily due to higher expenditures incurred as an investment in the Company's
infrastructure in anticipation of future growth.
10
<PAGE>
Liquidity and Capital Resources
At September 30, 1997, the Company had working capital surplus of
$3,761,129 compared to $3,853,430 at June 30, 1997.
Net cash used in operating activities was $189,837 for the three
months ended September 30, 1997 versus cash provided by operating activities
of $21,519 in the prior comparable period. The decline is attributable to the
decrease in net income (loss) from income of $9,313 for the three months ended
September 30, 1996 to a loss of ($188,620) for the three months ended
September 30, 1997.
Net cash provided by investing activities was $276,753 for the three
months ended September 30, 1997 versus cash used in investing activities of
$2,990 in the comparable prior period. Investing activity began in the second
quarter of the 1997 fiscal year when the net proceeds from the Company's initial
public offering were received. During the first quarter of the 1998 fiscal year,
several investments in government securities matured or were sold with a portion
of the proceeds reinvested in equity securities.
Net cash used in financing activities was $54,811 for the three months
ended September 30, 1996 versus no activity in the current year fiscal period.
The prior period costs related to offering costs incurred in anticipation of the
Company's initial public offering which was consummated in November 1996.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
In November 1996, the Company raised additional
capital through an initial public offering of its securities.
Net proceeds after offering expenses approximated $4,700,000
of which $970,000 had been utilized through June 30, 1997 as
disclosed in the Company's Form 10-KSB. During the three
months ended September 30, 1997, the Company additionally
expended approximately $120,000 for working capital and
general corporate purposes.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of matters to a Vote of Security Holders.
None.
Item 5. Other information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Description of Document
------- -----------------------
10.2 Employment Agreement between Company and
Roy Israel dated October 21, 1997
27 Financial Data Schedule
(b) Reports on Form 8-K. None.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NAM CORPORATION
Date: November 13, 1997 By: /s/ Roy Israel
-----------------------------
Roy Israel, President and CEO
Date: November 13, 1997 By: /s/ Patricia A. Giuliani-Rheaume
--------------------------------
Patricia A. Giuliani-Rheaume,
Vice President, Treasurer and CFO
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
10.2 Employment Agreement between Company and
Roy Israel dated October 21, 1997
27 Financial Data Schedule
(b) Reports on Form 8-K. None.
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement"), dated as of October 21,
1997, is made by and between ROY ISRAEL (the "Executive") and NAM CORPORATION,
a Delaware corporation (the "Company").
WHEREAS, it is important to the Company that it have the
benefit of the Executive's services, experience and loyalty, and Executive has
indicated his willingness to provide his services on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties, subject to the terms and
conditions set forth below, intending to be legally bound, hereto agree as
follows:
1. Employment.
(a) General. The Company hereby employs the Executive and
the Executive agrees upon the terms and conditions herein set forth to serve
as Chief Executive Officer and President of the Company. At all times during
the Employment Term, as defined below, the Executive shall be the most senior
executive officer of the Company. The Executive shall devote substantially all
of his efforts to the Company, but during the term of this Agreement he is
allowed to engage in other businesses which do not compete with the Company.
(b) Duties. The duties of the Executive shall include
primary responsibility for the administration, organizational structure,
strategic direction and overall
<PAGE>
management of the Company and such other responsibilities as the Board of
Directors of the Company may reasonably delegate to the Executive. All
employees of the Company shall report to the Executive.
2. Term of Employment. The Company hereby employs the
Executive and the Executive shall serve in the employ of the Company for a
period retroactive to July 1, 1997 (the "Commencement Date") and extending
through and including June 30, 2002 (such date and the last day of any
extended term of employment pursuant to this Section 2 being referred to as
the "Termination Date"), unless sooner terminated hereunder (the "Initial
Term"). The term of this Agreement shall be automatically renewed for
successive one (1) year periods (the "Renewal Term") unless terminated by
either the Executive or the Company by the giving of written notice of
termination at least ninety (90) days in advance of the then current
Termination Date. (The Initial Term and the Renewal Term shall be collectively
referred to herein as the "Employment Term"). At the end of the Initial Term,
the Base Salary, as defined below, for the Renewal Term, and each Renewal Term
thereafter, may be renegotiated by the Company and the Executive.
