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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-21419
NAM CORPORATION
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(Name of small business issuer as specified in its charter)
Delaware 23-2753988
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(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
1010 NORTHERN BOULEVARD, SUITE 336
GREAT NECK, NEW YORK 10021
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(Address of Principal Executive Offices)
(516) 829-4343
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock $.001 Par Value NASDAQ Small Cap Market
Warrants NASDAQ Small Cap Market
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock $.001 Par Value Boston Stock Exchange
Warrants Boston Stock Exchange
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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 reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes__X__ No____
Check if there is no disclosure of delinquent files in response to Item 405 of
Regulation S-B is not contained in this Form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-KSB
or any amendments to this Form 10-KSB.| |
State issuer's revenues for its most recent fiscal year. $3,847,975
The aggregate market value of the voting stock held by non-affiliates per the
closing stock price of September 8, 1998 is $2,772,869.
As of September 8, 1998, 3,334,978 shares of common stock of the issuer were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part I. -- None Part II. -- None
Part III. -- Proxy statement to be filed by October 28, 1998
Transitional Small Business Disclosure Format Yes____ No__X__
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PART I
From time to time, including in this annual report on Form 10-KSB, NAM
Corporation (the "Company") may publish forward-looking statements relating to
such matters as anticipated financial performance, business prospects, future
operations, new products, research and development activities, and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, the Company notes that a variety of factors could cause the
Company's actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include, without limitation, the
following: 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.
ITEM 1. DESCRIPTION OF BUSINESS
The Company
The Company provides alternative dispute resolution ("ADR") services
principally to insurance companies, law firms, self-insured corporations and
municipalities. An ADR proceeding is designed to replace the public court system
as a forum for resolving civil disputes. The Company offers its clients
personalized attention and access to qualified hearing officers (generally
retired judges) to either mediate or arbitrate their disputes. The cases
currently handled by the Company are primarily disputes involving claims for
injury to persons or property allegedly arising out of acts of negligence and
are usually covered by insurance. The Company believes it is one of the leading
providers of ADR services in New York State based upon the number of cases
processed since 1993. The Company operates from locations in New York,
Massachusetts, Pennsylvania, South Carolina, Tennessee and Illinois, through
which it has the ability to provide ADR services on a nationwide basis with a
roster of over 900 qualified hearing officers.
The Company believes that the ADR business is a growing service
industry based upon the continuing inability of the public court system to
manage effectively its docket of civil cases. An ADR proceeding is intended to
streamline the traditional cumbersome public litigation process. As compared to
the public court system, an ADR proceeding generally offers litigants a faster
resolution, confidentiality, reduced expenses, flexibility in procedures and
solutions, and control over the process. The ADR proceeding also has the
potential to preserve business relations among the parties because its nature is
less adversarial and the potential for a prompt resolution.
The Company's objective is to become one of the leading providers of
ADR services on a national basis. The Company intends to achieve this goal by
employing the following strategies. Firstly, the Company initiated an
advertising campaign during the third quarter of fiscal year 1998 intended to
increase awareness of its services with respect to litigants in most types of
civil disputes, including complex commercial issues, construction, employment,
matrimonial and worker's compensation cases. Total fiscal year 1998 advertising
and external public relations costs incurred with respect thereto approximated
$566,000. The Company currently anticipates spending at least a comparable
amount on advertising in fiscal year 1999. Secondly, in order to increase
business, the Company is currently pursuing exclusive relationships with
corporations and law firms in order to obtain contracts on a national and
regional basis. Thirdly, the Company is
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exploring strategic alliances with business entities that have the ability to
promote NAM's ADR services to their customers. Finally, the Company may open
offices in areas where it does not presently have an office. For example, the
establishment of a sales office to develop business in Oregon is currently
planned for fiscal year 1999.
The Company believes that the domestic ADR industry is, other than a
few national entities, generally fragmented into small ADR service providers.
The Company further believes that the trend in the ADR industry is towards
consolidation of providers who are capable of offering national and regional ADR
programs. Management believes that its current expansion and marketing plans
will enable the Company to exploit this trend.
The Company was formed on January 12, 1994 under the laws of the State
of Delaware. On October 31, 1994 the Company acquired all of the outstanding
common stock of National Arbitration & Mediation, Inc. ("NA&M"), a New York
corporation, formed on February 6, 1992, which was owned by the Company's Chief
Executive Officer and President, and the Company's Executive Vice President.
NA&M began operations in March 1992 as a provider of ADR services.
Services Offered
Arbitration: The Company's arbitration procedure follows a format
essentially similar to a non-jury trial in the public court system. This
procedure is designed to grant the parties a forum in which to present their
cases, while at the same time sparing the litigants the time delays and some of
the cumbersome procedures commonly associated with public court trials. The
Company's hearings are generally governed by its rules of procedure. The
parties, however, may depart from these rules and proceed in the fashion they
deem desirable for the resolution of the case. The parties select a panel member
from the Company's list of hearing officers.
The hearings are non-public, thereby providing a level of
confidentiality not readily available in the public court system. Subject to the
parties' agreement, the proceedings may include discovery, examination of
non-party witnesses, the filing of post-hearing briefs and other matters that
may arise in the conduct of non-jury trials.
The arbitrations are usually one of the following: (i) a regular
arbitration, in which the hearing officer has authority to issue a ruling and/or
award a remedy without limitations; (ii) a "high/low" arbitration, where the
parties may choose to set the parameters of the award by pre-selecting the high
and low dollar limits that can be awarded by the hearing officer; and (iii) the
so-called "baseball" arbitration, which typically involves the submission by
each party of their last best figure and the reason why it should be accepted;
the hearing officer's binding recommendation is restricted to either one figure
or the other. These types of arbitration are not exclusive, and the hearing
officers may fashion remedies in accordance with whatever parameters are agreed
to by the parties.
Generally arbitration decisions are binding in nature and, unless
otherwise stipulated by the parties, are appealable in only limited
circumstances in the public court system. The Company does not currently offer
any type of appeal procedure. The Company's arbitration decisions are generally
enforceable in the public court system by following prescribed filing procedures
in the applicable local jurisdiction.
Mediation (Settlement Conferencing): The mediation method used by the
Company is settlement conferencing, in essence a non-binding process. The
principal advantage of settlement
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conferencing is that it provides an opportunity for parties to reach an early,
amicable resolution without undue expense and time-consuming litigation. The
voluntary process of settlement conference mediation can be an effective tool
for a wide variety of disputes, including tort claims and commercial conflicts.
Settlement conferences are attended by each party to the dispute and/or
a representative of each party and a hearing officer selected by the parties
from a list available in the applicable region. Each party may choose to submit
a settlement conference memorandum setting forth a brief summary of facts,
indicating, for example, why each party has or does not have liability and, if
applicable, a statement of the party's damage. At the settlement conference,
each party is given an opportunity to describe the facts of the case and explain
its position. Thereafter, the hearing officer meets privately with each side on
an alternating basis to evaluate their respective cases, and receives proposed
concessions that each party might make, and potential settlement figures that
each party may offer, with a view toward guiding the parties to the settlement
of their dispute. Settlement figures and possible concessions are typically not
discussed between a party and the hearing officer without the other party's
express consent to disclosing its position. In many instances, the settlement
conference procedure results in the resolution of all issues.
Other ADR Services: In addition to mediations and arbitrations, the
Company offers, among other services, advisory opinions and specialized dispute
resolution programs depending on the parties' particular needs. The Company also
offers Case Resolution Days which are events usually scheduled at an insurance
company client's office in which the Company arranges for parties to hold high
volume direct settlement meetings without the participation of a hearing
officer. In the event that the individual meetings do not resolve the dispute,
the Company provides a hearing officer to mediate the dispute if the parties
wish to pursue settlement.
On-Line Case Management Software Service: During fiscal year 1998, the
Company developed a service allowing its clients the ability to be "on-line"
with the Company. This enables clients to submit cases electronically and to
review the status of their cases from their offices. At the same time, clients
also have the ability to access the status of hearings, updated hearing officer
rosters and schedules, promotional materials and ADR news information. The
Company also maintains a website offering similar information and case
submission capability.
Video Conferencing: The Company has the ability to offer video
conferencing capabilities. This service allows clients to participate in and
observe hearings without leaving their offices, resulting in the reduction of
certain costs to the client associated with the ADR process. This capability
allows the Company to provide services to a wider range of clients on a
geographical basis. In addition, the video conferencing equipment, which can be
purchased or leased directly from the Company, has applications beyond the ADR
area for clients.
Marketing and Sales
As of September 8, 1998, the Company employed 20 account
representatives to market its ADR services. Account representatives solicit
prospective clients through telemarketing efforts and in-person meetings. They
also provide presentations, educational seminars relating to ADR services and
periodic monitoring of a client's ADR activity. Account representatives are
typically compensated based upon a draw against commissions earned, which are
based on total collected revenue from a representative's clients.
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In the New York office, account executives are grouped into sales
teams, which are directly managed by team leaders who also have accounts. The
team leaders in the New York office, as well as account executives in the
regional offices, are supervised directly by a regional manager. Regional
managers report to the Vice President of Marketing and the Executive Vice
President. Several of the employment agreements with regional managers provide
for additional compensation based on the profits of the manager's operation.
With regard to the hiring and training of account executives, they are
usually interviewed by each office's regional manager and then by the Vice
President of Marketing or the Executive Vice President. Account executives are
trained by a team leader, or the office's regional manager, over approximately a
two-week period. This training period may vary depending on the overall
abilities of each candidate, the level or lack of prior experience and their
aptitude to assimilate the required marketing skills. The training includes the
development of sales techniques and the introduction to customers of the
Company. After this initial period, the new account executive's performance is
closely monitored. In addition, staff meetings are generally held twice a week
to review progress against goals and to enhance marketing skills.
The majority of clients of the Company are insurance carriers and law
firms. One insurance company customer represented approximately 12% and 14% of
total revenues for the years ended June 30, 1998 and 1997, respectively.
However, the Company works with more than 70 individual offices of the insurance
company, which in total equal the aforementioned percentages of revenue. The
next largest insurance company customer represented less than 3% of revenues for
the years ended June 30, 1998 and 1997. The balance of the revenue base is
distributed among approximately 2,200 and 1,950 clients, respectively, in fiscal
years 1998 and 1997.
The Company, when appropriate, seeks membership contracts with its
clients. Further, the Company is currently enhancing its efforts to obtain
volume commitments from existing and new clients.
Competition
The ADR business is highly competitive, both on a national and regional
level. Management believes that barriers to entry in the ADR business are
relatively low, and new competitors can begin doing business relatively quickly.
The basis of this belief is that the provision of ADR services only requires the
consent of all parties to submit their dispute for resolution through a proposed
ADR provider. There are two types of competitors: not-for-profit and for-profit
entities. The Company believes the largest not-for-profit competitor is the
American Arbitration Association which has significant market share in complex
commercial cases. The insurance industry has also continued its support for
Arbitration Forums, a not-for-profit organization created to service primarily
the insurance subrogation market.
The Company believes that the domestic ADR industry is, other than a
few national entities, generally fragmented into small ADR service providers.
The Company believes that Judicial Arbitration Mediation Services,
Inc./Endispute ("JAMS") is the largest for-profit ADR provider in the country.
In New York State, the Company's competitors include, among others, Settlement
Systems, Inc., Expedite NYC, JAMS, Resolute, Inc. and Island Arbitration and
Mediation. In addition, several public court systems, including the federal and
certain state courts in New York, the Company's major market, have instituted
court coordinated programs. To the
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extent that the public courts reduce case backlogs and provide effective dispute
resolution mechanisms, the Company's business opportunities in such markets may
be significantly reduced.
Increased competition could decrease the fees the Company is able to
charge for its services, and limit the Company's ability to obtain experienced
hearing officers. This could have a materially adverse effect on the Company's
ability to be profitable in the future. In addition, the Company competes with
other ADR providers to retain the services of qualified hearing officers.
As compared to the majority of its competitors, the Company believes
that it competes based primarily upon reputation, price, and the ability to
manage scheduling of hearings effectively. Management believes the Company has
certain advantages that enable it to better serve its clients. These advantages
include: (1) exclusive agreements with qualified hearing officers, who are
generally former judges; (2) software which provides detailed case management
reporting that can be customized to meet a client's needs; (3) account
executives dedicated to specified clients; (4) the ability to monitor and
control the scheduling of matters; and (5) videoconferencing capability that
allows clients to participate in or observe a proceeding without leaving their
office. There can be no assurance, however, that these perceived advantages will
enable the Company to compete successfully in the future.
Government Regulation
ADR services that are offered by private companies, such as the
Company, are not presently subject to any form of local, state or federal
regulation. ADR services that are offered by the public courts are subject to
the rules set forth by each jurisdiction and the dictates of the individual
judge assigned to preside over the dispute.
Employees
As of September 8, 1998, the Company employed 44 persons, including 2
part-time employees; of these, 4 were in executive positions, two of which
devote substantially all their attention to sales; 25 were sales managers and
sales account representatives and 15 were engaged in administrative and clerical
activities.
Hearing Officers
As of September 8, 1998, the Company maintained relationships with over
900 hearing officers and has exclusive agreements with respect to ADR
proceedings with approximately 50 of them. These hearing officers accounted for
approximately 60% of the number of cases handled by the Company for the year
ended June 30, 1998. The balance of non-exclusive hearing officers makes their
services available to the Company on a case-by-case basis. With the exception of
the exclusive hearing officers, the remainder of the Company's roster of hearing
officers can provide their services to competing ADR providers. Compensation to
the hearing officers is based on the number of proceedings conducted and the
length of time of such proceedings.
