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As filed with the Securities and Exchange Commission on March 27, 2000
Registration No. 333-
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NAM CORPORATION
(Name of Small Business Issuer in its Charter))
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Delaware 8111 23-2753988
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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1010 Northern Boulevard, Suite 336
Great Neck, New York 11021
(516) 829-4343
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(Address and telephone number of principal executive offices and
principal place of business or intended principal place of business)
Roy Israel
Chief Executive Officer
NAM Corporation
1010 Northern Boulevard, Suite 336
Great Neck, New York 11021
(516) 829-4343
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(Name, address and telephone number
of agent for service)
Copies of all communications to:
Robert S. Matlin, Esq.
Eric M. Roth, Esq.
Camhy Karlinsky & Stein LLP
1740 Broadway, Sixteenth Floor
New York, New York 10019-4315
(212) 977-6600
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 under
the Securities Act, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
please check the following box. [x]
<PAGE>
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
To Be Registered Registered Offering Price Per Aggregate Offering Registration
Share Price Fee
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Common stock underlying certain 1,610,000 7.56(1) 12,171,600 3,213
Redeemable Warrants
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Common stock underlying 130,876 7.56(1) 989,423 261
certain Unit Purchase Warrants (2)
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Redeemable Warrants underlying 130,876 2.56(4) 335,043 88
Such Warrants (3)
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Common stock underlying the Redeemable 130,876 7.56(1) 989,423 261
Warrants included in such Warrants
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Common stock underlying the Equity 1,850,000 7.56(1) 13,986,000 3,692
Line of Credit
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Common stock underlying the Series A 500,000 7.56(1) 3,780,000 998
Exchangeable Preferred Stock (5)
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Common stock underlying warrants 46,250 7.56(1) 349,650 92
granted on the Series A Exchangeable
Preferred Stock (5)
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Common stock underlying warrants 60,000 7.56(1) 453,600 120
granted on the Equity Line of Credit
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Common stock granted to placement 10,000 7.56(1) 75,600 20
agent in connection with the Series A
Exchangeable Preferred Stock and the
Equity Line of Credit
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Total 4,468,878 33,130,339 8,746
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended (the
'Act'), based on the average of the high and low prices of the common stock
on March 15, 2000, which was $7.56.
(2) Represents shares which may be acquired by the Selling Securityholders upon
exercise of certain Unit Warrants and resold pursuant to the Selling
Securityholder Prospectus included in this Registration Statement.
(3) Represents warrants which may be acquired by the Selling Securityholders
upon exercise of the Unit Warrants and resold pursuant to the Selling
Securityholder Prospectus included in this Registration Statement.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Act, based on the average of the high and
low prices of the Warrants on March 15, 2000, which was $2.56.
(5) Series A Exchangeable Preferred Stock and warrants sold in connection with
Series A Exchangeable Preferred Stock are subject to certain anti-dilution
provisions. Pursuant to Rule 416, this registration statement shall also be
deemed to register an indeterminate number of additional shares which may
become issuable upon exercise of such Series A Exchangeable Preferred Stock
and warrants as a result of any further adjustments pursuant to the
anti-dilution provisions of the Series A Exchangeable Preferred Stock and
warrant agreements.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED March 27, 2000
PROSPECTUS
NAM CORPORATION
4,338,002 Shares of common stock
130,876 Redeemable Warrants to purchase common stock
This prospectus is part of a registration statement that covers the
issuance of up to (i) 1,610,000 shares of our common stock which is issuable by
us upon the exercise of our publicly traded Redeemable Warrants which were
issued as part of units in our initial public offering in November 1996, (ii)
130,876 shares of our common stock issuable by us upon the exercise of a warrant
owned by Joseph Stevens & Company, the managing underwriter of such public
offering, and one of its affiliates, (iii) 130,876 Redeemable Warrants issuable
by us to Joseph Stevens & Company and one of its affiliates upon exercise of
such warrant, (iv) the 130,876 shares of our common stock issuable by us upon
exercise of the Redeemable Warrants issuable upon exercise of such warrant, and
(v) 1,850,000 shares of our common stock issuable by us upon exercise from time
to time of an Equity Line of Credit established for us by Moldbury Holdings
Limited.
This prospectus also covers the sale by (i) Joseph Stevens & Company
and one of its affiliates, of an aggregate of 261,752 shares of our common
stock, and the 130,876 Redeemable Warrants contained in the unit warrants, (ii)
the sale by Moldbury Holdings Limited of our common stock issuable upon exercise
from time to time of an Equity Line of Credit, (iii) the sale by certain holders
of the shares of our common stock issuable upon conversion of our Series A
Exchangeable Preferred Stock, (iv) the sale by certain holders of the shares of
our common stock issuable upon exercise of certain warrants held by the
purchasers of our Series A Exchangeable Preferred Stock and Moldbury Holdings
Limited, and (v) 10,000 shares of our common stock held by Trinity Capital
Advisors, Inc., the placement agent for our Series A Exchangeable Preferred
Stock Offering.
Our common stock is traded on Nasdaq SmallCap Market System under the
symbol "NAMC". Our Redeemable Warrants are also publicly traded on the Nasdaq
SmallCap Market System under the symbol "NAMCW." On March 15, 2000, the last
reported sales price of our common stock was $7.41 and the last reported sale
price of our publicly traded Warrants was $2.56.
-----------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 7.
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
In this prospectus, references to the "Company," "NAM," "we,"
"us," and "our" all refer to NAM Corporation.
The date of this prospectus is March 27, 2000.
The Information in this prospectus is not complete and may be changed. We may
not sell these Securities until the registration statement filed with the SEC is
effective. This prospectus is not an offer to sell these Securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
2
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TABLE OF CONTENTS
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Page
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Disclosure Regarding Forward-Looking Statements...................................................................3
Prospectus Summary................................................................................................4
Summary Financial Information.....................................................................................6
Risk Factors......................................................................................................7
Use of Proceeds..................................................................................................13
Dividend Policy..................................................................................................13
Selected Financial Data..........................................................................................14
Management's Discussion and Analysis of Financial Condition and Results of Operations............................15
Our Business.....................................................................................................21
Management.......................................................................................................28
Principal Stockholders...........................................................................................34
Certain Transactions.............................................................................................35
Description of Capital Stock.....................................................................................36
Selling Securityholders and Plan of Distribution.................................................................39
Shares Eligible for Future Sale..................................................................................41
Legal Matters....................................................................................................42
Experts..........................................................................................................42
Disclosure of Commission Position on Indemnification for Securities Act Liabilities..............................42
Market for Our Common Equity.....................................................................................43
Financial Statements.............................................................................................44
</TABLE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When we use words like "intend," "anticipate," "believe,"
"estimate," "plan" or "expect," we are making forward-looking statements. We
believe that the assumptions and expectations reflected in such forward-looking
statements are reasonable, based on information available to us on the date of
this prospectus, but we cannot assure you that these assumptions and
expectations will prove to have been correct or that we will take any action
that we may presently be planning. We have disclosed certain important factors
that could cause our actual results to differ materially from our current
expectations under "Risk Factors" and elsewhere in this prospectus. You should
understand that forward-looking statements made in connection with this offering
are necessarily qualified by these factors. We are not undertaking to publicly
update or revise any forward-looking statement if we obtain new information or
upon the occurrence of future events or otherwise.
3
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PROSPECTUS SUMMARY
Since this is a summary, it does not contain all the information that
may be important to you in evaluating your investment. You should read the
following summary, and the "Risk Factors" section, along with the more detailed
information and Financial Statements and the notes to the Financial Statements
appearing elsewhere in this prospectus or incorporated by reference in this
prospectus, before you decide whether to participate in this offering.
About NAM Corporation
Our Business
We provide arbitration and mediation services, also known as
alternative dispute resolution services, or ADR services, principally to
insurance companies, law firms, corporations and municipalities, both in person
and over the Internet through our "clickNsettle.com" Web site. An ADR proceeding
is designed as an alternative forum to the public court system for resolving
civil disputes. We offer our clients access to qualified hearing officers
(generally retired judges) to either mediate or arbitrate their disputes. We
believe that we are one of the leading providers of ADR to the insurance
industry in the United States based upon the number of cases processed by us
since 1992. We have offices currently located in New York, Massachusetts and
Tennessee, through which we have the ability to provide ADR services on a
nationwide basis with a roster of over 1,100 qualified hearing officers.
We derive our revenues for our in-person ADR service from fees charged
to the parties in an ADR proceeding. These fees are charged on an hourly basis
for hearings, conferences and deliberations by hearing officers, and are set for
administrative services. Fees for our clickNsettle.com Web site are based on
usage of the service.
As compared to the majority of our competitors, we believe that we have
certain advantages which enable us to better serve our clients. These advantages
include:
o a case resolution Web site which enables parties to resolve
disputes 24 hours a day, 7 days a week. clickNsettle.com offers a
cost effective forum for resolving disputes globally using a
unique, fully interactive "blind" bid negotiating process.
Additionally, the program serves as a lead generator for our
in-person arbitration and mediation services
o exclusive agreements with some of the nation's most qualified
hearing officers, who are generally former judges
o superior service and response to our clients through our trained
staff
o the ability to monitor and control the scheduling of matters
o videoconferencing capability that allows clients to participate in
or observe a proceeding without leaving their office
4
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clickNsettle.com
clickNsettle.com is our Internet based case resolution service that
offers an alternative to traditional litigation and in-person ADR services by
providing litigants with the ability to negotiate and settle cases via the World
Wide Web. The service can be accessed 24 hours a day, 7 days a week on the World
Wide Web and is targeted towards any dispute which can be resolved with a
monetary settlement. Cases can be resolved globally in a matter of minutes.
clickNsettle.com utilizes a format that allows disputing parties to
enter an unlimited number of "blind" and confidential settlement offers and
demands over the Internet. The service provides disputants with the ability to
negotiate a case with their adversary without actually "tipping their hand"
about what amount they would accept for settlement. The demands and offers are
secure. Only the settlement figures are ever revealed. This ensures that neither
party loses any negotiating leverage in the event the case does not settle.
Cases may be submitted by both claimants and defendants.
Our History
We were formed on January 12, 1994 under the laws of the State of
Delaware. On October 31, 1994, we acquired all of the outstanding common stock
of National Arbitration & Mediation, Inc., which was a New York corporation
formed on February 6, 1992 and which was owned by our current Chief Executive
Officer and President and a current Director and Vice President, Sales
Development. National Arbitration & Mediation, which had existed as a
wholly-owned subsidiary of NAM, was merged into NAM as of the end of June 1999.
Our executive offices are located at 1010 Northern Boulevard, Suite 336, Great
Neck, New York 11021. Our Internet address is http://www.namadr.com. The
Internet address for clickNsettle.com is http://www.clicknsettle.com.
Information contained on either of our Web sites is not, and should not be
considered as, part of this prospectus.
The Offering
Securities offered by NAM Up to 3,828,002 shares of our common
stock issuable upon the exercise of
Redeemable Warrants, the exercise
from time to time of an Equity Line
of Credit established by Moldbury
Holdings Limited, up to 130,876
Redeemable Warrants to purchase up
to 130,876 shares of our common
stock and warrants granted to
investors in our Equity Line of
Credit and Series A Exchangeable
Preferred shares.
Securities offered by others 640,876 shares.
Common stock to be outstanding
after the offering(1) 7,770,235 shares.
Use of proceeds Promotion of our clickNsettle.com
Web site and general corporate
purposes.
Risk factors An investment in the shares involves
a high degree of risk. See "Risk
Factors."
5
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Nasdaq SmallCap System
trading symbols "NAMC" and "NAMCW"
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(1) Assumes all warrants are exercised including warrants granted to Joseph
Stevens & Company as managing underwriter in connection with our initial
public offering and does not include shares issuable upon exercise of
all options under our 1996 Stock Option Plan, of which 1,115,500 have
been granted.
Summary Financial Information
The summary financial information set forth below is derived from and
should be read in conjunction with the consolidated financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
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Six Months Ended December 31 Year Ended June 30,
1999 1998 1999 1998
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(unaudited) (unaudited)
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Statement of Operations Data
Net revenues......................................... 1,975,752 2,112,256 4,158,506 3,847,975
Loss from operations................................. (795,372) (673,071) (1,227,120) (1,144,119)
Other income (expenses), net......................... 255,702 (249,330) (67,595) 514,985
Net loss............................................. (539,670) (922,401) (1,294,765) (629,134)
Net loss per common share, basic
and diluted.......................................... $(0.16) $(0.28) $(0.39) $(0.19)
Weighted average shares outstanding,
basic and diluted.................................... 3,413,185 3,334,978 3,337,623 3,334,978
</TABLE>
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As of As of As of
December 31, 1999 June 30, 1999 June 30, 1998
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(unaudited)
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Balance Sheet Data
Working capital........................................... 1,327,565 1,925,911 3,060,771
Total assets.............................................. 2,396,004 3,200,953 4,109,556
Total liabilities......................................... 731,526 968,135 755,714
Stockholders' equity...................................... 1,664,478 2,232,818 3,353,842
</TABLE>
6
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully review and consider the information below, as well as the other
information contained in this prospectus and incorporated by reference, before
you make an investment in our common stock.
We have Recent and Anticipate Continuing Losses.
We have incurred operating losses for the last three fiscal years, and
we have incurred and we anticipate further losses during the present fiscal
year. We expect to continue to incur significant operating and capital
expenditures and, as a result, we will need to generate significant revenues to
achieve and maintain profitability. We cannot assure you that we can achieve or
sustain profitability in the future. If revenues grow slower than we anticipate,
or if operating expenses exceed our current expectations and cannot be adjusted
accordingly, our business, the results of our operations, and our financial
condition may be materially and adversely affected.
clickNsettle.com is a Relatively New Venture.
clickNsettle.com is a relatively new venture which began serving
clients in June 1999. Although we believe that this new service will enable us
to build a significant part of our future growth through the Internet, we cannot
assure you of its success. You should consider the prospects of clickNsettle.com
in the light of the risks and expenses of other new Internet ventures.
We Depend On Insurance-Related Disputes.
The majority of our ADR business involves claims for damages to persons
and/or property arising from alleged acts of negligence, which are usually
covered by insurance. Generally we resolve these disputes in a matter of hours.
Since our revenues are derived primarily from certain administrative and hourly
fees, a high volume of these cases is required in order for us to generate
revenues sufficient to maintain our operations. There can be no assurance that
we will be able to expand a significant portion of our business outside of the
insurance-related dispute segment, or maintain or increase our current level of
cases. In addition, we cannot assure you that changes in the insurance industry
will not affect our business.
Possible Improvements in the Public Court System, Including Use of ADR
Services, May Affect Our Business.
The ADR industry in general furnishes an alternative to public dispute
mechanisms, principally the local, state and federal court systems. Our
marketing efforts have been based on our belief that there exists a high degree
of dissatisfaction among litigants and their counsel with the public court
system. If the public courts, in the markets we are currently serving or seek to
serve, reduce case backlogs and provide effective settlement mechanisms at no,
or substantially reduced cost to litigants, our business opportunities in such
markets may be significantly reduced. Several public court systems, both on the
federal and state level, including certain federal and state courts located in
New York State, have instituted court coordinated ADR programs. Similar programs
are under consideration in a number of states and may be adopted at any time.
The success of such ADR programs could have a material adverse effect on our
business by diminishing the demand for private ADR services.
7
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The Private ADR Services Business is Highly Competitive.
The private ADR business is highly competitive, both on a national and
regional level. Barriers to entry in the ADR business are relatively low, and
new competitors can begin doing business relatively quickly. There are two types
of competitors, not-for-profit and for-profit entities:
o We believe that our largest not-for-profit competitor is the
American Arbitration Association which has significant market
share in complex commercial cases.
o We believe that our largest for-profit competitor is Judicial
Arbitration Mediation Services, Inc./Endispute.
At this time, we believe that numerous other private ADR firms are competing
with us in the regions we currently serve. Increased competition could decrease
the fees we are able to charge for our services and limit our ability to obtain
qualified hearing officers. This could have a material adverse effect on our
ability to be profitable in the future. Certain competitors may have greater
financial or other capabilities than us. In addition, there are competitors to
our clickNsettle.com service such as Cybersettle. Accordingly, there is no
assurance that we can successfully compete in the present or future marketplace
for ADR services.
We Depend Upon Our Key Personnel.
Our success will be largely dependent on the personal efforts of Roy
Israel, our Chief Executive Officer, President and Chairman of the Board of
Directors. Although we have entered into an employment agreement with Mr.
Israel, which expires in 2002, the loss of his services could have a material
adverse effect on our business and prospects. We have obtained "key-man" life
insurance on the life of Mr. Israel. We are the sole beneficiary in the amount
of $1 million. Our success is also dependent upon our ability to hire and retain
qualified marketing and other personnel in our offices. We may not be able to
hire or retain such necessary personnel.
We Do Not Have Written Contracts with the Majority of Our Clients.
We currently rely on our relationships with, and marketing efforts to
insurance companies, law firms, corporations, and municipalities to obtain
cases. We do not have written agreements with the majority of our clients, but
we have instituted the process of obtaining written agreements with our existing
clients and with new clients. We also rely on case referrals from our current
clients. We may not continue to receive our current level of, or an adequate
level of, referrals of cases. If we do not maintain such levels, there could be
a material adverse effect on our business.
We Depend Upon Qualified Hearing Officers.
The market for our services depends on a perception by our clients that
our hearing officers are impartial, qualified, and experienced. Our ability to
retain qualified hearing officers in the event that competition increases would
be uncertain. For our fiscal year ended June 30, 1999, 35% of the number of our
cases were heard by non-exclusive hearing officers. Accordingly, at any time,
these hearing officers can refuse to continue to provide their services to us
and are free to render services independently or through competing ADR services.
If qualified hearing officers are unwilling or unable to continue to provide
their services through us for any reason, including possible agreements to
provide their services to our competitors on an exclusive basis, our business
and operations could be materially and adversely effected.
8
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Our Current Stockholders Have the Ability to Exert Significant Control.
Our executive officers, directors, and their affiliates will
beneficially own 1,868,809 shares or approximately 48.1% of the common stock
outstanding based on 3,442,233 shares of common stock outstanding as of March 1,
2000. Of that number, Mr. Israel will beneficially own 1,394,889 shares or
approximately 38.4% of the common stock. As a result, these stockholders acting
in concert may have significant influence on votes to elect or remove any or all
of our directors and to control substantially all corporate activities in which
we are involved, including tender offers, mergers, proxy contests or other
purchases of common stock that could give our stockholders the opportunity to
realize a premium over the then prevailing market price for their shares of
common stock.
We May Encounter System Interruptions.
Customer access to our clickNsettle.com Web site directly affects the
volume of disputes we resolve via the Internet and thus may affect our revenues.
If we experience system interruptions due to a high degree of traffic, our Web
site may be unavailable for periods of time and may impede the performance of
our services, which may reduce the attractiveness of our products and services.
We intend to add additional hardware and upgrade our systems and network
infrastructure to accommodate increased traffic on our Web sites and increased
sales volume. We currently monitor system usage with regard thereto. However, as
the service only recently was introduced in June 1999, we may not be able to
accurately project the rate or timing of significant increases in traffic on our
Web site and, therefore, the integration and timing of these upgrades may be
delayed.
We maintain substantially all of our computer and communications
hardware at a single facility in Great Neck, New York. Our systems and
operations could be damaged or interrupted by fire, flood, power loss,
telecommunications failure, break-ins, and similar events. We do not have fully
redundant off-site systems or alternative providers of hosting services. Despite
any precautions we may take, the occurrence of natural disasters or other
unanticipated problems could cause system interruptions, delays, and loss of
critical data and could prevent us from providing services. Our servers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays, loss of data or the
inability to complete transactions.
We May Be Unable to Protect Our Domain Names in the Future.
We hold rights to various Internet domain names, including
"clickNsettle.com", "namadr.com" and "namarb.com." Governmental agencies
typically regulate domain names. These regulations are subject to change.
Regulations governing domain names may not protect our trademarks and similar
proprietary rights. We may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or diminish the value of our
trademarks and other proprietary rights.
9
<PAGE>
We May Be Unable to Protect Our Proprietary Technology and We May Be Sued
for Infringing on the Rights of Others.
Our success depends, in part, upon our ability to protect our
proprietary software technology and operate without infringing upon the rights
of others, specifically the technology involved in the clickNsettle.com program.
We rely on a combination of methods to protect our proprietary intellectual
property, technology and know-how, such as:
o trade secret laws o copyright law
o trademark law o patent law
o contractual provisions o confidentiality agreements
o certain technology and security measures
The steps we have taken regarding our proprietary technology, however,
may be insufficient to deter misappropriation.
In the systems and software industries, it is common that companies
receive notices from time to time alleging infringement of patents, copyrights
or other intellectual property rights of others. We may from time to time be
notified of claims that we may be infringing upon patents, copyrights or other
intellectual property rights owned by third parties. Companies may pursue claims
against us with respect to the alleged infringement of patents, copyrights or
other intellectual property rights owned by third parties. Although we believe
we have not violated or infringed upon any intellectual property patents and
have taken measures to protect our own rights, there is no assurance that we
will avoid litigation. Litigation may be necessary to protect our intellectual
property rights and trade secrets, to determine the validity of and scope of the
proprietary rights of others or to defend against third party claims of
invalidity. Any litigation could result in substantial costs and diversion of
resources away from the day-to-day operation of our business.
Existing copyright, trademark, patent and trade secret laws afford only
limited protection. Existing laws, in combination with the steps we have taken
to protect our proprietary rights may be inadequate to prevent misappropriation
of our technology or other proprietary rights. Also, such protections do not
preclude competitors from independently developing products with functionality
or features similar or superior to our products and technologies.
We May Have Issues With Our Continued Listing on the Nasdaq SmallCap Market
in the Future.
Although our securities are quoted on the Nasdaq SmallCap Market, we
cannot assure you that a trading market will be maintained. In addition, we
cannot assure you that we will in the future meet the maintenance criteria for
continued quotation of the securities on the Nasdaq SmallCap Market. The
maintenance criteria for the Nasdaq SmallCap Market include, among other things:
o $2,000,000 in net tangible assets; or $35,000,000 in market
capitalization; or $500,000 Net Income (in the latest fiscal year or
two of the last three fiscal years);
o a public float of 500,000 shares with a market value equal to
$1,000,000;
o two market makers;
o a minimum bid price of $1.00 per share of common stock; and
o 300 shareholders (round lot holders).
10
<PAGE>
If we were removed from the Nasdaq SmallCap Market, trading, if any, in our
securities would thereafter have to be conducted in the over-the-counter market
in the so-called "pink sheets" or, if then available, the NASD's OTC Electronic
Bulletin Board. As a result, an investor would find it more difficult to
purchase, dispose of, and to obtain accurate quotations as to the value of, our
securities.
In addition, if our common stock is delisted from trading on the Nasdaq SmallCap
Market and the trading price of the common stock is less than $5.00 per share,
trading in the common stock would also be subject to the requirements of Rule
15g-9 under the Securities Exchange Act of 1934. Under that rule, broker/dealers
who recommend such low-priced securities to persons other than established
customers and accredited investors must satisfy special sales practice
requirements, including:
o a requirement that they make an individualized written suitability
determination for the purchaser; and
o receive the purchaser's written consent prior to the transaction.
The Securities Enforcement Remedies and Penny Stock Reform Act of 1990
also requires additional disclosure in connection with any trades involving a
stock defined as a penny stock (generally, any equity security not traded on an
exchange or quoted on Nasdaq SmallCap that has a market price of less than $5.00
per share), including the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. Such requirements could severely limit the market liquidity of our
securities and the ability of purchasers in this Offering to sell their
securities in the secondary market. We cannot assure purchasers of our
securities that our securities will not be delisted or treated as a penny stock.
The Price of Our Common Stock in the Public Market May Be Volatile.
The trading price of our common stock has been and may continue to be
subject to fluctuations in response to quarter-to-quarter variations in
operating results, changes in earnings estimates by analysts, announcements of
technological innovations or new products introduced by us or our competitors
and other events or factors. The stock market in general, and the shares of
technology companies in particular, has experienced extreme price fluctuations
in recent years. This volatility has had a substantial impact on the market
prices of securities issued by many companies for reasons unrelated to the
operating performance of the companies affected. These broad market fluctuations
may adversely affect the market price of our common stock.
We Do Not Pay Dividends.
We have not paid any cash dividends on our common stock, except with
respect to certain distributions relating to when we were an S-corporation, and
do not expect to do so in the foreseeable future.
11
<PAGE>
The Conversion of Our Outstanding Preferred Stock and the Exercise of Our
Equity Line of Credit May Make it Difficult to Evaluate a Shareholder's Equity
Position in the Company.
The number of shares of our common stock which is issuable upon
conversion of our outstanding Series A Exchangeable Preferred Stock will
fluctuate based on the average closing bid price of our common stock as listed
on the Nasdaq SmallCap Stock Market for three consecutive days in the prior
thirty days. The number of shares of our common stock which is issuable upon
exercise from time to time under our Equity Line of Credit will fluctuate based
on the average closing bid price of our common stock as listed on the Nasdaq
SmallCap Stock Market for the two days prior, the day of and the two days after.
Therefore, the percentage of our common stock held by a shareholder on any given
day may be substantially different from another day depending on our closing bid
prices, as the number of shares of our common stock issuable pursuant to our
Series A Exchangeable Preferred Stock and our Equity Line of Credit may vary
significantly from day to day.
The Issuance of Preferred Stock Could Affect Voting Rights or Delay or
Prevent a Corporate Takeover.
Although we have previously designated 2,100 shares as Series A
Exchangeable Preferred Stock, we are authorized to issue up to an additional
4,997,900 shares of Preferred Stock. For so long as the Series A Exchangeable
Preferred Stock is outstanding, additional series of Preferred Stock may not
rank senior to the Series A Exchangeable Preferred Stock without the approval of
75% of the holders of such stock. Without violating such restriction, our Board
of Directors is authorized to determine the rights and restrictions granted to
and imposed upon any additional series of Preferred Stock. They can decide the
number of shares of any series of Preferred Stock and the designation of any
such series. Our Board of Directors may authorize and issue Preferred Stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. In addition, the potential issuance
of Preferred Stock may:
o have the effect of delaying, deferring or preventing a change in
control of the Company;
o may discourage bids for the common stock at a premium over the market
price of the common stock; and
o may adversely affect the market price of the common stock.
Shares Eligible for Public Sale after the Offering could Adversely Affect
our Stock Price.
As of March 1, 2000, there were 3,442,233 shares of our common stock
outstanding. An additional 2,778,126 shares of our common stock are issuable
upon the exercise of currently exercisable warrants and options, not including
any draw downs on the Equity Line of Credit. If all these shares were issued, we
would have 6,220,359 shares of our common stock outstanding. In addition,
769,376 shares of our common stock are issuable upon the exercise of outstanding
options and warrants that are not currently exercisable. Although the exercise
of such shares could raise a significant amount of money for us, any sale of a
substantial number of shares of our common stock in public market after this
offering, or the perception that such sales could occur, may adversely affect
the market price of our common stock.
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USE OF PROCEEDS
We intend to use the proceeds from draw downs under the Equity Line of
Credit for general working capital purposes. We have a maximum of $7,000,000
available under such credit facility. We have the right to increase our credit
facility to $14,000,000 by notice to Moldbury Holdings Limited within ten days
of the date which is fourteen months after the first closing date provided that
certain financial conditions are met by us. In addition, we shall receive
proceeds from the exercise of 1,610,000 Redeemable Warrants, at an exercise
price of $6.00 per share and are entitled to receive proceeds from 130,876 unit
warrants and Redeemable Warrants held by Joseph Stevens & Company and one of its
affiliates at exercise prices of $5.80 per unit and $6 per share, respectively.
However, we will not receive any proceeds from the sale of shares by the Selling
Shareholders.
The proceeds received by us from the Equity Line of Credit and exercise
of any or all of such Warrants will be used for our general working capital
purposes. The use of any proceeds from the exercise of such Warrants, and the
timing of such use, will depend on the availability to us of cash from other
sources. Proceeds not immediately required for the purposes described above will
be invested by us principally in United States government obligations, short
term certificates of deposit, money market funds or other short term, interest
bearing investments.
DIVIDEND POLICY
The payment by us of dividends, if any, in the future rests within the
discretion of our Board of Directors and will depend, among other things, upon
our earnings, capital requirements and financial condition, as well as other
relevant factors. We do not contemplate or anticipate paying any dividends upon
our common stock in the foreseeable future.
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SELECTED FINANCIAL DATA
The selected financial data as of June 30, 1999 and 1998 and for the
years ended June 30, 1999 and 1998 have been derived from our audited
consolidated financial statements included elsewhere in this Prospectus. Our
audited consolidated financial statements have been audited by Grant Thornton
LLP, independent certified public accountants. The information set forth below
should be read in conjunction with our consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.
<TABLE>
<CAPTION>
Six Months ended December 31, Year Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data
Net revenues......................................... 1,975,752 2,112,256 4,158,506 3,847,975
Operating costs and expenses:........................
Cost of services................................ 494,408 565,788 1,081,309 969,345
Sales and marketing expenses.................... 1,057,295 1,118,863 2,048,058 2,090,591
General and administrative expenses............. 1,219,421 1,100,676 2,256,309 1,932,158
Total operating expenses..................... 2,771,124 2,785,327 5,385,676 4,992,094
Loss from operations................................. (795,372) (673,071) (1,227,170) (1,144,119)
Other income (expenses), net......................... 255,702 (249,330) (67,595) 514,985
Loss before income taxes............................. (539,670) (922,401) (1,294,765) (629,134)
Income taxes......................................... - - - -
Net loss............................................. (539,670) (922,401) (1,294,765) (629,134)
Net loss per common share, basic and diluted......... $(0.16) $(0.28) $(0.39) $(0.19)
Weighted average shares outstanding,
basic and diluted.................................... 3,413,185 3,334,978 3,337,623 3,334,978
</TABLE>
<TABLE>
<CAPTION>
As of As of As of
December 31, 1999 June 30, 1999 June 30, 1998
----------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data
Working capital.................................... 1,327,565 1,925,911 3,060,771
Total assets....................................... 2,396,004 3,200,953 4,109,556
Total liabilities.................................. 731,526 968,135 755,714
Stockholders' equity............................... 1,664,478 2,232,818 3,353,842
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and the related notes that appear elsewhere in
this prospectus. The following discussion contains forward-looking statements
that reflect our plans, estimates, and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below and elsewhere in this prospectus, particularly in "Risk
Factors."
General
We provide alternative dispute resolution ("ADR") services principally
to insurance companies, law firms, corporations and municipalities, on an
in-person basis, via video conferencing and on the Internet through our
clickNsettle.com Web site. We focus the majority of our marketing efforts on
developing and expanding relationships with these entities, which we believe are
some of the largest consumers of ADR services. We believe that with our global
roster of qualified hearing officers, video conferencing capabilities, knowledge
of dispute resolution, reputation within the corporate and legal communities and
Internet based dispute resolution programs we are uniquely positioned to provide
a comprehensive Web-enabled solution to disputing parties worldwide.
We opened for business in March 1992 in New York, and currently operate
from locations in New York, Massachusetts and Tennessee.