3. Compensation and Other Benefits. The Company shall pay
and provide the following compensation and other benefits to the Executive
during the Employment Term:
(a) Base Salary. The Company shall pay to the Executive a
minimum annual base salary of $225,000 (the "Base Salary") for the first year
of the Initial Term. Effective on each anniversary of the Commencement Date
during the Employment Term, the
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<PAGE>
Base Salary shall be increased to reflect increases in the Urban Consumer
Price Index for all Urban Consumers for the New York metropolitan area (or any
successor Consumer Price Index), based on data published by the Bureau of
Labor Statistics of the United States Department of Labor for the period that
corresponds with the preceding twelve month period. Such Base Salary shall be
paid in accordance with Company policy. In addition, the Company shall pay all
sums owed to the Executive from the Commencement Date until the date hereof
which are due to the retroactive application of the Commencement Date.
(b) Fringe Benefits.
(i) The Executive shall be entitled to receive twenty
(20) days paid vacation for each twelve (12) month period (the "Vacation
Time") during the Employment Term.
(ii) The Executive shall receive full health and
dental insurance coverage for the Executive and his family for which the
Company shall pay the premium. The Company shall pay Executive a gross-up
payment necessary to cover any tax liability he incurs in connection with the
payment of such health and dental insurance premiums by the Company.
(iii) The Company shall lease an automobile, to be
chosen by the Executive, for his use or the Company may reimburse the
Executive for the lease of an automobile, at the Executive's option. The
monthly lease payment by the Company for such automobile shall not exceed one
thousand dollars ($1,000), provided, however, that if the monthly lease
payment is greater than one thousand dollars ($1,000), the Executive
acknowledges that the Company shall only pay one thousand dollars ($1,000)
towards the monthly lease payment. In addition, the Company shall pay, or
reimburse Executive promptly
-3-
<PAGE>
after receiving supporting documentation relating thereto, all taxes and all
expenses associated with the lease and use of such automobile.
(iv) The Executive shall be entitled to participate
in all employee benefit plans, programs and arrangements of the Company now or
hereafter made available to senior executives of the Company on a basis which
is no less favorable than is made available to any other senior executive of
the Company.
(v) During the Employment Term, the Company shall
maintain key man life insurance on the life of the Executive for the benefit
of the Company of at least one million dollars ($1,000,000). In addition,
during the Employment Term, the Company shall provide life insurance to the
Executive for the benefit of the Executive's estate in an amount to be
determined solely by Executive. The premiums on all such policies shall not
aggregate more than $15,000 for each policy year. The Company shall pay a tax
gross-up payment to the Executive for taxes, if any, on such premiums. All
rights of Executive with respect to any prior life insurance policies shall be
governed by the prior employment agreement.
(vi) During the Employment Term, the Company shall
maintain a long-term disability policy for the Executive which shall provide
for disability coverage of 60% of Base Salary. The Company will structure its
payments for such policy so that the receipt of the benefit by the Executive
shall not be taxable. In addition, if the Executive is taxed upon the
reimbursement or payment by the Company of such premiums, then the Company
shall pay a tax gross-up payment to compensate the Executive for such taxes,
if any.
-4-
<PAGE>
(c) Business Expenses. During the Employment Term, the
Company shall promptly reimburse the Executive for all ordinary and necessary
travel expenses, business expenses, and other disbursements incurred by him
for or on behalf of the Company, in the performance of his duties hereunder.
The Executive shall provide the Company with an accounting of his expenses,
including written documentation when available, which accounting shall clearly
reflect which expenses are reimbursable by the Company.
(d) Bonus. The Executive may receive an annual bonus
which may consist of cash, stock options or a combination thereof (the
"Bonus") at the sole discretion of the Board of Directors or any Committee of
the Board of Directors vested with the power to determine such bonuses (the
"Committee"). The Bonus shall be payable to the Executive within thirty (30)
days after completion of the Company's annual audit.
4. Location. Except when traveling, the Executive shall work
in the Company's New York offices or in any other location selected by the
Company with the Executive's prior written approval.
5. Termination of Employment.
(a) During the Employment Term, the Executive may be
terminated only "For Cause" as that term is defined below.
(b) "For Cause" shall mean (i) wilful misconduct by the
Executive in the performance of his duties hereunder; or (ii) the Executive is
convicted of a felony. In no event shall the results of the Company's
operations or business decisions made by the Executive
-5-
<PAGE>
constitute For Cause. The Company shall immediately notify the Executive if it
is intending to terminate this Agreement For Cause (the "Cause Notice").
(c) Any determination that For Cause exists shall only be
made after the Executive shall have been given a reasonable opportunity to
present his view of relevant facts and circumstances to the Board of Directors
of the Company and the Company shall have made a reasonable independent and
impartial investigation thereof. The Executive shall be given twenty (20) days
from receipt of the Cause Notice in which to present to the Board of Directors
his view of the relevant facts.