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ITEM 2. DESCRIPTION OF PROPERTIES
The Company currently maintains 5 leased facilities, all of which are
located in office buildings. The Company leases 4,800 square feet of space at
1010 Northern Boulevard, Great Neck, New York for its corporate headquarters and
for providing ADR services in the metropolitan New York area. The lease expires
October 2000. The Company intends to lease an additional 1,530 square feet of
space adjacent to its existing offices when it becomes available during the 1999
fiscal year.
The Company also leases: (i) 2,168 square feet of space, which lease
expires February 2000, for its Philadelphia, Pennsylvania office; (ii) 174
square feet of space, which lease expires December 1998, for its Easton,
Massachusetts office; (iii) 108 square feet of space, which lease is on a
monthly basis, for its Boston, Massachusetts office; and (iv) 601 square feet of
space, which lease expires March 1999, for its Hendersonville, Tennessee office.
The Company believes this space is adequate for its reasonably anticipated
future needs.
The aggregate rental expense for all of the Company's offices was
$180,968 during the year ended June 30, 1998.
ITEM 3. LEGAL PROCEEDINGS
There is no material litigation currently pending against the Company.
ITEM 4. SUBMISSION OF MATERIALS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. The Company's Common Stock and Warrants are quoted on the NASDAQ Small Cap
Market under the trading symbols "NAMC" and "NAMCW," respectively, and have been
quoted since the Company commenced public trading on November 18, 1996. The
Company voluntarily delisted its units, which consisted of one share of Common
Stock and one redeemable Warrant, from trading on January 26, 1998 in order to
avoid confusion in the marketplace and to avoid additional and future
administrative costs. Prior to November 18, 1996, there was no public market for
the Company's Securities. The following table sets forth the range of high and
low closing sales prices (based on transaction data as reported by the NASDAQ
Small Cap Market) for each fiscal quarter during the periods indicated.
<TABLE>
<CAPTION>
Units Common Stock Warrants
High Low High Low High Low
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year 1998:
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First quarter (07/1/97-9/30/97) $4.72 $3.50 $3.88 $2.63 $1.38 $0.63
Second quarter (10/01/97-12/31/97) 5.13 3.50 4.25 2.81 1.41 0.88
Third quarter (01/01/98-03/31/98) 4.50 3.75 4.00 2.00 1.25 0.44
Fourth quarter (04/01/98-06/30/98) NA NA 2.38 1.50 0.50 0.22
Fiscal Year 1997:
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Second quarter (11/18/96-12/31/96) $6.50 $4.50 $4.50 $3.50 $1.75 $1.00
Third quarter (01/01/97-03/31/97) 5.97 4.25 5.00 3.50 1.50 1.00
Fourth quarter (04/01/97-06/30/97) 4.97 3.75 4.25 3.00 1.38 0.75
</TABLE>
On September 8, 1998 the closing bid price for the Common Stock and
Warrants, as reported by the NASDAQ Small Cap Market, were $1.38 and $0.19,
respectively.
As of September 8, 1998 there were in excess of 300 holders of the
Company's securities.
The payment by the Company of dividends, if any, in the future rests
within the discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, capital requirements and financial
condition, as well as other relevant factors. The Company does not contemplate
or anticipate paying any dividends upon its Common Stock in the foreseeable
future.
B. 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. During the year ended June 30, 1998, the Company additionally expended
approximately $335,000 for working capital and general corporate purposes,
including its advertising campaign. The remaining funds were invested in cash
and cash equivalents, U.S. government securities, corporate preferred securities
and a diversified portfolio of marketable equity securities.
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The preceding information updates Form SR filed by the Company in
February 1997 pursuant to former Rule 463.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company provides ADR services to insurance companies, law firms,
self-insured 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
operates from locations in New York, Massachusetts, Pennsylvania, South
Carolina, Tennessee and the Midwest. The Midwest region 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 on a national basis. The Company intends to achieve this goal by
employing the following strategies. Firstly, the Company initiated an
advertising campaign during the third quarter of fiscal year 1998 intended to
increase awareness of its services with respect to litigants in most types of
civil disputes, including complex commercial issues, construction, employment,
matrimonial and worker's compensation cases. Total fiscal year 1998 advertising
and external public relations costs incurred with respect thereto approximated
$566,000. The Company currently anticipates spending at least a comparable
amount on advertising in fiscal year 1999. Secondly, in order to increase
business, the Company is currently pursuing exclusive relationships with
corporations and law firms in order to obtain contracts on a national and
regional basis. Thirdly, the Company is exploring strategic alliances with
business entities that have the ability to promote NAM's ADR services to their
customers. Finally, the Company may open offices in areas where it presently
does not have an office. For example, the establishment of a sales office to
develop business in Oregon is currently planned for fiscal year 1999.
Future Trends
Management believes that the ADR industry is, and will continue to be,
undergoing a consolidation of ADR service providers so as to better serve
clients requiring national and regional multi-state ADR programs. The Company's
objective is to expand its national presence to exploit this trend. In addition,
ADR clients continue to seek volume discounts on the charges applied by the
Company for services rendered. The Company believes that this trend may have an
overall positive impact on the Company because the discounts are usually applied
only when an ADR client makes a commitment to refer a minimum number of cases to
the Company.
The Company has and will continue to incur net losses in the short-term
future as a result of the extensive advertising campaign commenced during the
second half of fiscal year 1998. In connection therewith, the Company has placed
advertisements in a variety of print media, radio, outdoor and television. The
campaign is expected to continue throughout the 1999 fiscal year as well. The
Company believes that the campaign has increased awareness of the Company and
its services. However, there can be no assurance that this effort will result in
increased revenues.
In addition, the Company has enhanced the status and capability of its
present offices. Significant costs have been and will continue to be incurred in
connection with establishing, maintaining
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and operating offices, including expenses such as leases, office equipment,
furnishings and salaries for management, sales and administrative personnel. The
Company believes its investment in these resources will ultimately be beneficial
in that a higher volume of business will be able to be processed in a more
efficient manner when and if the advertising campaign produces the desired
effect.
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
Results of Operations
Revenues. Revenues increased 14% to $3,847,975 for the year ended June
30, 1998 from $3,377,062 for the year ended June 30, 1997. Management attributes
this increase in sales to a growing acceptance of the Company's services as
shown by the overall increase in the number of cases heard. Additionally, the
opening of the Midwest region in the third quarter of the 1997 fiscal year
contributed approximately $100,000 to the revenue growth in fiscal 1998.
Cost of Services. Cost of services increased 14% to $969,345 for the
year ended June 30, 1998 from $853,048 for the year ended June 30, 1997. The
higher volume of business serviced resulted in greater hearing officer fees.
Cost of services as a percentage of revenue remained stable at 25% for both
fiscal years. 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 48% to
$2,090,591 for the year ended June 30, 1998 from $1,412,348 for year ended June
30, 1997. 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 54% for fiscal year
1998 from 42% for fiscal year 1997. Most of this increase relates to advertising
costs which rose by approximately $472,000 to $566,000 for the year ended June
30, 1998. The increase was largely due to the commencement of an advertising
campaign during the third quarter of the 1998 fiscal year whereby the Company
placed advertisements in a variety of media (newspapers, law journals, insurance
and business publications, outdoor, radio and television). The objective of the
campaign is to increase awareness of the Company and its services. There can be
no assurance that such expenditures will produce higher revenues. The remaining
increase (approximately $206,000) 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 and into fiscal
year 1998, personnel were hired 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 a higher volume of
cases. Finally, the Midwest region opened during the third quarter of fiscal
1997.
General and Administrative. General and administrative costs increased
10% to $1,932,158 for the year ended June 30, 1998 from $1,761,994 for the year
ended June 30, 1997. Furthermore, general and administrative costs as a
percentage of revenues decreased slightly to 50% for fiscal year 1998 from 52%
for fiscal year 1997. 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. Salary-related costs
increased by approximately $189,000 as the Company expanded personnel,
particularly at its headquarters in New York, primarily during the second half
of fiscal year 1997 and into fiscal year 1998. 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 provides a uniform and high-quality level of
service for clients,
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in addition to enhancing the control environment and producing a more
streamlined and efficient approach as the Company grows. Higher costs with
respect to fees relating to being a public company (approximately $18,000) were
more than offset by a decline in professional fees ($40,000).
Other Income (Expenses). Other income (expenses) increased from
$12,771 for the year ended June 30, 1997 to $514,985 for the year ended June
30, 1998. In the current fiscal year, other income was composed primarily of
investment income and realized gains (losses) generated from investments.
During the second half of the 1998 fiscal year, the Company sold a portion of
its marketable securities and, as a result, net realized gains increased to
approximately $356,000 for the year ended June 30, 1998 from approximately
$16,000 for the year ended June 30, 1997. Also, in the prior year, in
connection with the initial public offering, the Company contributed warrants
underlying units sold by two executive officers and also agreed to pay the
underwriting costs associated with shares sold by them. With respect thereto,
the Company expensed $115,500 upon the consummation of the initial public
offering in the second quarter of fiscal year 1997. In addition, other
expenses in that period also included 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.
Income Taxes. Tax benefits resulting from net losses incurred for the
years ended June 30, 1998 and 1997 were not recognized as the Company recorded a
full valuation allowance against the net operating loss carryforwards during the
periods. As of June 30, 1998, the Company had net operating loss carryforwards
for Federal tax purposes of approximately $1,007,000.
Net Loss. For the year ended June 30, 1998, the Company had a net loss
of $629,134 as compared to a net loss of $637,557 for the year ended June 30,
1997. The loss decreased slightly as expenditures for a comprehensive
advertising campaign and an investment in the Company's infrastructure to
support future growth were partially offset by higher revenues and realized
gains on marketable securities.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Results of Operations
Revenues. Revenues increased 7% to $3,377,062 for the year ended June
30, 1997 from $3,147,886 for the year ended June 30, 1996. Management attributes
this growth in sales to a higher level of business with existing as well as new
clients in all offices other than Pennsylvania. Excluding Pennsylvania, revenues
grew by approximately 14% over the prior period for all other offices combined.
The Company has focused its resources on re-staffing and rebuilding the
Pennsylvania office in an effort to reverse the downward trend.
Cost of Services. Cost of services, direct costs incurred for hearing
officers, increased 17% to $853,048 for the year ended June 30, 1997 from
$727,613 for the year ended June 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 slightly to 25% in the 1997 fiscal year
from 23% in the prior period. 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 as such lowers the cost per case.
Sales and Marketing. Sales and marketing costs decreased 4% to
$1,412,348 for the year ended June 30, 1997 from $1,472,152 for the year ended
June 30, 1996. Furthermore, sales and marketing costs as a percentage of
revenues for the year ended June 30, 1997 decreased to 42% from 47% for the year
ended June 30, 1996. In fiscal year 1996 and prior, all employees were
considered to
12
<PAGE>
spend a majority of their time performing sales-related functions. As a result,
this expense category includes all salary and related payroll and employee
benefit costs as well as advertising and promotional expenses in fiscal 1996. In
fiscal 1997, the Company expanded in size and was organizationally restructured
to provide for future growth. Sales and marketing costs include 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.
Salaries and related expenses for individuals who do not spend a majority of
their time involved in marketing the Company's services are included in general
and administrative expenses in fiscal 1997. If sales and marketing costs had
been classified in the same manner in fiscal 1996 as it was in fiscal 1997, this
category of expense would have increased by approximately $380,000. Most of this
increase (approximately $281,000) relates to salary and related items. Firstly,
higher sales commissions were incurred based on the higher volume of business.
Secondly, 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, the
Company embarked on an advertising campaign with the goal of creating an
increased national presence through a variety of media. As a result, advertising
costs increased by approximately $60,000. There can be no assurance that
expenditures related to the advertising campaign will produce higher revenues in
the near future.
General and Administrative. General and administrative costs increased
138% to $1,761,994 for the year ended June 30, 1997 from $741,892 for the year
ended June 30, 1996. Furthermore, general and administrative costs as a
percentage of revenues for the year ended June 30, 1997 increased to 52% from
24% for the comparable prior period. As explained previously, in fiscal 1996,
general and administrative costs do not include any salary or salary related
expenses. However, in fiscal 1997, this category includes salaries of
executives, accounting, data processing and administration/clerical and related
payroll taxes and employee benefits, which were previously included in sales and
marketing, as well as all other overhead costs. If general and administrative
costs had been classified in the same manner in fiscal 1996 as it was in fiscal
1997, this category of expense would have increased by approximately $609,000.
Of this increase, salary-related costs increased by approximately $219,000 as
the Company upgraded and expanded personnel, particularly at its headquarters in
New York. All corporate activities, including marketing, finance, data
processing, billing and collections, purchasing, scheduling of hearings, etc.,
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. In addition, a portion of the increase relates to
higher rent expense (which increased by approximately $54,000). To support
business opportunities throughout the country, larger office space was obtained
in four locations and a new office was opened in Wisconsin. Higher costs with
respect to professional fees, insurance, employee recruitment, stock market
fees, depreciation, office supplies and stationery were due to the expansion of
the Company and its status as a publicly traded entity. Such costs increased by
approximately $298,000 in total.