Our objective is to become the leading global provider of Web-enabled
dispute resolution services; to offer one-step shopping for anyone involved in
any type of dispute, anywhere in the world; and to provide this service more
quickly, economically and efficiently than previously possible. We intend to
achieve this goal by employing the following strategies:
o marketing our Internet settlement Web site, clickNsettle.com,
which is designed to attract a larger customer base on a global
scale with lower incremental costs;
o expanding the functionality of clickNsettle.com to address
multi-party disputes, class-action litigation and other new
markets, including multi-jurisdictional claims which are becoming
more commonplace as a result of the global transition towards
e-commerce;
o focusing the advertising campaign initiated during fiscal year
1998 towards building brand recognition for clickNsettle.com;
o accelerating efforts to secure exclusive relationships with
corporations and law firms in order to obtain contracts on a
national and regional basis by capitalizing on our market
position;
o exploring strategic alliances with business entities that have the
ability to promote clickNsettle.com and our legacy ADR services to
their customers; and
o becoming a primary provider of international dispute resolution
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We believe that ADR is becoming a more commonly utilized option for the
resolution of various dispute types including insurance, contract, commercial,
matrimonial, mass-tort and e-commerce. In addition, the ADR industry is, and
will continue to be, undergoing a consolidation of ADR service providers as
clients seek vendors who can offer technologically sophisticated international,
national, and regional multi-state ADR programs. Our objective is to continue
the expansion of our presence and technology to exploit this trend. We further
believe ADR clients continue to seek volume discounts on the charges applied by
us for services rendered. We believe that this trend may have an overall
positive impact on our business because the discounts are usually applied only
when an ADR client makes a commitment to refer a minimum number of cases to us.
We have and will continue to incur net losses in the short-term future
as a result of (a) design, development and continuing costs associated with
clickNsettle.com, our Internet case resolution Web site and (b) our continuing
advertising campaign. With respect to clickNsettle.com, we have invested a large
portion of our available resources in developing and marketing the product
during fiscal year 1999. We anticipate incurring additional expenses during the
fiscal year 2000 for further enhancement of the system, computer hardware and
software, legal, marketing, printing and salary and related expenses including
the hiring of an Executive Vice President of clickNsettle.com in the first
quarter of fiscal year 2000. Although we are actively promoting this product, we
cannot assure you that the revenues to be realized from clickNsettle.com will
exceed the expenses to be incurred. Additionally, our advertising campaign,
which commenced during the second half of fiscal year 1998, will continue
through fiscal year 2000. In connection with such campaign, we have hired public
relations and investor relations firms to assist in promoting our services,
including clickNsettle.com. Currently, advertisements are scheduled to appear on
television, over the Internet and in a variety of print media. We believe that
the campaign will continue to increase awareness of our business and our
services. However, we cannot assure you that this effort will result in
increased revenues.
Six Months Ended December 31, 1999 Compared to Six Months Ended December 31,
1998
Revenues. Revenues decreased 6% to $1,975,762 for the six months ended
December 31, 1999 from $2,112,256 for the comparable prior period. We attribute
the decrease in revenues to an overall decline in the number of in-person
hearings conducted during the period. We believe this is primarily the result of
many of our marketing and other resources being devoted to the introduction and
promotion of clickNsettle.com in the first quarter and the subsequent shift
towards an Internet based business with more efficient primary customer service
centers and national account arrangements rather than numerous regional
locations. During the second quarter of fiscal year 2000, we introduced an
enhanced version of clickNsettle.com which focused on its unique, unlimited bid,
real-time negotiating format. We believe that continuous improvement of its
Internet negotiating model is critical to the success of the clickNsettle.com
Web site and will continue to invest resources in this area.
Cost of Services. Cost of services decreased 13% to $494,408 for the
six months ended December 31, 1999 from $565,788, for the six months ended
December 31, 1998. The decrease in absolute dollars relates primarily to the
decrease in sales and a charge in the six months of fiscal year 1999 for the
granting and vesting of stock options with respect to a hearing officer as well
as payments to hearing officers in connection with the commencement of exclusive
arrangements with us. As a result, the cost of services as a percentage of
revenues decreased to 25% for the first six months of fiscal year 2000 from 27%
for the first six months of fiscal year 1999. 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.
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<PAGE>
Sales and Marketing. Sales and marketing costs decreased 5.5% to
$1,057,295 for the six months ended December 31, 1999 from $1,118,863 for the
six months ended December 31, 1998. Sales and marketing costs as a percentage of
revenues remained stable at 53% for both periods. The decrease largely relates
to advertising and external public relations costs which declined by
approximately $151,000 from the first six months of fiscal year 1999 to the
first six months of fiscal year 2000. This decline was offset by higher salary
and travel and promotional costs arising from the establishment of a separate
clickNsettle.com marketing group.
General and Administrative. General and administrative costs increased
11% to $1,219,421 for the six months ended December 31, 1999 from $1,100,676 for
the six months ended December 31, 1998. Most of the increase (approximately
$91,000) relates to salary and related items (including payroll taxes, benefits
and employee recruitment fees) due to increases in staff for data processing and
other administrative functions, including temporary help, to support and develop
clickNsettle.com, as well as our in-person traditional arbitration and mediation
services. The remaining increase was largely related to higher corporate legal
fees (partially attributable to patent and trademark filings related to
clickNsettle.com). Furthermore, general and administrative costs as a percentage
of revenues increased to 62% in the first six months of fiscal year 2000 from
52% for the comparable prior period.
Other Income. Other income (expenses) changed from an expense of
($249,330) for the first six months of fiscal year 1999 to income of $255,702
for the first six months of fiscal year 2000. Other income is composed primarily
of investment income and realized gains (losses) generated from investments.
During the first six months of the 2000 fiscal year, we sold a portion of our
marketable securities. As a result, net realized gains approximated $213,000 for
the first six months of fiscal year 2000 as compared to losses of approximately
$303,000 in the prior fiscal period.
Income Taxes. Tax benefits resulting from net losses incurred for the
six month periods ended December 31, 1999 and 1998 were not recognized as we
recorded a full valuation allowance against the net operating loss carryforwards
during the periods.
Net Loss. For the six months ended December 31, 1999, we had a net loss
of ($539,670) or ($.16) loss per share as compared to a net loss of ($922,401)
or ($.28) loss per share for the six months ended December 31, 1998. The loss
decreased primarily due to higher realized gains on the sale of marketable
securities offset by higher sales and marketing costs incurred to promote
clickNsettle.com.
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
Revenues. Revenues increased 8% to $4,158,506 for the year ended June
30, 1999 from $3,847,975 for the year ended June 30, 1998. Both the number of
cases heard and the average dollars earned per case increased in the current
year from the prior year. At the end of the second quarter of fiscal year 1999,
we realigned our sales operations in order to enhance our ability to process a
higher volume of cases as well as to better market our services to potential
customers. This was evidenced by a 16% increase in revenues in the fourth
quarter of fiscal year 1999 as compared to the fourth quarter of fiscal year
1998.
Cost of Services. Cost of services increased 12% to $1,081,309 for the
year ended June 30, 1999 from $969,345 for the year ended June 30, 1998. The
higher volume of business serviced resulted in greater hearing officer fees.
Additionally, higher fees were incurred in fiscal year 1999 primarily due to a
compensation charge relating to stock options granted to a hearing officer as
well as payments to hearing officers in connection with the commencement of
exclusive arrangements with the Company. Without these charges, the cost of
services as a percentage of revenues remained stable at 25% for the fiscal years
ended June 30, 1999 and 1998, respectively. 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 decreased 2% to
$2,048,058 for the year ended June 30, 1999 from $2,090,591 for the year ended
June 30, 1998. Sales and marketing costs as a percentage of revenues decreased
to 49% for fiscal year 1999 from 54% for fiscal year 1998. The decrease largely
relates to advertising and external public relations expenditures. Such costs
decreased by approximately $176,000 from $566,000 in fiscal year 1998 to
$390,000 in fiscal year 1999. The decrease was largely due to the commencement
of an advertising campaign during the third quarter of the 1998 fiscal year
whereby we placed advertisements in a variety of media. The campaign was aimed
at quickly establishing NAM as a brand name within the dispute resolution
industry. As we believe we have made significant progress in achieving this
goal, we have continued advertising to maintain our name recognition but at a
reduced level. There can be no assurance that such expenditures will produce
higher revenues. Offsetting this decline was an increase in sales salaries and
related costs of approximately $102,000 as sales management and the sales force
was strengthened to pursue additional business opportunities. Additionally,
entertainment, promotions and travel expenses increased by approximately $33,000
as a result of sales visits to corporate headquarters of targeted clients
throughout the country and Company-sponsored events for clients to promote the
NAM brand name.
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<PAGE>
General and Administrative. General and administrative costs increased
17% to $2,256,309 for the year ended June 30, 1999 from $1,932,158 for the year
ended June 30, 1998. Furthermore, general and administrative costs as a
percentage of revenues increased to 54% for fiscal year 1999 from 50% for fiscal
year 1998. Most of the increase (approximately $185,000) relates to salary and
related items due to increases in staff for data processing and other
administrative functions, including temporary help, to support and develop
clickNsettle.com, as well as NAM's traditional arbitration and mediation
services. Secondly, there was an increase of approximately $67,000 relating to
costs incurred in connection with seminars/conferences sponsored by us for
marketing our services to potential clients in the arbitration and mediation
industry and for employee training. Higher expenses were also incurred for rent
(as the New York headquarters was expanded mid-year), legal fees and
depreciation.
Other Income (Expenses). Other income (expenses) changed from income of
$514,985 for the year ended June 30, 1998 to an expense of ($67,595) for the
year ended June 30, 1999. Other income (expense) is composed primarily of
investment income and realized gains (losses) generated from investments. During
the 1999 fiscal year, we sold a substantial portion of our marketable
securities. As a result, net realized losses approximated ($166,000) for the
year ended June 30, 1999 as compared to $356,000 of realized gains for the year
ended June 30, 1998. In addition, investment income also declined as we reduced
our investment portfolio and conservatively decreased our equity portfolio in
favor of a larger concentration in money market funds.
Income Taxes. Tax benefits resulting from net losses incurred for the
years ended June 30, 1999 and 1998 were not recognized as we recorded a full
valuation allowance against the net operating loss carryforwards during the
periods. As of June 30, 1999, we had net operating loss carryforwards for
Federal tax purposes of approximately $2,062,000 and net capital loss
carryforwards for Federal tax purposes of approximately $166,000.
Net Loss. For the year ended June 30, 1999, we had a net loss of
($1,294,765) or ($.39) loss per share as compared to a net loss of ($629,134) or
($.19) loss per share for the year ended June 30, 1998. The loss increased
primarily due to lower investment income mainly as a result of losses realized
from the sale of marketable equity securities, as well as higher costs incurred
to develop, market and support our new electronic case resolution products and
anticipated future growth.
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
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. We attribute this
increase in sales to a growing acceptance of our 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 we 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 us and our 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 our expansion plans. In
particular, sales management was strengthened at our headquarters in New York to
better prepare us 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,
18
<PAGE>
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 we expanded personnel, particularly at
our 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. We believe that this structure provides a
uniform and high-quality level of service for clients, in addition to enhancing
the control environment and producing a more streamlined and efficient approach
as we grow. 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, we sold a portion of our 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,
we 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, we 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 our 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 we recorded a full
valuation allowance against the net operating loss carryforwards during the
periods. As of June 30, 1998, we had net operating loss carryforwards for
Federal tax purposes of approximately $1,007,000.
Net Loss. For the year ended June 30, 1998, we 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 our infrastructure to support future growth were
partially offset by higher revenues and realized gains on marketable securities.
Liquidity and Capital Resources
At December 31, 1999, we had working capital surplus of $1,327,565
compared to $1,925,911 at June 30, 1999. Net cash used in operating activities
was $845,895 for the six months ended December 31, 1999 versus $720,640 in the
prior comparable period. The decrease in working capital and the increase in net
cash used in operating activities occurred primarily as a result of the loss
from operations.
Net cash used in investing activities was $85,185 for the six months
ended December 31, 1999 versus net cash provided by investing activities of
$1,407,936 in the comparable prior period. The change in cash from investing
activities was principally due to the higher level of net purchases of
marketable securities during the current period as compared to the net sales and
maturities of marketable securities in the prior period. Additionally, the
establishment of a separate marketing group for clickNsettle.com resulted in
higher purchases of computer equipment.
We anticipate that cash flows, together with cash and marketable
securities on hand, will be sufficient to fund our operations for the next year.
In February 2000, we closed on a private placement offering with up to
$8,850,000 in new equity financing. The financing included the issuance of
$1,850,000 of Series A Exchangeable Preferred Stock and the availability of a
$7,000,000 common stock Equity Line of Credit upon completion of an effective
registration statement. The financing was made with a series of institutional
investors. The purpose of the financing is to provide additional funds to
further promote, market and enhance our clickNsettle.com Web site, and for
general working capital.
Year 2000
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. We have
completed its evaluation of the impact of the year 2000 issue on our business
and currently do not expect to incur significant costs in the current fiscal
year associated with year 2000 compliance or that year 2000 issues will have a
material impact on our business, results of operations or financial condition.
Our financial reporting system is currently year 2000 compliant. The relational
database system used to manage our operations is capable of recognizing four
digits to designate the year. We have converted our usage of the date fields
from two digits to four digits with respect to our major operating system. We
upgraded our network operating systems and all servers including our main
system, email, Web site and file transfer protocol (FTP) servers to be year 2000
compliant. We contacted most of our major vendors that provide non-operating
systems (i.e., those which supply payroll and benefit information, in
particular) to ensure that they have properly addressed year 2000 issues.
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OUR BUSINESS
The Company
We operate in one business segment to provide arbitration and mediation
services, also known as alternative dispute resolution services, or ADR
services, principally to insurance companies, law firms, corporations and
municipalities, via in-person hearings, video-conferencing and over the Internet
through our "clickNsettle.com" Web site. An ADR proceeding is designed as an
alternative forum to the public court system for resolving civil disputes. We
offer our clients access to qualified hearing officers (generally retired
judges) to either mediate or arbitrate their disputes. We believe that we are
one of the leading providers of ADR services to the insurance industry in the
United States based upon the number of cases processed by us since 1992. We have
offices currently located in New York, Massachusetts and Tennessee, through
which we have the ability to provide ADR services on a global basis with a
roster of over 1,100 qualified hearing officers.
Our dispute resolution web site, clickNsettle.com was introduced in
June 1999. The service, with patent pending, can be accessed 24 hours a day, 7
days a week and is being targeted to the multi-billion dollar litigation market.
Although additional amounts will be expended in further developing and refining
this service during most of fiscal year 2000, we believe that clickNsettle.com
has the potential to be successful for the following reasons:
o designed to process a large volume of cases electronically with a
lower cost per case;
o ability to broaden our client base as the program is beneficial
to all litigants with disputes that can be resolved with a
monetary settlement;
o easy accessibility by potential users via the Internet;
o ability to reach potential users on a global basis;
o lead generator for traditional ADR business;
o ability to benchmark data on settlements by injury and venue; and
o reporting capabilities to summarize and provide analysis of a
client's entire ADR program including traditional arbitration and
mediation conferences and electronic settlements over the
Internet.
We believe that 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 streamlines the traditional cumbersome
public litigation process. As compared to the public court system, an ADR
proceeding generally offers litigants:
o a faster resolution;
o confidentiality;
o reduced expenses;
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<PAGE>
o flexibility in procedures and solutions; and
o control over the process.
With respect to business-to-business disputes, ADR proceedings also can
preserve business relations among the parties because its nature is less
adversarial and may be resolved promptly.
Our objective is to become the leading global provider of Web-enabled
dispute resolution services; to offer one-step shopping for anyone involved in
any type of dispute, anywhere in the world; and to provide this service more
quickly, economically and efficiently than previously possible. We intend to
achieve this goal by employing the following strategies:
o marketing our Internet settlement Web site, clickNsettle.com,
which is designed to attract a larger customer base on a global
scale with lower incremental costs;
o expanding the functionality of clickNsettle.com to address
multi-party disputes, class-action litigation and other new
markets, including multi-jurisdictional claims which are becoming
more commonplace as a result of the global transition towards
e-commerce;
o focusing the advertising campaign initiated during fiscal year
1998 towards building brand recognition for clickNsettle.com;
o accelerating efforts to secure exclusive relationships with
corporations and law firms in order to obtain contracts on a
national and regional basis by capitalizing on our market
position;
o exploring strategic alliances with business entities that have
the ability to promote clickNsettle.com and our legacy ADR
services to their customers; and
o becoming a primary provider of international dispute resolution
We believe that the domestic ADR industry is, other than a few national
entities, generally fragmented into small ADR service providers. We further
believe that the trend in the ADR industry is toward consolidation of providers
who are capable of offering national and regional ADR programs. We believe that
our current strategies and marketing plans will enable us to exploit this trend.
Services Offered
clickNsettle.com. At the end of June 1999, we introduced
clickNsettle.com, an Internet based, interactive virtual court service that
offers an alternative to traditional litigation. clickNsettle.com utilizes a
direct settlement format that allows disputing parties to enter an unlimited
number of "blind" and confidential offers and demands, via the Internet, to
settle cases. Through this service we provide disputants with the ability to
negotiate a case with their adversary without actually "tipping their hand"
about what amount they would accept for settlement. The demands and offers are
secure. Only the settlement figures are ever revealed. This ensures that neither
party loses any negotiating leverage if a settlement is not reached. In the
event of non-settlement, the parties may automatically submit the case for
traditional arbitration and mediation with us. The service, with patent pending,
can be accessed 24 hours a day, 7 days a week and also provides detailed
reporting of both in-person arbitration and mediation results and electronic
settlement statistics.
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<PAGE>
Arbitration. Our arbitration procedure follows a format essentially
similar to a non-jury trial in the public court system. Parties are given a
forum in which to present their cases. Litigants are spared the time delays and
some of the cumbersome procedures commonly associated with public court trials.
Our hearings are generally governed by our 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
a list of our hearing officers.
The hearings are private, 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:
o a regular arbitration, in which the hearing officer has authority
to issue a ruling and/or award a remedy without limitations;
o 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
o 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. We do not currently offer any type of
appeal procedure. Our 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 us is
settlement conferencing, in essence a non-binding process. Settlement
conferencing 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.
The parties and a hearing officer attend the settlement conference.
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 damages. 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
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<PAGE>
its position. In the majority of instances, the settlement conference procedure
results in the resolution of all issues.
Other ADR Services. In addition to mediations and arbitrations, we
offer, among other services, advisory opinions and specialized dispute
resolution programs depending on the parties' particular needs. We also offer
Case Resolution Days. Case Resolution Days are events usually scheduled at an
insurance company client's office in which we arrange for parties to hold high
volume direct settlement meetings without the participation of a hearing
officer. If the individual meetings do not resolve the dispute, we provide a
hearing officer to mediate the dispute if the parties wish to further pursue
settlement.
Video Conferencing. We have the ability to offer video conferencing
capabilities. Clients can participate in and observe hearings without leaving
their offices, using this service. This results in the reduction of certain
costs to the client associated with the ADR process. This capability allows us
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 us, has applications beyond the ADR area for clients.
Marketing and Sales
At the end of the second quarter of fiscal year 1999, we realigned our
sales operations to enhance our ability to process a higher volume of cases as
well as to better market our services to potential customers. We appointed
certain account representatives as regional marketing supervisors. Regional
marketing supervisors actively pursue new business as well as increase the
volume of business with existing clients through in-person meetings,
presentations, educational seminars relating to ADR services and periodic
monitoring of a client's ADR activity. The remaining account representatives
concentrate their time and efforts on processing case submissions and working
closely with clients on a daily basis to ensure the highest level of customer
satisfaction. Additionally, during the first quarter of fiscal year 2000, we
designated a team of account representatives to concentrate their marketing
efforts on our Internet case resolution service, clickNsettle.com. As of March
1, 2000, we employed 21 account representatives to market both our ADR and
Internet case resolution services. Account representatives are salaried
employees.
For the most part, our Executive Vice Presidents supervise account
executives. Account executives in the regional offices may first report to a
regional manager who then reports to an Executive Vice President. The regional
managers' employment agreements provide for additional compensation based on the
profits of the manager's operation.
With regard to the hiring and training of account executives, the
Executive Vice Presidents are usually involved in the interview process. Account
executives are trained over approximately a two-week period. This training
period may vary depending on the overall abilities of each candidate, the level
of prior experience and their aptitude to assimilate the required marketing
skills. The training includes the development of sales/service techniques and
the introduction to our customers. After this initial period, the new account
executive's performance is closely monitored. In addition, staff meetings are
generally held weekly to review progress against goals and to enhance marketing
skills.
The majority of our clients are insurance carriers and law firms. One
insurance company customer represented approximately 9% and 12% of total
revenues for the years ended June 30, 1999 and 1998, respectively. However, we
work with more than 70 individual offices of the insurance
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<PAGE>
company, which in total equal the aforementioned percentages of revenue. The
next largest insurance company customer represented approximately 3% of revenues
for the years ended June 30, 1999 and 1998, respectively. The balance of the
revenue base is distributed among approximately 2,200 clients in both fiscal
years 1999 and 1998.
We, when appropriate, seek contracts with our clients. Further, we are
currently enhancing our efforts to obtain volume commitments from existing and
new clients.
Competition
The ADR business is highly competitive, both on a national and regional
level. We believe that barriers to entry in the private ADR business are
relatively low, and new competitors can begin doing business relatively quickly.
We believe this because 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. We believe the largest not-for-profit competitor is the American
Arbitration Association and that they have a 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.
We believe that the domestic private ADR industry is, other than a few
national entities, generally fragmented into small ADR service providers. We
believe that Judicial Arbitration Mediation Services, Inc./Endispute ("JAMS") is
the largest for-profit ADR provider in the country. Our competitors include,
among others,
o JAMS,
o Cybersettle,
o National Arbitration Forums and
o Island Arbitration and Mediation.
In addition, several public court systems, including the federal and
certain state courts in New York, our major market, have instituted
court-coordinated programs. To the extent that the public courts reduce case
backlogs and provide effective dispute resolution mechanisms, our business
opportunities in such markets may be significantly reduced.
Increased competition could decrease the fee charged for our services,
and limit our ability to obtain experienced hearing officers. This could have a
materially adverse effect on our ability to be profitable in the future. In
addition, we compete with other ADR providers to retain the services of
qualified hearing officers.
As compared to the majority of our competitors, we believe that we
compete based primarily upon reputation, price, and the ability to manage
scheduling of hearings effectively. We believe that we have certain advantages
that enable us to better serve our clients. These advantages include:
o a fully interactive case resolution Web site which enables
parties to resolve disputes by making an unlimited number of
blind and confidential settlement offers and demands via the
Internet from anywhere in the world, 24 hours a day, 7 days a
week;
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o exclusive agreements with many of our qualified hearing officers,
who are generally former judges;
o account executives dedicated to specified clients;
o the ability to monitor and control the scheduling of matters; and
o videoconferencing capability that allows clients to participate
in or observe a proceeding without leaving their office.
We cannot assure you, however, that these perceived advantages will
enable us to compete successfully in the future.
Government Regulation
ADR services that are offered by private companies, like us, 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 March 1, 2000, we employed 49 persons, including four part time
employees; of these, five were in executive positions, three of which devote
substantially all their attention to sales; 24 were sales managers and sales
account representatives and the remaining 20 employees support our operations
with respect to information technology, accounting, scheduling, confirming,
billing and other administrative duties. We also currently utilize the services
of various temporary employees who are eligible for long-term employment.
Hearing Officers
As of March 1, 2000, we maintained relationships with over 1,100
hearing officers and have exclusive agreements with respect to ADR proceedings
with a number of these hearing officers. Such hearing officers accounted for
approximately 65% of the number of cases handled by us for the year ended June
30, 1999. The balance of non-exclusive hearing officers makes their services
available to us on a case-by-case basis. With the exception of the exclusive
hearing officers, the remainder of our 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.
Properties
We currently maintain two leased facilities, all of which are located
in office buildings. We lease 6,330 square feet of space at 1010 Northern
Boulevard, Great Neck, New York for our corporate headquarters and for providing
ADR services in the metropolitan New York area. The lease expires December 2003.
We also lease 1,320 square feet of space, which lease expires November 2000, for
our North Easton, Massachusetts office. We believe this space is adequate for
our reasonably anticipated future needs.
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The aggregate rental expense for all of our offices was $191,983 during
the year ended June 30, 1999.
Legal Proceedings
There is no material litigation currently pending against us.
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MANAGEMENT
The following table sets forth certain information regarding our
executive officers and directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Roy Israel 40 Chief Executive Officer, President and Chairman of the
Board of Directors
Cynthia Sanders 40 Vice President, Sales Development and Director
Daniel Jansen 36 National Accounts Manager and Director
Patricia Giuliani-Rheaume 42 Chief Financial Officer, Vice President and Treasurer
Robert P. Mack 30 Executive Vice President of clickNsettle.com, LLC
Kathleen O'Donnell 36 Executive Vice President of Client Services
Ronald Katz 43 Director
Jeffrey L. Lederer 52 Director
Anthony J. Mercorella 76 Director
</TABLE>
Mr. Israel has been our Chairman of the Board of Directors, Chief
Executive Officer, and President since February 1994. Immediately prior to
holding such positions, Mr. Israel was President, Director, and founder of
National Arbitration & Mediation, Inc. ("NA&M"), a wholly-owned subsidiary of
the Company until merged with the Company in June 1999.
Ms. Sanders has been Vice President, Sales Development since December
1999 and was Executive Vice President from February 1994 through December 1999.
Immediately prior to holding such positions, Ms. Sanders was the Executive Vice
President of NA&M since May 1993. She has been one of our directors since
February 1994.
Mr. Jansen has been our National Accounts Manager since June 1997.
Prior to such date, he had served as the Director of Regional Offices of the
Company since February 1994. Immediately prior to holding such positions, he had
been a Senior Account Executive with NA&M since September 1992. He has been one
of our directors since February 1994.
Ms. Giuliani-Rheaume has been our Vice President, Chief Financial
Officer, and Treasurer of the Company since February 1997. Immediately prior to
holding such positions, Ms. Giuliani-Rheaume was the Vice President and
Corporate Controller of The Robert Plan Corporation, an insurance services
company, since April 1991. Prior thereto, Ms. Giuliani-Rheaume was an audit
27
<PAGE>
senior manager with KPMG Peat Marwick LLP. Ms. Giuliani-Rheaume is a certified
public accountant and a member of the AICPA and the New York State Society of
CPAs.
Mr. Mack has been Executive Vice President of clickNsettle.com, LLC, a
wholly owned subsidiary of the Company, since September 1999. Immediately prior
thereto, Mr. Mack held various positions at Ingersoll-Rand and/or its
subsidiaries since 1993: Manager of Business Development from January 1999 to
September 1999; Regional Manager, Asia/Pacific, from March 1996 to December 1998
and Senior Auditor from August 1993 to February 1996. Prior thereto, Mr. Mack
was a senior accountant at KPMG Peat Marwick LLP. Mr. Mack is a certified public
accountant.
Ms. O'Donnell has been our Executive Vice President of Client Services
since February 2000. Immediately prior to holding such position, Ms. O'Donnell
was our Vice President, Marketing since February 1999. Prior thereto, Ms.
O'Donnell held various positions with NAM since 1994: New York Regional Manager
from March 1997 to February 1999; Team Leader from December 1995 to March 1997
and Account Executive from September 1994 to December 1995.
Mr. Katz is a partner at Rubin & Katz LLP, a Certified Public
Accounting Firm and has been affiliated with such firm since December 1986. Mr.
Katz is a certified public accountant and a member of the AICPA and the New York
State Society of CPAs. He has been one of our directors since February 1998.
Mr. Lederer is currently a senior principal of Brook Asset Management
LLC and was a general partner of Glickenhaus Company until December 1995. Prior
thereto, he was a general partner of Neuberger & Berman, a New York investment
firm. He has been one of our directors since July 1999.
Hon. Mercorella is a senior partner of the law firm of Wilson, Elser,
Moskowitz, Edelman & Dicker and has been a partner with such firm since 1984,
which he joined upon his retirement as a Justice of the Supreme Court of the
State of New York. Judge Mercorella also serves as a hearing officer for the
Company. He has been one of our directors since February 1997.
Committees of the Board of Directors
The Compensation Committee is authorized to review and make
recommendations to the Board of Directors on all matters regarding the
remuneration of our executive officers, including the administration of our
compensation plans, other than our Stock Option Plan. The current member of this
Committee is Mr. Mercorella.
The Audit Committee is responsible for making recommendations to the
Board of Directors as to the selection of our independent auditor, maintaining
communication between the Board and the independent auditor, reviewing the
annual audit report submitted by the independent auditor, and determining the
nature and extent of issues, if any, presented by such audit warranting
consideration by the Board. The current members of this Committee are Mr. Katz
and Mr. Lederer.
The Special Financing Committee is responsible for negotiating,
finalizing and executing all proposed financing transactions. The current
members of this Committee are Mr. Israel, Mr. Katz and Mr. Lederer.
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Directors' Compensation
Non-employee directors receive a fee of $250 for each meeting of the
Board attended, a fee of $150 for each meeting of any committee of the Board
attended and reimbursement of their actual expenses. In addition, pursuant to
our Amended and Restated 1996 Incentive and Nonqualified Stock Option Plan (the
"Plan"), each non-employee director will be granted options to purchase 2,500
shares of our common stock per annum at an exercise price equal to the closing
bid price of the underlying common stock as reported by the Nasdaq SmallCap
Market on the date of grant, which shall be the last trading date in June of
each year.
Compensation Committee Interlocks
No interlocking relationships exist between the Board of Directors or
the Compensation Committee and the board of directors or compensation committee
of any other company, nor has any such interlocking relationships existed in the
past.
Employment Contracts and Termination of Employment
and Change In Control Arrangements
Roy Israel. Mr. Israel's employment agreement with the Company expires
June 30, 2002. Pursuant to this agreement, he currently receives an annual base
salary of $252,810, an annual base salary increase equal to the greater of 6% or
an amount which reflects the increase in the Urban Consumer Price Index, and an
annual bonus at the discretion of the Board of Directors. In addition, the
agreement provides, among other things, that NAM shall pay up to an aggregate of
$15,000 per policy year for a key man life insurance policy in favor of the
Company for $1,000,000 and life insurance in favor of the estate of Mr. Israel,
as well as a disability policy for coverage of 60% of his base salary, and an
allowance for leasing an automobile (up to a monthly lease payment of $1,000.)
If his duties are changed without his consent and such change results in Mr.
Israel no longer being our most senior executive officer, then he is entitled to
terminate the agreement and receive three times of his then current base salary,
payable over a one year period, and the maintenance of his benefits for a one
year period or until the end of the term of the agreement, whichever is longer.
In addition, if within two years of a change in control of the Company, as such
term is defined in the agreement, Mr. Israel is terminated without cause or the
agreement is terminated by Mr. Israel due to a change of duties, Mr. Israel
shall receive a lump sum payment equal to three times his then current base
salary, and the maintenance of his benefits for one year. The agreement also
contains a one-year non-competition clause if the agreement is terminated for
any reason or upon expiration.
Cynthia Sanders. Ms. Sanders's employment agreement with the Company
expires June 14, 2001 (with automatic one-year renewals unless terminated within
60 days of the end of an employment term by either party). Pursuant to this
agreement, she currently receives an annual base salary of approximately
$92,500, an annual base salary increase equal to 5% and an annual bonus at the
discretion of our Chief Executive Officer. In addition, the agreement provides,
among other things, that we shall pay for full family health insurance, and a
$400 a month allowance for leasing an automobile. The agreement also contains a
one-year non-competition clause if the agreement is terminated for any reason or
upon expiration.
Patricia Giuliani-Rheaume. Ms. Giuliani-Rheaume's employment agreement
with the Company currently expires December 31, 2000. It automatically renews
for one-year terms unless terminated within 45 days of the end of an employment
term by either party. Pursuant to this agreement, she
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<PAGE>
currently receives an annual base salary of $135,000, an annual bonus at the
discretion of the Company's Chief Executive Officer, and options to purchase
40,000 shares of common stock. In addition, the agreement provides, among other
things, that we shall pay for a life insurance policy of $250,000, full family
health insurance, and a $400 a month allowance for leasing an automobile. The
agreement also contains a one-year non-competition clause if the agreement is
terminated for any reason or upon expiration. If the agreement is terminated
without cause, Ms. Giuliani-Rheaume shall receive a payment of severance of an
amount equal to six months of the base salary in effect at such time.