(d) If this Agreement is terminated pursuant to Paragraph
5(a), then this Agreement shall terminate on the date set by the Board of
Directors.
(e) If at anytime during the Employment Term, the
Executive's duties are changed ("Change-in-Duties"), without his consent, so
that he is no longer the most senior executive officer of the Company, then
such change shall be deemed a material breach of the Agreement by the Company.
In such event, the Executive shall be entitled to terminate the Agreement and
receive three times his Base Salary at the time of the Change-in-Duties. This
payment shall be paid during the one-year period following the termination of
the Agreement at the same intervals as the Base Salary had been paid prior to
such date. In addition, the Company is obligated to maintain all other
benefits under this Agreement for any period remaining under this Agreement or
for a period of one (1) year from the Change-in-Duties, whichever is longer.
6. Permanent Disability. If during the Employment Term, the
Executive shall
-6-
<PAGE>
become Permanently Disabled (as defined below), the Company shall give thirty
(30) day written notice of termination and this Agreement shall terminate on
the last day of such period. "Permanently Disabled" shall mean the inability
of the Executive to perform the services that the Executive is required to
perform pursuant to this Agreement due to physical or mental disability which
continues for one hundred eighty (180) consecutive days. Evidence of such
disability shall be certified by a physician reasonably acceptable to both the
Executive and the Company. The Executive shall be entitled to receive (i) any
Base Salary owed through the date of termination, (ii) the Base Salary for a
period of one (1) year following the date of termination, which shall be paid
in accordance with paragraph 3(a), (iii) reimbursement for any business
expenses incurred and unpaid prior to termination, (iv) all options granted to
Executive during the Employment Term shall immediately vest, (v) all health,
dental and life insurance benefits provided for under this Agreement shall be
maintained for a period of one (1) year from the date of termination, (vi) all
accrued but unpaid Bonus amounts shall be paid within five (5) days of the
date of termination, and (vii) all disability benefits payable under the
relevant policy.
7. Death of the Executive. If the Executive dies prior to
the expiration of the Employment Term this Agreement shall terminate on the
date of death and Executive's beneficiary, designee, or estate ("Beneficiary")
shall be entitled to receive (i) any Base Salary owed though the date of
death, (ii) all accrued but unpaid Bonus amounts shall be paid within five (5)
days of the date of death, (iii) reimbursement for any business expenses
incurred and unpaid prior to the Executive's death, (iv) all options granted
to Executive shall immediately
-7-
<PAGE>
vest, (v) all health and dental benefits provided for under this Agreement
shall be maintained for Executive's family for a period of one (1) year
following the date of death, and (vi) such death benefits payable under the
insurance policy for the benefit of the Executive's estate.
8. Trade Secrets and Proprietary Information of the Company.
(a) By virtue of his employment, Executive will have
access to, will acquire and will become acquainted with various trade secrets
and confidential and proprietary information relating to the businesses of the
Company, including but not limited to: client, employee, supplier, hearing
officer and distributor lists, contacts, addresses, information about
employees, employee relations, hearing officers, clients and suppliers,
employee handbooks, clients, price lists, costs and expenses, documents,
budgets, proposals, financial information, inventions, patterns, processes,
computer programs, specification, all records of the accounts of clients,
hearing officers, prices, schedules, and other documentation, computer
hardware and software, and any other records and books relating in any manner
whatsoever to the clients and hearing officers of the Company, whether
prepared by the Executive or otherwise, and whether situated inside or outside
the offices of the Company which are used in the operation of the businesses
of the Company.
(b) The Executive shall hold in strictest confidence and
shall not disclose or use any trade secret or confidential information of the
Company, directly or indirectly, or use them in any way, either during the
term of the Executive's employment hereunder or for one (1) year thereafter,
except as required in the course of Executive's employment with the Company.
Executive understands that the term "trade secret" or "confidential
information"
-8-
<PAGE>
means all information concerning the Company that is not in the public domain.
In the event of a breach of this Agreement by the Company or termination
without cause, this paragraph shall be deemed null and void.