Other Income (Expense). Other income (expense) changed from a net
expense of ($67,105) for the year ended June 30, 1996 to income of $12,771 for
the year ended June 30, 1997. In fiscal 1997, other income was composed
primarily of (i) investment income, generated from available proceeds received
from the initial public offering, less (ii) interest expense from a past private
placement financing and (iii) costs incurred for the benefit of selling
shareholders. In connection with the initial public offering, the Company
contributed warrants underlying units sold by two executive officers and also
agreed to pay the underwriting costs associated with shares sold by them. With
respect thereto, the Company expensed $115,500, of which $37,500 related to the
contributed warrants, upon the consummation of the initial public offering in
the second quarter of fiscal 1997. Other expenses in the prior fiscal year
included a write-off of previously deferred offering costs of $61,127 associated
with a
13
<PAGE>
public offering that was abandoned in October 1995 and interest expense of
$32,000 relating to a past private placement financing. This debt was satisfied
in full on November 20, 1996 with proceeds from the initial public offering.
Income Taxes. The Company's tax expense for the years ended June 30,
1997 and 1996 was $0 and $3,525, respectively. Tax benefits resulting from net
losses incurred for the year ended June 30, 1997 were not recognized as the
Company recorded a full valuation allowance against the net operating loss
carryforwards. As of June 30, 1997, the Company had net operating loss
carryforwards for Federal tax purposes of approximately $440,000.
Net Income (Loss). For the year ended June 30, 1997, the Company had a
net loss of ($637,557) as compared to net income of $135,599 for the year ended
June 30, 1996. As discussed above, this change was primarily due to higher
general and administrative expenditures incurred as an investment in the
Company's infrastructure in anticipation of future growth. In addition, the
current period was adversely affected by non-recurring charges incurred in
connection with the initial public offering.
Liquidity and Capital Resources
At June 30, 1998, the Company had a working capital surplus of
$3,060,771 as compared to $3,853,430 at June 30, 1997. The decrease in working
capital occurred as cash was used to fund the Company's net loss. Net cash used
in operating activities was $688,132 for the year ended June 30, 1998 versus
$535,152 in the prior year. The change is partially attributable to expenditures
related to advertising costs.
Net cash provided by investing activities was $1,929,926 for the year
ended June 30, 1998 versus cash used in investing activities of $3,725,439 for
the year ended June 30, 1997. Investing activity began in the third quarter of
the 1997 fiscal year after the net proceeds from the Company's initial public
offering were received. During fiscal 1998, various investments in government
securities matured and the Company sold a portion of its corporate bonds and
equity securities. Such proceeds were largely reinvested in government
securities and money market funds.
Net cash provided by financing activities was $4,404,603 for the year
ended June 30, 1997 versus no activity in the current year. The prior period
reflects the receipt of the proceeds from the Company's initial public offering
which was consummated in November 1996. A portion of the proceeds was utilized
to repay promissory notes in the aggregate amount of $400,000. The notes bore
interest at a rate of 8% per annum, and were originally due June 30, 1996.
Subsequently, the due dates of the notes were extended to March 31, 1997. On
November 20, 1996, the notes were repaid in full.
The Company anticipates that cash flows, together with cash and
marketable securities on hand, will be sufficient to fund the Company's
operations, including its expansion plans and the advertising campaign which
will continue into the 1999 fiscal year.
The Year 2000
The Year 2000 ("Y2K") issue is the result of computer programs using
a two-digit format, as opposed to four digits, to indicate the year. Such
computer systems will be unable to interpret dates
14
<PAGE>
beyond the year 1999, which could cause a system failure or other computer
errors, leading to disruptions in operations. The Company is taking actions to
make its systems, products and infrastructure year Y2K compliant. During fiscal
year 1998, the Company identified those systems that may be impacted by the Y2K
issue: (1) financial reporting system; (2) relational database system used to
manage the operations of the Company; and (3) third-party relationships.
The Company has initiated certain action plans with respect to the
areas identified. First, the Company recently upgraded the software utilized for
financial reporting to a version that is Y2K compliant. Secondly, the software
that manages the operations of the business is already capable of recognizing
four digits to designate the year. The Company intends to convert its usage of
the date fields from 2 digits to 4 digits during the first half of fiscal year
1999. It is anticipated that the programming effort required could be
accomplished with existing resources and that no material external costs will be
incurred. Finally, in the third-party area, the Company has contacted most of
its major vendors who have stated that they intend to be Y2K compliant by 2000.
Management believes that, based on available information, the Company
will be able to manage the year 2000 transition without any material adverse
effects on its business operations, products or financial prospects.
ITEM 7. FINANCIAL STATEMENTS
Information in response to this item is set forth in the Financial
Statements, beginning on Page F-1 of this filing.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
The Company filed Form 8-K on March 11, 1997 with respect to a change
in accountants.
15
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-21
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
NAM Corporation
We have audited the accompanying consolidated balance sheets of NAM
Corporation and Subsidiaries (the "Company") as of June 30, 1998 and 1997, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NAM Corporation
and Subsidiaries as of June 30, 1998 and 1997, and the consolidated results of
their operations and their consolidated cash flows for the years then ended in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Melville, New York
August 28, 1998
F-2
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $1,417,280 $ 175,486
Marketable securities 1,950,880 3,792,381
Accounts receivable (net of allowance for doubtful
accounts of $90,000 and $80,000, respectively) 385,300 408,260
Other receivables 17,945 34,490
Prepaid expenses 45,080 54,682
---------- -----------
Total current assets 3,816,485 4,465,299
FURNITURE AND EQUIPMENT - AT COST,
less accumulated depreciation 248,679 201,113
ORGANIZATION COSTS (net of accumulated amortization
of $30,478 and $21,885, respectively) 12,484 21,077
OTHER ASSETS 31,908 39,756
---------- -----------
$4,109,556 $4,727,245
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 315,323 $ 158,846
Accrued liabilities 163,641 140,192
Accrued payroll and employee benefits 126,361 174,115
Deferred revenues 150,389 138,716
---------- -----------
Total current liabilities 755,714 611,869
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 5,000,000 shares
authorized; none issued - -
Common stock - $.001 par value; 15,000,000 shares
authorized; 3,334,978 shares issued and outstanding 3,335 3,335
Additional paid-in capital 4,778,179 4,772,569
Accumulated deficit (1,368,681) (739,547)
Unrealized (loss) gain on marketable securities (58,888) 79,224
Unearned compensation - stock bonus plan (103) (205)
---------- -----------
Total stockholders' equity 3,353,842 4,115,376
---------- -----------
$4,109,556 $4,727,245
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Net revenues $ 3,847,975 $3,377,062
----------- ----------
Operating costs and expenses
Cost of services 969,345 853,048
Sales and marketing expenses 2,090,591 1,412,348
General and administrative expenses 1,932,158 1,761,994
----------- ----------
4,992,094 4,027,390
----------- ----------
Loss from operations (1,144,119) (650,328)
Other income (expenses)
Investment income 510,063 136,572
Other income 4,922 4,237
Costs incurred for the benefit of selling
shareholders - (115,500)
Interest expense - (12,538)
----------- ----------
514,985 12,771
----------- ----------
Loss before income taxes (629,134) (637,557)
Income taxes - -
----------- ----------
NET LOSS $ (629,134) $ (637,557)
=========== ===========
Net loss per common share - basic and diluted $(.19) $(.23)
===== =====
Weighted average shares outstanding - basic and diluted 3,334,978 2,762,348
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Unearned
Unrealized compensation- Total
Common stock Additional (loss) gain on stock stockholders'
------------------- paid-in Accumulated marketable bonus equity
Shares Amount capital deficit securities plan (deficit)
------ ------ ------- ------- ---------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1996 1,813,075 $1,813 $ 28,739 $ (101,990) $(308) $ (71,746)
Net loss (637,557) (637,557)
Shares issued pursuant to
initial public offering 1,460,000 1,460 4,700,084 4,701,544
Shares issued pursuant to
restricted stock award 61,903 62 (62)
Unrealized gain on
marketable securities $ 79,224 79,224
Compensation related to
stock option plan and
contributed warrants 43,808 43,808
Earned portion of stock
bonus plan 103 103
--------- ------ ---------- ----------- ---------- ----- ----------
Balances at June 30, 1997 3,334,978 3,335 4,772,569 (739,547) 79,224 (205) 4,115,376
Net loss (629,134) (629,134)
Change in unrealized (loss)
gain on marketable securities (138,112) (138,112)
Compensation related to stock
option plan 5,610 5,610
Earned portion of stock bonus
plan 102 102
--------- ------ ---------- ----------- ----------- ----- ----------
Balances at June 30, 1998 3,334,978 $3,335 $4,778,179 $(1,368,681) $ (58,888) $(103) $3,353,842
========= ====== ========== =========== =========== ===== =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (629,134) $ (637,557)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 75,488 58,653
Provision for bad debts 10,000 40,000
(Gains) on sales of marketable securities (356,390) (7,123)
Losses on sales of furniture and equipment 129 -
Earned portion of stock bonus plan 102 103
Compensation related to stock option plan and
contributed warrants 5,610 43,808
Changes in operating assets and liabilities
Decrease in accounts receivable 12,960 7,696
Decrease (increase) in other receivables 16,545 (28,617)
Decrease (increase) in prepaid expenses 9,602 (1,672)
Decrease (increase) in other assets 7,848 (5,252)
Increase (decrease) in accounts payable and accrued liabilities 195,189 (146,115)
(Decrease) increase in accrued payroll and employee benefits (47,754) 128,588
Increase in deferred revenues 11,673 12,336
----------- ------------
Net cash used in operating activities (688,132) (535,152)
----------- ------------
Cash flows from investing activities
Purchases of marketable securities (2,313,195) (4,086,959)
Proceeds from maturities of marketable securities 2,075,000 325,000
Proceeds from sales of marketable securities 2,311,367 62,373
(Decrease) increase in payable for securities purchased (15,263) 15,263
Purchases of furniture and equipment (133,113) (41,116)
Sales of furniture and equipment 5,130 -
----------- ------------
Net cash provided by (used in) investing activities 1,929,926 (3,725,439)
----------- ------------
Cash flows from financing activities
Issuance of common stock, net of issuance costs - 4,701,544
Repayment of notes payable - (400,000)
Distributions to shareholders - (8,942)
Decrease in deferred offering costs - 112,001
----------- ------------
Net cash provided by financing activities - 4,404,603
----------- ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 1,241,794 144,012
Cash and cash equivalents at beginning of year 175,486 31,474
----------- ------------
Cash and cash equivalents at end of year $ 1,417,280 $ 175,486
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
NAM Corporation ("NAM") provides a broad range of Alternative Dispute
Resolution ("ADR") services, including arbitration and mediation, in the
United States. NAM incorporated on January 12, 1994 and began operations
on February 15, 1994. On October 31, 1994, National Arbitration &
Mediation, Inc. ("NA&M"), which was owned by NAM's Chief Executive
Officer and Executive Vice President, was acquired by and became a
wholly-owned subsidiary of NAM. The transaction was accounted for as a
transfer of assets between companies under common control, with the
assets and liabilities of NA&M combined with those of NAM at their
historical carrying values. NA&M also provided a broad range of ADR
services, including arbitrations and mediations. NA&M began operations in
March 1992.
On November 18, 1996, NAM completed an Initial Public Offering ("IPO") of
its securities, which resulted in the sale of 1,400,000 units, each unit
consisting of one share of common stock and one redeemable warrant. Of
this total, 150,000 shares of common stock were not newly issued; rather,
they were sold by two executive officers of NAM. On December 3, 1996, an
additional 210,000 units were sold upon the exercise of an overallotment
option by the underwriter. Units were sold at a price of $4.00 per unit.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting and reporting policies applied on
a consistent basis which conform with generally accepted accounting
principles follow:
a. Basis of Presentation
The accompanying consolidated financial statements of NAM Corporation
and Subsidiaries include the accounts of its wholly-owned
subsidiaries, NA&M, National Video Conferencing, Inc., a Delaware
corporation formed in April 1995, Michael Marketing, Inc., a Delaware
corporation formed in November 1991 and NAMSYS Corporation, a
Delaware corporation
F-7
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 2 (continued)
formed in January 1998 (collectively referred to herein as the
"Company"). The Company operates in only one business segment, ADR.
All significant intercompany transactions and balances were
eliminated in consolidation.
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the revenues and expenses
during the reporting period. Actual results may differ from those
estimates. Estimates are used when accounting for the allowance for
uncollectible accounts receivable, depreciation, taxes and
contingencies, among others.
c. Revenue Recognition
The Company principally derives its revenues from fees charged for
arbitration and mediation services. Each party to a proceeding is
charged an administrative fee, a portion of which is nonrefundable
when each party agrees to utilize the Company's services. The Company
recognizes revenue when the arbitration or mediation occurs. Fees
received prior to the arbitration or mediation are reflected as
deferred revenue.
d. Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, money market
funds and short-term notes with a maturity at date of purchase of
three months or less.
e. Marketable Securities
Investments classified as marketable securities include fixed
maturities (bonds and redeemable preferred stocks) and equity
securities (common and nonredeemable preferred stocks) which are
reported at their fair values. Unrealized gains or losses on these
securities are reported as a separate component of stockholders'
equity, net of related tax effects. The Company categorizes
F-8
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 2 (continued)
all fixed maturity and equity securities as available-for-sale in
order to provide the Company flexibility to respond to various
factors, including changes in market conditions and tax planning
considerations.
Investment income, consisting of interest and dividends, is
recognized when earned. Realized gains and losses on sales,
maturities or liquidation of investments are determined on a specific
identification basis. The amortization of premiums and accretion of
discounts for fixed maturity securities are computed on a
straight-line basis. Fair values of investments are based on quoted
market prices or on dealer quotes.
f. Furniture and Equipment
Furniture and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method
to allocate the cost of those assets over their expected useful lives
which generally range from five to seven years.
g. Organizational Costs
Organizational costs arose from NAM's organization in 1994.