Robert P. Mack. Mr. Mack's employment agreement with the Company
expires September 12, 2000. Pursuant to this agreement, he is entitled to
receive an annual base salary of $100,000, an annual bonus at the discretion of
the Company, a signing bonus of $22,000 to cover costs of relocation, a payment
of $23,430 plus tax gross up to cover tuition costs to be repaid to his former
employer and options to purchase 75,000 shares of common stock. In addition, the
agreement provides that Mr. Mack shall be entitled to participate in our
benefits programs and shall be entitled to a $400 a month allowance for leasing
an automobile. The agreement also contains a one-year non-competition clause if
the agreement is terminated for any reason or upon expiration.
Executive Compensation and Other Information
The following summarizes the aggregate compensation paid during fiscal
year 1999 to the Company's Chief Executive Officer and any officer who earned
more than $100,000 in salary and bonus pursuant to their contracts (the "Named
Persons"):
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Other
Annual Compensation Compensation Compensation
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation(1)
- --------------------------- ---- ------ ----- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Roy Israel, President, Chief 1999 $239,417 $60,000 $18,064(1) 210,000(2) $ 14,110(3)
Executive Officer and Chairman 1998 $225,865 $25,000 $14,924(1) 60,000 $ 14,110(3)
of the Board 1997 $ 94,202 -- -- -- $124,000(4)
Cynthia Sanders, Executive 1999 $105,197 -- -- 52,600(2) $ 2,500(3)
Vice President and Director 1998 $ 96,271 -- -- 35,000 $ 2,500(3)
1997 $ 90,675 -- -- $ 2,500(3)
Patricia Giuliani-Rheaume, Vice 1999 $124,746 -- -- 43,400(2) $ 2,400(3)
President, Chief Financial 1998 $118,965 -- -- 20,000 $ 2,400(3)
Officer and Treasurer 1997 $ 47,292 $5,000 -- 40,000 $ 1,000(3)
</TABLE>
- ----------
(1) Such amount represents tax gross ups for Mr. Israel for medical, life and
disability payments.
(2) Such figure is also reflected in the table for Options Granted in Last
Fiscal Year.
(3) Such amount represents premium payments on life insurance policies for the
named executive officer.
(4) Such amount includes life insurance expenses and a one-time insurance pay
out in the amount of $43,000 pursuant to Mr. Israel's former employment
contract that terminated on June 30, 1997.
30
<PAGE>
<TABLE>
<CAPTION>
Option Granted in the last fiscal year
Name and Principal Number of Securities % of Total Exercise or Base Market Expiration Date
Position Underlying Options Options Price Price on of the Options
Granted Granted to Date of
Employees in Grant
Fiscal Year
<S> <C> <C> <C>
Roy Israel 210,000 35.6% (A) $1.375 (B)
Cynthia Sanders 52,600 8.9% $1.375 $1.375 11/18/08
Patricia Giuliani-Rheaume 43,400 7.3% $1.375 $1.375 11/18/08
</TABLE>
(A) 114,000 options are exercisable at a price of $1.375 per share and 96,000
options at a price of $1.5125 per share.
(B) The expiration date for 114,000 options is 11/18/08 and the expiration date
for 96,000 options is 11/18/03.
Stock Option Plan
Our Amended and Restated 1996 Incentive and Nonqualified Stock Option
Plan allows us to grant options to our employees, officers, directors,
consultants and advisors to purchase up to 2,000,000 shares of our 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. Directors who are not officers of the Company receive annually,
on the last trading day of June, stock options for 2,500 shares at an exercise
price equal to the fair market value of the stock on the date of the grant. As
of March 1, 2000, 1,115,500 shares of our common stock have been granted under
our Stock Option Plan.
Indemnification of Directors and Executive Officers and Limitation of Liability
Our certificate of incorporation provides that none of our directors
shall be liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
o under section 174 of the General Corporation Law; or
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<PAGE>
o for any transaction from which such director derives improper personal
benefit.
The effect of this provision is to eliminate our rights and those of our
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of his or her
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described
above. The limitations summarized above, however, do not affect our ability or
that of our stockholders to seek nonmonetary remedies, such as an injunction or
rescission, against a director for breach of his or her fiduciary duty.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, or persons controlling our Company pursuant to the foregoing
provisions, we have been informed that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in our affairs since the date
hereof or that the information contained herein is correct as of any date
subsequent to the date hereof. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making the offer is not qualified to do so or to anyone
to whom it is unlawful to make such offer or solicitation.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 1, 2000, certain
information with respect to the beneficial ownership of each class of the
Company's equity securities by each director and director nominee, beneficial
owners of 5% or more of common stock of the Company, the Named Persons and all
directors and executive officers of the Company as a group:(1)
<TABLE>
<CAPTION>
Amount and Nature of
Name of Beneficial Owner(2) Beneficial Ownership Percent of Total
- --------------------------- -------------------- ----------------
<S> <C> <C>
Roy Israel (3) 1,394,889 38.4%
President, Chief Executive Officer and
Chairman of the Board
Cynthia Sanders(4) 174,355 5.0%
Vice President and Director
Daniel Jansen 23,165 *
National Accounts Manager and Director
Ronald Katz(5) 103,000 3.0%
Director
Jeffrey L. Lederer(6) 75,000 2.1%
Director
Anthony J. Mercorella(7) 6,000 *
Director
Joseph Stevens & Company, Inc. 286,073 7.7%
(8)
All Officers and Directors as a 1,868,809 48.1%
Group (9 persons)
(3)(4)(5)(6)(7)(9)
</TABLE>
- -------------------
* Less than one percent (1%).
(1) Applicable percentage of ownership is based on 3,442,233 shares of common
stock, which were outstanding on March 1, 2000, plus, for each person or
group, any securities that person or group has the right to acquire within
sixty (60) days pursuant to options and warrants.
33
<PAGE>
(2) The address for each individual is c/o NAM Corporation, 1010 Northern
Boulevard, Suite 336, Great Neck, New York 11021.
(3) Includes options to purchase 165,000 shares of common stock and warrants to
purchase 7,000 shares of common stock, all of which have vested and are
exercisable. Also includes 61,903 shares owned by Mr. Israel's wife, Carla
Israel, the Secretary of the Company, and options to purchase 17,750 shares
of the Company's common stock which is fully vested and exercisable. Mr.
Israel disclaims beneficial ownership as to such shares.
(4) Includes options to purchase 61,300 shares of the Company's common stock,
which have fully vested and are exercisable.
(5) Includes warrants to purchase 7,500 shares of the Company's common stock,
which are vested and exercisable, and options to purchase 3,500 shares of
the Company's common stock, which are fully vested and exercisable.
(6) Consists of warrants to purchase 75,000 shares of common stock which are
fully vested and exercisable.
(7) Includes warrants to purchase 1,000 shares of common stock, which are
currently exercisable and options to purchase 3,000 shares of the Company's
common stock, which are fully vested and exercisable.
(8) 31,023 shares and 10,050 warrants are held in Joseph Stevens & Company,
Inc.'s market making account. This information was taken from Form 13G as
filed by Joseph Stevens & Company, Inc. on February 10, 1999 as well as
other information known to the Company. On such form, Joseph Stevens &
Company, Inc. listed Joseph Sorbara and Steven Markowitz as controlling
shareholders and directors of Joseph Stevens & Company, Inc., and
therefore, as beneficial owners of these same shares and warrants.
(9) Includes (i) options to purchase 81,700 shares of common stock held by
Patricia Giuliani-Rheaume, the Chief Financial Officer and Treasurer of the
Company, which have vested and are fully exercisable; (ii) options to
purchase 10,000 shares of common stock held by Kathleen O'Donnell, the
Executive Vice President of Client Services, which have vested and are
fully exercisable; and (iii) warrants to purchase 400 shares of common
stock, which are currently exercisable, and 300 shares of common stock held
by Robert P. Mack, Executive Vice President of clickNsettle.com, LLC.
CERTAIN TRANSACTIONS
In the last two years, there has not been, nor is there currently
proposed, any material transactions between us and any of our officers,
directors, or 5% stockholders, other than compensation agreements and other
arrangements, which are described where required in "Management."
On March 25, 1998, we announced our intention to acquire, in open
market transactions, up to 300,000 shares of our common stock. On March 25, 1999
we extended the plan by an additional 300,000 shares of our common stock.
Purchases, if any, are to be made from time to time at prevailing market prices
through March 25, 2000. Purchases may be discontinued at any time with or
without
34
<PAGE>
purchasing any or all of the 600,000 shares. As of March 1, 2000, we have not
acquired any such shares of our common stock.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 15,000,000 shares of common
stock, $0.001 par value per share, and 5,000,000 shares of Preferred Stock,
$0.001 par value per share, 2,100 of which have been designated as Series A
Exchangeable Preferred Stock. As of March 1, 2000, there were 3,442,233 shares
of common stock and 1,850 shares of Series A Exchangeable Preferred Stock
outstanding.
Common Stock
Subject to preferences that may be applicable to any prior rights of
holders of outstanding stock having prior rights as to dividends, the holders of
outstanding shares of our common stock are entitled to receive dividends out of
assets legally available therefore at such times and in such amounts as the
Board from time to time may determine. Holders of our common stock are entitled
to one vote for each share held on all matters submitted to a vote of
shareholders. Cumulative voting for the election of directors is not authorized
by our certificate of incorporation, which means that the holders of a majority
of the shares voted can elect all of the directors then standing for election.
The common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon our liquidation, dissolution or winding-up, the
assets legally available for distribution to stockholders are distributable
ratably among the holders of the common stock after payment of liquidation
preferences, if any, on any outstanding stock having prior rights on such
distributions and payment of other claims of creditors. Each outstanding share
of common stock is, and all shares of common stock to be outstanding upon
completion of this offering will be upon payment therefor, duly and validly
issued, fully paid and nonassessable.
Equity Line of Credit. On February 16, 2000, we entered into an Equity
Line of Credit Agreement with Moldbury Holdings Limited. Under this agreement,
we have the right, until February 15, 2003, to require that Moldbury Holdings
Limited purchase between $500,000 and $7,000,000 of our common stock. The
maximum and minimum amounts that we can require Moldbury Holdings Limited to
purchase at any given time is subject to a floating number based on our closing
bid price and our average trading volume in a thirty day period. The price per
share in each such purchase shall be the greater of (i) 89% of the average
closing bid price for the day of our notice to Moldbury Holdings Limited
requesting its purchase and the two days preceding our notice and the two days
following our notice and (ii) the minimum price set by us for such purchase.
Moldbury Holdings Limited is not required to make any purchase if the shares
being purchased are not registered pursuant to a then-effective registration
statement.
Preferred Stock
The Board is authorized, subject to any limitations prescribed by
Delaware law, to issue preferred stock in one or more series. The Board can fix
the rights, preferences and privileges of the shares of each series and any
qualifications, limitations or restrictions thereon.
The Board may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of common stock. The issuance of
35
<PAGE>
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes could, among other things, under
certain circumstances, have the effect of delaying, deferring or preventing a
change in control of NAM.
We have designated 2,100 shares of our preferred stock as Series A
Exchangeable Preferred Stock. The Series A Exchangeable Preferred Stock has the
following terms:
o No voting rights, except that holders of 75% of the Series A Exchangeable
Preferred Stock must approve changes to the Certificate of Designation for
the Series A Exchangeable Preferred Stock and issuances of our securities
with rights senior to the Series A Exchangeable Preferred Stock.
o Dividends accrue at a rate of 4% annually, unless our 30 day average
trading price is equal to or greater than $9.00 at any time after July 15,
2000, in which case dividends will cease to accrue and accrued but unpaid
dividends will be canceled. Dividends may be paid, at our option, in cash
or in registered common stock.
o In the event of our liquidation, the holders of the Series A Exchangeable
Preferred Stock shall receive, before any payments to our common stock
holders, $1,000 per share plus any accrued but unpaid dividends.
o In the event of a change in control of the corporation the holders of the
Series A Exchangeable Preferred Stock may receive, before any payments to
our common stock holders, $1,000 per share plus any accrued but unpaid
dividends.
o Holders of the Series A Exchangeable Preferred Stock may exchange such
shares into shares of our common stock at any time and must exchange such
shares upon our written request which cannot be made until the earlier of
February 14, 2002 or the date upon which the average closing bid price of
our common stock for five consecutive trading days is at least $10.00 and
our average daily trading volume for the thirty consecutive trading days
ending on the fifth day is at least 40,000 shares and the common stock
underlying the outstanding Series A Exchangeable Preferred Stock is
registered pursuant to a then-effective registration statement.
o Until July 15, 2000 the exchange rate for each share of the Series A
Exchangeable Preferred Stock is equal to the stated value of $1,000 divided
by the Set Price, which is $10.45.
o On July 15, 2000 and after, the exchange rate for each share of Series A
Exchangeable Preferred Stock is equal to $1,000 divided by the lesser of
(i) the Set Price or (ii) the Market Price, which is the average of any
three consecutive closing bid prices of our common stock during the thirty
trading day period ending on the day immediately prior to the exchange.
o In the event that at the time of any exchange, the exchange rate per share
is less than $6.00, at our option, we can pay the exchange in common stock,
cash, or a combination of common stock and cash.
o Until February 14, 2001, the exchange rate will never be greater than the
Set Price or less than $2.375.
36
<PAGE>
o After the earlier of an underwritten secondary offering of our common stock
or August 15, 2000, we can redeem the Series A Exchangeable Preferred
Stock, in whole or in part, at a price equal to $1,400 per share, plus
accrued, but unpaid dividends.
Warrants
In connection with the sale to certain investors of the Series A
Exchangeable Preferred Stock, we issued warrants to purchase up to 46,250 shares
of our common stock at a price per share of $10.52, exercisable on or after
August 15, 2000 and expiring on the close of business on August 15, 2005.
In connection with the Equity Line of Credit Agreement with Moldbury
Holdings Limited, we issued a warrant to Moldbury Holdings Limited to purchase
up to 60,000 shares of common stock at a price per share of $9.34, seventy-five
percent (75%) of which vested and became exercisable on February 17, 2000 and
the remaining twenty-five percent (25%) which will vest and become exercisable
after Moldbury Holdings Limited has invested three million five hundred thousand
dollars ($3,500,000) to purchase shares of common stock under the terms and
conditions of the Equity Line of Credit Agreement. Such warrants expire on the
close of business on February 17, 2003.
Redeemable Warrants
Each Warrant entitles the registered holder thereof to purchase one
share of common stock at a price of $6.00, subject to adjustment in certain
circumstances. These warrants expire on November 13, 2001.
The Warrants are redeemable by us at any time, subject to the prior
written consent of Joseph Stevens & Company, the managing underwriter in our
initial public offering, upon written notice of not less than 30 days, at a
price of $.05 per Redeemable Warrant, provided that the closing bid price of our
common stock on Nasdaq (or last sale price if quoted on a national securities
exchange) equals or exceeds 150% of the warrant exercise price per share for any
20 trading days within a period of 30 consecutive trading days ending on the
fifth trading day prior to the date of the notice of redemption. The Warrant
Holders shall lose their right to exercise their Warrants if such right is not
exercised prior to redemption by the Company on the date for redemption
specified in the notice of redemption or any later date specified in a
subsequent notice.
The exercise price and number of shares of common stock or other
securities or property issuable on exercise of the Redeemable Warrants are
subject to adjustment in certain circumstances, including in the event of a
stock dividend, recapitalization, reorganization, merger or consolidation of the
Company.
The Warrant holders do not have the rights or privileges of holders of
common stock. Upon notice to the holders of the Redeemable Warrant, we have the
right to reduce the exercise price or extend the expiration date of the
Redeemable Warrants.
The Redeemable Warrants may be exercised upon surrender of the
Redeemable Warrant certificate on or prior to the respective expiration date (or
earlier redemption date) of such Warrants at the office of Continental Stock
Transfer & Trust Company, the agent for the Warrants, with a completed and
executed "Election of Purchase" form and payment of the full exercise price for
the number of Warrants being exercised.
37
<PAGE>
Transfer Agent, Warrant Agent, and Registrar
Our Transfer Agent, Warrant Agent, and Registrar is Continental Stock
Transfer & Trust Company. Their address is 2 Broadway, New York, New York 10004.
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The shares of common stock and Redeemable Warrants offered hereby for
sale by Joseph Stevens & Company and by Marc Steinberg will be acquired by such
Selling Securityholders upon exercise of Unit Warrants and upon exercise of the
Warrants underlying the Unit Warrants. The Unit Warrants were sold to Joseph
Stevens & Company, the Managing Underwriter of our initial public offering, for
an aggregate purchase price of $14 in connection with our IPO as part of their
underwriting compensation. The Unit Warrants, which are exercisable during the
four-year period commencing November 13, 1997, entitle the holders thereof to
purchase, in the aggregate, up to 140,000 shares of common stock at an exercise
price of $5.80 per share and up to 140,000 Warrants to purchase 140,000 shares
of common stock at an exercise price of $6.00 per share.
The shares of common stock offered hereby for sale by Moldbury Holdings
Limited, Trinity Capital Advisors, Inc. and the holders of our Series A
Exchangeable Preferred Stock have been or will be acquired by such Selling
Securityholders pursuant to our Equity Line of Credit Agreement or a private
placement of our Series A Exchangeable Preferred Stock which was completed on
February 16, 2000 and February 15, 2000 respectively.
The table below sets forth certain information, as of the date of this
prospectus, with respect to the amount and percentage ownership of each selling
shareholder before this offering, the number of shares covered by this
prospectus with respect to each selling shareholder, and the amount and
percentage ownership of each selling shareholder after this offering, assuming
that all of the shares covered by this prospectus are sold by the selling
shareholders. None of the selling shareholders has had any position, office, or
other material relationship with us within the past three years, other than as a
result of the ownership of the shares or other securities of ours.
<TABLE>
<CAPTION>
Selling Security Holders
Number of Shares Number of % Owned Before % Owned After
Name of Security Holder being Registered Warrants Offering(1) Offering(2)
- ----------------------- ----------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Joseph Stevens & Co. 122,500 122,500 3.7 *
Marc Steinberg 8,376 8,376 * *
Moldbury Holding Limited 1,850,000 60,000 24.6 *
Trinity Capital Advisors, Inc. 10,000 - * *
Esquire Trade & Finance Inc. 121,622 11,250 1.7 *
Austinvest Anstalt Balzers 114,865 10,625 1.6 *
AMRO International, S.A. 236,486 21,875 3.3 *
Mabcrown, Inc. 27,027 2,500 * *
Total 2,490,876 237,126
</TABLE>
- --------------
* Less than one percent (1%). Assuming no purchase by any Selling Private
Placement Stockholder of Units, Common Stock or Redeemable Warrants offered
in the Offering.
(1) Based upon a total number of shares of Common Stock outstanding of
7,770,235.
38
<PAGE>
(2) Based upon a total number of shares of Common Stock outstanding of
7,770,235.
The shares and Redeemable Warrants held by the Selling Securityholders
may be sold or otherwise disposed of from time to time by the Selling
Securityholders, or by pledgees, donees, tranferees or other successors in
interest thereof, should they or any such other parties determine to make such
sales. We are unable to predict whether or when they will determine to proceed
with sales of common stock and/or Redeemable Warrants, as such determination
will be made by the Selling Securityholders or such other parties. The sale or
other disposition of common stock and/or Redeemable Warrants by the Selling
Securityholders, or by pledgees, donees, transferees or other successors in
interest thereof, may be effected from time to time in transactions (which may
include block transactions) on the Nasdaq SmallCap Market, the over-the-counter
market or otherwise, in private sales or in negotiated transactions, through the
writing of options on common stock or Redeemable Warrants, or a combination of
such methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, or at negotiated prices. The Selling Securityholders or such other
parties may effect such transactions by selling common stock or Redeemable
Warrants to or through broker-dealers or otherwise, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders and/or the purchasers of common stock and/or
Redeemable Warrants for whom such broker-dealers may act as agent or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). In addition, any
common stock or Redeemable Warrants covered by this prospectus which qualify for
sale pursuant to Rule 144 promulgated under the Securities Act may be sold under
Rule 144 rather than pursuant to this prospectus.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the shares of common stock offered by this
prospectus may not simultaneously engage in market making activities with
respect to the shares of common stock during the applicable 'cooling off'
periods prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Securityholders will need to comply with
applicable provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the timing of purchases and sales of
common stock by the Selling Securityholders.
The Selling Securityholders and any broker-dealers that act in
connection with the sale of common stock and/or Redeemable Warrants hereunder
might be deemed to be 'underwriters' within the meaning of Section 2(11) of the
Securities Act and any commissions received by them and any profit on the resale
of common stock or Redeemable Warrants as principal might be deemed to be
underwriting discounts and commissions under the Securities Act.
We have agreed to pay all expenses of registration incurred in
connection herewith; provided, however, that all selling and other expenses
incurred by the Selling Securityholders will be paid by the Selling
Securityholders.
39
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices of our common stock. Upon the
consummation of this offering, the Company will have 7,663,985 shares of common
stock outstanding (assuming complete draw down of equity line and no exercise of
any outstanding options or warrants from financing arrangements), of which
6,222,426 shares of common stock will be freely tradable without restriction or
further registration under the Securities Act, unless such shares are purchased
by "affiliates" as that term is defined in Rule 144 under the Securities Act.
The remaining 1,441,559 shares of common stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rule 144 or 701
promulgated under the Securities Act, which rules are summarized below.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this Prospectus, a person who has beneficially owned shares of
our common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
o 1% of the number of shares of common stock then outstanding; or
o the average weekly trading volume of the common stock on the Nasdaq
SmallCap Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors who purchases shares from
us in connection with a compensatory stock or option plan or other written
agreement is eligible to resell such shares 90 days after the effective date of
this offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.
40
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for us by Camhy Karlinsky & Stein LLP, New York, New York. A member
of our the firm has options in the Company to purchase 6,000 shares of common
stock.
EXPERTS
Our consolidated financial statements as of June 30, 1999 and June 30,
1998 and the years ended June 30, 1999 and 1998 included in this prospectus have
been so included in reliance upon the report of Grant Thornton LLP, independent
certified public accountants, given on the authority of such firm as experts in
auditing and accounting.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our certificate of incorporation provides that none of our directors
shall be liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
o under section 174 of the General Corporation Law; or
o for any transaction from which such director derives improper
personal benefit.
The effect of this provision is to eliminate our rights and those of our
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of his or her
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described
above. The limitations summarized above, however, do not affect our ability or
that of our stockholders to seek nonmonetary remedies, such as an injunction or
rescission, against a director for breach of his or her fiduciary duty.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, or persons controlling our Company pursuant to the foregoing
provisions, we have been informed that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in our affairs since the date
hereof or that the information contained herein is correct as of any date
subsequent to the date hereof. This prospectus does not constitute an
41
<PAGE>
offer to sell or a solicitation of an offer to buy any securities offered hereby
by anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making the offer is not qualified to do so or
to anyone to whom it is unlawful to make such offer or solicitation.
MARKET FOR OUR COMMON EQUITY
Our common stock and Redeemable Warrants are quoted on the NASDAQ
SmallCap Market under the trading symbols "NAMC" and "NAMCW," respectively, and
have been quoted since we commenced public trading on November 18, 1996. We
voluntarily delisted our 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 our
securities. The following table sets forth the range of high and low closing
sales prices (based on transaction data as reported by the NASDAQ SmallCap
Market) for each fiscal quarter during the periods indicated.
<TABLE>
<CAPTION>
Units Common Stock Warrants
High Low High Low High Low
Fiscal Year 2000:
<S> <C> <C> <C> <C> <C> <C>
First Quarter (7/1/99-9/30/99) NA NA $9.00 $2.00 $3.31 $1.03
Second Quarter (10/01/99-12/31//99)
NA NA 8.09 4.68 2.68 1.06
Fiscal Year 1999:
First quarter (07/l/98-9/30/98) NA NA $2.75 $1.25 $0.38 $0.13
Second quarter (10/01/98-12/31/98) NA NA 2.16 1.00 0.25 0.06
Third quarter (01/01/99-03/31/99) NA NA 1.63 0.69 0.19 0.13
Fourth quarter (04/01/99-06/30/99) NA NA 1.75 0.81 0.44 0.09
Fiscal Year 1998:
First quarter (07/l/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 (01-01/98-3/31/98) 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
</TABLE>
On March 15, 2000 the closing bid price for the common stock and
Warrants, as reported by the NASDAQ SmallCap Market, were $7.41 and $2.53,
respectively.
As of March 1, 2000 there were in excess of 300 holders of the
Company's securities.
42
<PAGE>
FINANCIAL STATEMENTS
Grant Thornton LLP, independent public accountants, have audited our
consolidated financial statements for the fiscal years ended June 30, 1999 and
1998.
Information in response to this item is set forth in the Financial
Statements, beginning on Page F-1 of this filing.
43
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets at December 31, 1999 (unaudited)
and June 30, 1999 F-3
Consolidated Statements of Operations for the six months
ended December 31, 1999 and 1998 (unaudited) and the
years ended June 30, 1999 and 1998 F-4
Consolidated Statement of Changes in Stockholders' Equity
and Comprehensive Loss for the six months ended
December 31, 1999 and 1998 (unaudited) and the years
ended June 30, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the six months
ended December 31, 1999 and 1998(unaudited) and the
years ended June 30, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8 - F-24
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, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and
comprehensive loss, 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, 1999 and 1998, and the consolidated results of
their operations and their consolidated cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Melville, New York
August 30, 1999
F-2
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1999 1999
--------------- -------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 866,020 $ 1,776,261
Marketable securities 638,318 436,283
Accounts receivable (net of allowance for doubtful
accounts of $110,000) 445,037 515,088
Other receivables 42,808 86,496
Prepaid expenses 66,908 79,918
------------ ------------
Total current assets 2,059,091 2,894,046
FURNITURE AND EQUIPMENT - AT COST,
less accumulated depreciation 306,201 269,393
OTHER ASSETS 30,712 37,514
------------ ------------
$ 2,396,004 $ 3,200,953
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 253,207 $ 313,740
Accrued liabilities 202,404 249,551
Accrued payroll and employee benefits 45,536 166,620
Deferred revenues 230,379 238,224
----------- -----------
Total current liabilities 731,526 968,135
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; shares
issued and outstanding, 3,416,233 and 3,370,739, respectively 3,416 3,371
Additional paid-in capital 4,828,875 4,797,637
Accumulated deficit (3,203,116) (2,663,446)
Accumulated other comprehensive income 35,303 95,256
------------ ------------
Total stockholders' equity 1,664,478 2,232,818
------------ ------------
$ 2,396,004 $ 3,200,953
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended December 31, Year ended June 30,
--------------------------------- -------------------------
1999 1998 1999 1998
-------------- -------------- ----------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenues $1,975,752 $2,112,256 $ 4,158,506 $ 3,847,975
--------- --------- ---------- ----------
Operating costs and expenses
Cost of services 494,408 565,788 1,081,309 969,345
Sales and marketing expenses 1,057,295 1,118,863 2,048,058 2,090,591
General and administrative expenses 1,219,421 1,100,676 2,256,309 1,932,158
--------- --------- ---------- ----------
2,771,124 2,785,327 5,385,676 4,992,094
--------- --------- ---------- ----------
Loss from operations (795,372) (673,071) (1,227,170) (1,144,119)
Other income (expenses)
Investment income (loss) 244,535 (259,432) (85,581) 510,063
Other income 11,167 10,102 17,986 4,922
--------- --------- ---------- ----------
255,702 (249,330) (67,595) 514,985
--------- --------- ---------- ----------
Loss before income taxes (539,670) (922,401) (1,294,765) (629,134)
Income taxes - - - -
--------- --------- ---------- ----------
NET LOSS $ (539,670) $ (922,401) $(1,294,765) $ (629,134)
========= ========= ========== ==========
Net loss per common share - basic and diluted $(.16) $(.28) $(.39) $(.19)
==== ==== === ===
Weighted average shares outstanding - basic and diluted 3,413,185 3,334,978 3,337,623 3,334,978
========== ========== ========== ==========
</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
AND COMPREHENSIVE LOSS
Six months ended December 31, 1999 (unaudited) and
years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Common stock Additional other
------------------------ paid-in Accumulated comprehensive
Shares Amount capital deficit income (loss)
---------- ------- --------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at July 1, 1997 3,334,978 $3,335 $4,772,569 $ (739,547) $ 79,224
Compensation related to stock
option plan 5,610
Net loss (629,134)
Change in unrealized gain (loss) on
marketable securities (138,112)
Earned portion of stock bonus plan
--------- ------ ---------- ----------- ---------
Comprehensive loss
Balances at June 30, 1998 3,334,978 3,335 4,778,179 (1,368,681) (58,888)
Compensation related to stock
option plan 19,494
Shares issued pursuant to restricted
stock award 35,761 36 (36)
Net loss (1,294,765)
Change in unrealized gain (loss) on
marketable securities 154,144
Earned portion of stock bonus plan
--------- ------ ---------- ----------- ---------
Comprehensive loss
Balances at June 30, 1999
(brought forward) 3,370,739 3,371 4,797,637 (2,663,446) 95,256
</TABLE>
[RESTUB]
<TABLE>
<CAPTION>
Unearned
compensation - Total
stock stockholders' Comprehensive
bonus plan equity loss
------------- ------------- -------------
<S> <C> <C> <C>
Balances at July 1, 1997 $(205) $4,115,376
Compensation related to stock
option plan 5,610
Net loss (629,134) $ (629,134)
Change in unrealized gain (loss) on
marketable securities (138,112) (138,112)
Earned portion of stock bonus plan 102 102
---- ----------- ------------
Comprehensive loss $ (767,246)
===========
Balances at June 30, 1998 (103) 3,353,842
Compensation related to stock
option plan 19,494
Shares issued pursuant to restricted
stock award
Net loss (1,294,765) $(1,294,765)
Change in unrealized gain (loss) on
marketable securities 154,144 154,144
Earned portion of stock bonus plan 103 103
---- ----------- ------------
Comprehensive loss $(1,140,621)
===========
Balances at June 30, 1999
(brought forward) - 2,232,818
</TABLE>
F-5
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS (continued)
Six months ended December 31, 1999 (unaudited) and
years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Common stock Additional other
------------------------ paid-in Accumulated comprehensive
Shares Amount capital deficit income (loss)
---------- -------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1999
(carried forward) 3,370,739 $3,371 $4,797,637 $(2,663,446) $ 95,256
Compensation related to stock
option plan 10,444
Shares issued pursuant to restricted
stock awards 36,744 36 (36)
Shares issued upon exercise of stock
options 8,750 9 19,110
Gain on shareholder's stock 1,720
Net loss (539,670)
Change in unrealized gain (loss) on
marketable securities (59,953)
--------- ------ ---------- ----------- ---------
Comprehensive loss
Balances at December 31, 1999
(unaudited) 3,416,233 $3,416 $4,828,875 $(3,203,116) $ 35,303
========= ====== ========== =========== =========
</TABLE>
[RESTUB]
<TABLE>
<CAPTION>
Unearned
compensation - Total
stock stockholders' Comprehensive
bonus plan equity loss
-------------- ----------- -------------
<S> <C> <C> <C>
Balances at June 30, 1999
(carried forward) $ - $2,232,818
Compensation related to stock
option plan 10,444
Shares issued pursuant to restricted
stock awards
Shares issued upon exercise of stock
options 19,119
Gain on shareholder's stock 1,720
Net loss (539,670) $ (539,670)
Change in unrealized gain (loss) on
marketable securities (59,953) (59,953)
----- ---------- ------------
Comprehensive loss $ (599,623)
============
Balances at December 31, 1999
(unaudited) $ - $1,664,478
===== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
NAM Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended December 31, Year ended June 30,
--------------------------------- ---------------------------
1999 1998 1999 1998
-------------- -------------- ----------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (539,670) $ (922,401) $(1,294,765) $ (629,134)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 59,020 49,350 101,948 75,488
Provision for bad debts - - 20,000 10,000
(Gains) losses on sales of marketable securities (213,697) 303,130 166,259 (356,390)
Losses on sales/disposals of furniture and
equipment 383 523 490 129
Earned portion of stock bonus plan - 52 103 102
Compensation related to stock option plan 10,444 17,754 19,494 5,610
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable 70,051 (49,538) (149,788) 12,960
(Increase) decrease in other receivables (11,738) (11,408) (13,125) 16,545
Decrease (increase) in prepaid expenses 13,010 (59,456) (34,838) 9,602
Decrease (increase) in other assets 2,911 (8,734) (1,715) 7,848
(Decrease) increase in accounts payable and
accrued liabilities (107,680) 24,424 84,327 195,189
(Decrease) increase in accrued payroll and
employee benefits (121,084) (83,214) 40,259 (47,754)
(Decrease) increase in deferred revenues (7,845) 18,878 87,835 11,673
------------ ----------- ----------- ----------
Net cash used in operating activities (845,895) (720,640) (973,516) (688,132)
------------ ----------- ----------- ----------
Cash flows from investing activities
Purchases of marketable securities (718,056) (818,813) (1,334,887) (2,313,195)
Proceeds from sales of marketable securities 669,765 1,708,647 2,267,481 2,311,367
Proceeds from maturities of marketable securities - 570,000 570,000 2,075,000
Decrease (increase) in receivable for securities sold 55,426 - (55,426) -
Decrease in payable for securities purchased - - - (15,263)
Purchases of furniture and equipment (92,320) (51,898) (115,471) (133,113)
Sales of furniture and equipment - - 800 5,130
------------ ----------- ----------- ----------
Net cash (used in) provided by investing activities (85,185) 1,407,936 1,332,497 1,929,926
------------ ----------- ----------- ----------
Cash flows from financing activities
Issuance of common stock 19,119 - - -
Gain on shareholder's stock 1,720 - - -
------------ ----------- ----------- ----------
Net cash provided by financing activities 20,839 - - -
------------ ----------- ----------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (910,241) 687,296 358,981 1,241,794
Cash and cash equivalents at beginning of period 1,776,261 1,417,280 1,417,280 175,486
------------ ----------- ----------- ----------
Cash and cash equivalents at end of period $ 866,020 $ 2,104,576 $ 1,776,261 $ 1,417,280
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 (unaudited) and June 30, 1999
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.