9. Non-Compete. In consideration of the compensation to be
received by Executive from the Company, Executive shall not: (a) during the
period Executive is employed with the Company, engage in, or otherwise
directly or indirectly be employed by, or act as a consultant or lender to, or
be a director, officer, employee, owner, member or partner of, any business or
organization that is or shall then be competing with the Company; and (b) for
a period of one (1) year after the termination of this Agreement, directly or
indirectly, (i) market or provide any competitive services to, or solicit any
business from, any clients of the Company or (ii) solicit or contact any
person who is employed or acts as hearing officer for the Company at the time
that Executive ceases being employed by the Company for the purpose of
employing or retaining such person as an employee, consultant or hearing
officer; provided, however, that nothing in this section shall prohibit the
Executive from employing or retaining such person where the Executive did not
initiate the contact with such person. If any restriction contained in this
section shall be deemed invalid, illegal, or unenforceable by reason of the
extent, duration, or geographical scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent,
duration, geographical scope or other provision hereof to the fullest extent
allowed by law, and in its reduced form such restriction shall then be
enforceable in the manner contemplated hereby. In the event of a breach of the
Agreement by the Company or termination without cause, this paragraph shall be
deemed null and void.
-9-
<PAGE>
10. Change-in-Control.
If within two (2) years after a Change-in-Control of the
Company, as defined below, (i) the Executive's employment is terminated by the
Company, except For Cause, death or the Executive becoming Permanently
Disabled; or (ii) this Agreement is terminated by the Executive because of a
Change-in-Duties, then the Executive shall receive as severance compensation,
three times the Base Salary at the then current amount. The amounts paid
pursuant to this paragraph shall be in lieu of any other payments due under
this Agreement. In addition, if any compensation is to be paid under this
paragraph, the Company shall continue to maintain all benefits provided
hereunder for one year. Such compensation shall be paid in a lump sum within
five (5) days after the termination, "Change-in-Control" shall mean:
(a) any "person" as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other
than a current stockholder that, directly or indirectly, owns 5% or more of
the Company's outstanding common stock or an affiliate of such 5% or greater
stockholder, collectively, the "Controlling Shareholders") and other than the
Company, any trustee, or other fiduciary holding securities under any employee
benefit plan of the Company) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities;
(b) during any 24-consecutive-month period, individuals
who at the beginning of such period constitute the Board of Directors of the
Company and any new director
-10-
<PAGE>
whose election by the Board of Directors or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof unless the
Executive has approved such change;
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 70% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of, or the Company sells or disposes of, all or
substantially all of the Company's assets.
10. Amendment; Waiver. This Agreement may not be modified,
amended or waived in any manner except by an instrument in writing signed by
all the parties hereto. Failure to exercise any rights hereunder shall not
constitute a waiver of such rights.
-11-
<PAGE>
11. Governing Law. All matters affecting or in connection
with this Agreement, the employment of the Executive or the termination or
resignation of the Executive, are to be governed by, interpreted and construed
in accordance with the laws of the State of New York without giving effect to
the state's conflict of law principles.
12. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to be
delivered the same day if delivered by personal delivery, five (5) days from
the date if mailed by certified mail, return receipt requested, or on the day
delivered if sent by overnight carrier to addresses as follows:
If to the Executive: Roy Israel
63 Shelter Lane
Roslyn Heights, New York 11577
If to the Company: NAM Corporation
1010 Northern Boulevard
Suite 336
Great Neck, New York 11021
Attn.: Board of Directors
With a copy to Robert S. Matlin, Esq.
(which shall not Camhy Karlinsky & Stein LLP
constitute notice): 1740 Broadway, 16th FL.
New York, NY 10019-4315
13. Severability. Each provision hereof is intended to be
severable, and the invalidity of any portion of this Agreement shall not
affect the validity or legality of the remainder hereof.
-12-
<PAGE>
14. Counterparts. This Agreement may be executed by the
parties hereto in counterpart, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
15. Headings. The headings of paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
16. Successors and Assigns. This Agreement shall be binding
upon any successor or assign of the Company.
17. Arbitration. The parties agree that in the event of any
dispute or controversy arising out of or in connection with this Agreement or
any alleged breach thereof (a "Dispute"), the parties shall submit the Dispute
for arbitration in New York City before three (3) arbitrators; one arbitrator
shall be chosen by the Executive, one arbitrator by the Company and the third
by the two other arbitrators. If any party fails to choose its arbitrator
within thirty (30) days after a request is made to designate an arbitrator,
then that party waives its right to choose an arbitrator and the arbitration
shall immediately go forward before the one arbitrator chosen by the
non-breaching party. The decision of the arbitrators will be final and binding
upon the parties, and the judgment of a court of competent jurisdiction may be
entered thereon. Fees of the arbitrators and the cost of arbitration shall be
borne as determined by the arbitrators.
-13-
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have
executed this Agreement as of the date first written above.
NAM CORPORATION
By: /s/ Patricia Giuliani-Rheaume
--------------------------------------------
Name: Patricia Giuliani-Rheaume
Title: Vice President and Chief Financial
Officer
/s/ ROY ISRAEL
--------------------------------------------
ROY ISRAEL
-14-
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