Organizational costs are amortized over five years.
h. Income Taxes
The Company follows the asset and liability method of accounting for
income taxes by applying statutory tax rates in effect at the balance
sheet date to differences among the book and tax bases of assets and
liabilities. The resulting deferred tax liabilities or assets are
adjusted to reflect changes in tax laws or rates by means of charges
or credits to income tax expense. A valuation allowance is recognized
to the extent a portion or all of a deferred tax asset may not be
realizable.
i. Advertising Costs
The cost of advertising is expensed when the advertising takes place.
During the second half of fiscal 1998, the Company commenced an
advertising campaign intended to increase awareness of its services
with respect to litigants in most types of civil disputes, including
complex
F-9
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 2 (continued)
commercial issues, construction, employment, matrimonial and worker's
compensation cases. The Company incurred $566,084 and $93,696 for
advertising and external public relations costs in fiscal 1998 and
1997, respectively.
j. Offering Costs
Costs incurred in connection with the IPO in November 1996,
consisting of professional fees directly associated with the
offering, were charged to additional paid-in capital during the year
ended June 30, 1997.
k. Earnings (Loss) Per Common Share
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," which
requires public companies to present basic earnings per share and, if
applicable, diluted earnings per share. In accordance with SFAS No.
128, all comparative periods have been restated, if applicable. Basic
earnings per share are based on the weighted average number of common
shares outstanding without consideration of potential common stock.
Diluted earnings per share are based on the weighted average number
of common and potential common shares outstanding. The calculation
takes into account the shares that may be issued upon exercise of
stock options, reduced by the shares that may be repurchased with the
funds received from the exercise, based on the average price during
the period. Diluted earnings per share is the same as basic earnings
per share as potential common shares would be antidilutive as the
Company incurred net losses for the years ended June 30, 1998 and
1997.
F-10
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 2 (continued)
l. Accounting Pronouncement Not Yet Adopted
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which is effective for the Company's 1999 fiscal year. SFAS No. 130
establishes standards to report and display comprehensive income and
its components in a full set of general-purpose financial statements.
Earnings (loss) per share will only be reported for net income (loss)
but not for comprehensive income. Adoption of SFAS No. 130 relates to
disclosure within the financial statements and is not expected to
have a material impact on the Company's financial statements.
NOTE 3 - MARKETABLE SECURITIES
Marketable securities are carried at fair value. A summary of investments
in marketable securities and a reconciliation of amortized cost to the
fair value follow:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
June 30, 1998
Fixed maturities
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 669,889 $ 209 $ (75) $ 670,023
Corporate preferred securities 250,000 5,620 - 255,620
---------- ------- --------- ----------
919,889 5,829 (75) 925,643
Equity securities 1,089,879 38,083 (102,725) 1,025,237
---------- ------- --------- ----------
Total marketable securities $2,009,768 $43,912 $(102,800) $1,950,880
========== ======= ========= ==========
</TABLE>
F-11
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 3 (continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
June 30, 1997
Fixed maturities
U.S. Treasury securities $2,088,713 $ 97 $ (1,225) $2,087,585
Corporate preferred securities 550,000 500 - 550,500
---------- ------- -------- ----------
2,638,713 597 (1,225) 2,638,085
Equity securities 1,074,444 89,657 (9,805) 1,154,296
---------- ------- -------- ----------
Total marketable securities $3,713,157 $90,254 $(11,030) $3,792,381
========== ======= ======== ==========
</TABLE>
The amortized cost and fair value of investments in fixed maturities
classified as securities available-for-sale at June 30, 1998 are shown
below by contractual maturity. Actual maturities may differ from
contractual maturities because borrowers have the right to call
obligations without call penalties.
Amortized Fair
cost value
-------- --------
Due in one year or less $569,470 $569,679
Due after one through five years 100,419 100,344
Due after ten years 250,000 255,620
-------- --------
$919,889 $925,643
======== ========
Proceeds on sales of securities were $2,311,367 and $62,373 for the years
ended June 30, 1998 and 1997, respectively. During fiscal 1998 and 1997,
gross gains of $386,155 and $7,123, respectively, and gross losses of
$29,765 and $0, respectively, were realized on these sales. Net
unrealized (losses) gains on marketable securities were $(58,888) and
$79,224 at June 30, 1998 and 1997, respectively. During fiscal 1998 and
1997, no income taxes (benefits) were provided on the unrealized gains
(losses) due to the Company's net operating loss.
F-12
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
June 30,
-----------------------------
1998 1997
--------- ---------
Furniture $ 169,717 $ 159,447
Equipment 307,311 191,093
--------- ---------
477,028 350,540
Less accumulated depreciation (228,349) (149,427)
--------- ---------
$ 248,679 $ 201,113
========= =========
Depreciation expense for the years ended June 30, 1998 and 1997 was
$80,288 and $56,510, respectively.
NOTE 5 - INCOME TAXES
Temporary differences which give rise to deferred taxes are summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets
Net operating loss and other carryforwards $ 406,000 $ 139,000
Provision for bad debts 36,000 32,000
Deferred compensation 21,000 26,000
Deferred rent and other 10,000 6,000
--------- ---------
473,000 203,000
Deferred tax liabilities
Depreciation 6,000 17,000
--------- ---------
Net deferred tax asset before valuation allowance 467,000 186,000
Valuation allowance (467,000) (186,000)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
</TABLE>
F-13
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 5 (continued)
The Company has recorded a full valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized.
The Company's effective income tax rate differs from the statutory
Federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Benefit at statutory rate $(213,906) $(216,769)
State and local benefit, net of Federal tax (42,096) -
Nontaxable (income)/nondeductible expenses - net (24,668) 30,589
Increase in the valuation allowance 280,670 186,180
--------- ---------
$ - $ -
========= =========
</TABLE>
The provision for Federal income taxes has been determined on the basis
of a consolidated tax return. At June 30, 1998, the Company had a net
operating loss carryforward for Federal income tax reporting purposes
amounting to approximately $1,007,000, expiring through 2018. No Federal
taxes were paid in the years ended June 30, 1998 and 1997.
NOTE 6 - STOCKHOLDERS' EQUITY
a. Initial Public Offering
In November 1996, the Company completed an IPO. The IPO consisted of
1,400,000 units, each unit consisting of one share of common stock
and one redeemable warrant. Of the total units sold, 150,000 units
were offered by two executive officers of the Company. Each
redeemable warrant entitles the holder to purchase one share of
common stock at $6.00 per share, subject to adjustment, at any time
from issuance until November 13, 2001. Such warrants are redeemable
by the Company, with the prior written consent of the underwriter, at
a redemption price of $.05 commencing November 13, 1997 provided that
the average closing bid price of the common stock equals or exceeds
$9.00, subject to adjustment, for a specified period of time. In
addition, there was an overallotment option for 210,000 units which
was exercised by the
F-14
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 6 (continued)
underwriter, resulting in a total of 1,610,000 units being sold, of
which 1,460,000 units were sold by the Company. Gross proceeds to the
Company totaled $5,840,000 and offering expenses aggregated
$1,138,456, resulting in net proceeds of $4,701,544.
In connection with the IPO, the Company sold to the underwriter, for
nominal consideration, warrants to purchase from the Company 140,000
units (the "underwriter's warrants"). The underwriter's warrants are
initially exercisable at $5.80. The shares of common stock and
redeemable warrants issuable upon exercise of the underwriter's
warrants are identical to those offered to the public. The
underwriter's warrants contain provisions providing for adjustment of
the number of warrants and exercise price under certain
circumstances. The underwriter's warrants grant to the holders
thereof certain rights of registration of the securities issuable
upon exercise of the underwriter's warrants.
Further, in connection with the IPO, the Company contributed warrants
underlying units sold by two executive officers and agreed to pay the
underwriting costs associated with shares sold by them. With respect
thereto, the Company expensed $115,500 during the year ended June 30,
1997, of which $37,500 related to the contributed warrants.
b. Stock Award Plan
In June 1994, the Company adopted an Executive Stock Bonus Plan.
Under the plan, the Company granted shares to three employees
pursuant to their employment agreements. All of the shares vest after
providing two to five years of service to the Company from the grant
date. Unearned compensation based on the estimated market value per
share at date of grant of $0.01 was recorded and shown as a separate
component of stockholders' equity. The Company recognized
compensation expense of $102 and $103 during the years ended June 30,
1998 and 1997, respectively, representing the amortization of
unearned compensation over the vesting period. During the year ended
June 30, 1997, 61,903 shares were issued upon vesting. As of June 30,
1998, 36,744 awards are outstanding, all of which will vest in June
1999 provided such employees are employed by the Company at that
time.
In addition, in September 1994, the Company granted the manager of a
regional office restricted common stock for the purchase price of
$0.17 per share, pursuant to his employment agreement. Of the total
shares granted, 7,152 vested and were issued in June 1996, while the
remaining 35,761 shares will vest in June 1999 if the manager is
still employed by the Company.
F-15
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 6 (continued)
In December 1994, the Company entered into an agreement with a
hearing officer whereby the hearing officer had a contractual right
to receive 6,500 shares of restricted common stock or a payment in
cash, not to exceed $26,000, on March 1, 1997. The agreement was
reflected as deferred compensation and amortized over the related
term. The hearing officer elected to receive a cash settlement in
lieu of the shares during the year ended June 30, 1997.
c. Stock Option Plan
In May 1996, the Company adopted an Incentive and Nonqualified Stock
Option Plan (the "Plan") for employees, officers, directors,
consultants and advisors of the Company, pursuant to which the
Company may grant options to purchase up to 750,000 shares of the
Company's common stock. The Plan is administered by the board of
directors, which has the authority to designate the number of shares
to be covered by each award and the vesting schedule of such award,
among other terms. The option period during which an option may be
exercised shall not exceed ten years from the date of grant and will
be subject to such other terms and conditions of the Plan. Unless the
board of directors provides otherwise, option awards terminate when a
participant's employment or services end, except that a participant
may exercise an option to the extent that it was exercisable on the
date of termination for a period of time thereafter. The Plan will
terminate automatically on April 1, 2006.
Commencing June 30, 1997, directors who are not officers of the
Company receive annually, on the last trading day of June, stock
options for 1,000 shares at an exercise price equal to the fair
market value of the stock on the date of grant. Such options vest
immediately upon grant.
In addition to the stock options granted under the Plan, a hearing
officer of the Company has a contractual right under his agreement to
receive options to purchase 10,000 shares of common stock provided
services are being rendered to the Company through November 18, 1998
(the obligation and vesting date). Price per share will be the closing
bid price on the obligation date.
On May 11, 1998, the Company's Board of Directors approved the
repricing of outstanding stock options previously granted to
employees. The repricing provided for the exercise price of 230,500
options to be reduced from a range of $3.00 to $4.38 per share to a
range of $1.63 to $2.25 per share, to reflect current fair value. The
repricing did not affect the term or vesting period of the options.
F-16
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 6 (continued)
The Company's stock option awards granted to employees, directors and
consultants as of and for the years ended June 30, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
Weighted - Weighted -
average average
exercise exercise
Shares price Shares price
------ --------- ------ ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 155,500 $ 3.18 -
Awards granted 451,500 $ 2.22 155,500 $3.18
Awards exercised - -
Awards canceled (233,500) $(3.20) -
-------- -------
Outstanding at end of year 373,500 $ 2.01 155,500 $3.18
======== =======
Options exercisable at year-end 37,000 $ 2.49 16,000 $3.00
Weighted-average fair value
of options granted during
the year $ .99 $1.66
</TABLE>
The following information applies to options outstanding and
exercisable at June 30, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------- -----------------------------
Weighted-
average Weighted- Weighted-
remaining average average
Number life in exercise Number exercise
Range of exercise prices outstanding years price exercisable price
------------------------ ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.63 to $1.94 240,300 7.65 $1.72 9,002 $1.78
$2.09 to $2.25 96,200 7.60 $2.17 9,998 $2.20
$3.00 to $4.00 37,000 7.89 $3.41 18,000 $3.00
-------- ------
373,500 37,000
======= ======
</TABLE>
Stock option awards are granted at prices equal to or above the
closing bid price on the date of grant. As of June 30, 1998, 376,500
shares were available for granting of options under the Plan.
F-17
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 6 (continued)
Effective in fiscal 1997, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 allows for a choice of
the method of accounting used for stock-based compensation. Entities
may elect the "intrinsic value" method based on APB Opinion No. 25,
"Accounting for Stock Issued to Employees,"("APB No. 25") or the new
"fair value" method contained in SFAS No. 123. The Company has
elected to continue to account for stock-based compensation under the
guidelines of APB No. 25. Accordingly, no compensation expense was
recognized concerning options granted to key employees and to members
of the board of directors, as such options were granted to board
members in their capacity as directors. Compensation expense of
$5,610 and $6,308 was recognized in fiscal 1998 and 1997,
respectively, for options granted to consultants.
If the Company had elected to recognize compensation expense based
upon the fair value at the grant date for options granted to key
employees and to members of the board of directors consistent with
the methodology prescribed by SFAS No. 123, the Company's net loss
and net loss per share for the years ended June 30, 1998 and 1997
would be reduced to the pro forma amounts indicated below:
1998 1997
--------- ---------
Net loss
As reported $(629,134) $(637,557)
Pro forma (762,728) (679,965)
Net loss per common share - basic
As reported $(.19) $(.23)
Pro forma (.23) (.25)
These pro forma amounts may not be representative of future
disclosures because they do not take into effect pro forma
compensation expense related to awards made before 1996. The fair
value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following
weighted-average assumptions for 1998 and 1997, respectively:
dividend yields of zero for both years; risk-free interest rates
ranging from 5.52% to 5.94% in 1998 and 6.04% to 6.71% in 1997;
expected terms ranging from 2 to 6 years in 1998 and 3 to 6 years in
1997; and expected stock price volatility of 64.15% in 1998 and
60.17% in 1997.