In June 1999, NA&M was merged into NAM, along with several other
wholly-owned subsidiaries, National Video Conferencing Inc. and NAMSYS
Corporation. Additionally, Michael Marketing LLC and clickNsettle.com LLC,
wholly-owned limited liability companies, were formed in June 1999 in
Delaware. Michael Marketing, Inc., a Delaware corporation formed in
November 1991, formerly a wholly-owned subsidiary, was merged into Michael
Marketing LLC in June 1999.
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,
Michael Marketing LLC, clickNsettle.com LLC and its merged entities,
NA&M, National Video Conferencing Inc. and NAMSYS Corporation,
effective in 1999, (collectively referred to herein as the "Company").
The Company operates in one business segment, ADR. All significant
intercompany transactions and balances were eliminated in
consolidation.
F-8
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 2 (continued)
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 accumulated other
comprehensive income (loss), net of related tax effects, within
stockholders' equity. The Company categorizes 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.
F-9
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 2 (continued)
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. Leasehold improvements
are amortized over the life of the remaining lease.
g. Product Development Costs
Product development costs include expenses incurred by the Company to
develop, enhance, manage and operate the Company's website and its
internet case resolution service, click Nsettle.com. Product
development costs are expensed as incurred.
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 commercial issues, construction, employment, matrimonial and
worker's compensation cases. The Company incurred $389,553 and $566,084
for advertising and external public relations costs in fiscal 1999 and
1998, respectively.
F-10
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 2 (continued)
j. 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. 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, 1999 and 1998.
k. Unaudited Interim Financial Statements
The unaudited interim financial statements as of December 31, 1999 and
for the six months ended December 31, 1999 and 1998 have been prepared
on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
information set forth therein, in accordance with generally accepted
accounting principles. The results of operations for the six months
ended December 31, 1999 are not necessarily indicative of the results
to be expected for the full year.
NOTE 3 - COMPREHENSIVE INCOME (LOSS)
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of SFAS No.
130 had no impact on the Company's net loss or stockholders' equity. SFAS
No. 130 requires unrealized gains or losses on marketable securities which,
prior to adoption, were reported separately in stockholders' equity, to be
included in accumulated other comprehensive income (loss). Prior year
financial statements have been reclassified to conform to the requirements
of SFAS No. 130.
Accumulated other comprehensive loss represents the unrealized gain (loss)
on marketable equity securities, net of tax effects of $0 in 1999 and 1998.
F-11
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 3 (continued)
The components of comprehensive loss, net of tax effects, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Net loss $(1,294,765) $(629,134)
Unrealized gain (loss) on marketable securities, net of
tax effects of $ 0 in 1999 and 1998, respectively
Unrealized gains (losses) arising in period 95,256 (59,963)
Reclassification adjustment - gain (loss) included
in net loss 58,888 (78,149)
----------- ---------
Net unrealized gain (loss) 154,144 (138,112)
----------- ---------
Comprehensive loss $(1,140,621) $(767,246)
=========== =========
</TABLE>
F-12
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 4 - 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, 1999
Equity securities $ 341,027 $95,256 $ - $ 436,283
----------- ------- --------- -----------
Total marketable securities $ 341,027 $95,256 $ - $ 436,283
=========== ======= ========= ===========
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>
Proceeds on sales of securities were $2,267,481 and $2,311,367 for the
years ended June 30, 1999 and 1998, respectively. During fiscal 1999 and
1998, gross gains of $235,431 and $386,155, respectively, and gross losses
of $401,690 and $29,765, respectively, were realized on these sales. Net
unrealized gains (losses) on marketable securities were $95,256 and
$(58,888) at June 30, 1999 and 1998, respectively. During fiscal 1999 and
1998, no income taxes (benefits) were provided on the unrealized gains
(losses) due to the Company's net operating loss.
F-13
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 5 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Furniture $ 186,060 $ 169,717
Equipment 382,011 307,311
Leasehold improvements 21,993 -
--------- ---------
590,064 477,028
Less accumulated depreciation (320,671) (228,349)
--------- ---------
$ 269,393 $ 248,679
========= =========
</TABLE>
Depreciation expense for the years ended June 30, 1999 and 1998 was $93,467
and $80,288, respectively.
NOTE 6 - INCOME TAXES
Temporary differences which give rise to deferred taxes are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
------------ --------
<S> <C> <C>
Deferred tax assets
Net operating loss and other carryforwards $ 840,000 $ 406,000
Provision for bad debts 44,000 36,000
Deferred compensation 39,000 21,000
Deferred rent and other 33,000 10,000
Depreciation 9,000 -
--------- ---------
965,000 473,000
Deferred tax liabilities
Depreciation - 6,000
--------- ---------
Net deferred tax asset before valuation allowance 965,000 467,000
Valuation allowance (965,000) (467,000)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
</TABLE>
F-14
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 6 (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>
1999 1998
----------- ---------
<S> <C> <C>
Benefit at statutory rate $(440,220) $(213,906)
State and local benefit, net of Federal tax (74,750) (42,096)
Nondeductible expenses/nontaxable (income) - net 16,592 (24,668)
Increase in the valuation allowance 498,378 280,670
--------- ---------
$ - $ -
========= =========
</TABLE>
The provision for Federal income taxes has been determined on the basis of
a consolidated tax return. At June 30, 1999, the Company had a net
operating loss carryforward for Federal income tax reporting purposes
amounting to approximately $2,062,000, expiring from 2012 through 2019.
Additionally, the Company has a net capital loss carryforward for Federal
income tax reporting purposes amounting to $166,000 expiring in 2004. No
Federal income taxes were paid in the years ended June 30, 1999 and 1998.
NOTE 7 - STOCKHOLDERS' EQUITY
a. Redeemable Warrants
In November 1996, the Company completed an initial public offering
("IPO") which consisted of 1,400,000 units, each unit consisting of one
share of common stock and one redeemable warrant. 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
underwriter.
F-15
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 7 (continued)
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.
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
$103 and $102 during the years ended June 30, 1999 and 1998,
respectively, representing the amortization of unearned compensation
over the vesting period. As of June 30, 1999, 36,744 awards are
outstanding, all of which will vest in July 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 vested in June 1999.
F-16
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 7 (continued)
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 was amended in December 1998 to increase the
number of shares of common stock authorized for issuance thereunder
from 750,000 shares to 2,000,000 shares. 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.
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.
In December 1998, the Plan was amended to increase the number of
options granted annually to each non-employee director from options to
purchase 1,000 shares to options to purchase 2,500 shares.
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-17
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 7 (continued)
The Company's stock option awards granted to employees, directors and
consultants as of and for the years ended June 30, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- --------------------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
-------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 373,500 $2.01 155,500 $ 3.18
Awards granted 590,500 $2.02 451,500 $ 2.22
Awards exercised - -
Awards canceled (55,000) $1.71 (233,500) $ 3.20
-------- --------
Outstanding at end of year 909,000 $2.03 373,500 $ 2.01
======== ========
Options exercisable at year-end 201,500 $3.37 37,000 $ 2.49
======== ========
Weighted-average fair value
of options granted during
the year $ .75 $ .99
</TABLE>
The following information applies to options outstanding and
exercisable at June 30, 1999:
<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> <C>
$.81 to $1.69 615,000 7.64 $1.40 51,500 $1.60
$1.78 to $2.25 196,000 6.81 $2.02 80,000 $2.01
$3.00 to $4.00 37,000 6.89 $3.41 20,000 $3.00
$5.00 to $10.00 61,000 8.00 $7.62 50,000 $7.50
-------- --------
909,000 201,500
======== ========
</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, 1999, 1,091,000 shares
were available for granting of options under the Plan.
F-18
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 7 (continued)
The Company accounts for stock-based compensation under the guidelines
of APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," as allowed by Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation."
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 $19,494 and $5,610 was recognized in
fiscal 1999 and 1998, 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 "fair
value" methodology prescribed by SFAS No. 123, the Company's net loss
and net loss per share for the years ended June 30, 1999 and 1998 would
be reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Net loss
As reported $(1,294,765) $(629,134)
Pro forma (1,520,232) (762,728)
Net loss per common share - basic and diluted
As reported $(.39) $(.19)
Pro forma (.46) (.23)
</TABLE>
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 1999
and 1998, respectively: dividend yields of zero for both years;
risk-free interest rates ranging from 4.51% to 5.50% in 1999 and 5.52%
to 5.94% in 1998; expected terms of 4 years in 1999 and 2 to 5 years in
1998; and expected stock price volatility of 74.61% in 1999 and 64.15%
in 1998.
F-19
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES
Certain members of the board of directors perform services for the benefit
of the Company. The related expenditures for these services for the years
ended June 30, 1999 and 1998 were $49,038 and $75,425, respectively.
In June 1999, the Company purchased from NAM's Chief Executive Officer the
rights to a time-share property to be used as part of an employee incentive
program. The sales price of $18,450 was established at the current market
value of the time share.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
a. Leases
As of June 30, 1999, the Company has lease agreements for equipment and
office space. Rent expense amounted to $220,542 and $205,308 for the
years ended June 30, 1999 and 1998, respectively. The minimum lease
payments under noncancelable leases as of June 30, 1999 are as follows:
2000 $197,500
2001 187,200
2002 173,400
2003 176,300
2004 89,300
--------
$823,700
========
b. Employment/Consulting Agreements
The Company's employment agreement with its Chief Executive Officer
expires June 30, 2002 and provides for an annual base salary of
$225,000 as of July 1, 1997, 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-20
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 9 (continued)
The Company has also entered into employment agreements with two
officers expiring through June 14, 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:
2000 $186,397
2001 112,260
--------
$298,657
========
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. In November
1998, the agreement was amended to reduce the fee as of October 1998 to
$2,000 per month. The related expense for the year ended June 30, 1999
and 1998 was $30,000 and $48,000, respectively.
c. Advertising
As of March 1999, the Company signed a noncancellable, two-year media
agreement to advertise its services on televised sports events in New
York. Minimum commitments under the contract are approximately $115,000
and $59,000 in 2000 and 2001, respectively.
d. Legal
The Company is subject to various forms of litigation in the normal
course of business. It is the opinion of management that the outcome of
such litigation will not have a material adverse effect on the
Company's financial condition and results of operations.
F-21
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 10 - EMPLOYEE RETIREMENT PLAN
Effective January 1, 1999, the Company implemented a non-contributory
401(k) savings and retirement plan, whereby eligible employees may
contribute 15% of their salaries up to the maximum allowed under the
Internal Revenue Code. Although the Company may make discretionary
contributions, none were made in 1999.
NOTE 11 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1999 and 1998, the Company's financial instruments included
cash and cash equivalents, marketable securities, receivables and accounts
payable. The fair values of cash and cash equivalents, receivables and
accounts 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.
NOTE 12 - 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 it services to insurance companies and law
firms. One insurance company customer represented approximately 12% of
total revenues for the year ended June 30, 1998. However, the Company works
with more than 70 individual offices of the insurance company, which, in
total, equal the aforementioned percentages of revenue. In fiscal 1999, no
customer exceeded 10% of total revenue. The Company monitors exposure to
credit losses and maintains allowances for anticipated losses considered
necessary under the circumstances.
F-22
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 13 - UNAUDITED INTERIM FINANCIAL INFORMATION
a. Series A Exchangeable Preferred Stock
On February 15, 2000, the Company issued 1,850 shares of its Series A
Exchangeable Preferred Stock for an aggregate purchase price of $1,850,000.
Holders of the Series A Exchangeable Preferred Stock may exchange such
shares into shares of NAM's common stock at any time and must exchange such
shares at NAM's request, which cannot be made until the earlier of February
14, 2002 or the date upon which the average closing bid price of NAM's
common stock for five consecutive trading days is at least $10 and the
average daily trading volume for the thirty consecutive trading days ending
on the fifth day is at least 40,000 shares and the common stock underlying
the outstanding Series A Exchangeable Preferred Stock is registered
pursuant to a then-effective registration statement.
Until July 15, 2000, the exchange rate for each share of the Series A
Exchangeable Preferred Stock is equal to $1,000 divided by $10.45 . On July
15, 2000 and thereafter, the exchange rate for each share of Series A
Exchangeable Preferred Stock is equal to the stated value of $1,000 divided
by the lesser of (i) $10.45 or (ii) the market price, which is the average
of any three consecutive closing bid prices of NAM's common stock selected
by the holders during the thirty trading day period ending on the day
immediately prior to the exchange. Until February 14, 2001, the exchange
rate will never be greater than $10.45 or less than $2.375.
The Series A Exchangeable Preferred Stock accrues dividends at a rate of 4%
annually, unless the thirty-day average trading price of NAM's common stock
is equal to or greater than $9 at any time after July 15, 2000, in which
case dividends will cease to accrue and accrued but unpaid dividends will
be canceled. Dividends may be paid at the Company's option, in cash or in
registered common stock.
In connection with the sale of the Series A Exchangeable Preferred Stock,
the Company issued warrants to the preferred holders to purchase an
aggregate of 46,250 shares of common stock at a price per share of $10.52.
The warrants expire on August 15, 2005. The Company issued 5,000 shares of
its common stock and paid a fee of $92,500 to the placement agent, Trinity
Capital Advisors, Inc., in connection with the placement.
b. Equity Line of Credit Agreement
On February 16, 2000, the Company entered into an Equity Line of Credit
Agreement with Moldbury Holdings Limited. Under this agreement, the Company
has the right, until February 15, 2003, to require that Moldbury Holdings
Limited purchase between $500,000 and $7,000,000 of the Company's common
stock. The maximum and minimum amounts that Moldbury Holdings Limited would
be required to purchase at any given time are subject to a floating number
based on the closing bid price of NAM's common stock and the average
trading volume of such stock in a thirty-day period. The price per share in
each such purchase shall be the greater of (i) 89% of the average closing
bid price for the
F-23
<PAGE>
NAM Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 (unaudited) and June 30, 1999
NOTE 13 (continued)
day of NAM's notice to Moldbury Holdings Limited requesting its purchase
and the two days preceding the notice and the two days following the notice
and (ii) the minimum price set by the Company for such purchase. Moldbury
Holdings Limited is not required to make any purchase if the shares being
purchased are not registered pursuant to a then-effective registration
statement. Under the agreement, the equity line may be increased on or
about April 16, 2001 to $14,000,000 provided that certain criteria are met
by the Company including the achievement of minimum levels of cash and cash
equivalents and quarterly revenues.
In connection with the Equity Line of Credit Agreement, the Company issued
a warrant to Moldbury Holdings Limited to purchase 60,000 shares of common
stock at a price per share of $9.34, of which 45,000 warrants were issued
on February 17, 2000 and the remaining 15,000 warrants are to be issued
immediately after Moldbury Holdings Limited has invested $3,500,000 to
purchase shares of common stock under the terms and conditions of the
Equity Line of Credit Agreement. The warrants expire on August 16, 2003.
The Company issued 5,000 shares of its common stock to the placement agent
for the offering, Trinity Capital Advisors, Inc. They are also entitled to
a fee of 5% of the gross proceeds when Moldbury Holdings Limited purchases
the Company's common stock, at the Company's request, pursuant to the
Equity Line of Credit Agreement.
F-24
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation provides that none of our directors
shall be liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability
o for any breach of the director's duty of loyalty to us or our
stockholders.
o for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law.
o under section 174 of the Delaware General Corporation Law.
o for any transaction from which such director derives improper
personal benefit.
The effect of this provision is to eliminate our rights and those of
our stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of his or her
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described
above. The limitations summarized above, however, do not affect our ability or
that of our stockholders to seek nonmonetary remedies, such as an injunction or
rescission, against a director for breach of his or her fiduciary duty.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, or persons controlling our Company pursuant to the foregoing
provisions, we have been informed that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
It is expected that the following expenses will be incurred in
connection with the issuance and distribution of the common stock being
registered. All such expenses are being paid by us.
SEC Registration fee.......................................$8,746
*Printing and EDGARization................................$10,000
*Accountants' fees and expenses...........................$10,000
*Attorneys' fees and expenses.............................$20,000
*Miscellaneous.............................................$3,000
*Total....................................................$51,746
- ----------------
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On February 15, 2000, we sold 1,850 shares of our Series A Exchangeable
Preferred Stock for an aggregate purchase price of $1,850,000. We paid $92,500
to Trinity Capital Advisors, Inc., who acted as placement agent for such
II-1
<PAGE>
offering. The offering was made pursuant to Rule 506 of the Securities Act of
1933, as amended. The shares were purchased by the following entities:
Purchaser
Esquire Trade & Finance Inc 450 Shares
Austinvest Anstalt Balzers 425 Shares
AMRO International, S. A. 875 Shares
Mabcrown, Inc. 100 Shares
On February 15, 2000, we issued Warrants to purchase 46,250 shares of
our common stock at an exercise price of $10.52 per share. These Warrants were
issued as part of the purchase of our Series A Exchangeable Preferred Stock. The
issuance was made pursuant to Rule 506 of the Securities Act of 1933, as
amended. The Warrants were issued to the following entities:
Purchaser
Esquire Trade & Finance Inc 11,250 Warrant shares
Austinvest Anstalt Balzers 10,625 Warrant shares
AMRO International, S. A. 21,875 Warrant shares
Mabcrown, Inc. 2,500 Warrant shares
On February 15, 2000, we issued 10,000 shares of our common stock to
Trinity Capital Advisors, Inc. as part of their placement agent fee for the sale
of our Series A Exchangeable Preferred Stock and the Equity Line of Credit. The
issuance was made pursuant to Rule 506 of the Securities Act of 1933, as
amended.
On February 17, 2000, we issued a Warrant to Moldbury Holdings Limited
to purchase up to 60,000 shares of our common stock at an exercise price of
$9.34 per share. This Warrant was issued as part of our Equity Line of Credit.
The offering was made pursuant to Rule 506 of the Securities Act of 1933, as
amended. The issuance was made pursuant to Rule 506 of the Securities Act of
1933, as amended.
ITEM 27. EXHIBITS
Exhibit Number Description
-------------- -----------
3.1(a) Certificate of Incorporation, as amended (1)
3.1(b) Certificate of Designation of Series A Exchangeable
Preferred Stock, filed with the State of Delaware
Office of the Secretary of State on February 15,
2000*
3.2 By-Laws of the Company, as amended (2)
4.1 Specimen of share of Company's common stock (3)
4.2 Form of Redeemable Warrant Agreement to be entered
into between Company and Continental Stock Transfer &
Trust Co., including form of Redeemable Warrant
Certificate (3)
II-2
<PAGE>
4.3 Form of Certificate evidencing shares of Series A
Exchangeable Preferred Stock*
5.1 Opinion of Camhy Karlinsky & Stein LLP, counsel for
the Registrant*
10.1 1996 Stock Option Plan, amended and restated (2)
10.2 Employment Agreement between Company and Roy Israel
(4)
10.2.1 Amendment to Employment Agreement between Company and
Roy Israel (2)
10.3 Employment Agreement between Company and Cynthia
Sanders (2)
10.4 Employment Agreement between Company and Daniel
Jansen (1)
10.5 Employment Agreement between Company and Patricia
Giuliani-Rheaume (5)
10.6 Employment Agreement between Company and Robert P.
Mack (7)
10.7 Lease Agreement for Great Neck, New York facility (1)
10.7.1 Amendment to Lease Agreement for Great Neck, New York
facility (6)
10.8 Exchangeable Preferred Stock and Warrants Purchase
Agreement, dated as of February 15, 2000*
10.9 Preferred Stock Registration Rights Agreement, dated
as of February 15, 2000*
10.10 Form of Stock Purchase Warrant*
10.11 Private Equity Line of Credit Agreement between
Moldbury Holdings Limited and the Company, dated as
of February 16, 2000*
10.12 Private Equity Line of Credit Registration Rights
Agreement, dated as of February 16, 2000*
10.13 Stock Purchase Warrant for Moldbury Holdings Limited*
21.1 List of Subsidiaries*
23.1 Consent of Grant Thornton LLP*
23.2 Consent of Camhy Karlinsky & Stein LLP (included in
Exhibit 5.1)*
II-3
<PAGE>
24.1 Power of Attorney*
- --------------------
*filed herewith.
(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 1998
Annual Report on Form 10-KSB.
(3) Incorporated herein in its entirety by reference to Amendment No. 1 to
the Company's Registration Statement on Form SB-2, Registration No.
333-9493, as filed with the Securities and Exchange Commission on
October 3, 1996.
(4) Incorporated herein in its entirety by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter ended December 31,
1997.
(5) Incorporated herein in its entirety by reference to the Company's 1997
Annual Report on Form 10-KSB.
(6) Incorporated herein in its entirety by reference to the Company's 1999
Annual Report on Form 10-KSB.
(7) Incorporated herein in its entirety by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1999.
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
prospectus required by section 10(a)(3) of the Securities Act, any material
information with respect to the plan of distribution not previously disclosed in
this registration statement or any fundamental change to the information in this
registration statement.
2. That for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination of
the offering.
II-4
<PAGE>
4. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, offices and controlling persons of
the Registrant pursuant to the Registrant's certificate of incorporation,
indemnification agreement, insurance or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly authorized this
Registration Statement or amendment thereto to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Great Neck, State of New
York, on March 27, 2000.
NAM CORPORATION
By: /s/ Roy Israel
--------------------------------------
Roy Israel
Chief Executive Officer, President and
Chairman of the Board
Power of Attorney
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints Roy Israel,
Patricia Giuliani-Rheaume and Robert P. Mack, each as his or her true and lawful
attorney-in-fact and agent for him or her and in his or her name, place and
stead, in any and all capacities to sign this, and any or all amendments to
this, Registration Statement on Form SB-2, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Roy Israel President, Chief Executive Officer and Chairman of the March 27, 2000
- ----------------------------- Board (Principal Executive Officer)
Roy Israel
/s/ Patricia Giuliani-Rheaume Vice President, Chief Financial Officer and Treasurer March 27, 2000
- ----------------------------- (Principal Financial and Accounting Officer)
Patricia Giuliani-Rheaume
/s/ Cynthia Sanders Vice President and Director March 27, 2000
- -----------------------------
Cynthia Sanders
/s/ DanielJansen National Accounts Manager and Director March 27, 2000
- -----------------------------
Daniel Jansen
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Ronald Katz Director March 27, 2000
- -----------------------------
Ronald Katz
/s/ Jeffrey L. Lederer Director March 27, 2000
- -----------------------------
Jeffrey L. Lederer
/s/ Anthony J.Mercorella Director March 27, 2000
- -----------------------------
Anthony J. Mercorella
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
3.1(a) Certificate of Incorporation, as amended (1)
3.1(b) Certificate of Designation of Series A Exchangeable
Preferred Stock, filed with the State of Delaware
Office of the Secretary of State on February 15, 2000*
3.2 By-Laws of the Company, as amended (2)
4.1 Specimen of share of Company's common stock (3)
4.2 Form of Redeemable Warrant Agreement to be entered
into between Company and Continental Stock Transfer &
Trust Co., including form of Redeemable Warrant
Certificate (3)
4.3 Form of Certificate evidencing shares of Series A
Exchangeable Preferred Stock*
5.1 Opinion of Camhy Karlinsky & Stein LLP, counsel for
the Registrant*
10.1 1996 Stock Option Plan, amended and restated (2)
10.2 Employment Agreement between Company and Roy Israel
(4)
10.2.1 Amendment to Employment Agreement between Company and
Roy Israel (2)
10.3 Employment Agreement between Company and Cynthia
Sanders (2)
10.4 Employment Agreement between Company and Daniel Jansen
(1)
10.5 Employment Agreement between Company and Patricia
Giuliani-Rheaume (5)
10.6 Employment Agreement between Company and Robert P.
Mack (7)
10.7 Lease Agreement for Great Neck, New York facility (1)
10.7.1 Amendment to Lease Agreement for Great Neck, New York
facility (6)
<PAGE>
10.8 Exchangeable Preferred Stock and Warrants Purchase
Agreement, dated as of February 15, 2000*
10.9 Preferred Stock Registration Rights Agreement, dated
as of February 15, 2000*
10.10 Form of Stock Purchase Warrant *
10.11 Private Equity Line of Credit Agreement between
Moldbury Holdings Limited and the Company, dated as of
February 16, 2000*
10.12 Private Equity Line of Credit Registration Rights
Agreement, dated as of February 16, 2000*
10.13 Stock Purchase Warrant for Moldbury Holdings Limited*
21.1 List of Subsidiaries*
23.1 Consent of Grant Thornton LLP*
23.2 Consent of Camhy Karlinsky & Stein LLP (included in
Exhibit 5.1)*
24.1 Power of Attorney*
- --------------------
*filed herewith.
(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 1998
Annual Report on Form 10-KSB.
(3) Incorporated herein in its entirety by reference to Amendment No. 1 to
the Company's Registration Statement on Form SB-2, Registration No.
333-9493, as filed with the Securities and Exchange Commission on
October 3, 1996.
(4) Incorporated herein in its entirety by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter ended December 31,
1997.
(5) Incorporated herein in its entirety by reference to the Company's 1997
Annual Report on Form 10-KSB.
(6) Incorporated herein in its entirety by reference to the Company's 1999
Annual Report on Form 10-KSB.
(7) Incorporated herein in its entirety by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1999.
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
_________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "NAM CORPORATION", FILED IN THIS OFFICE ON THE FIFTEENTH DAY OF
FEBRUARY, A.D. 2000, AT 10:30 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2367783 8100 [GRAPHIC OMITTED]
001075225 AUTHENTICATION: 0257938
DATE: 02-15-00
<PAGE>
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES A EXCHANGEABLE PREFERRED STOCK OF
NAM CORPORATION
PURSUANT TO SECTION 151
OF THE DELAWARE GENERAL CORPORATION LAW
The undersigned, being the Chief Executive Officer and the
Secretary of NAM Corporation, a corporation organized and existing under and by
virtue of the laws of the State of Delaware (hereinafter the "Corporation"), DO
HEREBY CERTIFY:
FIRST: That pursuant to authority expressly granted and vested in the
Board of Directors of said Corporation by the provisions of the Corporation's
Certificate of Incorporation, said Board of Directors adopted the following
resolution on February 7, 2000 determining the designations, preferences and
rights of its Series A Exchangeable Preferred Stock:
RESOLVED: That pursuant to the authority vested in the Board of
Directors of the Corporation by the Corporation's Certificate of Incorporation
(the "Certificate of Incorporation"), a series of Preferred Stock of the
Corporation be, and it hereby is, created out of the authorized but unissued
shares of the capital stock of the Corporation, such series to be designated
Series A Exchangeable Preferred Stock (the "Series A Exchangeable Preferred
Stock"), to consist of 1,850 shares, par value $0.001 per share, of which the
preferences and relative and other rights, and the qualifications, limitations
or restrictions thereof, shall be as set forth in the Certificate of
Designations annexed hereto:
1. Number of Shares of Series A Exchangeable Preferred Stock. Of the
5,000,000 shares of authorized but unissued Preferred Stock, $0.001 par value
("Preferred Stock") of the Corporation, one thousand eight hundred fifty (1,850)
shares shall be designated and known as Series A Exchangeable Preferred Stock,
par value $0.001 per share ("Series A Exchangeable Preferred Stock").
2. Voting.
(a) Unless required by law, no holder of any shares of Series A
Exchangeable Preferred Stock shall be entitled to vote at any meeting of
stockholders of the Corporation (or any written actions of stockholders in lieu
of meetings) with respect to any matters presented to the stockholders of the
Corporation for their action or consideration. Notwithstanding the foregoing,
the Corporation shall provide each holder of record of Series A Exchangeable
Preferred Stock with timely notice of every meeting of stockholders of the
Corporation and shall provide each holder with copies of all proxy materials
distributed in connection therewith.
(b) So long as shares of Series A Exchangeable Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by the Delaware General Corporation Law) of
the holders of at least 75% in interest of the then outstanding shares of Series
A Exchangeable Preferred Stock:
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(i) alter or change the rights, preferences or
privileges of the Series A Exchangeable Preferred Stock;
(ii) create any new class or series of capital stock
having a preference over the Series A Exchangeable Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation ("Senior Securities") or alter or change the rights, preferences or
privileges of any Senior Securities so as to affect adversely the Series A
Exchangeable Preferred Stock;
(iii) increase the authorized number of shares of Series
A Exchangeable Preferred Stock; or
(iv) do any act or thing not authorized or contemplated
by this Certificate of Designations which would result in taxation of the
holders of shares of the Series A Exchangeable Preferred Stock under Section 305
of the Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
In the event the holders of at least 75% in interest of the then
outstanding shares of Series A Exchangeable Preferred Stock agree to allow the
Corporation to alter or change the rights, preferences or privileges of the
shares of Series A Exchangeable Preferred Stock, pursuant to subsection (b)
above, so as to affect the Series A Exchangeable Preferred Stock, then the
Corporation will deliver notice of such approved change to the holders of the
Series A Exchangeable Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right,
but not the obligation, for a period of thirty (30) days to exchange any and all
shares of then held Series A Exchangeable Preferred Stock pursuant to the terms
of this Certificate of Designation as in effect prior to such alteration or
change.
3. Dividends.
---------
The holders of shares of Series A Exchangeable Preferred Stock shall be
entitled to receive, before any cash dividend shall be declared and paid upon or
set aside for the Common Stock in any fiscal year of the Corporation, out of
funds legally available for that purpose, cumulative dividends payable in cash
or in registered shares of Common Stock (at the sole election of the
Corporation) in an amount per share of Series A Exchangeable Preferred Stock
outstanding for such fiscal year equal to $40.00 (4%). Such dividends shall
accrue daily and be payable upon the earlier of exchange into Common Stock or
redemption by the Corporation. Dividends will cease to accrue and all accrued
but unpaid dividends shall be cancelled immediately after the day on which the
average of the closing bid prices for the Corporation's Common Stock on the
Principal Market over the prior thirty (30) Trading Days is equal to or greater
than $9.00 (adjusted for any splits etc. since the Original Issuance Date), so
long as such day is more than 150 days after the Original Issuance Date (as
defined in Section 5) and there is a registration statement in effect permitting
the resale of the shares of Common Stock issuable upon any exchange pursuant to
Section 5. In the event that the Corporation shall elect to pay any such
dividend payment in the form of registered Common Stock, such Common Stock shall
be valued at the Market Price on the dividend payment date, as defined in
Section 5 below.
4. Liquidation. (a) If the Corporation shall commence a voluntary case
under the Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal bankruptcy
laws or any other applicable Federal or State bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee, custodian,
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trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of ninety (90) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidating Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation other than Senior Securities upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series A Exchangeable Preferred Stock shall have received the
Liquidation Preference (as defined in Section 4(c)) with respect to each share.
If upon the occurrence of a Liquidation Event, the assets and funds available
for distribution among the holders of the Series A Exchangeable Preferred Stock
and holders of securities ranking pari passu as to preference upon liquidation
with the Series A Exchangeable Preferred Stock shall be insufficient to permit
the payment to such holders of the preferential amounts payable thereon, then
the entire assets and funds of the Corporation legally available for
distribution to the Series A Exchangeable Preferred Stock and such pari passu
securities shall be distributed ratably among such shares in proportion to the
ratio that that Liquidation Preference payable on each such share bears to the
aggregate Liquidation Preference payable on all such shares.
(b) At the option of each holder, the sale, conveyance of disposition
of all or substantially all of the assets of the Corporation, the effectuation
by the Corporation of a transaction or series or related transactions in which
more than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other person or persons when the Corporation is not the survivor shall
be deemed to be a liquidation, dissolution or winding up of the Corporation
pursuant to which the Corporation shall be required to distribute, upon
consummation of and as a condition to such transaction an amount equal to the
Liquidation Preference with respect to each outstanding share of Series A
Exchangeable Preferred Stock held by such holder in accordance with and subject
to the terms of this Section 4.
(c) The Liquidation Preference shall be the Stated Value of $1,000 per
share of Series A Exchangeable Preferred Stock plus all accrued but unpaid
dividends.
5. Optional Exchange. The holders of shares of Series A Exchangeable
Preferred Stock shall have the following exchange rights:
(a) Right to Exchange; Exchange Price. Subject to the terms,
conditions, and restrictions of this Section 5, the holder of any shares of
Series A Exchangeable Preferred Stock shall have the right to exchange each such
share of Series A Exchangeable Preferred Stock (except that upon any liquidation
of the Corporation, the right of exchange shall terminate at the close of
business on the business day fixed for payment of the amount distributable on
the Series A Exchangeable Preferred Stock) for an amount of shares of Common
Stock equal to the Stated Value of such share or shares of Series A Exchangeable
Preferred Stock divided by (i) during the one hundred fifty (150) day period
following the Original Issuance Date, the Set Price, and (iii) on and after the
151st day after the Original Issuance Date, the lesser of the Set Price and the
Market Price, to determine the exchange price (the "Exchange Price"). However,
in no event shall the Exchange Price be greater than the Set Price (the "Maximum
Exchange Price") or less than fifty percent (50%) of the Market Price on
February 7, 2000 during the period ending twelve months from the Original
Issuance Date. In addition, if the Exchange Price on any Exchange Date is less
than $6.00 (adjusted for any splits, reverse splits or dividends in the form of
shares of Common Stock after the Original Issuance Date), or upon any redemption
as set forth in Section 7(a), then the Corporation shall have the option, to pay
the holder in cash, shares of Common Stock or any combination thereof. If the
Corporation elects to pay the holder in cash, the payment shall be an amount
equal to (i) the average of the closing bid and asked prices on the Principal
Market on the Exchange Date multiplied by (ii) the number of shares of Common
Stock which would otherwise be issuable to the holder upon such exchange. If any
payment, or portion thereof, is to be made in cash, notice of the Corporation's
election to pay the holder in cash must be given to the holder two (2) days
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prior to the receipt by the Corporation of an Exchange Notice. If such notice is
not given, the Corporation shall issue Common Stock to the holder unless
otherwise agreed to by the holder. Unless the Corporation shall have obtained
the approval of its voting stockholders to such issuance in accordance with the
rules of the Principal Market, the Corporation shall not issue shares of Common
Stock upon exchange of any shares of Series A Exchangeable Preferred Stock if
such issuance of Common Stock, when added to the number of shares of Common
Stock previously issued by the Corporation upon exchange of shares of the Series
A Exchangeable Preferred Stock or upon exercise of the Warrants issued in
connection with the issuance of the Series A Exchangeable Preferred Stock, would
exceed 19.9% of the number of shares of the Corporation's Common Stock which
were issued and outstanding on the Original Issuance Date; and, in such event,
or if the Corporation does not have registered shares of Common Stock available
with which to honor Exchanges, the Corporation shall honor such exchange request
in cash in accordance with the previous sentence, irrespective of the Exchange
Price, and the holder shall be a creditor of the Corporation in respect of such
sum. The right to exchange shares of Series A Exchangeable Preferred Stock shall
be pro-rated among the original purchasers of such shares or their respective
subsequent transferees, if any, in order to comply with the aforesaid overall
limitation. Any exchange which is paid in cash shall be paid within three (3)
business days of the Exchange Date, or else the late delivery payments set forth
in the Purchase Agreement shall apply to such late payment, and, upon demand of
the holder in such event of late delivery, the holder may require the
Corporation to deliver the shares otherwise issuable upon such exchange.
(b) Exchange Date. (i) The holder of any shares of Series A
Exchangeable Preferred Stock may exchange such shares immediately after the date
upon which such shares of Series A Preferred Stock were originally issued (the
"Original Issuance Date"); provided, that the Corporation shall have the right,
on no more than four (4) occasions during the life the Series A Exchangeable
Preferred Stock, by at least two (2) Trading Days' prior written notice to the
holders, to refuse to honor any Exchange Notice delivered during any specified
seven (7) calendar day period.
(ii) In no event shall a holder be permitted to exchange any shares
of Series A Exchangeable Preferred Stock in excess of the number of such shares
upon the exchange of which, (x) the number of shares of Common Stock owned by
such holder (other than shares of Common Stock issuable upon exchange of shares
of Series A Exchangeable Preferred Stock) plus (y) the number of shares of
Common Stock issuable upon such exchange of such shares of Series A Exchangeable
Preferred Stock, would be equal to or exceed 9.9% of the number of shares of
Common Stock then issued and outstanding, including shares issuable upon
exchange of the Series A Exchangeable Preferred Stock held by such holder after
application of this Section 5(b)(ii). As used herein, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder. To the extent that
the limitation contained in this Section 5(b)(ii) applies, the determination of
whether shares of Series A Exchangeable Preferred Stock are exchangeable (in
relation to other securities owned by holder) and of which shares of Series A
Exchangeable Preferred Stock are exchangeable shall be in the sole discretion of
such holder, and the submission of shares of Series A Exchangeable Preferred
Stock for exchange shall be deemed to be such holder's determination of whether
such shares of Series A Exchangeable Preferred Stock are exchangeable (in
relation to other securities owned by such holder) and of which shares of Series
A Exchangeable Preferred Stock are exchangeable, in each case subject to such
aggregate percentage limitation, and the Corporation shall have no obligation to
verify or confirm the accuracy of such determination, and shall have no
liability to holder with respect thereto. Nothing contained herein shall be
deemed to restrict the right of a holder to exchange such shares of Series A
Exchangeable Preferred Stock at such time as such exchange will not violate the
provisions of this paragraph. The provisions of this Section 5(b)(ii) may be
waived by a holder of Series A Exchangeable Preferred Stock as to itself (and
solely as to itself) upon not less than 75 days' prior notice to the
Corporation, and the provisions of this Section 5(b)(ii) shall continue to apply
until such 75th day (or such later date as may be specified in such notice of
waiver). No exchange in violation of this paragraph but otherwise in accordance
with this Certificate of Designation shall affect the status of the Common Stock
issued upon such exchange as validly issued, fully-paid and nonassessable.
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(c) Notice of Exchange. The right of exchange shall be exercised by the
holder thereof by giving written notice (the "Exchange Notice") to the
Corporation, by facsimile or by registered mail or overnight delivery service,
with a copy by facsimile to the Corporation's then transfer agent for its Common
Stock, as designated by the Corporation from time to time, that the holder
elects to exchange a specified number of shares of Series A Exchangeable
Preferred Stock representing a specified Stated Value thereof for Common Stock
and, if such exchange will result in the exchange of all of such holder's shares
of Series A Exchangeable Preferred Stock, by surrender of a certificate or
certificates for the shares so to be Exchanged to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series A
Exchangeable Preferred Stock) at any time during its usual business hours on the
date set forth in the Exchange Notice, together with a statement of the name or
names (with address) in which the certificate or certificates for shares of
Common Stock shall be issued. The Exchange Notice shall include therein the
Stated Value of shares of Series A Exchangeable Preferred Stock to be Exchanged,
and a calculation, if applicable, (i) of the Market Price, (ii) the Exchange
Price, and (iii) the number of shares of Common Stock to be issued in connection
with such Exchange.
(d) Issuance of Certificates; Time Exchange Effected. (i) Promptly, but
in no event more than three business days, after the receipt of the Exchange
Notice referred to in Section 5(c) and surrender of the certificate or
certificates for the share or shares of Series A Exchangeable Preferred Stock to
be exchanged (if required), the Corporation shall issue and deliver, or cause to
be issued and delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of whole shares
of Common Stock for which such shares of Series A Exchangeable Preferred Stock
are exchanged. To the extent permitted by law, such exchange shall be deemed to
have been effected on the date on which such Exchange Notice shall have been
received by the Corporation and at the time specified stated in such Exchange
Notice, which must be during the calendar day of such notice, and at such time
the rights of the holder of such share or shares of Series A Exchangeable
Preferred Stock shall cease, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such exchange shall be deemed to have become the holder or holders of
record of the shares represented thereby. Issuance of shares of Common Stock
issuable upon exchange which are requested to be registered in a name other than
that of the registered holder shall be subject to compliance with all applicable
federal and state securities laws. In the event that the Corporation elects to
pay cash in lieu of issuing Common Stock in accordance with Section 5(a) hereof,
such cash payment shall be made on or before the third business day after
receipt of an Exchange Notice.
(ii) The Corporation cannot refuse to effect the exchange of the
Series A Exchangeable Preferred Stock into Common Shares or otherwise dishonor
or reject any Exchange Notice delivered in accordance with this Section 5 based
upon any claim that a holder or any person associated or affiliate with such
holder has been engaged in any violation of law or for any other reason, unless
an injunction from a court or regulatory body, on notice, restraining or
enjoining the exchange of all or some of such shares of Series A Exchangeable
Preferred Stock shall have issued and the Corporation shall have posted a surety
bond for the benefit of the holder or holder so affected in the amount of the
difference between the Exchange Price and the closing ask price on the Trading
Day preceding the date of the attempted exchange, multiplied by the number of
shares of Common Stock which would have been issuable upon such exchange, which
bond shall remain in effect until the completion of the arbitration or
litigation of the dispute and the proceeds of which shall be payable to the
affected holder or holders in the event its obtains a favorable judgment. If any
third party who is not and has never been an Affiliate (as defined in Rule 405
under the Securities Act of 1933, as amended) of the holder obtains a judgment
or any injunctive relief from any court or public or governmental authority
which denies, enjoins, limits, modifies, delays or disputes the right of the
holder hereof to effect the exchange of the Series A Exchangeable Preferred
Stock into Common Shares, then the holder shall also have the right, by written
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notice to the Corporation, to require the Corporation to promptly redeem the
Series A Exchangeable Preferred Stock for cash at a redemption price equal to
one hundred twenty five percent (125%) of the Stated Value thereof (the
"Mandatory Purchase Amount"). Under any of the circumstances set forth above,
the Corporation shall be responsible for the payment of all costs and expenses
of the holder, including reasonable legal fees and expenses, as and when
incurred in disputing any such action or pursuing its rights hereunder (in
addition to any other rights of the holder). In the absence of an injunction
precluding the same, the Corporation shall issue shares upon a properly noticed
exchange.
(iii) The holder shall be entitled to exercise its exchange
privilege notwithstanding the commencement of any case under 11 U.S.C. ss. 101
et seq. (the "Bankruptcy Code"). In the event the Corporation is a debtor under
the Bankruptcy Code, the Corporation hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. ss. 362 in respect of
the holder's exchange privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in
respect of the exchange of the Series A Exchangeable Preferred Stock. The
Corporation agrees, without cost or expense to the holder, to take or consent to
any and all action necessary to effectuate relief under 11 U.S.C. ss. 362.
(e) Fractional Shares. No fractional shares shall be issued upon
exchange of Series A Exchangeable Preferred Stock for Common Stock. All
fractional shares shall be payable in cash at the closing price per share on the
business day prior to the day such payment is accrued.
(f) Reorganization or Reclassification. If any capital reorganization
or reclassification of the capital stock of the Corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, or, in the
case of any consolidation, merger or mandatory share exchange of the Corporation
into any other company, then, as a condition of such reorganization,
reclassification or exchange, lawful and adequate provisions shall be made
whereby each holder of a share or shares of Series A Exchangeable Preferred
Stock shall thereupon have the right to receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the exchange of such share or shares of
Series A Exchangeable Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such exchange had such
reorganization, reclassification or exchange not taken place, and in any such
case appropriate provisions shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the exchange rights) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
exchange rights.
(g) Adjustments for Splits, Combinations, etc. The Set Price and the
number of shares of Common Stock into which the Series A Exchangeable Preferred
Stock shall be Exchangeable shall be adjusted for stock splits, stock dividends,
combinations or other similar events. No adjustment to the Exchange Price will
be made for dividends (other than stock dividends), if any, paid on the Common
Stock or for securities issued pursuant to exercise for fair value of options,
warrants or restricted stock.
6. Mandatory Exchange.
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(a) Mandatory Exchange Date. If (i) on or after the second year
anniversary of the Original Issuance Date of any share of Series A Exchangeable
Preferred Stock, or (ii) at any time on or after the Original Issuance Date if
the average of the closing bid prices for the Corporation's Common Stock on the
Principal Market for five (5) consecutive Trading Days ending on the Trading Day
prior to the date provided for herein is at least $10.00 per share (adjusted for
any splits or reverse splits) and the average daily trading volume on the
Principal Market for the thirty Trading Days ending on the Trading Day prior to
the date provided for herein is at least 40,000 shares (such date as selected by
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the Corporation being the "Mandatory Exchange Date"), there remain issued and
outstanding any shares of Series A Exchangeable Preferred Stock and a
registration statement permitting the resale by the holder of the Common Stock
issuable upon such exchange is then effective and remains effective through the
Mandatory Exchange Date, then the Corporation shall be entitled to require the
holders of shares of Series A Exchangeable Preferred Stock then outstanding to
exchange any or all their shares of Series A Exchangeable Preferred Stock for
shares of Common Stock at the then effective Exchange Price pursuant to Section
5(a). Such right shall be exercised pro-rata among the holders of Series A
Exchangeable Preferred Stock if the Mandatory Exchange is for less than all
outstanding shares. The Corporation shall provide at least three (3) Trading
Days' written notice (the "Mandatory Exchange Notice") to the holders of shares
of Series A Exchangeable Preferred Stock of such mandatory exchange. The
Mandatory Exchange Notice shall include (i) the Stated Value of the shares of
Series A Exchangeable Preferred Stock to be exchanged, (ii) the Exchange Price
(which for purposes of this subsection 6(a), shall be the lesser of (A) the Set
Price and (B) the average of the three lowest consecutive closing bid prices as
reported by Bloomberg L.P. on the Principal Market during the prior thirty (30)
consecutive Trading Days immediately prior to the Mandatory Exchange Date) at
the Mandatory Exchange Date, and (iii) the number of shares of the Corporation's
Common Stock to be issued upon such mandatory exchange at the then applicable
Exchange Price. Notwithstanding the foregoing, in no event shall the Corporation
exchange that portion of the Series A Exchangeable Preferred Stock to the extent
that the issuance of Common Stock upon the exchange of such Series A
Exchangeable Preferred Stock, when combined with shares of Common Stock received
upon other exchanges of Series A Exchangeable Preferred Stock by such holder and
any other holders of Series A Exchangeable Preferred Stock or upon exercise of
the Stock Purchase Warrants referred to in Section 5(a), would exceed 19.9% of
the Common Stock outstanding on the Original Issuance Date (unless stockholder
approval has been obtained as described in Section 5(a)), or as to any
individual holder, make such holder the beneficial owner of 9.9% or more of the
Corporation's then-outstanding Common Stock.
(b) Surrender of Certificates. On or before the Mandatory Exchange
Date, each holder of shares of Series A Exchangeable Preferred Stock shall
surrender his or its certificate or certificates for all such shares to the
Corporation at the place designated in such Mandatory Exchange Notice (or an
affidavit of lost certificate in form and content reasonably satisfactory to the
Corporation), and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled or, in the event of a buy-out
by the Corporation, the amount of cash such holder is entitled within three
business days. On the Mandatory Exchange Date, all rights with respect to the
Series A Exchangeable Preferred Stock so exchanged, including the rights, if
any, to receive notices and vote, will terminate, provided that the Corporation
either (i) delivers the shares of Common Stock to be delivered upon such
Exchange within five (5) business days of the Mandatory Exchange Date or (ii) in
the event of a buy-out in lieu of a Mandatory Exchange, delivers the buy-out
price within five (5) business days of the Mandatory Exchange Date, and
otherwise such Mandatory Exchange shall be void and the Corporation shall not
thereafter have any further right to require a Mandatory Exchange. All
certificates evidencing shares of Series A Exchangeable Preferred Stock that are
required to be surrendered for Exchange in accordance with the provisions
hereof, from and after the Mandatory Exchange Date, shall be deemed to have been
retired and cancelled, notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to such date. The Corporation
may thereafter take such appropriate action as may be necessary to reduce the
authorized Series A Exchangeable Preferred Stock accordingly.
7. Redemption of Series A Exchangeable Preferred Stock.
(a) Right to Redeem Series A Exchangeable Preferred Stock. At any time
and from time to time upon the earlier of (i) the financial closing of an
underwritten secondary offering of the Corporation's Common Stock or (ii) six
months after the Original Issuance Date, the Corporation may, in its sole
discretion, but shall not be obligated to, redeem, in whole or in part, the then
issued and outstanding shares of Series A Exchangeable Preferred Stock, at a
price equal to 140% of the Stated Value, plus all accrued but unpaid dividends
through the Redemption Date.
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(b) Notice of Redemption. The Corporation shall provide each holder of
record of the Series A Exchangeable Preferred Stock being redeemed with written
notice of redemption (the "Redemption Notice") not less than 10 days prior to
any date stipulated by the Corporation for the redemption of the Series A
Exchangeable Preferred Stock (the "Redemption Date"). The Redemption Notice
shall contain (i) the Redemption Date, (ii) the number of shares of Series A
Exchangeable Preferred Stock to be redeemed from the holder to whom the
Redemption Notice is delivered, (iii) instructions for surrender to the
Corporation of the certificate or certificates representing the shares of Series
A Exchangeable Preferred Stock to be redeemed, and (iv) a procedure for the
holder to specify the number of shares of Series A Exchangeable Preferred Stock
to be exchanged into Common Stock pursuant to Section 5, subject to the
limitation set forth in Section 7(c).
(c) Right to Exchange Series A Exchangeable Preferred Stock upon
Receipt of Redemption Notice. Upon receipt of the Redemption Notice, the
recipient thereof shall have the option, at its sole election, to specify what
portion of the Series A Exchangeable Preferred Stock called for redemption in
the Redemption Notice shall be redeemed as provided in this Section 7 or
exchanged for Common Stock in the manner provided in Section 5 and limited to
those shares which would otherwise be exchangeable pursuant to Section 5(b). If
the holder of the Series A Exchangeable Preferred Stock called for redemption
elects to exchange any of such shares then eligible for exchange, then such
exchange shall take place on the Exchange Date specified by the holder, but in
no event after the Redemption Date, in accordance with the terms of Section 5.
(d) Surrender of Certificates; Payment of Redemption Price. On or
before the Redemption Date, each holder of the shares of Series A Exchangeable
Preferred Stock to be redeemed shall surrender the required certificate or
certificates representing such shares to the Corporation (or an affidavit of
lost certificate in form and content reasonably satisfactory to the
Corporation), in the manner and at the place designated in the Redemption
Notice, and upon payment to the holder of the Redemption Price, each such
surrendered certificate shall be cancelled and retired. If payment of such
redemption price is not made in full by the Redemption Date, the Corporation's
right to redeem any Series A Exchangeable Preferred Stock shall cease and be
void, and the Holder shall again have the right to exchange the Series A
Exchangeable Preferred Stock as provided in Section 5 hereof. If a certificate
is surrendered and all the shares evidenced thereby are not being redeemed, the
Corporation shall issue new certificates to be registered in the names of the
person(s) whose name(s) appear(s) as the owners on the respective surrendered
certificates and deliver such certificate to such person(s).
8. Notices. In case at any time:
(a) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other pro rata distribution to the holders
of its Common Stock; or
(b) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights; or
(c) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with or into, or a sale of all or substantially all its assets to,
another entity or entities; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
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then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex or facsimile or by recognized overnight
delivery service to non-U.S. residents, addressed to each holder of any shares
of Series A Exchangeable Preferred Stock at the address of such holder as shown
on the books of the Corporation, (i) at least twenty (20) business days' prior
written notice of the date on which the books of the Corporation shall close or
a record shall be taken for such dividend, distribution or subscription rights
or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) business days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto and (ii)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
9. Stock to be Reserved. The Corporation, upon the effective date of this
Certificate of Designations, has a sufficient number of shares of Common Stock
available to reserve for issuance upon the exchange of all outstanding shares of
Series A Exchangeable Preferred Stock. The Corporation will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the exchange of Series A Exchangeable Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the exchange of all outstanding shares of Series A Exchangeable Preferred. The
Corporation covenants that all shares of Common Stock which shall be so issued
shall be duly and validly issued, fully paid and non-assessable. The Corporation
will take all such action as may be so taken without violation of any applicable
law or regulation, or of any requirement of any national securities exchange
upon which the Common Stock may be listed to have a sufficient number of
authorized but unissued shares of Common Stock to issue upon exchange of the
Series A Exchangeable Preferred Stock. The Corporation will not take any action
which results in any adjustment of the exchange rights if the total number of
shares of Common Stock issued and issuable after such action upon exchange of
the Series A Exchangeable Preferred Stock would exceed the total number of
shares of Common Stock then authorized by the Corporation's Certificate of
Incorporation.
10. No Reissuance of Series A Exchangeable Preferred Stock. Shares of
Series A Exchangeable Preferred Stock which are exchanged for shares of Common
Stock as provided herein shall not be reissued.
11. Issue Tax. The issuance of certificates for shares of Common Stock
upon exchange of Series A Exchangeable Preferred Stock shall be made without
charge to the holder for any United States issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series A Exchangeable
Preferred Stock which is being exchanged.
12. Closing of Books. The Corporation will at no time close its transfer
books against the transfer of any Series A Exchangeable Preferred Stock or of
any shares of Common Stock issued or issuable upon the exchange of any shares of
Series A Exchangeable Preferred Stock in any manner which interferes with the
timely exchange of such Series A Exchangeable Preferred Stock, except as may
otherwise be required to comply with applicable securities laws.
13. Definitions. As used in this Certificate of Designations, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
$0.001 par value per share, as constituted on the date of filing of these terms
of the Series A Exchangeable Preferred Stock, and shall also include any capital
stock of any class of the Corporation thereafter authorized which shall neither
be limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends nor entitled to a preference in
9
<PAGE>
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of Common
Stock receivable upon exchange of shares of Series A Exchangeable Preferred
Stock shall include only shares designated as Common Stock of the Corporation on
the date of filing of this instrument, or in case of any reorganization,
reclassification, or stock split of the outstanding shares thereof, the stock,
securities or assets provided for in Subparagraph 5(f) and (g). Any capitalized
terms used in this Certificate of Designations but not defined herein shall have
the meanings set forth in that certain Exchangeable Preferred Stock and Warrant
Purchase Agreement dated as of February 15, 2000 among the Corporation and the
other persons signatory thereto (the "Purchase Agreement"), a copy of which will
be provided to any stockholder of the Corporation upon request to the Secretary
of the Corporation, without charge.
14. Loss, Theft, Destruction of Preferred Stock. Upon receipt of evidence
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
certificates representing shares of Series A Exchangeable Preferred Stock and,
in the case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series A Exchangeable
Preferred Stock certificate, the Corporation shall make, issue and deliver, in
lieu of such lost, stolen, destroyed or mutilated certificates for Series A
Exchangeable Preferred Stock, new certificates for Series A Exchangeable
Preferred Stock of like tenor. The Series A Exchangeable Preferred Stock shall
be held and owned upon the express condition that the provisions of this Section
14 are exclusive with respect to the replacement of mutilated, destroyed, lost
or stolen shares of Series A Preferred Stock and shall preclude any and all
other rights and remedies notwithstanding any law or statue existing or
hereafter enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
15. Who Deemed Absolute Owner. The Corporation may deem the person in
whose name the Series A Exchangeable Preferred Stock shall be registered upon
the registry books of the Corporation to be, and may treat it as, the absolute
owner of the Series A Exchangeable Preferred Stock for the purpose of exchange
of the Series A Exchangeable Preferred Stock and for all other purposes, and the
Corporation shall not be affected by any notice to the contrary. All such
payments and such exchange shall be valid and effectual to satisfy and discharge
the liability upon the Series A Exchangeable Preferred Stock to the extent of
the sum or sums so paid or the exchange so made.
16. Register. The Corporation shall maintain a transfer agent, which may
be the transfer agent for the Common Stock, for the registration of the Series A
Exchangeable Preferred Stock. Upon any transfer of the Series A Exchangeable
Preferred Stock in accordance with the provisions hereof, the Corporation shall
register or cause the transfer agent to register such transfer on the Series A
Exchangeable Preferred Stock register.
17. Withholding. To the extent required by applicable law, the Corporation
may withhold amounts for or on account of any taxes imposed or levied by or on
behalf of any taxing authority in the United States having jurisdiction over the
Corporation from any payments made pursuant to the Series A Exchangeable
Preferred Stock.
18. Headings. The headings of the Sections of this Certificate of
Designations are inserted for convenience only and do not constitute a part of
this Certificate of Designations.
10
<PAGE>
IN WITNESS WHEREOF, Roy Israel, President and Chief Executive Officer
of the Corporation, under penalties of perjury, does hereby declare and certify
that this is the act and deed of the Corporation and the facts stated herein are
true and accordingly has signed this Certificate of Designations as of this
9th day of February, 2000.
NAM CORPORATION
By: /s/ Roy Israel
-----------------------------
Roy Israel, President and
Chief Executive Officer
Attest:
/s/ Carla Israel
- -----------------------
Carla Israel, Secretary
11
<PAGE>
NUMBER BEARER
INCORPORATED BY THE LAWS OF THE STATE OF DELAWARE
NAM CORPORATION
<TABLE>
<CAPTION>
<S> <C> <C>
See Reverse for
2,100 SHARES PAR VALUE $.001 EACH 5,000,000 SHARES PAR VALUE $.001 EACH Certain Definations
SERIES A PREFERRED STOCK PREFERRED STOCK
</TABLE>
SPECIMEN
This is to Certify that_______________________________________is the owner of
_____________________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES A PREFERRED STOCK OF
NAM Corporation
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
Witness, the seal of the Corporation and the signatures of its duly authorized
officers.
Dated
________________________ _____________________________
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
--------- ----------
TEN ENT - as tenants by the entireties (Cust) (Minor)
under Uniform Gifts to Minors
JT TEN - as joint tenants with right of Act
survivorship and not as tenants ---------------------------
in common (State)
Additional abbreviations may also be used though not in the above list
</TABLE>
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
For value received _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE
OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
Attorney
- ---------------------------------------------------------------------
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated__________________ __________
In presence of
___________________________
____________________________
The shares of stock represented by this
certificate have not been registered
under the Securities Act of 1933, as
amended (the "Securities Act"), and may
not be sold or transferred without an
effective registration statement under
the Securities Act or an exemption from
the registration provisions thereof.
<PAGE>
EXHIBIT 5.1
LEGAL OPINION
[LETTERHEAD OF CAMHY KARLINSKY & STEIN LLP]
March 27, 2000
Board of Directors
NAM Corporation
1010 Northern Boulevard, Suite 336
Great Neck, New York 11021
Re: NAM Corporation -- Registration Statement on Form SB-2
Gentlemen:
You have requested our opinion in connection with the
above-captioned Registration Statement on Form SB-2 (the "Registration
Statement") to be filed by NAM Corporation, a New York corporation ("the
Company"), with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
promulgated thereunder (the "Rules"). The Registration Statement relates to the
issuance by the Company of 4,468,878 shares of common stock, par value $.001 per
share.
We have examined such records and documents and have made such
examination of law as we considered necessary to form a basis for the opinions
set forth herein. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity with the originals of all documents submitted to us as copies
thereof.
Based upon such examination, it is our opinion that, when
there has been compliance with the Act and applicable state securities laws, the
shares of common stock, when issued, delivered and paid for, shall be validly
issued, fully paid and non-assessable. Please note that a member of our the firm
has options in the Company to purchase 6,000 shares of common stock.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to all references to our Firm included in this
Form SB-2 Registration Statement. In giving this consent, we do not admit that
we are in the category of persons whose consent is required pursuant to Section
7 of the Act or under the Rules.
Very truly yours,
CAMHY KARLINSKY & STEIN LLP
<PAGE>
EXCHANGEABLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT
Between
NAM Corporation
and
the Investors Signatory Hereto
EXCHANGEABLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT dated as
of February 15, 2000 (the "Agreement"), between the Investors signatory hereto
(each an "Investor" and together the "Investors"), and NAM Corporation, a
corporation organized and existing under the laws of the State of Delaware (the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) $1,850,000 Stated Value
of Exchangeable Preferred Stock (as defined below), and (ii) Warrants (as
defined below) to purchase up to 46,250 shares of the Common Stock (as defined
below) at the Set Price (as defined below) for such Common Stock.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
1
<PAGE>
Section 1.3. "Certificate of Designations" shall mean the Certificate of
Designations setting forth the terms of the Exchangeable Preferred Stock in the
form of Exhibit A hereto.
Section 1.4. "Closing" shall mean the closing of the purchase and sale of the
Exchangeable Preferred Stock, and Warrants pursuant to Section 2.1.
Section 1.5. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.6. "Common Stock" shall mean the Company's common stock, $.001 par
value per share.
Section 1.7. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.8. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.9. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.10. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.11. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.12. "Exchange Shares" shall mean the shares of Common Stock issuable
upon exchange of the Exchangeable Preferred Stock and any shares of Common Stock
issued as dividends upon the Exchangeable Preferred Stock.
Section 1.13. "Exchangeable Preferred Stock" shall mean the up to $1,850,000
Stated Value (1,850 shares) of Series A Exchangeable Preferred Stock, as
described in the Certificate of Designations to be issued to the Investors
pursuant to this Agreement.
Section 1.14. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.15. "Market Price" on any given date shall mean the average of any
three (3) consecutive closing bid prices on the Principal Market (as reported by
Bloomberg L.P.) of the Common Stock selected by the Investor during the thirty
(30) consecutive Trading Day period ending on the Trading Day immediately prior
to the date for which the Market Price is to be determined.