F-18
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 7 - TRANSACTIONS WITH RELATED PARTIES
Certain members of the board of directors perform services for the
benefit of the Company. Such services included those of public relations,
legal and other professional, and hearings. The related expenditures for
these services for the years ended June 30, 1998 and 1997 were $75,425
and $166,932, respectively, of which $66,776 was charged to additional
paid-in capital in fiscal 1997 as it was incurred in connection with the
November 1996 IPO.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
a. Leases
As of June 30, 1998, the Company has lease agreements for equipment
and office space. Rent expense amounted to $205,308 and $204,762 for
the years ended June 30, 1998 and 1997, respectively. The minimum
lease payments under noncancelable leases as of June 30, 1998 are as
follows:
1999 $177,000
2000 163,000
2001 47,000
2002 1,000
--------
$388,000
b. Employment/Consulting Agreements
In October 1997, 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 of the greater of 6% per annum or the
increase in the Urban Consumer Price Index and an annual bonus at the
discretion of the Company's Board of Directors. 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.
F-19
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 8 (continued)
The Company has also entered into employment agreements with three
officers expiring through July 20, 2001. Such contracts are
cancelable at any time without further liability to the Company with
the exception of one contract which provides for six months of
severance pay. Minimum salary commitments under these contracts
follow:
1999 $336,000
2000 303,000
2001 233,000
2002 6,000
--------
$878,000
========
The Company has also entered into employment agreements with certain
of its regional office managers. Certain of these agreements provide
for additional compensation based on the profits of the manager's
operation.
In July 1996, the Company entered into a financial public relations
consulting agreement with two individuals who are founders of the
Company, current stockholders and former directors. The agreement has
a four-year term and provides for annual payments of $48,000 payable
in equal monthly payments of $4,000 through November 2000. The
related expense for the year ended June 30, 1998 and 1997 was $48,000
and $28,000, respectively.
NOTE 9 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1998 and 1997, the Company's financial instruments included
cash and cash equivalents, marketable securities, receivables, accounts
payable and notes payable. The fair values of cash and cash equivalents,
receivables, accounts payable and notes payable approximated carrying
values because of the short-term nature of these instruments. The
estimated fair values of marketable securities were determined based on
broker quotes or quoted market prices.
F-20
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998 and 1997
NOTE 10 - CREDIT CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, marketable securities and accounts receivable.
The Company maintains its cash which consists primarily of demand
deposits and an insured money market fund with one financial institution.
Such balances generally do not exceed the Federally insured limits.
Additionally, the Company maintains its cash equivalents and all other
investments with two financial institutions.
The Company primarily sells its services to insurance companies and law
firms. One insurance company customer represented approximately 12% and
14% of total revenues for the years ended June 30, 1998 and 1997,
respectively. However, the Company works with more than 70 individual
offices of the insurance company, which in total equal the aforementioned
percentages of revenue. The Company monitors exposure to credit losses
and maintains allowances for anticipated losses considered necessary
under the circumstances.
F-21
<PAGE>
PART III
ITEM 9. (Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act); ITEM 10. (Executive
Compensation); ITEM 11 (Security Ownership of Certain Beneficial Owners and
Management); and ITEM 12 (Certain Relationships and Related Transactions) will
be incorporated in the Company's Proxy Statement to be filed within 120 days of
June 30, 1998, and are incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Number Description of Document
- ------- -----------------------
3.1 Certificate of Incorporation, as amended (1)
3.2 By-Laws of the Company, as amended**
10.1 1996 Stock Option Plan, amended and restated**
10.2 Employment Agreement between Company and Roy Israel (3)
10.2.1 Amendment to Employment Agreement between Company and Roy Israel **
10.3 Employment Agreement between Company and Cynthia Sanders**
10.4 Employment Agreement between Company and Daniel Jansen (1)
10.5 Employment Agreement between Company and Patricia Giuliani-Rheaume (2)
10.6 Employment Agreement between Company and Rina Bloch**
10.7 Lease Agreement for Great Neck, New York facility (1)
21.1 List of Subsidiaries**
27 Financial Data Schedule**
_____________________
(1) Incorporated herein in its entirety by reference to the Company's
Registration Statement on Form SB-2, Registration No. 333-9493, as
filed with the Securities and Exchange Commission on August 2, 1996.
(2) Incorporated herein in its entirety by reference to the Company's 1997
Annual Report on Form 10-KSB.
(3) Incorporated herein in its entirety by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1997.
** Filed herewith.
Reports on Form 8-K: None during the fourth quarter.
16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NAM CORPORATION
Date: September 23, 1998 By: /s/ Roy Israel
--------------------------------------------
Roy Israel, Chairman of the
Board, CEO and President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: September 23, 1998 By: /s/ Roy Israel
--------------------------------------------
Roy Israel, Chairman of the
Board, CEO and President
Date: September 23, 1998 By: /s/ Patricia Giuliani-Rheaume
--------------------------------------------
Patricia Giuliani-Rheaume, Vice President,
Chief Financial Officer and Treasurer
Date: September 23, 1998 By: /s/ Cynthia Sanders
--------------------------------------------
Cynthia Sanders, Executive Vice President
and Director
Date: September 23, 1998 By: /s/ Daniel P. Jansen
--------------------------------------------
Daniel P. Jansen, National Accounts
Manager and Director
Date: September 23, 1998 By: /s/ Michael I. Thaler
--------------------------------------------
Michael I. Thaler, Director
Date: September 23, 1998 By: /s/ Stephen H. Acunto
--------------------------------------------
Stephen H. Acunto, Director
Date: September 23, 1998 By: /s/ Anthony J. Mercorella
--------------------------------------------
Anthony J. Mercorella, Director
Date: September 23, 1998 By: /s/ Ronald Katz
--------------------------------------------
Ronald Katz, Director
17
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
NAM CORPORATION
ARTICLE I
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of
such other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be held at any time upon the call of the Chairman
of the Board of Directors, the Chief Executive Officer ("CEO"), the President
or a majority of the Board of Directors on such date, at such time and at such
place within or without the State of Delaware as stated in the notice. A
special meeting of stockholders shall be called by the CEO, the President or
the Secretary upon the written request, stating time, place, and the purpose
or purposes of the meeting, of stockholders who together own of record a
majority of the outstanding stock of all classes entitled to vote at such
meeting.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
By-Laws or by law, a written notice of each meeting of the stockholders shall
be given not less than ten (10) nor more than sixty (60) calendar days before
the date of the meeting to each stockholder of the Corporation entitled to
vote at such meeting at such stockholder's address as it appears on the
records of the Corporation. The notice shall state the place, date and hour of
the meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called.
<PAGE>
SECTION 4. Adjourned Meetings. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the stockholders, or the holders of any class
of stock entitled to vote separately as a class, as the case may be, may
transact any business which might have been transacted by them at the original
meeting. If the adjournment is for more than thirty (30) calendar days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the adjourned meeting.
SECTION 5. Organization. The Chairman of the Board of Directors shall
act as chairman of all meetings of the stockholders. In the absence of the
Chairman of the Board of Directors, any director or officer designated by the
Board of Directors or, in the absence of any such designation, any person
designated by the holders of a majority in number of the shares of stock of
the Corporation present in person or represented by proxy and entitled to vote
at such meeting shall act as chairman of the meeting.
The Secretary of the Corporation shall act as secretary of all
meetings of the stockholders, but, in the absence of the Secretary, the
chairman of the meeting may appoint any person to act as secretary of the
meeting. It shall be the duty of the Secretary to prepare and make, at least
-2-
<PAGE>
ten (10) calendar days before every meeting of stockholders, a complete list
of stockholders entitled to vote at such meeting, arranged in alphabetical
order and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held, for the ten (10) calendar days preceding the
meeting, to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, and shall be produced and kept at the
time and place of the meeting during the whole time thereof and subject to the
inspection of any stockholder who may be present.
SECTION 6. Voting. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for
each share of the capital stock of the Corporation registered in the name of
such stockholder upon the books of the Corporation. Each stockholder entitled
to vote at a meeting of stockholders may authorize another person or persons
to act for such stockholder by proxy, but no such proxy shall be voted or
acted upon after three (3) years from its date, unless the proxy provides for
a longer period. When directed by the presiding officer or upon the demand of
any stockholder, the vote upon any matter before a meeting of stockholders
shall be by ballot. Except as otherwise provided by law or by the Certificate
of Incorporation, (a) Directors shall be elected by a plurality of the votes
cast at a meeting of stockholders by the stockholders entitled to vote in the
election, and (b) whenever any corporate action other than the election of
Directors is to be taken, it shall be authorized by a majority of the votes
cast at a meeting of stockholders by the stockholders entitled to vote
thereon.
-3-
<PAGE>
Shares of the capital stock of the Corporation belonging to the
Corporation shall neither be entitled to vote nor be counted for quorum
purposes.
SECTION 7. Procedure. At each meeting of stockholders, the chairman
of the meeting shall determine the order of business and all other matters of
procedure. Except to the extent inconsistent with any such rules and
regulations as adopted by the Board of Directors, the chairman of the meeting
may establish rules, which need not be in writing, to maintain order and
safety and for the proper conduct of the meeting. Without limiting the
foregoing, he or she may:
(a) restrict attendance at any time to bona fide stockholders of
record and their proxies and other persons in attendance;
(b) restrict dissemination of solicitation materials and use of audio
or visual recording devices at the meeting;
(c) establish seating arrangements;
(d) adjourn the meeting without a vote of the stockholders, whether
or not there is a quorum present; and
(e) make rules governing speeches and debate including time limits
and access to microphones. The chairman of the meeting acts in his or her
absolute discretion and his or her rulings are not subject to appeal.
SECTION 8. Inspectors. The Board of Directors by resolution shall, in
advance of any meeting of stockholders, appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees,
-4-
<PAGE>
agents or representatives of the Corporation, to act at the meeting and make a
written report thereof. One or more persons may be designated by the Board as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by the General Corporation Law of the State
of Delaware.
SECTION 9. Action by Consent in Lieu of a Meeting. Unless otherwise
provided in the certificate of incorporation, any action required to be taken
at any annual or special meeting of stockholders of the corporation, or any
action which may be taken at any annual or special meeting of stockholders of
such stockholders, may be taken without a meeting, without prior written
notice and without a vote, if a consent in writing, setting forth the action
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
-5-
<PAGE>
ARTICLE II
Board of Directors
------------------
SECTION 1. Number of Directors, Term of Office, Place of Meetings.
The business, property, and affairs of the Corporation shall be managed by or
under the direction of a Board of six (6) directors; provided, however, that
the Board, by resolution adopted by vote of a majority of the then authorized
number of directors, may increase or decrease the number of directors. The
directors shall be elected by the holders of shares entitled to vote thereon
at an annual meeting of stockholders, and each shall serve (subject to the
provisions of Sections 10, 11, and 12 of this Article) until the next
succeeding annual meeting of stockholders and until a respective successor has
been elected and qualified. The Board of Directors may hold its meetings in
such place or places within or without the State of Delaware as the Board of
Directors from time to time shall determine.
SECTION 2. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such times and places as the Board
from time to time by resolution shall determine.
SECTION 3. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board or by a majority of the Directors then in office.
-6-
<PAGE>
Notice of the day, hour and place of holding of each special meeting
shall be given (i) by mailing the same at least five (5) calendar days before
the meeting or (ii) by causing the same to be transmitted by telecopier,
telegraph, cable, overnight courier, or personal service (A) at least
twenty-four (24) hours before the meeting or (B) in the case of a meeting held
in accordance with Section 7 of this Article II, at least six (6) hours before
the meeting, in each case to each Director. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at any special meeting
without specification of such business in the notice.
SECTION 4. Quorum. A majority of the members of the Board of
Directors in office shall constitute a quorum for the transaction of business,
and, except as otherwise provided in the Certificate of Incorporation, the
vote of the majority of the Directors at any meeting of the Board of Directors
at which a quorum is present shall be the act of the Board of Directors. If at
any meeting of the Board there is less than a quorum present, a majority of
those present may adjourn the meeting from time to time.
SECTION 5. Organization. The Chairman of the Board shall be elected
by a majority of the Board of Directors and shall serve until removed from
such position by a majority of the Board of Directors. The Chairman of the
Board shall preside at all meetings of the Board of Directors. In the absence
of the Chairman, any person selected by a majority of the Board of Directors
shall act as chairman of the meeting. The Secretary of the Corporation shall
act as secretary of all meetings of the Directors, but, in the absence of the
Secretary, the chairman of the meeting may appoint any person to act as
secretary of the meeting.
SECTION 6. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board may designate one or more directors as alternate members of any
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committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business, property, and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it; but no such committee shall have power or
authority in reference to: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the General
Corporation Law of Delaware to be submitted to stockholders for approval or
(ii) adopting, amending or repealing any by-law of the corporation. Such
committee or committees shall have such name or names as may be determined
from time to time by resolution adopted by the Board of Directors. Each
committee which may be established by the Board of Directors pursuant to these
By-Laws may fix its own rules and procedures. Notice of meetings of
committees, other than of regular meetings provided for by the rules, shall be
given to committee members. All action taken by committees shall be recorded
in minutes of the meetings.