2
<PAGE>
Section 1.16. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Certificate of
Designations or the Warrants in any material respect.
Section 1.17. "Outstanding" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.18. "Person" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
Section 1.19. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap Market,
or the OTC Bulletin Board, whichever is at the time the principal trading
exchange or market for the Common Stock.
Section 1.20. "Purchase Price" shall mean the Stated Value per share of
Exchangeable Preferred Stock, as defined in the Certificate of Designations.
Section 1.21. "Registrable Securities" shall mean the Exchange Shares, and the
Warrant Shares until (i) the Registration Statement has been declared effective
by the SEC, and all Exchange Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Exchange Shares and Warrant
Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Exchange Shares and Warrant
Shares have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Exchange Shares and Warrant Shares may be sold without any time,
volume or manner limitations pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act.
Section 1.22. "Registration Rights Agreement" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Investor as of the Closing
Date in the form annexed hereto as Exhibit C.
3
<PAGE>
Section 1.23. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.24. "Regulation D" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.25. "SEC" shall mean the Securities and Exchange Commission.
Section 1.26. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.27. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.28. "SEC Documents" shall mean the Company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1999 and each report, proxy statement
or registration statement filed by the Company with the SEC pursuant to the
Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
Section 1.29. "Set Price" shall mean 140% of the average of the closing bid
prices of the Company on the Principal Market of the Common Stock during the
five (5) Trading Day period ending on the Trading Day immediately prior to the
Closing Date.
Section 1.30. "Shares" shall have the meaning set forth in Section 1.6.
Section 1.31. "Stated Value" shall have the meaning set forth in the Certificate
of Designations.
Section 1.32. "Trading Day" shall mean any day during which the Principal Market
shall be open for business.
Section 1.33. "Warrants" shall mean the Warrants substantially in the form of
Exhibit B to be issued to the Investors hereunder.
Section 1.34. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
4
<PAGE>
ARTICLE II
Purchase and Sale of Exchangeable Preferred Stock and Warrants
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investors agree, severally and not jointly, to
purchase the Exchangeable Preferred Stock together with the Warrants at the
Purchase Price. On the Closing Date, the Investors shall purchase $1,850,000
(1,850 shares) of Exchangeable Preferred Stock as follows:
(i) Upon execution and delivery of this Agreement, each Investor shall
deliver to the Escrow Agent immediately available funds in their
proportionate amount of the Purchase Price as set forth on the
signature pages hereto, and the Company shall deliver the
Exchangeable Preferred Stock certificates and the Warrants to the
Escrow Agent, in each case to be held by the Escrow Agent pursuant
to the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in Section 2.1(b),
the Closing ("Closing") shall occur at the offices of the Escrow
Agent at which the Escrow Agent (x) shall release the Exchangeable
Preferred Stock, (after all fees have been paid as set forth in
the Escrow Agreement), and the Warrants to the Investors and (y)
shall release the Purchase Price, pursuant to the terms of the
Escrow Agreement.
5
<PAGE>
(b) The Closing is subject to the satisfaction, or waiver by the party to
be benefited thereby, of the following conditions:
(i) acceptance and execution by the Company and by the Investors, of
this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately available
funds in the amount of the Purchase Price of the Exchangeable
Preferred Stock and the Warrants, as more fully set forth in the
Escrow Agreement (as a condition to the Company's obligations);
(iii) all representations and warranties of the Investors contained
herein shall remain true and correct as of the Closing Date (as
a condition to the Company's obligations);
(iv) all representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Date (as
a condition to the Investors' obligations);
(v) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Exchangeable
Preferred Stock and Warrants, or shall have the availability of
exemptions therefrom;
(vi) the sale and issuance of the Exchangeable Preferred Stock and
the Warrants hereunder, and the proposed issuance by the Company
to the Investors of the Common Stock underlying the Exchangeable
Preferred Stock and the Warrants upon the exchange or exercise
thereof shall be legally permitted by all laws and regulations
to which the Investors and the Company are subject and there
shall be no ruling, judgment or writ of any court prohibiting
the transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Exchangeable Preferred
Stock certificates and Warrants certificates to the Escrow
Agent;
(viii) delivery to the Escrow Agent of an opinion of Camhy Karlinsky &
Stein, LLP, counsel to the Company, in the form of Exhibit E
hereto;
(ix) delivery to the Escrow Agent of the Irrevocable Instructions to
Transfer Agent in the form attached hereto as Exhibit F;
(x) delivery to the Escrow Agent of the Registration Rights
Agreement; and
(xi) delivery to the Escrow Agent of the written agreements of each
officer and director of the Company addressed to the Investors,
agreeing to vote all shares of Common Stock over which they have
voting control in favor of a shareholder proposal permitting the
issuance of a number of Exchange Shares in excess of 19.9% of
the number of shares of Common Stock issued and outstanding on
the Closing Date.
6
<PAGE>
Section 2.2. Liquidated Damages. The Company understands that a delay in the
issuance of the Exchange Shares beyond four Trading Days after delivery by an
Investor of an Exchange Notice could result in economic loss to the Investor. As
compensation to the Investor for such loss, the Company agrees to pay late
payments to the Investor for late issuance of shares of Common Stock upon
exchange in accordance with the following schedule (where "No. Trading Days
Late" is defined as the number of Trading Days beyond four (4) Trading Days from
the date of receipt by the Company of the Exchange Notice):
7
<PAGE>
<TABLE>
<CAPTION>
Late Payment For Each
$5,000 of Liquidation Preference
No. Trading Days Late Amount Being Exchanged
- ------------------------------------------------------- ---------------------------------------------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each Trading Day
Late beyond 10 days
</TABLE>
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Investor's right to
pursue injunctive relief and/or actual damages for the Company's failure to
issue and deliver Common Stock to the Investor, including, without limitation,
the Investor's actual losses occasioned by any "buy-in" of Common Stock
necessitated by such late delivery. Furthermore, in addition to any other
remedies which may be available to the Investor, in the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
five Trading Days the date of receipt of the Exchange Notice, the holder will be
entitled to revoke the relevant Exchange Notice by delivering a notice to such
effect to the Company whereupon the Company and the holder shall each be
restored to their respective positions immediately prior to delivery of such
Exchange Notice.
The parties hereto acknowledge and agree that the sums payable pursuant to the
foregoing paragraph and pursuant to the Registration Rights Agreement shall
constitute liquidated damages and not penalties. The parties further acknowledge
that (a) the amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, (b) the amounts specified in such Sections bear
a reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investors in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
8
<PAGE>
ARTICLE III
Representations and Warranties of Investor
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Common Stock. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Exchangeable Preferred Stock, the
Warrants, any Exchange Shares or Warrant Shares to or through any person or
entity except in compliance with the Securities Act or an exemption therefrom;
provided, however, that by making the representations herein, the Investor does
not agree to hold such securities for any minimum or other specific term and
reserves the right to dispose of the Exchange Shares and Warrant Shares at any
time in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Exchangeable Preferred Stock, the
Warrants and the underlying Common Stock. The Investor acknowledges that an
investment in the Exchangeable Preferred Stock, the Warrants and the underlying
Common Stock is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this Agreement
and each agreement which is attached as an Exhibit hereto and executed by the
Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject.
9
<PAGE>
Section 3.6. Disclosure; Access to Information. The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Investor has reviewed copies of all SEC Documents deemed relevant
by Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
Section 3.8. No Brokers. The Investor has not employed any investment banker,
broker, finder, or intermediary in connection with the transactions contemplated
by this Agreement who will seek a fee from the Company. The Investor agrees to
indemnify and hold harmless the Company from and against any and all liabilities
to any person claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the Investor in connection
with this Agreement or the transactions contemplated hereby.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and Warrants to the Investors that, except as set forth
on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and the Exchangeable Preferred Stock, the Exchange Shares, the Warrants
and the Warrant Shares pursuant to their respective terms, (ii) the execution,
issuance and delivery of this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Certificate of Designations, the Exchangeable Preferred
Stock certificates and the Warrants by the Company and the consummation by it of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
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Board of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Exchangeable Preferred
Stock certificates and the Warrants have been duly executed and delivered by the
Company and at the Closing shall constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application. The
Company has duly and validly authorized and reserved for issuance shares of
Common Stock sufficient in number for the exchange of the Exchangeable Preferred
Stock and for the exercise of the Warrants. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of the Exchange Shares. The Company further acknowledges that its obligation to
issue Exchange Shares upon exchange of the Exchangeable Preferred Stock and
Warrant Shares upon exercise of the Warrants in accordance with this Agreement
and the Certificate of Designations is absolute and unconditional regardless of
the dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company and notwithstanding the commencement of any
case under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). The Company shall
not seek judicial relief from its obligations hereunder except pursuant to the
Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code,
the Company hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. ss. 362 in respect of the exchange of the
Exchangeable Preferred Stock and the exercise of the Warrants. The Company
agrees, without cost or expense to the Investors, to take or consent to any and
all action necessary to effectuate relief under 11 U.S.C. ss. 362.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 15,000,000 shares of Common Stock, $.001 par value per share, of
which 3,416,233 shares are issued and outstanding as of November 12, 1999 and
5,000,000 shares of preferred stock, par value $.001 per share, none of which
have been designated as to series or are issued and outstanding prior to the
Closing. The Company has duly and validly designated 2,100 shares of its
preferred stock as Series A Exchangeable Preferred Stock. Except for (i)
outstanding options and warrants as set forth in the SEC Documents, (ii) stock
options awarded under the Company's 1996 Stock Option Plan, as amended, and
(iii) as set forth in the Disclosure Schedule, there are no outstanding Capital
Shares Equivalents nor any agreements or understandings pursuant to which any
Capital Shares Equivalents may become outstanding. The Company is not a party to
any agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. All of the outstanding shares
of Common Stock of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the NASDAQ SmallCap
Market and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
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Section 4.5. SEC Documents. The Company has made available to the Investors true
and complete copies of the SEC Documents. The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and regulations of the SEC promulgated thereunder and the SEC Documents
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Exchangeable Preferred Stock, the Exchange Shares, the Warrants and the Warrant
Shares will not require registration under the Securities Act and/or any
applicable state securities law. When issued and paid for in accordance with the
Warrants and validly exchanged in accordance with the terms of the Exchangeable
Preferred Stock, the Exchange Shares and the Warrant Shares will be duly and
validly issued, fully paid, and non-assessable. Neither the sales of the
Exchangeable Preferred Stock, the Exchange Shares, the Warrants or the Warrant
Shares pursuant to, nor the Company's performance of its obligations under, this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Certificate of Designations or the Warrants will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Exchangeable Preferred Stock, the Exchange Shares, the Warrants or the
Warrant Shares or, except as contemplated herein, any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe for or acquire the Capital Shares or other
securities of the Company. The Exchangeable Preferred Stock, the Exchange
Shares, the Warrants and the Warrant Shares shall not subject the Investors to
personal liability to the Company or its creditors by reason of the possession
thereof.
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Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the
Exchangeable Preferred Stock or the Warrants, or (ii) made any offers or sales
of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Exchangeable Preferred
Stock, the Exchange Shares, the Warrants or the Warrant Shares under the
Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of and payment of
dividends upon the Exchangeable Preferred Stock, the Exchange Shares, the
Warrants and the Warrant Shares do not and will not (i) result in a violation of
the Company's Certificate of Incorporation or By-Laws or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state or local law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any material property or asset of the Company is bound or
affected, nor is the Company otherwise in violation of, conflict with or default
under any of the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not have, individually or in the aggregate, a Material Adverse Effect). The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not have a Material
Adverse Effect. The Company is not required under any Federal, state or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock, the Exchangeable Preferred Stock
or the Warrants in accordance with the terms hereof (other than any SEC,
Principal Market or state securities filings that may be required to be made by
the Company subsequent to Closing, any registration statement that may be filed
pursuant hereto, and any shareholder approval required by the rules applicable
to companies whose common stock trades on the Principal Market); provided that,
for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
Section 4.9. No Material Adverse Change. Since September 30, 1999, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances. Since September 30, 1999,
no material event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, which has not been publicly announced or disclosed in the SEC
Documents.
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Section 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, the Company
has not issued, offered or sold the Exchangeable Preferred Stock, the Warrants
or any shares of Common Stock (including for this purpose any securities of the
same or a similar class as the Exchangeable Preferred Stock, the Warrants or
Common Stock, or any securities exchangeable into or exercisable for the
Exchangeable Preferred Stock or Common Stock or any such other securities)
within the six-month period next preceding the date hereof, and the Company
shall not permit any of its directors, officers or affiliates directly or
indirectly to take, any action (including, without limitation, any offering or
sale to any Person of the Exchangeable Preferred Stock, Warrants or shares of
Common Stock), so as to make unavailable the exemption from Securities Act
registration being relied upon by the Company for the offer and sale to
Investors of the Exchangeable Preferred Stock (and the Exchange Shares) or the
Warrants (and the Warrant Shares) as contemplated by this Agreement.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Exchangeable Preferred Stock or the
Warrants in connection with the transaction contemplated by this Agreement, have
not made, at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed to
the Investors any non-public information it believes to be material that (i) if
disclosed, would reasonably be expected to have a material effect on the trading
price of the Common Stock and (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, personal injury and other
similar types of insurance with financially sound and reputable insurers that is
adequate, consistent with industry standards and the Company's historical claims
experience. The Company has not received notice from, and has no knowledge of
any threat by, any insurer (that has issued any insurance policy to the Company)
that such insurer intends to deny coverage under or cancel, discontinue or not
renew any insurance policy presently in force.
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Section 4.16. Tax Matters.
(a) The Company and each subsidiary has filed all Tax Returns which it is
required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since June 30, 1999, the charges, accruals and reserves
for Taxes with respect to the Company (including any provisions for deferred
income taxes) reflected on the books of the Company are adequate to cover any
Tax liabilities of the Company if its current tax year were treated as ending on
the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by the
Company or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; or (B) has not agreed to or is required to make any adjustments
pursuant to ss. 481 (a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or any of its subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under ss. 280G of the Internal
Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications,
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real or personal property, capital stock, license, payroll, wage or
other withholding, employment, social security, severance, stamp,
occupation, alternative or add-on minimum, estimated and other taxes of
any kind whatsoever (including, without limitation, deficiencies,
penalties, additions to tax, and interest attributable thereto) whether
disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
Section 4.17. Property. Neither the Company nor any of its subsidiaries owns any
real property except as set forth in the SEC Documents. Each of the Company and
its subsidiaries has good and marketable title to all personal property owned by
it, free and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company; and
to the Company's knowledge any real property and buildings held under lease by
the Company as tenant are held by it under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and intended to be made of such property and buildings by the Company.
Section 4.18. Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted. To the Company's knowledge, except as disclosed
in the SEC Documents neither the Company nor any of its subsidiaries is
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed in the SEC Documents, no adverse claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company or any subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.20. Payments and Contributions. Neither the Company, any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
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domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Section 4.21. No Misrepresentation. The representations and warranties of the
Company (when read in conjunction with the Disclosure Letter) contained in this
Agreement, any schedule, annex or exhibit hereto, do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
Covenants of the Investors
Each Investor, severally and not jointly, covenants with the Company that:
Section 5.1. Compliance with Law. The Investor's trading activities with respect
to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
Section 5.2. No Short Sales. The Investor and its affiliates shall not engage in
short sales of the Company's Common Stock (as defined in applicable SEC and NASD
rules) so long as the Investor holds any unconverted shares of Exchangeable
Preferred Stock.
Section 5.3. Limitations on Resale Volume. The Investor shall not sell Exchange
Shares in an amount, on a daily basis, which exceeds the greater of (i) 40% of
the average daily volume of the Common Stock on the Principal Market for the
five (5) Trading Days prior to such sale or (ii) 40% of the daily volume on the
date of such sales (based upon Investor's good faith estimate of such daily
volume based upon volume reporting from Bloomberg LP, it being understood that
the limitation in this clause (ii) cannot be accurately determined until after
the end of such Trading Day).
ARTICLE VI
Covenants of the Company
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
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Section 6.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Exchange Shares and the Warrant Shares
pursuant to any exchange of the Exchangeable Preferred Stock or exercise of the
Warrants. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered pursuant to any exchange of the Exchangeable Preferred
Stock or exercise of the Warrants and the number of shares so reserved shall be
increased or decreased to reflect potential increases or decreases in the Common
Stock that the Company may thereafter be obligated to issue by reason of
adjustments to the Warrants.
Section 6.3. Listing of Common Stock. The Company hereby agrees to use its best
efforts to maintain the listing of the Common Stock on a Principal Market, and
as soon as reasonably practicable following the Closing to list the Exchange
Shares and the Warrant Shares on the Principal Market. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the Exchange Shares and
the Warrant Shares, and will take such other action as is reasonably necessary
to cause the Exchange Shares and Warrant Shares to be listed on such other
Principal Market as promptly as possible. The Company will take all action to
continue the listing and trading of its Common Stock on a Principal Market
(including, without limitation, maintaining sufficient net tangible assets) and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market and shall provide
Investors with copies of any correspondence to or from such Principal Market
which questions or threatens delisting of the Common Stock, within three (3)
Trading Days of the Company's receipt thereof, until the Investors have disposed
of all of their Registrable Securities. The Company agrees to present a proposal
for stockholder approval at the next annual meeting of stockholders to permit
the Company to issue a number of Exchange Shares and Warrant Shares which is in
excess of 19.9% of the number of the Company's issued and outstanding shares of
Common Stock on the Closing Date, with the recommendation of the Board of
Directors that such proposal be approved, unless at the date of such meeting,
less than two percent (2%) of the Exchangeable Preferred Stock remains issued
and outstanding. If such proposal is not presented or not approved, the Company
shall either (i) voluntarily de-list its Common Stock from any Principal Market
which requires such approval or (ii) redeem any un-exchanged Exchangeable
Preferred Stock tendered for exchange, pursuant to Section 7 of the Certificate
of Designations, if the exchange of such Exchangeable Preferred Stock would
cause such 19.9% limitation to be exceeded, to the extent a conversion exceeds
19.9%.
Section 6.4. Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act until the Investors have
disposed of all of their Registrable Securities.
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Section 6.5. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.6. Corporate Existence; Conflicting Agreements. The Company will take
all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any agreement, the terms of which
agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto or under the Certificate of Designations.
Section 6.7. Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to the Investors such shares of stock and/or
securities as the Investors are entitled to receive pursuant to this Agreement
and the Certificate of Designations.
Section 6.8. Issuance of Exchangeable Preferred Stock and Warrant Shares. The
sale of the Exchangeable Preferred Stock and the Warrants and the issuance of
the Warrant Shares pursuant to exercise of the Warrants and the Exchange Shares
upon exchange of the Exchangeable Preferred Stock shall be made in accordance
with the provisions and requirements of Section 4(2), 4(6) or Regulation D and
any applicable state securities law. The Company shall make any necessary SEC
and "blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Investors as required by all applicable laws, and
shall provide a copy thereof to the Investors promptly after such filing.
Section 6.9. Limitation on Future Financing. The Company agrees that it will not
enter into any sale of its securities for cash at a discount to the then-current
bid price of its Common Stock until 180 days after the effective date of the
Registration Statement except for any sales (i) of Common Stock for gross
proceeds of up to $14,000,000 at a discount of up to 11% pursuant to an equity
line of credit arrangement, (ii) pursuant to any presently existing employee
benefit plan which plan has been approved by the Company's stockholders, (iii)
pursuant to any compensatory plan for a full-time employee or key consultant,
(iv) pursuant to a private placement in which the purchasers are not given any
registration rights or (v) with the prior approval of a majority in interest of
the Investors, which will not be unreasonably withheld, in connection with a
strategic partnership or other business transaction, the principal purpose of
which is not simply to raise money. Further, the Investors shall have a right of
first offer, exercisable within five (5) Trading Days of notice from the Company
setting forth the principal terms of any such transaction, to elect to
participate, pro-rata, in such subsequent transaction in the case of (i) and
(iv) above.
Section 6.10. Pro-Rata Redemption. The Company agrees that if it shall redeem or
require the mandatory exchange of any of the Exchangeable Preferred Stock, that
it shall make such redemption pro-rata among all Investors in proportion to
their respective initial purchases of such securities pursuant to this
Agreement.
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ARTICLE VII
Survival; Indemnification
Section 7.1. Survival. The representations and warranties (when read in
conjunction with the Disclosure Schedule) and covenants made by each of the
Company and each Investor in this Agreement, the annexes, schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement, shall survive the Closing and the
consummation of the transactions contemplated hereby until there shall be no
shares of Exchangeable Preferred Stock outstanding. In the event of a breach or
violation of any of such representations, warranties or covenants, the party to
whom such representations, warranties or covenants have been made shall have all
rights and remedies for such breach or violation available to it under the
provisions of this Agreement, irrespective of any investigation made by or on
behalf of such party on or prior to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties (when read in conjunction with the
Disclosure Schedule) contained in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant
to this Agreement; or
(iii) any action instituted against the Investors, or any of them, by
any stockholder of the Company who is not an Affiliate of an Investor, with
respect to any of the transactions contemplated by this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to indemnify
and hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for reasonable all out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with any
misrepresentation, omission of fact, or breach of any of the Investor's
representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Investor pursuant to this Agreement.
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Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are disparate from those available to the Indemnifying Party, or (z) the
Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party, and if they cannot agree, then as set forth in Article X.
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ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all SEC Documents and other filings with the SEC, and all other publicly
available corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees to supply all such publicly available information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investors and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information it believes to be
material to the Investors, advisors to or representatives of the Investors
unless prior to disclosure of such information the Company identifies such
information as being non-public information and provides the Investors, such
advisors and representatives with the opportunity to accept or refuse to accept
such non-public information for review. Other than disclosure of any comment
letters received from the SEC staff with respect to the Registration Statement,
the Company may, as a condition to disclosing any non-public information
hereunder, require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
provided, however, that notwithstanding anything herein to the contrary, the
Company will, as hereinabove provided, promptly notify the advisors and
representatives of the Investors and, if any, underwriters, of any event or the
existence of any circumstance (without any obligation to disclose the specific
event or circumstance) of which it becomes aware, constituting material
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investors (without the written consent of the
Investors prior to disclosure of such information as set forth in Section
8.2(a)) may not obtain non-public information in the course of conducting due
diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of a material fact or omits
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a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit F hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Notwithstanding anything contained in this
Agreement to the contrary, each Investor shall comply with all applicable
federal and state securities laws upon resale of the Common Stock.
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ARTICLE X
Choice of Law; Jurisdiction and Venue
Section 10.1. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made in New York by persons domiciled in New York City and without regard to its
principles of conflicts of laws. Each party submits to the exclusive
jurisdiction of the state and Federal courts sitting in New York County, New
York as the sole forum for hearing disputes arising under this Agreement or any
of the agreements attached as exhibits hereto. The non-prevailing party to any
proceeding (as determined by the court) shall pay the expenses of the prevailing
party, including reasonable attorney's fees, in connection with such proceeding.
Any party shall be entitled to obtain injunctive relief from a court in any case
where such relief is available. The non-prevailing party to any injunctive
proceeding (as determined by the court) shall pay the expenses of the prevailing
party, including reasonable attorney's fees, in connection with such injunctive
proceeding.
ARTICLE XI
Assignment
Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Exchangeable Preferred Stock or Warrants purchased or acquired by any Investor
hereunder with respect to the Exchangeable Preferred Stock or Warrants held by
such person, and (b) upon the prior written consent of the Company, which
consent shall not unreasonably be withheld or delayed, each Investor's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any Affiliate of the Investor) who agrees to make
the representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement, provided, that Investor shall give the
Company five (5) days notice of any such proposed assignment or sale, and the
Company shall not have notified the Investor in writing that such proposed
assignee is a competitor of the Company.
ARTICLE XII
Notices
Section 12.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
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such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
If to the Company: NAM Corporation
1010 Northern Boulevard, Suite 336
Great Neck, NY 10021
Attention: Roy Israel
Telephone: 516-829-4343
Facsimile: 516-829-4395
with a copy to Camhy Karlinsky & Stein, LLP
(shall not constitute notice): 1740 Broadway, 16th Floor
New York, New York 10019
Attention: Robert S. Matlin
Telephone: 212-830-5761
Facsimile: 212-977-8389
if to the Investors: As set forth on the signature pages hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
Miscellaneous
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
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Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which include the Certificate of Designations, the Warrants,
the Escrow Agreement, the Instructions to Transfer Agent and the Registration
Rights Agreement, set forth the entire agreement and understanding of the
parties relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Exchangeable Preferred Stock or any
Exchange Shares or Warrants or any Warrant Shares and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not exceed that customarily charged by the Company's transfer
agent) or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of
Epstein Becker & Green, P.C., counsel to the Investors, in an amount equal to
$10,000, all as set forth in the Escrow Agreement.
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Section 13.9. Brokerage. Each of the parties hereto represents that it has had
no dealings in connection with this transaction with any finder or broker who
will demand payment of any fee or commission from the other party. The Company
on the one hand, and the Investors, on the other hand, agree to indemnify the
other against and hold the other harmless from any and all liabilities to any
person claiming brokerage commissions or finder's fees on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Publicity. The Company agrees that it will not issue any press release or other
public announcement of the transactions contemplated by this Agreement without
the prior consent of the Investors, which shall not be unreasonably withheld nor
delayed by more than two (2) Trading Days from their receipt of such proposed
release. No release shall name the Investors without their express consent.
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IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
NAM Corporation
By: /s/ Roy Israel
-----------------------------
Roy Israel, President & CEO
Esquire Trade & Finance Inc.
By: /s/ Roland Winiger
------------------------------
Roland Winiger
Authorized Signatory
Amount subscribed for: $450,000
Address for notices:
P.O. Box 2154
Baar, CH-6342 Switzerland
Fax: 011-411-760-1031
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Austinvest Anstalt Balzers
By: /s/ Dr. Walter Grill
--------------------------------
Dr. Walter Grill,
Authorized Signatory
Amount subscribed for: $425,000
Address for notices:
Landstrasse 938
9494 Balzers
Furstentum Liechtenstein
Fax:011-431-
AMRO International, S.A.
By: /s/ H. U. Bachofen
---------------------------------
H. U. Bachofen,
Authorized Signatory
Amount subscribed for: $875,000
Address for notices:
C/o Ultrafinanz AG
Grossmuensterplatz 6
Zurich CH-8022 Switzerland
Fax: 011-411-262-5515
Mabcrown, Inc.
By: /s/ H. U. Bachofen
----------------------------------
H. U. Bachofen,
Authorized Signatory
Amount subscribed for: $100,000
Address for notices:
C/o Ultrafinanz AG
Grossmuensterplatz 6
Zurich CH-8022 Switzerland
Fax: 011-411-262-5515
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EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 15, 2000,
between the investor or investors signatory hereto (each an "Investor" and
together the "Investors"), and NAM Corporation, a Delaware corporation (the
"Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Investors are purchasing from the Company, pursuant to an
Exchangeable Preferred Stock and Warrants Purchase Agreement dated the date
hereof (the "Purchase Agreement"), $1,850,000 Stated Value of Exchangeable
Preferred Stock and Warrants to purchase up to 46,250 shares of the Company's
Common Stock (terms not defined herein shall have the meanings ascribed to them
in the Purchase Agreement); and
WHEREAS, the Company desires to grant to the Investors the registration
rights set forth herein with respect to the Exchange Shares of Common Stock
issuable upon exchange of or as dividends upon the Exchangeable Preferred Stock
purchased pursuant to the Purchase Agreement and shares of Common Stock issuable
upon exercise of the Warrants (hereinafter referred to as the "Stock" or
"Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term "Registrable
Security" means the Securities until (i) the Registration Statement has been
declared effective by the SEC, and all Securities have been disposed of pursuant
to the Registration Statement, (ii) all Securities have been sold under
circumstances under which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Securities have been otherwise transferred to holders who may trade
such Securities without restriction under the Securities Act, and the Company
has delivered a new certificate or other evidence of ownership for such
Securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, all Securities may be sold without any time, volume
or manner limitations pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act. The term "Registrable Securities" means any
and/or all of the securities falling within the foregoing definition of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be deemed to be made in the definition
of "Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Agreement.
Section 2. Restrictions on Transfer. Each Investor acknowledges and
understands that prior to the registration of the Securities as provided herein,
the Securities are "restricted securities" as defined in Rule 144 promulgated
under the Act. Each Investor understands that no disposition or transfer of the
Securities may be made by Investor in the absence of (i) an opinion of counsel
to the Investor, in form and substance reasonably satisfactory to the Company,
that such transfer may be made without registration under the Securities Act or
(ii) such registration.
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With a view to making available to the Investors the benefits of Rule
144 under the Securities Act or any other similar rule or regulation of the SEC
that may at any time permit the Investors to sell securities of the Company to
the public without registration ("Rule 144"), the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144; and
(b) file with the SEC in a timely manner all reports and other
documents required to be filed with the SEC pursuant to Section 13 or 15(d)
under the Exchange Act by companies subject to either of such sections,
irrespective of whether the Company is then subject to such reporting
requirements.
Section 3. Registration Rights With Respect to the Securities.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("SEC"), within forty-five (45) days after
the Closing Date a registration statement (on Form S-3, or other appropriate
registration statement form) under the Securities Act (the "Registration
Statement"), at the sole expense of the Company (except as provided in Section
3(c) hereof), in respect of the Investors, so as to permit a public offering and
resale of the Securities under the Act by the Investors as selling stockholders
and not as underwriters.
The Company shall use its best efforts to cause such Registration
Statement to become effective within ninety (90) days from the Closing Date (or
120 days from the Closing Date if the SEC makes a "full review" of the
Registration Statement, which shall not include a "plain English" or "Plan of
Distribution" review), or, if earlier, within five (5) days of SEC clearance to
request acceleration of effectiveness. The number of shares designated in the
Registration Statement to be registered shall include all the Warrant Shares, at
least 175% of the number of shares issuable upon exchange of the Exchangeable
Preferred Stock assuming exchange in full on the day prior to filing date of the
Registration Statement, and such number of shares as the Company deems prudent
for the purpose of issuing shares of Common Stock as dividends on the
Exchangeable Preferred Stock, and shall include appropriate language regarding
reliance upon Rule 416 to the extent permitted by the SEC. The Company will
notify the Investors of the effectiveness of the Registration Statement within
one Trading Day of such event. In the event that the number of shares so
registered shall be less than 125% of the number of shares of Registrable
Securities remaining unsold (using the Exchange Price of the Exchangeable
Preferred Stock from time to time), then the Company shall be obligated to file,
within thirty (30) days of such event, a further Registration Statement
registering such remaining shares and shall use its best efforts to cause such
additional Registration Statement to become effective within ninety (90) days of
the date of such event.
(b) The Company will maintain the Registration Statement or post-effective
amendment filed under this Section 3 effective under the Securities Act until
the earlier of (i) the date that none of the Securities covered by such
Registration Statement are or may become issued and outstanding, (ii) the date
that all of the Securities have been sold pursuant to such Registration
Statement, (iii) the date the Investors receive an opinion of counsel to the
Company, which counsel shall be reasonably acceptable to the Investors, that the
Securities may be sold under the provisions of Rule 144 without limitation as to
volume, (iv) all Securities have been otherwise transferred to persons who may
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trade such shares without restriction under the Securities Act, and the Company
has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend, or (v) all Securities may be sold
without any time, volume or manner limitations pursuant to Rule 144(k) or any
similar provision then in effect under the Securities Act in the opinion of
counsel to the Company, which counsel shall be reasonably acceptable to the
Investor (the "Effectiveness Period").