SECTION 7. Conference Telephone Meetings. Unless otherwise restricted
by the Certificate of Incorporation or by these By-Laws, the members of the
Board of Directors or any committee designated by the Board of Directors may
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participate in a meeting of the Board of Directors or such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at such
meeting.
SECTION 8. Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee, as the case may
be.
SECTION 9. Compensation. For their services an Directors or as
members of committees, every Director shall receive such compensation,
attendance fees and other allowances as determined by resolution of the Board
of Directors.
SECTION 10. Resignations. Any director of the Corporation, or any
member of any committee, may resign at any time by giving written notice to
the Board of Directors, the CEO, the President, or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time be not specified therein, then upon receipt thereof.
The acceptance of such resignation shall not be necessary to make it
effective.
SECTION 11. Removals. Any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares entitled at the time to vote at an election of directors. In addition,
any Director may be removed, with or without cause, by a vote of the majority
of the Board of Directors.
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SECTION 12. Vacancies. Any vacancy on the Board of Directors through
death, resignation, removal, disqualification, or other cause, and any
additional directorship resulting from increase in the number of directors,
may be filled at any time by a majority of the directors then in office (even
though less than a quorum remains) or by the stockholders, and, subject to the
provisions of this Article II, the person so chosen shall hold office until
his successor shall have been elected and qualified or for the unexpired term
of his predecessor.
ARTICLE III
Officers
--------
SECTION 1. Officers. The officers of the Corporation shall be a CEO,
President, one or more Vice Presidents, a Chief Financial Officer ("CFO"), a
Secretary, and a Treasurer, and such additional officers, if any, as shall be
elected by the Board of Directors pursuant to the provisions of Section 2 of
this Article III. The CEO, the President, one or more Vice Presidents, the
CFO, the Secretary and the Treasurer shall be elected by the Board of
Directors at its first meeting after each annual meeting of the stockholders
unless otherwise provided by contract or by the majority of the Board of
Directors. The failure to hold such election shall not of itself terminate the
term of office of any officer. All officers shall hold office at the pleasure
of the Board of Directors. Any number of offices may be held by the same
person. Officers may, but need not, be Directors.
All officers shall be subject to removal, with or without cause, at
any time by a vote of not less than a majority of the entire Board of
Directors or by unanimous written consent of the Board of Directors. The
removal of an officer without cause shall be without prejudice to his or
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her contract rights, if any. The election or appointment of an officer shall
not of itself create contract rights. Any vacancy caused by the death of any
officer, his or her resignation, his or her removal, or otherwise, may be
filled by a majority of the Board of Directors, and any officer so elected
shall hold office at the pleasure of the Board of Directors for the unexpired
term of his predecessor (unless such term is determined by contract).
The officers shall have such authority and shall perform such duties
as from time to time may be determined by the Board of Directors, or the CEO
or as shall be confirmed or required by law or these By-Laws or as shall be
incidental to the office.
SECTION 2. Additional Officers. The Board of Directors may from time
to time elect such other officers (who may but need not be Directors),
including Assistant Treasurers and Assistant Secretaries, as the Board may
deem advisable, and such officers shall have such authority and shall perform
such duties as may from time to time be assigned to them by the Board of
Directors or the CEO or as shall be conferred or required by law or these
By-Laws or as shall be incidental to the office.
ARTICLE IV
Stock, Seal and Fiscal Year
---------------------------
SECTION 1. Transfer of Shares. Shares of stock, of the Corporation
shall be transferred on the books of the Corporation by the record holder
thereof, in person or by such holder's attorney duly authorized in writing,
upon surrender and cancellation of certificates for the number of shares of
stock to be transferred, except as otherwise required by law.
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SECTION 2. Regulations. The Board of Directors, the CEO, the
President or the Secretary shall have power and authority to make such rules
and regulations as it or such officer may deem expedient concerning the issue,
transfer, registration, cancellation or replacement of certificates for shares
of stock of the Corporation.
SECTION 3. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof (or to express consent to corporate
action in writing in lieu of a meeting), or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, as the case may be, the Board
of Directors may fix, in advance, a record date, which, unless otherwise
provided by law, shall not be more than sixty (60) calendar days nor less than
ten (10) calendar days before the date of such meeting, nor more than sixty
(60) calendar days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held, and the record date for
determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
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SECTION 4. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have the power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 5. Corporate Seal. The Corporation shall have a suitable
seal, containing the name of the Corporation. The Secretary shall have custody
of the seal, but he or she may authorize others to keep and use a duplicate
seal.
SECTION 6. Fiscal Year. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution
shall determine.
SECTION 7. Lost Certificates. The Board of Directors or any transfer
agent of the Corporation may direct a new certificate or certificates
representing stock of the Corporation to be issued in place of any certificate
or certificates theretofore issued by the Corporation, alleged to have been
lost, stolen, or destroyed, upon the making of an affidavit of that fact by
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the person claiming the certificate to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors (or any transfer agent of the Corporation authorized to do so by a
resolution of the Board of Directors) may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen, or destroyed certificate or certificates, or his legal representative,
to give the Corporation a bond in such sum as the Board of Directors (or any
transfer agent so authorized) shall direct to indemnify the Corporation
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen, or destroyed or the issuance of
such new certificates, and such requirement may be general or confined to
specific instances.
ARTICLE V
Miscellaneous Provisions
------------------------
SECTION 1. Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a person at
a meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting is not
lawfully called or convened.
SECTION 2. Stock of Other Corporations or Other Interests. Unless
otherwise ordered by the Board of Directors, the CEO, the President, the
Secretary, and such attorneys or agents of the Corporation as may be from time
to time authorized by the Board of Directors or the CEO, shall have full power
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and authority on behalf of this Corporation to attend and to act and vote in
person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which this Corporation may own or hold shares
or other securities, and at such meetings shall possess and may exercise all
the rights and powers incident to the ownership of such shares or other
securities which this Corporation, as the owner or holder thereof, might have
possessed and exercised if present. The CEO, the President, the Secretary, or
such attorneys or agents, may also execute and deliver on behalf of this
Corporation powers of attorney, proxies, consents, waivers, and other
instruments relating to the shares or securities owned or held by this
Corporation.
ARTICLE VI
Amendments
----------
SECTION 1. Amendments. The holders of shares entitled at the time to
vote for the election of directors shall have power to adopt, amend, or repeal
the By-Laws of the Corporation by vote of not less than a majority of such
shares, and except as otherwise provided by law, the Board of Directors shall
have power equal in all respects to that of the stockholders to adopt, amend,
or repeal the By-Laws by vote of not less than a majority of the entire Board.
However, any By-Law adopted by the Board may be amended or repealed by vote of
the holders of a majority of the shares entitled at the time to vote for the
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election of directors. Such power to adopt, amend or repeal the By-Laws
conferred upon the Board of Directors shall not divest or limit the power of
the stockholders to adopt, amend and repeal the By-Laws.
Dated: December 17, 1997
/s/ Carla Israel
----------------------------------------
Carla Israel, Secretary
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NAM CORPORATION
AMENDED AND RESTATED
1996 INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN
---------------------------------------
1. Purpose
The purpose of this Stock Option Plan (the "Plan") is to encourage
and enable key employees (which term, as used herein, shall include officers),
and directors, of NAM Corporation or a parent (if any) or subsidiary thereof
(collectively, unless the context otherwise requires, the "Corporation"),
consultants, and advisors to the Corporation, and other persons or entities
providing goods or services to the Corporation to acquire a proprietary
interest in the Corporation through the ownership of common stock of the
Corporation. As used herein, the term "parent" or "subsidiary" shall mean any
present or future corporation which is or would be a "parent corporation" or
"subsidiary corporation" of the Corporation as the term is defined in section
424 of the Internal Revenue Code of 1986, as amended (the "Code") (determined
as if the Corporation were the employer corporation). Such directors,
consultants, advisors, and other persons or entities providing goods or
services to the Corporation and entitled to receive options hereunder are
hereinafter collectively referred to as the "Associates," and the relationship
of the Associates to the Corporation is hereinafter referred to as
"association with" the Corporation. An employee or Associate to whom an option
has been granted is referred to as a "Grantee". Such ownership will provide
such Grantees with a more direct stake in the future welfare of the
Corporation and encourage them to remain employed by or associated with the
Corporation. It is also expected that the Plan will encourage qualified
persons to seek and accept employment or association with the Corporation.
2. Administration
(a) The Plan shall be administered by the Board of Directors (the
"Board").
(b) As it applies to the administration of the Plan, a majority of
the members of the Board shall constitute a quorum, and the action of a
majority of the members of the Board present at a meeting at which a quorum is
present, as well as actions taken pursuant to the unanimous written consent of
all of the members of the Board without holding a meeting, shall be deemed to
be actions of the Board. All actions of the Board and all interpretations and
decisions made by the Board with respect to any question arising under the
Plan shall be final and conclusive and shall be binding upon the Corporation
and all other interested parties.
<PAGE>
(c) Subject to the terms and conditions of the Plan, the Board shall
be responsible for the overall management and administration of the Plan and
shall have such authority as shall be necessary or appropriate in order to
carry out its responsibilities, including, without limitation, the authority
to (i) interpret and construe the Plan and to determine the terms of all
options granted pursuant to the Plan, including, but not limited to, the
persons to whom, and the time or times at which grants shall be made, the
number of options to be included in the grants, the number of options which
shall be treated as incentive stock options (in the case of options granted to
employees) as described in section 422 of the Code, the number of options
which do not qualify as incentive stock options ("nonqualified options"), and
the terms and conditions thereof; (ii) to adopt rules and regulations and to
prescribe forms for the operation and administration of the Plan; and (iii) to
take any other action not inconsistent with the provisions of the Plan that it
may deem necessary or appropriate.
3. Eligibility and Participation
(a) Key employees and Associates are eligible to receive options.
Each option shall be granted, and the number of shares and the vesting
schedule of such shares subject thereto shall be determined by the Board.
(b) Directors who are not officers of the Corporation shall receive,
on an annual basis on the last trading day of each June starting June 1997,
stock options for 1,000 shares of the Corporation's Common Stock, at an
exercise price equal to the fair market value of the stock on the date of
grant, and such options shall vest immediately upon grant. The fair market
value shall be determined in accordance with Section 8 hereof.
4. Shares Subject to the Plan
(a) Options shall be evidenced by written agreements which shall,
among other things (i) designate the option as either an incentive stock
option or a nonqualified stock option, (ii) specify the number of shares
covered by the option; (iii) specify the exercise price, determined in
accordance with paragraph 7 hereof, for the shares subject to the option; (iv)
specify the option period determined in accordance with paragraph 6 hereof;
(v) set forth specifically or incorporate by reference the applicable
provisions of the Plan; and (vi) contain such other terms and conditions
consistent with the Plan as the Board may, in its discretion, prescribe.
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(b) The stock to be offered and delivered under the Plan, pursuant to
the exercise of an option, shall be shares of the Corporation's authorized
common stock and may be unissued shares or reacquired shares, as the Board may
from time to time determine. Subject to adjustment as provided in paragraph 13
hereof, the aggregate number of shares to be delivered under the Plan shall
not exceed seven hundred and fifty thousand (750,000) shares. If an option
expires or terminates for any reason during the term of the Plan prior to the
exercise thereof in full, the shares subject to but not delivered under such
option shall be available for options thereafter granted.
5. Incentive Stock options
(a) An option designated by the Board as an "incentive stock option"
is intended to qualify as an "incentive stock option" within the meaning of
section 422 of the Code. An incentive stock option shall be granted only to an
employee of the Corporation.
(b) No incentive stock option shall provide any person with a right
to purchase shares to the extent that such right first becomes exercisable
during a prescribed calendar year and the sum of (i) the fair market value
(determined as of the date of grant) of the shares subject to such incentive
stock option which first become available for purchase during such calendar
year, plus (ii) the fair market value (determined as of the date of grant) of
all shares subject to incentive stock options previously granted to such
person under all plans of the Corporation first become available for purchase
during such calendar year exceeds $100,000.
(c) Without prior written notice to the Board, a Grantee may not
dispose of shares acquired pursuant to the exercise of an incentive stock
option until after the later of (i) the second anniversary of the date on
which the incentive stock option was granted, or (ii) the first anniversary of
the date on which the shares were acquired; provided, however, that a transfer
to a trustee, receiver, or other fiduciary in any insolvency proceeding, as
described in section 422(c)(3) of the Code, shall not be deemed to be such a
disposition. The optionee shall make appropriate arrangements with the
Corporation for any taxes which the Corporation is obligated to collect in
connection with any disposition of shares acquired pursuant to the exercise of
an incentive stock option, including any Federal, state or local withholding
taxes.
(d) Should Section 422 of the Code be amended during the term of the
Plan, the Board may modify the Plan consistently with such amendment.
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6. Term of Option Period
The term during which options may be granted under the Plan shall
expire on April 1, 2006 and the option period during which each option may be
exercised shall, subject to the provisions of paragraph 12 hereof, be during
such period, expiring not later than the tenth anniversary (the fifth
anniversary in the case of incentive stock options granted to a person who
owns (within the meaning of section 424(d) of the Code) more than 10 percent
of the total combined voting power of all classes of stock of the Corporation
at the time such option is granted) of the date the option is granted, as may
be determined by the Board.
7. Option Price
The price at which shares may be purchased upon exercise of a
particular option shall be such price as may be fixed by the Board but in no
event less than the minimum required in order to comply with any applicable
law, rule or regulation and, in the case of incentive stock options, shall not
be less than 100 percent, or in the case of incentive stock options granted to
an optionee who is a 10 percent stockholder (within the meaning of paragraph 6
hereof), shall not be less than 110 percent, of the fair market value (as
defined in paragraph 8) of such shares on the date such option is granted.