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement under subparagraph 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys' fees
of the Company) shall be borne by the Company. The Investors shall bear the cost
of underwriting and/or brokerage discounts, fees and commissions, if any,
applicable to the Securities being registered and the fees and expenses of their
counsel. The Investors and their counsel shall have a reasonable period, not to
exceed five (5) Trading Days, to review the proposed Registration Statement or
any amendment thereto, prior to filing with the SEC, and the Company shall
provide each Investor with copies of any comment letters received from the SEC
with respect thereto within two (2) Trading Days of receipt thereof. The Company
shall qualify any of the Securities for sale in such states as any Investor
reasonably designates and shall furnish indemnification in the manner provided
in Section 6 hereof. However, the Company shall not be required to qualify in
any state which will require an escrow or other restriction relating to the
Company and/or the sellers, or which will require the Company to qualify to do
business in such state or require the Company to file therein any general
consent to service of process. The Company at its expense will supply the
Investors with copies of the applicable Registration Statement and the
prospectus included therein and other related documents in such quantities as
may be reasonably requested by the Investors.
(d) The Company shall not be required by this Section 3 to include an
Investor's Securities in any Registration Statement which is to be filed if, in
the opinion of counsel for both the Investor and the Company (or, should they
not agree, in the opinion of another counsel experienced in securities law
matters acceptable to counsel for the Investor and the Company) the proposed
offering or other transfer as to which such registration is requested is exempt
from applicable federal and state securities laws and would result in all
purchasers or transferees obtaining securities which are not "restricted
securities," as defined in Rule 144 under the Securities Act.
(e) In the event that (i) the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not filed with the SEC within forty
five (45) days from the Closing Date, (ii) such Registration Statement is not
declared effective by the SEC within the earlier of ninety (90) days from the
Closing Date (or 120 days from the Closing Date if the SEC makes a "full review"
of the Registration Statement) or five (5) days of clearance by the SEC to
request effectiveness, (iii) such Registration Statement is not maintained as
effective by the Company for the period set forth in Section 3(b) above or (iv)
the additional Registration Statement referred to in Section 3(a) is not filed
within thirty (30) days or declared effective within ninety (90) days as set
forth therein (each a "Registration Default") then the Company will pay Investor
(pro rated on a daily basis), as liquidated damages for such failure and not as
a penalty one percent (1%) of the aggregate market value of shares of Common
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Stock purchased from the Company (including the Exchange Shares which would be
issuable upon Exchange of the Exchangeable Preferred Stock on any date of
determination, and whether or not the Exchangeable Preferred Stock are then
exchangeable pursuant to their terms) and held by the Investor for the first
month and two percent (2%) for each month thereafter until such Registration
Statement has been filed, and in the event of late effectiveness (in case of
clause (ii) above) or lapsed effectiveness (in the case of clause (iii) above),
one percent (1%) of the aggregate market value of shares of Common Stock
purchased from the Company and held by the Investor (including the Exchange
Shares which would be issuable upon exchange of the Exchangeable Preferred Stock
on any date of determination, and whether or not the Exchangeable Preferred
Stock are then exchangeable pursuant to their terms) for the first month and two
percent (2%) for each month thereafter (regardless of whether one or more such
Registration Defaults are then in existence, without duplication of penalties)
until such Registration Statement has been declared effective. Such payment of
the liquidated damages shall be made to the Investors in cash, within five (5)
calendar days of demand, provided, however, that the payment of such liquidated
damages shall not relieve the Company from its obligations to register the
Securities pursuant to this Section. The market value of the Common Stock for
this purpose shall be the closing price (or last trade, if so reported) on the
Principal Market for each day during such Registration Default.
If the Company does not remit the payment to the Investors as set forth
above, the Company will pay the Investors reasonable costs of collection,
including attorneys' fees, in addition to the liquidated damages. The
registration of the Securities pursuant to this provision shall not affect or
limit the Investors' other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company from
selling securities pursuant to any Registration Statement in which it is
required to include Securities pursuant to this Section 3.
(g) If at any time or from time to time after the effective date of any
Registration Statement, the Company notifies the Investors in writing of the
existence of a Potential Material Event (as defined in Section 3(h) below), the
Investors shall not offer or sell any Securities or engage in any other
transaction involving or relating to Securities, from the time of the giving of
notice with respect to a Potential Material Event until the Investors receive
written notice from the Company that such Potential Material Event either has
been disclosed to the public or no longer constitutes a Potential Material
Event; provided, however, that the Company may not so suspend the right to such
holders of Securities for more than thirty (30) days in the aggregate (90 days
in the case of an acquisition requiring the filing of audited financial
statements of the acquired business under Form 8-K) during any twelve month
period, during the period the Registration Statement is required to be in
effect, and if such period is exceeded, such event shall be a Registration
Default. If a Potential Material Event shall occur prior to the date a
Registration Statement is required to be filed, then the Company's obligation to
file such Registration Statement shall be delayed without penalty for not more
than twenty (20) days, and such delay or delays shall not constitute a
Registration Default. The Company must, if lawful, give the Investors notice in
writing at least two (2) Trading Days prior to the first day of the blackout
period.
(h) "Potential Material Event" means any of the following: (a) the
possession by the Company of material information not ripe for disclosure in a
registration statement, as determined in good faith by the Chief Executive
Officer or the
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Board of Directors of the Company that disclosure of such information in a
Registration Statement would be detrimental to the business and affairs of the
Company; or (b) any material engagement or activity by the Company which would,
in the good faith determination of the Chief Executive Officer or the Board of
Directors of the Company, be adversely affected by disclosure in a registration
statement at such time.
Section 4. Cooperation with Company. The Investors will cooperate with
the Company in all respects in connection with this Agreement, including timely
supplying all information and confirmations reasonably requested by the Company
or the SEC (which shall include all information regarding the Investors and
proposed manner of sale of the Registrable Securities required to be disclosed
in any Registration Statement) and executing and returning all documents
reasonably requested in connection with the registration and sale of the
Registrable Securities and entering into and performing their obligations under
any underwriting agreement, if the offering is an underwritten offering, in
usual and customary form, with the managing underwriter or underwriters of such
underwritten offering. Any delay or delays caused by the Investors by failure to
cooperate as required hereunder shall not constitute a Registration Default.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible, subject to
the Investors' assistance and cooperation as reasonably required with respect to
each Registration Statement:
(a) (i) prepare and file with the SEC such amendments and supplements
to the Registration Statement and the prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective and to comply
with the provisions of the Act with respect to the sale or other disposition of
all securities covered by such registration statement whenever the Investors
shall desire to sell or otherwise dispose of the same (including prospectus
supplements with respect to the sales of securities from time to time in
connection with a registration statement pursuant to Rule 415 promulgated under
the Act) and (ii) take all lawful action such that each of (A) the Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading and (B) the
prospectus forming part of the Registration Statement, and any amendment or
supplement thereto, does not at any time during the Registration Period include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(b) (i) prior to the filing with the SEC of any Registration Statement
(including any amendments thereto) and the distribution or delivery of any
prospectus (including any supplements thereto), provide draft copies thereof to
the Investors as required by Section 3(c) and reflect in such documents all such
comments as the Investors (and their counsel) reasonably may propose respecting
the Selling Shareholders and Plan of Distribution sections (or equivalents) and
(ii) furnish to each Investor such numbers of copies of a prospectus including a
preliminary prospectus or any amendment or supplement to any prospectus, as
applicable, in conformity with the requirements of the Act, and such other
documents, as such Investor may reasonably request in order to facilitate the
public sale or other disposition of the securities owned by such Investor;
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<PAGE>
(c) register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Investors shall reasonably request (subject to the
limitations set forth in Section 3(c) above), and do any and all other acts and
things which may be necessary or advisable to enable each Investor to consummate
the public sale or other disposition in such jurisdiction of the securities
owned by such Investor;
(d) list such Registrable Securities on the Principal Market, if the
listing of such Registrable Securities is then permitted under the rules of such
Principal Market;
(e) notify each Investor at any time when a prospectus relating thereto
covered by the Registration Statement is required to be delivered under the Act,
of the happening of any event of which it has knowledge as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and the Company
shall use its best efforts to prepare and file a curative amendment under
Section 5(a) as quickly as commercially possible;
(f) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g) cooperate with the Investors to facilitate the timely preparation
and delivery of certificates for the Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates for the
Registrable Securities to be in such denominations or amounts, as the case may
be, as the Investors reasonably may request and registered in such names as the
Investors may request; and, within three (3) Trading Days after a Registration
Statement which includes Registrable Securities is declared effective by the
SEC, deliver and cause legal counsel selected by the Company to deliver to the
transfer agent for the Registrable Securities (with copies to the Investors) an
appropriate instruction and, to the extent necessary, an opinion of such
counsel;
(h) take all such other lawful actions reasonably necessary to expedite
and facilitate the disposition by the Investors of their Registrable Securities
in accordance with the intended methods therefor provided in the prospectus
which are customary for issuers to perform under the circumstances;
(i) in the event of an underwritten offering, promptly include or
incorporate in a prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment; and
(j) maintain a transfer agent and registrar for its Common Stock.
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Section 6. Indemnification.
(a) To the maximum extent permitted by law, the Company agrees to
indemnify and hold harmless the Investors and each person, if any, who controls
an Investor within the meaning of the Securities Act (each a "Distributing
Investor") against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees and expenses), to which the Distributing Investor may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, or any related final prospectus or
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent, and
only to the extent, that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Distributing Investor, its counsel, affiliates or any underwriter, specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) To the maximum extent permitted by law, each Distributing Investor
agrees that it will indemnify and hold harmless the Company, and each officer
and director of the Company or person, if any, who controls the Company within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include, but not
be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees and expenses) to which the Company or any such
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement, or any related final prospectus or amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such Registration Statement, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Distributing Investor, its counsel, affiliates or any
underwriter, specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which the Distributing Investor
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 6
of notice of the commencement of any action against such indemnified party, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 6, notify the indemnifying party in
writing of the commencement thereof; but the omission to so notify the
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<PAGE>
indemnifying party will not relieve the indemnifying party from any liability
which it may have to any indemnified party except to the extent the failure of
the indemnified party to provide such written notification actually prejudices
the ability of the indemnifying party to defend such action. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 6 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified parties as a group
shall have the right to employ one separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party unless (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by its counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the indemnified party or any other
indemnified party (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of such indemnified party, it
being understood, however, that the indemnifying party shall, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and expenses of one
separate firm of attorneys for the indemnified party, which firm shall be
designated in writing by the indemnified party). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld so long
as such settlement includes a full release of claims against the indemnified
party.
Section 7. Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 6 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified party, then the Company and the
applicable Distributing Investor shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees and
expenses), in either such case (after contribution from others) on the basis of
relative fault as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the applicable Distributing Investor on the other
hand, and the parties' relative intent, knowledge, access to information and
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<PAGE>
opportunity to correct or prevent such statement or omission. The Company and
the Distributing Investor agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 7. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section 7
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Notwithstanding any other provision of this Section 7, in no event
shall any (i) Investor be required to undertake liability to any person under
this Section 7 for any amounts in excess of the dollar amount of the proceeds
received by such Investor from the sale of such Investor's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are registered under the Securities Act and (ii) underwriter be
required to undertake liability to any person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by it
and distributed pursuant to such Registration Statement.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be delivered as set forth
in the Purchase Agreement.
Section 9. Assignment. This Agreement is binding upon and inures to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. The rights granted the Investors under this Agreement may be
assigned to any purchaser of substantially all of the Registrable Securities (or
the rights thereto) from an Investor, as otherwise permitted by the Purchase
Agreement.
Section 10. Additional Covenants of the Company. The Company agrees
that at such time as it otherwise meets the requirements for the use of
Securities Act Registration Statement on Form S-3 for the purpose of registering
the Registrable Securities, it shall file all reports and information required
to be filed by it with the SEC in a timely manner and take all such other action
so as to maintain such eligibility for the use of such form.
Section 11. Counterparts/Facsimile. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when together shall constitute but one and the same instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties. In lieu of the original, a facsimile
transmission or copy of the original shall be as effective and enforceable as
the original.
Section 12. Remedies. The remedies provided in this Agreement are
cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
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competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction.
Section 13. Conflicting Agreements. The Company shall not enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement or
otherwise prevents the Company from complying with all of its obligations
hereunder.
Section 14. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 15. Governing Law, Jurisdiction and Venue. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York applicable to contracts made in New York by persons domiciled in New York
City and without regard to its principles of conflicts of laws. Any dispute
under this Agreement shall be adjudicated as set forth in the Purchase
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
NAM Corporation
By: /s/ Roy Israel
-------------------------
Roy Israel, President
Esquire Trade & Finance, Inc.
By: /s/ Roland Winiger
-------------------------
Roland Winiger
Authorized Signatory
Austinvest Anstalt Balzers
By: /s/ Dr. Walter Grill
-------------------------
Dr. Walter Grill
Authorized Signatory
AMRO International S.A.
By: /s/ H.U. Bachofen
-------------------------
H.U. Bachofen
Authorized Signatory
Mabcrown, Inc.
By: /s/ H.U. Bachofen
-------------------------
H.U. Bachofen
Authorized Signatory
11
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase 11,250 Shares of Common Stock of
NAM Corporation
THIS CERTIFIES that, for value received, Esquire Trade & Finance Inc.
(the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after August 15, 2000 (the "Initial
Exercise Date") and on or prior to the close of business on August 15, 2005 (the
"Termination Date") but not thereafter, to subscribe for and purchase from NAM
Corporation, a corporation incorporated in Delaware (the "Company"), up to
eleven thousand two hundred fifty (11,250) shares (the "Warrant Shares") of
Common Stock, $.001 par value, of the Company (the "Common Stock"). The purchase
price of one share of Common Stock (the "Exercise Price") under this Warrant
shall be $10.52 (the Set Price). The Exercise Price and the number of shares for
which the Warrant is exercisable shall be subject to adjustment as provided
herein. In the event of any conflict between the terms of this Warrant and the
Exchangeable Preferred Stock and Warrants Purchase Agreement, dated as of
February 15, 2000 (the "Purchase Agreement"), the Purchase Agreement shall
control. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and the terms of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant together with the Assignment Form
annexed hereto properly endorsed.
<PAGE>
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date by the surrender of this Warrant and the Notice
of Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased by wire transfer or cashier's check drawn on a United
States bank, the holder of this Warrant shall be entitled to receive a
certificate for the number of shares of Common Stock so purchased. Certificates
for shares purchased hereunder shall be delivered to the holder hereof within
five (5) Trading Days after the date on which this Warrant shall have been
exercised as aforesaid. This Warrant shall be deemed to have been exercised and
such certificate or certificates shall be deemed to have been issued, and Holder
or any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Holder faxes a Notice of Exercise to the Company, provided that such fax notice
is followed by delivery of the original notice and payment to the Company of the
Exercise Price and all taxes required to be paid by Holder, if any, pursuant to
Section 5 prior to the issuance of such shares, have been paid within three (3)
Trading Days of such fax notice. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant. If there is no registration in effect permitting
the resale by the Holder of the Warrant Shares at any time from and after one
year from the issuance date of this Warrant, then the Holder shall have the
right to a "cashless exercise" in which the Holder shall be entitled to receive
a certificate for the number of shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:
(A) = the closing bid price per share of Common Stock on the
Trading Day preceding the date of such election;
(B) = the Exercise Price of the Warrant; and
(X) = the number of shares issuable upon exercise of the
Warrant in accordance with the terms of this Warrant.
<PAGE>
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or federal or state transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the holder of this Warrant or in such name or names as may
be directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.
6. Closing of Books. The Company will not close its shareholder books
or records in any manner which prevents the timely exercise of this Warrant.
7. Transfer, Division and Combination.
(a) The Holder (and its transferees and assigns), by acceptance of
this Warrant, covenants and agrees that it is acquiring the Warrants evidenced
hereby, and, upon exercise hereof, the Warrant Shares, for its own account as an
investment and not with a view to distribution thereof. The Warrant Shares have
not been registered under the Securities Act or any state securities laws and no
transfer of any Warrant Shares shall be permitted unless the Company has
received notice of such transfer, at the address of its principal office set
forth in the Purchase Agreement, in the form of assignment attached hereto,
accompanied by an opinion of counsel reasonably satisfactory to the Company that
an exemption from registration of such Warrants or Warrant Shares under the
Securities Act is available for such transfer, except that no such opinion shall
be required after the registration for resale by the Holder of the Warrant
Shares, as contemplated by the Registration Rights Agreement. Upon any exercise
of the Warrants, certificates representing the Warrant Shares shall bear a
restrictive legend substantially identical to that set forth on the face of this
Warrant certificate.
(b) This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by Holder or its agent or attorney. Subject to compliance
with Section 7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
(c) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 7.
<PAGE>
(d) The Company agrees to maintain, at its aforesaid office, books
for the registration and the registration of transfer of the Warrants.
(e) The Company shall have a right of first refusal to purchase
this Warrant if the Holder intends to sell this Warrant. The Holder shall give
the Company at least five (5) days' prior written notice (as set forth in the
Purchase Agreement) of its intention to sell this Warrant or any portion
thereof, and the terms and conditions of such sale and the identity of the
proposed purchaser. The Company shall have the right within such five day period
to advise the Holder of its intention to purchase this Warrant (or portion
sought to be sold) and the Company must complete such purchase within five (5)
further days, or this right shall be void.
8. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be and be deemed to be issued to such holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant certificate
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which shall not exceed that customarily charged by the Company's transfer
agent) and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such
Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares. (a)
Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the holder of this Warrant shall be entitled
to receive the kind and number of Warrant Shares or other securities of the
Company which he would have owned or been entitled to receive had such Warrant
been exercised in advance thereof. Upon each such adjustment of the kind and
number of Warrant Shares or other securities of the Company which are
purchasable hereunder, the holder of this Warrant shall thereafter be entitled
to purchase the number of Warrant Shares or other securities resulting from such
<PAGE>
adjustment at an Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
(b) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 11 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
12. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
13. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
<PAGE>
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting forth
the computation by which such adjustment was made. Such notice, in the absence
of manifest error, shall be conclusive evidence of the correctness of such
adjustment.
14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 10 days' prior written notice of the record date for such dividend,
distribution or right or for determining rights to vote in respect of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 10 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, the date on which the holders of Common Stock shall be entitled to any
such dividend, distribution or right, and the amount and character thereof, and
(ii) the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with Section
16(d).
15. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
<PAGE>
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form reasonably
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
Before taking any action which would cause an adjustment reducing the
current Exercise Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Exercise Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any
successors or assigns of the Company. This Warrant shall constitute a contract
under the laws of Delaware without regard to its conflict of law, principles or
rules, and be subject to arbitration pursuant to the terms set forth in the
Purchase Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination Date. If the
<PAGE>
Company fails to comply with any provision of this Warrant, the Company shall
pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall be
delivered in accordance with the notice provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the absence
of affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall give rise
to any liability of Holder for the purchase price of any Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
(g) Successors and Assigns. Subject to applicable securities laws,
this Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's negligence,
bad faith or willful misconduct.
(i) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
<PAGE>
(j) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: February 17, 2000
NAM Corporation
By: /s/ Roy Israel
__________________________
Roy Israel, President
<PAGE>
NOTICE OF EXERCISE
To: NAM Corporation
(1) The undersigned hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of NAM Corporation pursuant to the terms of
the attached Warrant, and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
--------------------------------
(Name)
--------------------------------
(Address)
--------------------------------
Dated:
---------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address:________________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
Between
Moldbury Holdings Limited
And
NAM Corporation
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of February 16, 2000 (the
"Agreement"), between Moldbury Holdings Limited (the "Investor") and NAM
Corporation, a corporation organized and existing under the laws of the State of
Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor
from time to time as provided herein, and Investor shall purchase, up to
$7,000,000 (the "Aggregate Purchase Price") of the Common Stock (as defined
below); and
WHEREAS, such investments will be made by the Investor as a statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.2 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.3 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
<PAGE>
Section 1.5 "Closing Date" shall mean, with respect to a Closing, the
second Trading Day following the Put Date related to such Closing, provided all
conditions to such Closing have been satisfied on or before such Trading Day.
Section 1.6 "Commitment Amount" shall mean the $7,000,000 up to which
the Investors have agreed to provide to the Company in order to purchase the Put
Shares pursuant to the terms and conditions of this Agreement, subject to
increase as set forth in Section 2.6.
Section 1.7 "Commitment Period" shall mean the period commencing on the
Effective Date and expiring on the earliest to occur of (x) the date on which
the Investors shall have purchased Put Shares pursuant to this Agreement for an
aggregate Purchase Price of $7,000,000, (y) the date this Agreement is
terminated pursuant to Section 2.4, or (z) the date occurring three years from
the date of commencement of the Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, par
value $.001 per share.
Section 1.9 "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.10 "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering the sale by the
Company and resale by the Investors of the Registrable Securities as set forth
in Section 7.2(a).
Section 1.11 "Escrow Agent" shall mean the escrow agent designated in
the Escrow Agreement.
Section 1.12 "Escrow Agreement" shall mean the escrow agreement in the
form attached hereto as Exhibit A.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Floor Price" shall mean, with respect to any given Put,
that Purchase Price set solely by the Company below which the Put shall be
automatically cancelled.
Section 1.15 "Investment Amount" shall mean the dollar amount to be
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor, all in accordance with Section 2.2
hereof.
Section 1.16 "Market Price" on any given date shall mean the average of
the closing bid prices (as reported by Bloomberg L.P.) of the Common Stock on
each Trading Day during the Valuation Period relating to such date.
Section 1.17 "Material Adverse Effect" shall mean any effect on the
business, Bid Price, operations, properties, prospects, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement,
the Registration Rights Agreement or the Escrow Agreement in any material
respect.
2
<PAGE>
Section 1.18 "Maximum Put Amount" shall mean the amount indicated by
the following table:
<TABLE>
<CAPTION>
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
20,000-35,000 Avg. 35,001-50,000 Avg. 30 50,001-65,000 Avg. 65,001-Above Avg. 30
Stock Bid Price 30 Trading Day Volume Trading Day Volume 30 Trading Day Volume Trading Day Volume
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
2.00-3.50 $500,000 $500,000 $750,000 $750,000
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
3.51-5.00 $500,000 $750,000 $750,000 $1,000,000
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
5.01-6.50 $750,000 $1,000,000 $1,000,000 $1,000,000
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
6.51-8.50 $750,000 $1,000,000 $1,000,000 $1,500,000
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
8.01-Above $1,000,000 $1,000,000 $1,500,000 $2,000,000
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
If the Bid Price or the thirty-day average trading volumes shall be
less than the parameters set forth in the foregoing table, the Maximum Put
Amount shall be $250,000.
Section 1.19 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.20 "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.21 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.22 "Principal Market" shall mean the NASDAQ National Market,
the NASDAQ Small-Cap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock. Principal Market shall not include the OTC Bulletin Board
without the express written consent of the Investors.
Section 1.23 "Purchase Price" shall mean with respect to Put Shares,
eighty-nine percent (89%) (the "Purchase Price Percentage") of the average of
the daily Market Prices during the Valuation Period applicable to a Put Date (or
such other date on which the Purchase Price is calculated in accordance with the
terms and conditions of this Agreement), provided, however, that in no event
shall the Purchase Price for the Put Shares be less than the Floor Price, if
any, established for such Put. Upon any Special Activity, the Purchase Price
Percentage shall be eighty-six percent (86%) of the Market Price upon a Put
Date.
3
<PAGE>
Section 1.24 "Put" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice requiring the Investor to purchase
shares of the Company's Common Stock, subject to the terms of this Agreement.
Section 1.25 "Put Date" shall mean the Trading Day during the
Commitment Period that a Put Notice to sell Common Stock to the Investor is
deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.26 "Put Notice" shall mean a written notice to the Investor
setting forth the Investment Amount that the Company intends to sell to the
Investor.
Section 1.27 "Put Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to a Put that has occurred or may
occur in accordance with the terms and conditions of this Agreement.
Section 1.28 "Registrable Securities" shall mean the Put Shares and
Warrant Shares until (i) all Put Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Put Shares and Warrant Shares
have been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Put Shares and Warrant Shares have been
otherwise transferred to persons who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company, all Put Shares
and Warrant Shares may be sold without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act.
Section 1.29 "Registration Statement" shall mean the Company's
registration statement on Form S-3, and any subsequent Form S-3 (if use of such
form is then available to the Company pursuant to the rules of the SEC and, if
not, on such other form promulgated by the SEC, such as Form S-1 or SB-2, for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investor of
the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, and in accordance with the intended method of
distribution of such securities), for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.
Section 1.30 "SEC" shall mean the Securities and Exchange Commission.
Section 1.31 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.32 "SEC Documents" shall mean the Company's latest Form 10-K
or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its latest fiscal year as of the time in
question until such time as the Company no longer has an obligation to maintain
the effectiveness of a Registration Statement.
4
<PAGE>
Section 1.33 "Special Activity" shall mean a merger, acquisition, or
any other event outside the ordinary course of the Company's business for which
the Company needs funds in addition to its ordinary working capital needs.
Section 1.34 "Trading Cushion" shall mean the mandatory fifteen (15)
Trading Days between Put Dates, except for Special Activity, during which period
the Trading Cushion shall be seven (7) Trading Days.
Section 1.35 "Trading Day" shall mean any day during which the
Principal Market shall be open for business.
Section 1.36 "Valuation Event" shall mean an event in which the Company
at any time after the date of this Agreement and prior to the end of the
Commitment Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a) and (b)
above or (d) and (e) below, at a price per share less, or for other
consideration lower, than the Bid Price in effect immediately prior to such
issuance, or without consideration (other than pursuant to this Agreement);
(d) issues any warrants, options or other rights to subscribe for
or purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for
Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Company's assets (other than under the circumstances provided for in
the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections (a)
through (f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a Material Adverse Effect upon
the rights of the Investor at the time of a Put.
5
<PAGE>
Section 1.37 "Valuation Period" shall mean the period of five (5)
Trading Days during which the Purchase Price of the Common Stock is valued,
which period shall be with respect to the Purchase Price on any Put Date, the
two (2) Trading Days immediately preceding and the two (2) Trading Days
following the Trading Day on which a Put Notice is deemed to be delivered, as
well as the Trading Day on which such notice is deemed to be delivered;
provided, however, that if a Valuation Event occurs during a Valuation Period, a
new Valuation Period shall begin on the Trading Day immediately after the
occurrence of such Valuation Event and end on the fifth Trading Day thereafter.
Section 1.38 "Warrant" shall mean the warrants to purchase up to 60,000
shares of Common Stock to be issued to Investor, seventy-five percent (75%) of
which shall be issued at the Initial Closing and the remaining twenty-five
percent (25%) to be issued immediately after the Investor has invested three
million five hundred thousand dollars ($3,500,000) to purchase Put Shares under
the terms and conditions of this Agreement, in the form of Exhibit B hereto.
Section 1.39 "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrant.
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Investments.
(a) Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on any
Put Date the Company may make a Put by the delivery of a Put Notice. The number
of Put Shares that the Investor shall purchase pursuant to such Put shall be
determined by dividing the Investment Amount specified in the Put Notice by the
Purchase Price on such Put Date, which amount shall not exceed the Maximum Put
Amount on such date.
(b) Maximum Aggregate Amount of Puts. Anything in this Agreement
to the contrary notwithstanding, unless the Company obtains shareholder approval
of this Agreement pursuant to the applicable corporate governance rules of the
Principal Market, the Company may not make a Put (or issue any additional shares
under Section 2.5) which results in the issuance of more shares of Common Stock
in the aggregate pursuant to all Puts made under the terms of this Agreement and
all shares reserved for issuance upon exercise of the Warrants which exceeds
19.9% of the number of shares of Common Stock issued and outstanding on the date
hereof.
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Section 2.2 Mechanics.
(a) Put Notice. At any time during the Commitment Period, the
Company may deliver a Put Notice to the Investor, subject to the conditions set
forth in Section 7.2; provided, however, that the Investment Amount for each Put
as designated by the Company in the applicable Put Notice shall be neither less
than $250,000 nor more than the Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 12:00 noon Eastern Time, or (ii)
the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Put Notice may be deemed delivered on a day that
is not a Trading Day.
Section 2.3 Closings. On or before each Closing Date for a Put (i) the
Company shall arrange for its transfer agent to deliver the Put Shares to be
purchased by the Investor pursuant to Section 2.1 herein, to the Depository
Trust Company ("DTC") brokerage account specified by the Investor if the Company
has been notified in writing that the Investment Amount is held by the Escrow
Agent and (ii) the Investor shall deliver the Investment Amount specified in the
Put Notice by wire transfer of immediately available funds to the Escrow Agent
on or before the Closing Date. In addition, on or prior to the Closing Date,
each of the Company and the Investor shall deliver to the Escrow Agent all
documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein. Payment of funds to the Company
shall occur out of escrow in accordance with the Escrow Agreement, provided,
however, that to the extent the Company has not paid the fees, expenses, and
disbursements of the Investor's counsel in accordance with Section 14.7, the
amount of such fees, expenses, and disbursements shall be paid in immediately
available funds, at the direction of the Investor, to Investor's counsel with no
reduction in the number of Put Shares issuable to the Investor on such Closing
Date.
Section 2.4 Termination of Investment Obligation. The obligation of the
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of twenty (20)
consecutive Trading Days during the Commitment Period, for any reason other than
deferrals or suspensions in accordance with the Registration Rights Agreement as
a result of corporate developments subsequent to the Effective Date that would
require such Registration Statement to be amended to reflect such event in order
to maintain its compliance with the disclosure requirements of the Securities
Act or (ii) the Company shall at any time fail to comply with the requirements
of Section 6.3, 6.4 or 6.6.
Section 2.5 Additional Shares. In the event that (a) within five
Trading Days of any Closing Date, the Company gives notice to the Investor of an
impending "blackout period" during which the use of the Registration Statement
is not permitted due to the Company's non-disclosure of material information,
and (b) the Bid Price on the Trading Day immediately preceding such "blackout
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period" (the "Old Bid Price") is greater than the Bid Price on the first Trading
Day following such "blackout period" (the "New Bid Price") the Company shall
issue to the Investor a number of additional shares (the "Blackout Shares")
equal to the difference between (y) the product of the number of Registrable
Securities held by the Investor during such "blackout period" that are not
otherwise freely tradable during such "blackout period" and the Old Bid Price,
divided by the New Bid Price and (z) the number of Registrable Securities held
by the Investor during such "blackout period" that are not otherwise freely
tradable during such "blackout period". If any such issuance would result in the
issuance of a number of shares which exceeds the number set forth in Section
2.1(b), then in lieu of such issuance, the Company shall pay each affected
Investor the closing bid price of the Blackout Shares on the first Trading Day
following the end of the blackout period in cash within five Trading Days.
Section 2.6 Increase of Investment Obligation Under Certain
Circumstances. The Company shall have the right to increase the Commitment
Amount to $14,000,000 in total by notice to the Investor within ten (10) days of
the date which is fourteen (14) months after the first Closing Date, provided
that all of the following conditions are met:
(a) the Company reported cash and equivalents in its most recent
Form 10-Q of at least $3,500,000; and
(b) the Company has achieved net revenues in each quarter as
follows:
March 31, 2000 $500,000
June 30, 2000 $1,000,000
September 30, 2000 $1,250,000
December 31, 2000 $2,000,000
March 31, 2001 $2,250,000
(c) Roy Israel must continue to be Chief Executive Officer; and
(d) the Registration Statement must be effective.
ARTICLE III
Representations and Warranties of Investors
Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for
its own account and the Investor has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to or through any person
or entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
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Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it has the capacity to protect
its own interests in connection with this transaction and is capable of
evaluating the merits and risks of an investment in Common Stock. The Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 Not an Affiliate. Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 Organization and Standing. Investor is a corporation duly
organized, validly existing, and in good standing under the laws of the British
Virgin Islands.
Section 3.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound; (b) conflict with or constitute a material default
thereunder; (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party; or (d) require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
Section 3.7 Disclosure; Access to Information. Investor has received
and reviewed all documents, records, books and other publicly available
information pertaining to Investor's investment in the Company that have been
requested by Investor. The Company is subject to the periodic reporting
requirements of the Exchange Act, and Investor has reviewed copies of any such
reports that have been requested by it.