8. Stock as Form of Exercise Payment
At the discretion of the Board, a Grantee who owns shares of the
Corporation's common stock may elect to use such shares, with the value
thereof to be determined as the fair market value of such shares on the day
prior to the date of exercise of the option, to pay all or part of the option
price required under the Plan. As used herein, fair market value shall be
deemed to be the closing price on such day of the Corporation's common stock
if the Corporation's common stock is then traded on a national securities
exchange or the closing bid price on such day of the Corporation's common
stock, if such stock is traded on the NASDAQ National Market System or
Small-Cap Market System or, if not so traded, the average of the closing bid
and asked prices thereof on such day.
9. Exercise of Options
(a) Each option granted shall be exercisable in whole or in part at
any time, or from time to time, during the option period as the Board may
provide in the terms of such option; provided that the election to exercise an
option shall be made in accordance with applicable federal and state laws and
regulations.
(b) No option may at any time be exercised with respect to a
fractional share.
(c) No shares shall be delivered pursuant to the exercise of any
option, in whole or in part, until qualified for delivery under such
securities laws and regulations as may be deemed by the Board to be applicable
thereto, until such shares are listed on each securities exchange on which the
Corporation's common stock may then be listed, until, in the case of the
exercise of an option, payment in full of the option price is received by the
Corporation in cash or stock as provided in paragraph 8 and until payment in
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cash of any applicable withholding taxes is received by the Corporation.
Unless prior to the exercise of the option the shares of the Corporation's
common stock issuable upon such exercise have been registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
notice of exercise shall be accompanied by a representation or agreement of
the individual exercising the option to the Corporation to the effect that
such shares are being acquired for investment and not with a view to the
resale or distribution thereof or such other documentation as may be required
by the Corporation unless in the opinion of counsel to the Corporation such
representation, agreement, or documentation is not necessary to comply with
said Act. No holder of an option, or such holder's legal representative,
legatee, or distributee shall be or be deemed to be a holder of any shares
subject to such option unless and until a certificate or certificates therefor
is issued in his name.
10. Acceleration of Vesting
(a) An option shall automatically be vested and immediately
exercisable in full upon the occurrence of any of the following events:
(i) Any person within the meaning of Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, other than the
Corporation, has become the beneficial owner, within the meaning of
Rule 13d-3 under such Act, of 30 percent or more of the combined
voting power of the Corporation's then outstanding voting securities,
unless such ownership by such person has been approved by the Board
immediately prior to the acquisition of such securities by such
person;
(ii) The first day on which shares of the Corporation's
common stock are purchased pursuant to a tender offer or exchange
offer, unless such offer is made by the corporation or unless such
officer has been approved or not opposed by the Board;
(iii) The stockholders of the Corporation have approved an
agreement to merge or consolidate with or into another corporation
(and the Corporation is not the survivor of such merger or
consolidation) or an agreement to sell or otherwise dispose of all or
substantially all of the Corporation's assets (including a plan of
liquidation), unless the Board has resolved that options shall not
automatically vest; or
(iv) During any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of the
Corporation cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the election by
the Corporation's stockholders of each new director was approved by a
vote of at least a majority of the directors then still in office who
were directors at the beginning of the period.
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(b) Other than upon the occurrence of any of the events described in
paragraph 10(a), the Board shall have the authority at any time or from time
to time to accelerate the vesting of any individual option and to permit any
stock option not theretofore exercisable to become immediately exercisable.
11. Transfer of Options
Options granted under the Plan may not be transferred except by will
or the laws of descent and distribution and, during the lifetime of the
Grantee to whom granted, may be exercised only by such or by such Grantee's
guardian or legal representative.
12. Termination of Employment
(a) Except as specifically provided in this paragraph 12, if the
Grantee's employment or association with the Corporation shall terminate for
any reason before the Option has vested in full, then the unvested portion of
the Option shall automatically terminate on the date of termination of
employment or association and all rights and interests of the Grantee in and
to such unvested portion shall thereupon terminate.
(b) After the date on which an incentive stock option vests, if the
Grantee's employment by the Corporation is terminated for any reason, the
incentive stock option shall be exercisable for the lesser of (i) three (3)
months from the date of such termination of employment or (ii) the balance of
such incentive stock option's term; provided, however, that in the event that
the termination is as a result of the death or disability (within the meaning
of section 22(e)(3) of the Code) of the Grantee, the incentive stock options
held by such Grantee which were otherwise exercisable on the date of his
termination of employment shall expire unless exercised by such Grantee, or,
in the case of the death of a Grantee, by his heirs, legatees, or personal
representatives, within a period of twelve (12) months after the date of
termination of employment. In no event, however, shall any incentive stock
option be exercisable after ten years from the date it was granted. Nothing in
the Plan or in any option shall confer upon any Grantee the right to continue
in the employ of the Corporation or interfere in any way with the right of the
Corporation to terminate the employment of a Grantee at any time. The Board's
determination that a Grantee's employment has terminated and the date thereof
shall be final and conclusive on all persons affected thereby.
(c) The Board may, if it determines that to do so would be in the
Corporation's best interests, provide in a specific case or cases for the
exercise of options which would otherwise terminate upon termination of
employment with the Corporation for any reason, upon such terms and conditions
as the Board determines to be appropriate.
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(d) In the case of a Grantee on an approved leave of absence, the
Board may, if it determines that to do so would be in the best interests of
the Corporation, provide in a specific case for continuation of options during
such leave of absence, such continuation to be on such terms and conditions as
the Board determines to be appropriate. Leaves of absence for such period and
purposes conforming to the personnel policy of the Corporation as may be
approved by the Board shall not be deemed terminations or interruptions of
employment.
13. Adjustments Upon Changes in Capitalization
(a) If the Corporation's outstanding common stock is hereafter
changed by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination, or exchange of shares or the
like, or dividends payable in shares of the Corporation's common stock, an
appropriate adjustment shall be made by the Board in the aggregate number of
shares available under the Plan and in the number of shares and price per
share subject to outstanding options. If the Corporation shall be reorganized,
consolidated, or merged with another corporation, or if all or substantially
all of the assets of the Corporation shall be sold or exchanged, the holder of
an option shall, after the occurrence of such a corporate event, be entitled
to receive upon the exercise of his option the same number and kind of shares
of stock or the same amount of property, cash, or securities as he would have
been entitled to receive upon the happening of any such corporate event as if
he had exercised such option and had been, immediately prior to such event,
the holder of the number of shares covered by such option. All adjustments
made pursuant to this paragraph to the terms or conditions of an incentive
stock option shall be subject to the requirements of section 424 of the Code.
(b) Any adjustment in the number of shares shall apply
proportionately to only the unexercised portion of any option granted
hereunder. If fractions of a share would result from any such adjustment, the
adjustment shall be revised to the next higher whole number of shares.
14. Termination, Modification, and Amendment
(a) The Plan shall terminate on April 1, 2006, which is 10 years from
the earlier of the date of its adoption by the Board or the date on which the
Plan is approved by the stockholders of the Corporation and no option shall be
granted after termination of the Plan.
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(b) The Plan may from time to time be terminated, modified, or
amended by the affirmative vote of a majority of the votes cast at a duly held
stockholders' meeting at which a quorum representing a majority of all
outstanding voting stock is, either in person or by proxy, present and voting
on the plan, or pursuant to any other procedure allowed under applicable state
law.
(c) The Board may at any time terminate the Plan or from time to time
make such modifications or amendments of the Plan as it may deem advisable
including, without limitation, modifications to reflect changes in applicable
law; provided, however, that the Board of Directors shall not (i) modify or
amend the Plan in any way that would disqualify any incentive stock option
issued pursuant to the Plan as an incentive stock option as defined in section
422 of the Code or (ii) without approval by the affirmative vote of a majority
of the votes cast at a duly held stockholders' meeting at which a quorum
representing a majority of all outstanding voting stock is, either in person
or by proxy, present and voting on the plan, or pursuant to any other
procedure allowed under applicable state law, increase (except as provided by
paragraph 14) the maximum number of shares as to which options may be granted
under the Plan.
(d) No termination, modification, or amendment of the Plan, may,
without the consent of the Grantee, adversely affect the rights conferred by
such option.
15. Effective Date
The Plan became effective on April 1, 1996 upon the adoption by the
Board subject to the approval by the affirmative vote of the holders of a
majority of the outstanding shares of the Corporation which occurred on May
29, 1996. All options granted prior to the date of such stockholder approval
shall be subject to such approval.
-8-
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN NAM CORPORATION AND ROY ISRAEL
--------------------------------------
THIS AMENDMENT AGREEMENT (the "Amendment"), dated as of August 19,
1998, is by and between NAM CORPORATION (the "Company") and ROY ISRAEL
("Executive").
WHEREAS, the parties had entered into an employment agreement dated
as of October 21, 1997 (the "Employment Agreement"); and
WHEREAS, the parties now desire to amend the Employment Agreement as
provided for herein.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Subsection (a) of Paragraph 3 of the Employment Agreement is
deleted and replaced with the following:
(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 Base Salary shall be increased in an amount which is
the greater of (i) six percent (6%) per annum or (ii) such amount which
reflects an increase 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.
<PAGE>
2. This Amendment is effective as of June 30, 1998. In addition, the
Company shall immediately pay all sums owed to the Executive due to the
retroactive application of this change.
3. All other terms of the Employment Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date first written above.
NAM CORPORATION
By: /s/ Patricia Giuliani-Rheaume /s/ Roy Israel
------------------------------------- ---------------------------
Name: Patricia Giuliani-Rheaume Roy Israel
Title: Vice President and
Chief Financial Officer
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of June 15, 1998, by and
between Cynthia Sanders (the "Executive") and NAM Corporation, a Delaware
corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Executive has an Employment Agreement with the Company;
and
WHEREAS, it is important to the Company that it continues to have the
benefits of the Executive's services, experience and loyalty, and Executive
has indicated her willingness to continue to provide her services on the terms
and conditions set forth herein.
AGREEMENT
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
Executive Vice President of the Company. The Executive shall devote all of her
efforts to the Company and will work at the Company's New York office and
travel as required.
(b) Duties. Executive shall be employed by the Company. The duties of
the Executive as Executive Vice President shall include primary responsibility
for the staffing and performance of the Company's offices and such other
responsibilities as the Chief Executive Officer (the "CEO") of the Company may
reasonably delegate to the Executive. The Executive shall report to the CEO
and the CEO may alter the duties of the Executive as necessary for the benefit
of the Company.
(c) All prior agreements between the Company and the Executive are
terminated and are superceded by this Agreement.
1. Term of Employment. The Company hereby employs the Executive and
the Executive shall serve in the employ of the Company for a period commencing
on June 15, 1998 and extending through and including June 14, 2001 (the
"Employment Term"). This Agreement shall automatically renew for additional
terms of one (1) year unless terminated on sixty (60) days written notice
prior to the end of any Employment Term given by either party. The term
Employment Term shall include all renewal periods under this Agreement.
2. 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 $125,000 (the "Base Salary") for the first year of this
Agreement. The Base Salary shall increase by five percent (5%) on June 15 of
each succeeding year of this Agreement. Such Base Salary shall be paid every
two (2) weeks to the Executive.
-2-
<PAGE>
(b) Fringe Benefits. The Executive shall be entitled to receive
fifteen (15) days paid vacation for each twelve (12) month period (the
"Vacation Time") during the Employment Term. The Executive shall receive $400
a month towards the lease and operation of an automobile. The Executive shall
also receive a life insurance policy of $250,000. Further, the Executive shall
not contribute toward her full family health insurance coverage. In addition,
the Executive during the Employment Term shall participate in all present or
future employee benefit plans of the Company that she meet the eligibility
requirements therefore.
(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 her for or on
behalf of the Company, in the performance of her duties hereunder subject to
the approval of the CEO of the Company.
(d) Bonus. The Executive is eligible to receive an annual bonus at
the discretion of the Company's Chief Executive Officer.
3. Representations and Warranties of Employee. Executive represents
and warrants to the Company that the: (a) Executive is under no contractual or
other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of her duties hereunder, or the other rights
of the Company hereunder; and (b) Executive is under no physical or mental
disability that would hinder her performance of duties under this Agreement.
-3-
<PAGE>
4. Non-Competition. Executive agrees that she will not (a) during the
period she is employed under this Agreement 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 other business
or organization that is or shall then be competing with the Company, and (b)
for a period of one year after she ceases to be employed by the Company under
this Agreement, directly or indirectly compete with or be engaged in the same
business as the Company, or be employed by, or act as consultant or lender to,
or be a director, officer, employee, owner, member, or partner of, any
business or organization which, at the time of such cessation, competes with
or is engaged in the same business as the Company.
5. Patents; Copyrights. Any interest in patents, patent applications,
inventions, copyrights, developments, and processes ("Such Inventions") which
Executive now or hereafter during the period she is employed by the Company
under this Agreement may own or develop relating to the fields in which the
Company may then be engaged shall belong to the Company; and forthwith upon
request of the Company, Executive shall execute all such assignments and other
documents and take all such other action as the Company may reasonably request
in order to vest in the Company all her right, title, and interest in and to
Such Inventions, free and clear of all liens, charges, and encumbrances.
6. Confidential Information. All confidential information which
Executive may now possess, may obtain during the Employment Term, or may
create prior to the end of the period she is employed by the Company under
this Agreement, relating to the business of the Company or of any customer or
supplier of the Company shall not be published, disclosed, or made accessible
by her to any other person, firm, or corporation during the Employment Term or
any time thereafter without the prior written consent of the Company.
Executive shall return all tangible evidence of such confidential information
to the Company prior to or at the termination of her employment and will
attend an exit interview at such time.
-4-
<PAGE>
7. Termination.
(a) Notwithstanding anything herein contained, if on or after the
date hereof and prior to the end of the Employment Term, Executive is
terminated "For Cause" (as defined below) then the Company shall have the
right to give notice of termination of Employee's services hereunder as of a
date to be specified in such notice, and this Agreement shall terminate on the
date so specified. Termination "For Cause" shall mean Executive shall (i) be
convicted of a felony crime, (ii) commit any act or omit to take any action in
bad faith and to the detriment of the Company, (iii) commit an act of moral
turpitude, (iv) commit an act of fraud against the Company, or (v) materially
breach any term of this Agreement and fail to correct such breach within ten
days after commission thereof.
(b) In the event that Executive shall be physically or mentally
incapacitated or disabled or otherwise unable fully to discharge her duties
hereunder for a period of six months, then this Agreement shall terminate upon
90 days' written notice to Executive, and no further compensation shall be
payable to Executive, except as may otherwise be provided under any disability
insurance policy.
-5-
<PAGE>
(c) In the event that Executive shall die, then this Agreement shall
terminate on the date of Executive's death, and no further compensation shall
be payable to Executive, except as may otherwise be provided under any
insurance policy or similar instrument.
(d) In the event that this Agreement is terminated "For Cause"
pursuant to Section 8(a), then Executive shall be entitled to receive only her
salary at the rate provided in Section 3 to the date on which termination
shall take effect. Further, Executive shall immediately resign from the Board
of Directors.
(e) Nothing contained in this Section 8 shall be deemed to limit any
other right the Company may have to terminate Employee's employment hereunder
upon any ground permitted by law.
8. Merger, Etc.
(a) In the event of a future disposition of the properties and
business of the Company, substantially as an entirety, by merger,
consolidation, sale of assets, sale of stock, or otherwise, then the Company
may elect to assign this Agreement and all of its rights and obligations
hereunder to the acquiring or surviving corporation.
9. Survival. The covenants, agreements, representations, and
warranties contained in or made pursuant to this Agreement shall survive
Executive's termination of employment, irrespective of any investigation made
by or on behalf of any party.
-6-
<PAGE>
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. 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. Any state or federal court sitting in New
York City shall have exclusive venue and jurisdiction regarding any matter
arising hereunder.
12. Notices. Any notice or consent hereunder by either party to the
other shall be given in writing and shall be deemed to be delivered the same
day if delivered by personal delivery or five (5) days from the date if mailed
by certified mail, return receipt requested addresses as follows:
If to the Executive: Cynthia Sanders
400 East 77th Street, Apt. 9E
New York, New York 10021
If to the Company: NAM Corporation
1010 Northern Boulevard
Suite 336
Great Neck, New York 11021
Attn.: CEO
-7-
<PAGE>
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.
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.
-8-
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first written above.
NAM CORPORATION
By: /s/ Roy Israel /s/ Cynthia Sanders
---------------------------------- -------------------------------
Name: ROY ISRAEL CYNTHIA SANDERS
Title: CEO
-9-
<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of this 11th day of
May, 1998, between NAM Corporation, a Delaware corporation, with offices at
1010 Northern Boulevard, Suite 336, Great Neck, New York 11021 (the
"Company"), and Rina Bloch, an individual residing at 70 Wicks Path, Commack,
New York 11725 (the "Employee").
W I T N E S S E T H :
WHEREAS, the Employee has expertise in providing the services sought
by the Company; and
WHEREAS, the Company desires to employ the Employee during the term
of this Agreement, and Employee is willing to be employed subject to the terms
and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and
agreements contained herein, and intending to be legally bound hereby, the
parties agree as follows:
1. Engagement and Duties. During the term of this Agreement, the
Company shall employ Employee and Employee agrees to be employed by the
Company as Vice President of Marketing and to devote her full time and efforts
in performing the services requested by the Company. The Employee shall at all
times serve at the direction of the Chief Executive Officer.
2. Term. This Agreement shall commence on July 20, 1998 and shall
continue until July 20, 2001 (the "Initial Term"). This Agreement shall
automatically renew for an additional one (1) year (the "First Renewal Term")
period unless the Company or the Employee gives notice of termination at least
forty-five (45) days prior to the end of the Initial Term. Thereafter, this
Agreement shall automatically renew for additional one (1) year periods (the
"Successive Renewal Term") unless the Company or Employee gives notice of
termination at least forty-five (45) days prior to the end of the First
Renewal Term or any Successive Renewal Term thereafter.
<PAGE>
3. Compensation. As compensation for her services hereunder, the
Company shall pay Employee a base salary of $92,000 per annum ("Base Salary")
which shall be payable in equal bi-weekly installments. In addition, Employee
shall receive from the Company the following:
(a) Employee shall be entitled to receive an annual bonus at the
discretion of the Chief Executive Officer which will be paid in accordance
with the policies of the Company;
(b) The Base Salary shall be increased each year of only the Initial
Term by of 5% beginning in July 1999. Thereafter, all increases to the Base
Salary will be at the discretion of the Chief Executive Officer.
(c) Employee shall receive $400 a month toward the lease and
operation of an automobile.
(d) Upon execution of the Agreement, the Employee shall be granted
options to purchase 20,000 shares of Common Stock (the "Options") with an
exercise price equal to the closing bid price on the date of this Agreement as
reported by the NASDAQ Small Cap Market. The Options shall vest as follows:
(i) 1/3 on July 20, 1999, (ii) 1/3 on July 20, 2000, and (iii) 1/3 on July 20,
2001, as long as the Employee is employed by the Company on each date pursuant
to this Agreement. If the Employee is not employed by the Company on such
dates, then the Employee will have no rights or interests to the non-vested
portions of the Options. The Options shall be for 8 years from the date hereof
and shall be subject to the terms and conditions of the Company's 1996 Stock
Option Plan and memorialized in a stock option certificate to be issued by the
Company. Employee shall also be eligible to receive additional options under
the Plan at the discretion of the Board of Directors.
-2-
<PAGE>
4. Benefits/Vacation. Employee shall be entitled to participate in
all benefit programs offered by the Company subject to the terms and
conditions of such programs.
5. Expenses. Employee shall be entitled to reimbursement of
reasonable expenses incurred on behalf of the Company. At the end of each
month, Employee shall submit an itemized expense report with each expense
documented by appropriate receipts. Reimbursement of an expense shall be at
the sole discretion of the Company and Employee shall receive reimbursement in
accordance with Company policy.
6. Employee's Representations. Employee hereby represents and
warrants that she has full power and authority to enter into this contract and
that she has no obligation, contractual or otherwise, (i) to provide services
to any entity or person besides the Company; or (ii) that would conflict with
her obligations to the Company under this Agreement.
7. Inability to Work/Death.
(a) If Employee is mentally or physically unable to perform his
duties under this Agreement for a period of ninety (90) days then the Company
may terminate this Agreement upon ten (10) days notice and the Company shall
be liable to Employee only for the amount of Base Salary owed through the date
of termination as set forth in the notice.
-3-
<PAGE>
(b) If Employee dies during the term of this Agreement, this
Agreement shall terminate on the date of her death and the Company shall be
liable to Employee only for the amount of Base Salary owed through such date.
8. Termination.
(a) Notwithstanding anything herein contained, if on or after the
date hereof and prior to the end of the term of this Agreement, Employee is
terminated "For Cause" (as defined below) then the Company shall have the
right to give notice of termination of Employee's services hereunder as of a
date to be specified in such notice, and this Agreement shall terminate on the
date so specified. Termination "For Cause" shall mean Employee shall: (i) be
convicted of a felony crime, (ii) commit any act or omit to take any action in
bad faith and to the detriment of the Company, (iii) commit an act of moral
turpitude, (iv) commit an act of fraud against the Company, or (v) materially
breach any term of this Agreement and fail to correct such breach within five
(5) days after commission thereof. If Employee is terminated pursuant to this
subsection then the Company shall be liable to Employee only for the amount of
Base Salary owed through the date of termination as set forth in the notice.
(b) Notwithstanding anything herein contained, the Employee may be
terminated "Without Cause" upon notice from the Company.
-4-
<PAGE>
9. Confidentiality. In order to induce the Company to enter into this
Agreement, Employee hereby agrees that, except with the written consent of the
Company, Employee shall keep confidential and not divulge to any person that
is not affiliated with the Company, during the term of this Agreement or any
time thereafter, any of the Company's confidential information and business
secrets, including, without limitation, confidential information and business
secrets relating to such matters as the Company's finances and operations, the
materials, processes, and procedures used in the Company's operations, the
names of the Company's clients and their requirements, and the names of the
Company's suppliers. All papers, books, and records of every description,
including, without limitation, handbooks, manuals, client lists, computer
software, programs, modules, or source codes, as well as all reproductions
thereof, relating to the business and affairs of the Company, its clients or
suppliers, whether or not prepared by Employee, shall be the sole and
exclusive property of the Company. Employee shall surrender all tangible
evidence of such information to the Company at the termination of this
Agreement or at any time during the term of this Agreement upon request by the
Company.
10. Non-Compete. In consideration of the compensation to be received
by Employee from the Company, Employee shall not: (a) during the period
Employee 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, contact, or employ
or offer to employ any person who is employed by the Company at the time that
Employee ceases being employed by the Company or any person hired by the
Company after such time. 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.
-5-
<PAGE>
11. 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 arbitrate the Dispute
before three arbitrators with the arbitration to be held in New York City
under the rules promulgated by NAM Corporation. The Company and the Employee
shall each choose 1 arbitrator and then the 2 arbitrators chosen shall jointly
choose the 3rd arbitrator. The parties shall have 10 business days from
receipt of a demand for arbitration in which to choose an arbitrator. If a
party fails to choose an arbitrator within such time period then the
arbitrator chosen by the non-defaulting party shall choose an arbitrator and
the arbitration shall proceed before only 2 arbitrators. Nothing in this
Agreement shall prevent the Company or the Employee from seeking appropriate
injunctive relief in aid of arbitration to enforce any provision of this
Agreement from a federal or state court located in New York, and the parties
irrevocably and unconditionally consent to the exclusive jurisdiction of such
courts in New York solely for any such injunctive action. 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 arbitrator
and the cost of arbitration shall be borne as determined by the arbitrators.
-6-
<PAGE>
12. Modification. This Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof, supersedes all
existing agreements between them concerning such subject matter, and may be
modified only by a written instrument duly executed by each party.
13. Notices. All notices, requests, demands, and other communications
hereunder must be in writing and shall be deemed to have been duly given if
delivered by hand, mailed within the continental United States by first class,
certified mail, return receipt requested, postage and registry fees prepaid,
or sent by Federal Express or any other nationally recognized overnight
courier, or sent by telecopy or facsimile transmission (with receipt
confirmed), to the applicable party and addressed to the addresses set forth
in the preamble. Any notice or other communication given by certified mail
shall be deemed given at the time of certification thereof, except for a
notice changing a party's address which shall be deemed given at the time of
receipt thereof. Any notice or other communication given by overnight courier
shall be deemed given one day after delivery to such courier. Any notice or
other communication sent by telecopy or facsimile transmission shall be deemed
given at the time of confirmation of receipt.
14. Waiver. Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term
of this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
-7-
<PAGE>
15. Merger. In the event of a future disposition of the properties
and business of the Company, substantially as an entirety, by merger,
consolidation, sale of assets, sale of stock, or otherwise, then the Company
may elect to assign this Agreement and all of its rights and obligations
hereunder to the acquiring or surviving corporation.
16. Binding Effect. Employee's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to encumbrance or the claims of Employee's creditors, and
any attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and those who are its assigns.
17. Headings. The headings in this Agreement are solely for the
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
18. Miscellaneous.
(a) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(b) It shall be governed by, and construed in accordance with, the
laws of the State of New York, without giving effect to the rules governing
conflicts of laws.
-8-
<PAGE>
(c) Employee irrevocably consents to the jurisdiction of the courts
of the State of New York and of all federal courts located in such state in
connection with any action or proceeding arising out of or relating to this
Agreement or the breach thereof. In any such action or proceeding, Employee
waives personal service of any summons, complaint, or other process and agrees
that service thereof may be made in accordance with Section 14 hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first written above.
NAM CORPORATION
/s/ Rina Bloch By: /s/ Roy Israel
- --------------------------- ---------------------------
Rina Bloch Name: Roy Israel
Title: CEO
<PAGE>
NAM CORPORATION
LIST OF SUBSIDIARIES
Exhibit 21.1
Percentage Owned Jurisdiction of
Name By Company Incorporation
- ---- ---------------- ---------------
National Arbitration & Mediation, Inc. 100% New York
National Video Conferencing, Inc. 100% Delaware
Michael Marketing, Inc. 100% Delaware
NAMSYS Corporation 100% Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-KSB FOR
THE YEAR ENDING JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,417
<SECURITIES> 1,951
<RECEIVABLES> 475
<ALLOWANCES> 90
<INVENTORY> 0
<CURRENT-ASSETS> 3,816
<PP&E> 477
<DEPRECIATION> 228
<TOTAL-ASSETS> 4,110
<CURRENT-LIABILITIES> 756
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 3,351
<TOTAL-LIABILITY-AND-EQUITY> 4,110
<SALES> 3,848
<TOTAL-REVENUES> 3,848
<CGS> 969
<TOTAL-COSTS> 4,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (629)
<INCOME-TAX> 0
<INCOME-CONTINUING> (629)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (629)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