Section 3.8 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.9 Financial Capacity. Investor currently has the financial
capacity to meet its obligations to the Company hereunder, and the Investor has
no present knowledge of any circumstances which could cause it to become unable
to meet such obligations in the future.
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Section 3.10 Underwriter Liability. Investor understands that it is the
position of the SEC that the Investor is an underwriter within the meaning of
Section 2(11) of the Securities Act and that the Investor will be identified as
an underwriter of the Put Shares in the Registration Statement.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investors that, except as set forth
the Schedule of Exceptions attached hereto:
Section 4.1 Organization of the Company. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate
power and corporate authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement, the Warrant and the Escrow
Agreement and to issue the Put Shares, the Warrant and the Warrant Shares, (ii)
the execution, issuance and delivery of this Agreement, the Registration Rights
Agreement, the Warrant and the Escrow Agreement and the consummation by it of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement, the Warrant and the Escrow Agreement have been
duly executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. The Company has duly and validly authorized and reserved
for issuance shares of Common Stock sufficient in number for the issuance of the
Put Shares at the Floor Price. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the Put
Shares.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 15,000,000 shares of Common Stock, $.001 par value per share, of
which 3,416,233 shares are issued and outstanding as of November 12, 1999 and
5,000,000 shares of preferred stock, par value $.001 per share, 1,850 of which
have been designated as Series A Exchangeable Preferred Stock. Except for (i)
outstanding options and warrants as set forth in the SEC Documents, (ii) stock
options awarded under the Company's 1996 Stock Option Plan, as amended, and
(iii) as set forth in the Disclosure Schedule, there are no outstanding Capital
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Shares Equivalents nor any agreement or understandings pursuant to which any
Capital Shares Equivalents may become outstanding. The Company is not a party to
any agreement granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. All of the outstanding shares
of Common Stock of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on the
Principal Market. As of the date hereof, the Principal Market is the Nasdaq
Smallcap Market and the Company has not received any notice regarding, and to
its knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5 SEC Documents. The Company has delivered or made available
to the Investors true and complete copies of the SEC Documents. The Company has
not provided to the Investors any information that, according to applicable law,
rule or regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act, and rules and regulations of the SEC promulgated thereunder
and the SEC Documents did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6 Valid Issuances. When issued and paid for in accordance
with a Put, the Put Shares will be registered for sale to the Investors by the
Company and by the Investors to the public, and will be duly and validly issued,
fully paid, and non-assessable. When issued and paid for upon exercise of the
Warrant, the Warrant Shares will be registered for sale to the Investors by the
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Company and will be duly and validly issued, fully paid, and non-assessable.
Neither the sales of the Put Shares nor the Company's performance of its
obligations under this Agreement, the Registration Rights Agreement, the Warrant
or the Escrow Agreement will (i) result in the creation or imposition by the
Company of any liens, charges, claims or other encumbrances upon the Put Shares
or Warrant Shares or, except as contemplated herein, any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe to or acquire the Capital Shares or other
securities of the Company. The Put Shares, the Warrant and the Warrant Shares
shall not subject the Investors to personal liability to the Company or its
creditors by reason of the possession thereof.
Section 4.7 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Put Shares, the Warrant or the Warrant Shares, do not and will not (i)
result in a violation of the Company's Certificate of Incorporation or By-Laws
or (ii) conflict with, or constitute a material default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument, or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state or local law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or by which any material
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or default under any of the foregoing
(except in each case for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not have, individually or
in the aggregate, a Material Adverse Effect). The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not have a Material Adverse Effect. The Company is not required
under federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Put Shares, the Warrant
or the Warrant Shares in accordance with the terms hereof (other than any SEC,
Nasdaq or state securities filings that may be required to be made by the
Company subsequent to Closing, any registration statement that may be filed
pursuant hereto, and any shareholder approval required by the rules applicable
to companies whose common stock trades on the Nasdaq Stock Market); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
Section 4.8 No Material Adverse Change. Since September 30, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 4.9 No Undisclosed Events or Circumstances. Since September 30,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
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Section 4.10 Litigation and Other Proceedings. Except as disclosed in
the SEC Documents, there are no lawsuits or proceedings pending or, to the
knowledge of the Company, threatened, against the Company, nor has the Company
received any written or oral notice of any such action, suit, proceeding or
investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect.
Section 4.11 No Misleading or Untrue Communication. The Company and, to
the knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Preferred Stock or the
Warrants in connection with the transaction contemplated by this Agreement, have
not made, at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 4.12 Material Non-Public Information. Except as set forth in
the Disclosure Schedule, the Company has not disclosed to the Investors any
material non-public information that (i) if disclosed, would reasonably be
expected to have a material effect on the price of the Common Stock or (ii)
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
Section 4.13 Insurance. The Company maintains property and casualty,
general liability, workers' compensation, environmental hazard, personal injury
and other similar types of insurance with financially sound and reputable
insurers that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Section 4.14 Tax Matters.
(a) The Company has filed all Tax Returns which it is required to
file under applicable laws; all such Tax Returns are true and accurate and have
been prepared in compliance with all applicable laws; the Company has paid all
Taxes due and owing by it (whether or not such Taxes are required to be shown on
a Tax Return) and have withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third parties; and since
June 30, 1999, the charges, accruals and reserves for Taxes with respect to the
Company (including any provisions for deferred income taxes) reflected on the
books of the Company are adequate to cover any Tax liabilities of the Company if
its current tax year were treated as ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that such corporation is or may be
subject to taxation by that jurisdiction. There are no foreign, federal, state
or local tax audits or administrative or judicial proceedings pending or being
conducted with respect to the Company; no information related to Tax matters has
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been requested by any foreign, federal, state or local taxing authority; and,
except as disclosed above, no written notice indicating an intent to open an
audit or other review has been received by the Company from any foreign,
federal, state or local taxing authority. There are no material unresolved
questions or claims concerning the Company's Tax liability. The Company (A) has
not executed or entered into a closing agreement pursuant to ss. 7121 of the
Internal Revenue Code or any predecessor provision thereof or any similar
provision of state, local or foreign law; or (B) has not agreed to or is
required to make any adjustments pursuant to ss. 481 (a) of the Internal Revenue
Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by the Company or any of its subsidiaries
or has any knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United States
real property holding corporation within the meaning of ss. 897(c)(2) of the
Internal Revenue Code during the applicable period specified in ss.
897(c)(1)(A)(ii) of the Internal Revenue Code.
(c) The Company has not made an election under ss. 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under ss. 280G of the Internal
Revenue Code.
(d) For purposes of this Section 4.14:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
Section 4.15 Property. Neither the Company nor any of its subsidiaries
owns any real property except as set forth in the SEC Documents. Each of the
Company and its subsidiaries has good and marketable title to all personal
property owned by it, free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company; and to the Company's knowledge any real property and buildings
held under lease by the Company as tenant are held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and intended to be made of such property and
buildings by the Company.
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Section 4.16 Licensing and Permits. The Company holds all necessary
licenses and permits for the conduct of its business. All of such licenses and
permits are in good standing and the Company is not in material default of any
of the conditions thereof.
Section 4.17 Intellectual Property. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents, no claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
Section 4.18 Internal Controls and Procedures. The Company maintains
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by which
its properties are bound are executed with management's authorization; (ii) the
recorded accounting of the Company's assets is compared with existing assets at
regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. generally accepted accounting principles.
Section 4.19 Payments and Contributions. Neither the Company nor any of
its directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Section 4.20 No Misrepresentation. Except as set forth in the
Disclosure Schedule, the representations and warranties of the Company contained
in this Agreement, any schedule, annex or exhibit hereto and any agreement,
instrument or certificate furnished by the Company to the Investor pursuant to
this Agreement, do not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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ARTICLE V
Covenants of the Investor
The Investor covenants with the Company that:
Section 5.1 Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed. Without limiting the generality of the foregoing, the Investor agrees
that it will, whenever required by federal securities laws, deliver the
prospectus included in the Registration Statement to any purchaser of Put Shares
from the Investor.
Section 5.2 Short Sales. Section 5.3 The Investor and its affiliates
shall not engage in short sales of the Company's Common Stock.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the
Registration Statement to become and then remain effective throughout the term
of this Agreement, or until all shares of Common Stock registered thereunder
have been sold, in which event the Company shall file a further Registration
Statement permitting the sale of additional Put Shares and the Warrant Shares,
which such additional Registration Statement shall be effective within one
hundred twenty (120) days of the termination or withdrawal of the present
Registration Statement, or the Investor's obligations under this Agreement shall
terminate.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company issue the Put Shares. The number of shares
so reserved from time to time, as theretofore increased or reduced as
hereinafter provided, may be reduced by the number of shares actually delivered
hereunder.
Section 6.3 Listing of Common Stock. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) to list the Put Shares. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Put Shares and will take such other action as is
necessary or desirable in the opinion of the investor to cause the Common Stock
to be listed on such other Principal Market as promptly as possible. The Company
will take all action to continue the listing and trading of its Common Stock on
the Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide Investor with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within one Trading Day of the Company's receipt thereof.
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Section 6.4 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will use its best efforts to comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by Exchange Act or the
rules thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
sold to the Investors shall be free of restrictive legends.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 . Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put. The Company will immediately notify the
Investor upon the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
Registrable Securities; (i) receipt of any request for additional information
from the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement the response to which
would require any amendments or supplements to the registration statement or
related prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in the Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case of
the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Investor any such supplement or amendment to the related prospectus. The Company
shall not deliver to the Investor any Put Notice during the continuation of any
of the foregoing events.
Section 6.8 Expectations Regarding Put Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Put Notices.
Such notification shall constitute only the Company's good faith estimate and
shall in no way obligate the Company to raise such amount, or any amount, or
otherwise limit its ability to deliver Put Notices. The failure by the Company
to comply with this provision can be cured by the Company's notifying the
Investor, in writing, at any time as to its reasonable expectations with respect
to the current calendar quarter.
<PAGE>
Section 6.9 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Investor such shares of stock
and/or securities as the Investor is entitled to receive pursuant to this
Agreement.
Section 6.10 Minimum Issuance of Put Shares. The Company shall issue
Put Notices in the minimum amount of $500,000 during the Commitment Period.
Section 6.11 Limitation on Similar Financing. The Company agrees that
it will not enter into any other equity line of credit type of agreement at a
price below the then-current bid price of the Common Stock during the Commitment
Period without the prior written consent of the Investor.
Section 6.12 Special Activity. The Company shall give the Investor at
least twenty-one days' advance written notice of any Special Activity, or else
the Trading Cushion shall remain at fifteen (15) Trading Days.
ARTICLE VII
Conditions to Delivery of Puts
and Conditions to Closing
Section 7.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Put Shares to the Investor incident to each Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date of this Agreement and as of the date of each
such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver
a Put Notice and the Obligation of the Investor to Purchase Put Shares. The
right of the Company to deliver a Put Notice and the obligation of the Investor
to acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on both (i) the date of delivery of such Put Notice and (ii) the
applicable Closing Date (each a "Condition Satisfaction Date"), of each of the
following conditions:
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<PAGE>
(a) Closing Certificate. All representations and warranties of the
Company contained herein shall remain true and correct as of the Closing Date as
though made as of such date (other than warranties which speak as of a specific
date) and the Company shall have delivered into escrow an Officer's Certificate
signed by its Chief Executive Officer certifying that all of the Company's
representations and warranties herein remain true and correct as of the Closing
Date and that the Company has performed all covenants and satisfied all
conditions to be performed or satisfied by the Company prior to such Closing;
(b) Blue Sky. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Common Stock
to the Investor and by the Investor as set forth in the Registration Rights
Agreement or shall have the availability of exemptions therefrom;
(c) Delivery of Put Shares. Delivery to the Depository Trust
Company DWAC account specified by the Investor of the Put Shares;
(d) Opinion of Counsel. Receipt by the Investor of an opinion of
counsel to the Company, in the form of Exhibit C hereto; and
(e) Registration of the Common Stock with the SEC. The
Registration Statement shall remain effective (or, if a further Registration
Statement shall be necessary, shall have previously become effective) and shall
be available for making resales of the Put Shares by the Investor on each
Condition Satisfaction Date and (i) neither the Company nor the Investor shall
have received notice that the SEC has issued or intends to issue a stop order
with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and the Investor is reasonably satisfied that
the SEC no longer is considering or intends to take such action), and (ii) no
other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist.
(f) Authority. The Company will satisfy all laws and regulations
pertaining to the sale and issuance of the Put Shares.
(g) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement, the Registration Rights Agreement and
the Escrow Agreement to be performed, satisfied or complied with by the Company
at or prior to each Condition Satisfaction Date.
(h) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
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<PAGE>
(i) Adverse Changes. Since the date of filing of the Company's
most recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(j) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including, without limitation, the Put Shares) is
not suspended by the SEC or the Principal Market, and the Common Stock
(including, without limitation, the Put Shares) shall have been approved for
listing or quotation on and shall not be delisted from the Principal Market. The
issuance of shares of Common Stock with respect to the applicable Closing, if
any, shall not violate the shareholder approval requirements of the Principal
Market. The Company shall not have received any notice threatening to delist the
Common Stock from the Principal Market.
(k) Minimum Trading Volume. The dollar value of the average daily
trading volume of the Common Stock on the Principal Market during the thirty
(30) Trading Days prior to the Put Date shall be at least $20,000.
(l) No Knowledge. The Company has no knowledge of any event more
likely than not to have the effect of causing such Registration Statement to be
suspended or otherwise ineffective (which event is reasonably likely to occur
within the thirty (30) Trading Days following the Trading Day on which such
Notice is deemed delivered).
(m) Trading Cushion. The Trading Cushion shall have elapsed since
the next preceding Put Date.
(n) Other. On each Condition Satisfaction Date, the Investor shall
have received and been reasonably satisfied with such other certificates and
documents as shall have been reasonably requested by the Investor in order for
the Investor to confirm the Company's satisfaction of the conditions set forth
in this Section 7.2.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investors (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investors pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all SEC Documents and
other filings with the SEC, and all other publicly available corporate documents
and properties of the Company as may be reasonably necessary for the purpose of
such review, and cause the Company's officers, directors and employees to supply
all such publicly available information reasonably requested by the Investors or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
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<PAGE>
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to the
Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investors, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investors' advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investors.
(b) The Company represents that it does not disseminate non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investors (without the written consent of the Investors prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE IX
Transfer Agent Instructions
Section 9.1 Transfer Agent Instructions. Upon each Closing, the Company
will issue to the transfer agent for its Common Stock (and to any substitute or
replacement transfer agent for its Common Stock upon the Company's appointment
of any such substitute or replacement transfer agent) instructions to deliver
the Put Shares without restrictive legends to the DTC DWAC account specified by
Investor.
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Section 9.2 No Legend or Stock Transfer Restrictions. No legend shall
be placed on the share certificates representing the Put Shares and no
instructions or "stop transfer orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto.
Section 9.3 Investor's Compliance. Nothing in this Article shall affect
in any way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Put Shares.
ARTICLE X
Indemnification
Section 10.1 Survival. The representations, warranties and covenants
made by each of the Company and the Investor in this Agreement, the schedules
and exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive each
Closing and the consummation of the transactions contemplated hereby until the
expiration of one year from the date of the Put to which such claim applies. In
the event of a breach or violation of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
Section 10.2 General Indemnity. The Company agrees to indemnify and
hold harmless the Investor (and its directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorney's fees, charges and disbursements) incurred by the Investor
to any third party as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. The
Investor agrees to indemnify and hold harmless the Company and its directors,
officers, affiliates, agents, successors and assigns from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys fees, charges and disbursements)
incurred by the Company to any third party as result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Investor
herein. The indemnification against such third-party claims shall survive any
expiration of this Agreement.
Section 10.3 Securities Law Indemnity.
(a) The Company agrees to indemnify and hold harmless the Investor
and each person, if any, who controls the Investor within the meaning of the
Securities Act ("Distributing Investor") against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees), to which the Distributing
Investor may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, or any related
preliminary prospectus, final prospectus or amendment or supplement thereto, or
22
<PAGE>
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
preliminary prospectus, final prospectus or amendment or supplement thereto in
reliance upon, and in conformity with, written information furnished to the
Company by the Distributing Investor, specifically for use in the preparation
thereof. This Section 10.3(a) shall not inure to the benefit of any Distributing
Investor with respect to any person asserting such loss, claim, damage or
liability who purchased the Registrable Securities which are the subject thereof
if the Distributing Investor failed to send or give (in violation of the
Securities Act or the rules and regulations promulgated thereunder) a copy of
the prospectus contained in such Registration Statement to such person at or
prior to the written confirmation to such person of the sale of such Registrable
Securities, where the Distributing Investor was obligated to do so under the
Securities Act or the rules and regulations promulgated thereunder. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Distributing Investor agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys' fees) to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, or any related preliminary prospectus, final
prospectus or amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Distributing Investor, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Distributing Investor may otherwise have.
Section 10.4 Indemnification Procedure. Any party entitled to
indemnification under this Article X (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article X except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the indemnified party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. In the event that the indemnifying party
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advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party's costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any settlement negotiations or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article X to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article X shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction that
such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to.
Section 10.5 Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 10.4 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 10.4 hereof
provide for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any indemnified party, then the
Company and the applicable Distributing Investor shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the applicable Distributing Investor
on the other hand, and the parties' relative intent, knowledge, access to
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information and opportunity to correct or prevent such statement or omission.
The Company and the Distributing Investor agree that it would not be just and
equitable if contribution pursuant to this Section 10.5 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 10.5. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
Section 10.5 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Notwithstanding any other provision of this Section 10.5, in no event
shall any (i) Investor be required to undertake liability to any person under
this Section 10.5 for any amounts in excess of the dollar amount of the net
proceeds to be received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.
ARTICLE XI
Choice of Law
Section 11.1 Governing Law; Jurisdiction and Venue. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York applicable to contracts made in New York by persons domiciled in New
York City and without regard to its principles of conflicts of laws. Each party
submits to the exclusive jurisdiction of the State and Federal courts sitting in
New York County, New York as the sole forum for hearing disputes under this
Agreement or any of the Agreements attached as Exhibits hereto. The
non-prevailing party to any proceeding (as determined by the Court) shall pay
the expenses of the prevailing party, including reasonable attorneys' fees, in
connection with such proceeding. Any party shall have the right to seek
injunctive relief from any court of competent jurisdiction in any case where
such relief is available, and the prevailing party shall be entitled to
reasonable attorneys' fees incurred in connection with any such injunctive
proceeding.
ARTICLE XII
Assignment
Section 12.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased or acquired by the Investor hereunder with respect to
the Common Stock held by such person, and (b) upon the prior written consent of
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<PAGE>
the Company, which consent shall not unreasonably be withheld or delayed in the
case of an assignment to an affiliate of the Investor, the Investor's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any affiliate of the Investor) who agrees to make
the representations and warranties contained in Article III and who agrees to be
bound hereby, provided, that Investor shall not assign its rights to any person
identified by the Company to the Investor as being in a business competitive
with that of the Company.
ARTICLE XIII
Notices
Section 13.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
<TABLE>
<CAPTION>
<S> <C>
If to the Company:
Mr. Roy Israel, Chief Executive Officer
NAM Corporation
1010 Northern Boulevard
Great Neck, NY 11021
Telephone: (516) 829-4343
Facsimile: (516) 829-4395
with a copy to: Robert Matlin, Esq.
Camhy Karlinsky & Stein LLP
(shall not constitute notice) 1740 Broadway
16th Floor
New York, NY 10019-4315
Telephone: (212) 830-5761
Facsimile: (212) 977-8389
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
if to the Investor: Moldbury Holdings Limited
c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74, Postfach 86
FL-9490 Vaduz
Furstentum Liechtenstein
Attention: Hans Gassner
Telephone: 011-075-236-0404
Facsimile: 011-075-236-0405
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
</TABLE>
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 13.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
ARTICLE XIV
Miscellaneous
Section 14.1 Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 14.2 Entire Agreement. This Agreement, the Exhibits hereto,
which include, but are not limited to the Escrow Agreement, the Warrant and the
Registration Rights Agreement, set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supersedes all prior
and contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The terms
and conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 14.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder for a period of three years. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
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Section 14.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 14.5 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the Investor and the Company shall be required to employ any other reporting
entity.
Section 14.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Put Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company (which shall not exceed that required by the Company's transfer
agent in the ordinary course) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
Section 14.7 Fees and Expenses. Each of the Company and the Investors
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of Investors' counsel in the amount of $10,000 plus $1,000 per
Closing of a Put.
Section 14.8 Brokerage. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other party.
The Company on the one hand, and the Investors, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 14.9 Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
NAM Corporation
By: /s/ Roy Israel
------------------------------
Roy Israel,
Chief Executive Officer
Moldbury Holdings Limited
By: /s/ Hans Gassner
------------------------------
Hans Gassner,
Authorized Signatory
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EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 16, 2000, between
Moldbury Holdings Limited ("Investor"), and NAM Corporation, a corporation
incorporated under the laws of the State of Delaware (the "Company").
WHEREAS, simultaneously with the execution and delivery of
this Agreement, pursuant to a Private Equity Line of Credit Agreement dated the
date hereof (the "Purchase Agreement") the Investor has committed to purchase up
to $7,000,000 worth ($14,000,000 under certain circumstances) of the Company's
Common Stock (terms not defined herein shall have the meanings ascribed to them
in the Purchase Agreement); and
WHEREAS, the Company desires to grant to the Investor the
registration rights set forth herein with respect to the Put Shares and the
Blackout Shares issuable upon exercise of the Company's Put rights from time to
time and the Warrant Shares (hereinafter referred to as the "Stock" or
"Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities until (i) all Put Shares and Warrant
Shares have been disposed of pursuant to the Registration Statement, (ii) all
Put Shares and Warrant Shares have been sold under circumstances under which all
of the applicable conditions of Rule 144 (or any similar provision then in
force) under the Securities Act ("Rule 144") are met, (iii) all Put Shares and
Warrant Shares have been otherwise transferred to persons who may trade such
Securities without restriction under the Securities Act, and the Company has
delivered a new certificate or other evidence of ownership for such Put Shares
and/or Warrant Shares not bearing a restrictive legend or (iv) such time as, in
the opinion of counsel to the Company, all Put Shares and Warrant Shares may be
sold without any time, volume or manner limitations pursuant to Rule 144(k) (or
any similar provision then in effect) under the Securities Act. The term
"Registrable Securities" means any and/or all of the securities falling within
the foregoing definition of a "Registrable Security." In the event of any
merger, reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Common Stock, such adjustment shall be deemed
to be made in the definition of "Registrable Security" as is appropriate in
order to prevent any dilution or enlargement of the rights granted pursuant to
this Agreement.
Section 2. Restrictions on Transfer. The Investor acknowledges
and understands that in the absence of an effective Registration Statement
authorizing the resale of the Securities as provided herein, the Securities are
"restricted securities" as defined in Rule 144 promulgated under the Act. The
Investor understands that no disposition or transfer of the Securities may be
made by Investor in the absence of (i) an opinion of counsel to the Investor, in
form and substance reasonably satisfactory to the Company, that such transfer
may be made without registration under the Securities Act or (ii) such
registration.
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With a view to making available to the Investor the benefits
of Rule 144 under the Securities Act or any other similar rule or regulation of
the SEC that may at any time permit the Investor to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of Rule
144; and
(b) file with the SEC in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Investor, make available other information as required
by, and so long as necessary to permit sales of, its Registrable Securities
pursuant to Rule 144.
Section 3. Registration Rights With Respect to the Securities.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange SEC ("SEC"), within forty-five days (45) days after the
date hereof, a registration statement (on Form S-3, or other appropriate form of
registration statement) under the Securities Act (the "Registration Statement"),
at the sole expense of the Company (except as provided in Section 3(c) hereof),
in respect of all permitted holders of Securities, so as to permit a public
offering and resale of the Securities under the Act by Investor.
The Company shall use its best efforts to cause the
Registration Statement to become effective within one hundred twenty (120) days
from the closing date, or, if earlier, within five (5) days of SEC clearance to
request acceleration of effectiveness. In the event that the SEC decides to
review the Company's Registration Statement, the Company shall have an
additional thirty (30) days to amend and cause such registration to become
effective. If the Registration Statement is not declared effective by November
1, 2000, this Agreement and the Purchase Agreement shall terminate. The Company
will notify Investor of the effectiveness of the Registration Statement within
one Trading Day of such event.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof effective under the
Securities Act until the earlier of (i) the date that none of the Securities are
or may become issued and outstanding, (ii) the date that all of the Securities
have been sold pursuant to the Registration Statement, (iii) the date the
holders thereof receive an opinion of counsel to the Company, which counsel
shall be reasonably acceptable to the Investor, that the Securities may be sold
under the provisions of Rule 144 without limitation as to volume, (iv) all
Securities have been otherwise transferred to persons who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend, or (v) all Securities may be sold without any time, volume
or manner limitations pursuant to Rule 144(k) or any similar provision then in
effect under the Securities Act in the opinion of counsel to the Company, which
counsel shall be reasonably acceptable to the Investor (the "Effectiveness
Period").
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(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
the Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees of the Company) shall be borne by the Company. The Investor
shall bear the cost of underwriting and/or brokerage discounts, fees and
commissions, if any, applicable to the Securities being registered and the fees
and expenses of its counsel. The Investor and its counsel shall have a
reasonable period, not to exceed ten (10) Trading Days, to review the proposed
Registration Statement or any amendment thereto, prior to filing with the SEC,
and the Company shall provide each Investor with copies of any comment letters
received from the SEC with respect thereto within two (2) Trading Days of
receipt thereof. The Company shall qualify any of the securities for sale in
such states as such Investor reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the Company
shall not be required to qualify in any state which will require an escrow or
other restriction relating to the Company and/or the sellers, or which will
require the Company to qualify to do business in such state or require the
Company to file therein any general consent to service of process. The Company
at its expense will supply the Investor with copies of the Registration
Statement and the prospectus included therein and other related documents in
such quantities as may be reasonably requested by the Investor.
(d) The Company shall not be required by this Section 3 to
include a Investor's Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for both the Investor and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Investor and the Company)
the proposed offering or other transfer as to which such registration is
requested is exempt from applicable federal and state securities laws and would
result in all purchasers or transferees obtaining securities which are not
"restricted securities", as defined in Rule 144 under the Securities Act.
(e) If at any time or from time to time after the effective
date of the Registration Statement, the Company notifies the Investor in writing
of the existence of a Potential Material Event (as defined in Section 3(f)
below), the Investor shall not offer or sell any Securities or engage in any
other transaction involving or relating to Securities, from the time of the
giving of notice with respect to a Potential Material Event until such Investor
receives written notice from the Company that such Potential Material Event
either has been disclosed to the public or no longer constitutes a Potential
Material Event; provided, however, that if the Company so suspends the right to
such holders of Securities for more than thirty (30) days in the aggregate
during any twelve month period, during the periods the Registration Statement is
required to be in effect such excess periods shall be a Registration Default,
and shall entitle the Investor to receive Blackout Shares as provided in the
Purchase Agreement. If a Potential Material Event shall occur prior to the date
the Registration Statement is filed, then the Company's obligation to file the
Registration Statement shall be delayed without penalty for not more than thirty
(30) days. The Company must give Investor notice in writing at least two (2)
Trading Days prior to the first day of the blackout period, if lawful to do so.
(f) "Potential Material Event" means any of the following: (a)
the possession by the Company of material information that is not ripe for
disclosure in a registration statement, as determined in good faith by the Chief
Executive Officer or the Board of Directors of the Company or that disclosure of
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such information in the Registration Statement would be detrimental to the
business and affairs of the Company; or (b) any material engagement or activity
by the Company which would, in the good faith determination of the Chief
Executive Officer or the Board of Directors of the Company, be adversely
affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the Chief
Executive Officer or the Board of Directors of the Company that the Registration
Statement would be materially misleading absent the inclusion of such
information.
Section 4. Cooperation with Company. Investor will cooperate
with the Company in all respects in connection with this Agreement, including
timely supplying all information reasonably requested by the Company (which
shall include all information regarding the Investor and proposed manner of sale
of the Registrable Securities required to be disclosed in the Registration
Statement) and executing and returning all documents reasonably requested in
connection with the registration and sale of the Registrable Securities. The
Investor shall consent to be named as an underwriter in the Registration
Statement.
Section 5. Registration Procedures. If and whenever the
Company is required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Act, the Company
shall (except as otherwise provided in this Agreement), as expeditiously as
possible, subject to the Investor's assistance and cooperation as reasonably
required:
(a) (i) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Investor of such Registrable Securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Act) and (ii) take all lawful action
such that each of (A) the Registration Statement and any amendment thereto does
not, when it becomes effective, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, not misleading and (B) the Prospectus forming part
of the Registration Statement, and any amendment or supplement thereto, does not
at any time during the Registration Period include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) (i) prior to the filing with the SEC of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any prospectus (including any supplements thereto), provide draft copies thereof
to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (ii) furnish to each
Investor such numbers of copies of a prospectus including a preliminary
prospectus or any amendment or supplement to any prospectus, as applicable, in
conformity with the requirements of the Act, and such other documents, as such
Investor may reasonably request in order to facilitate the public sale or other
disposition of the securities owned by such Investor;
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(c) register and qualify the Registrable Securities covered by
the Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Investor shall reasonably request (subject to the
limitations set forth in Section 3(d) above), and do any and all other acts and
things which may be necessary or advisable to enable each Investor to consummate
the public sale or other disposition in such jurisdiction of the securities
owned by such Investor, except that the Company shall not for any such purpose
be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
(d) list such Registrable Securities on the Principal Market,
and any other exchange on which the Common Stock of the Company is then listed,
if the listing of such Registrable Securities is then permitted under the rules
of such Principal Market;
(e) notify each Investor at any time when a prospectus
relating thereto covered by the Registration Statement is required to be
delivered under the Act, of the happening of any event of which it has knowledge
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and the Company shall prepare and file a curative amendment under
Section 5(a) as quickly as commercially possible;
(f) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC or any state authority of any stop order or other suspension
of the effectiveness of the Registration Statement at the earliest possible time
and take all lawful action to effect the withdrawal, recession or removal of
such stop order or other suspension;
(g) cooperate with the Investors to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts, as the case
may be, as the Investors reasonably may request and registered in such names as
the Investor may request; and, within three Trading Days after a Registration
Statement which includes Registrable Securities is declared effective by the
SEC, deliver and cause legal counsel selected by the Company to deliver to the
transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
appropriate instruction and, to the extent necessary, an opinion of such
counsel;
(h) take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
prospectus which are customary for issuers to perform under the circumstances;
(i) in the event of an underwritten offering, promptly include
or incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment; and
(j) maintain a transfer agent and registrar for its Common
Stock.
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Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Investor and each person, if any, who controls the Investor within the meaning
of the Securities Act ("Distributing Investor") against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees), to which the Distributing
Investor may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, or any related
preliminary prospectus, final prospectus or amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
preliminary prospectus, final prospectus or amendment or supplement thereto in
reliance upon, and in conformity with, written information furnished to the
Company by the Distributing Investor, specifically for use in the preparation
thereof. This Section 6(a) shall not inure to the benefit of any Distributing
Investor with respect to any person asserting such loss, claim, damage or
liability who purchased the Registrable Securities which are the subject thereof
if the Distributing Investor failed to send or give (in violation of the
Securities Act or the rules and regulations promulgated thereunder) a copy of
the prospectus contained in such Registration Statement to such person at or
prior to the written confirmation to such person of the sale of such Registrable
Securities, where the Distributing Investor was obligated to do so under the
Securities Act or the rules and regulations promulgated thereunder. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Distributing Investor agrees that it will indemnify
and hold harmless the Company, and each officer, director of the Company or
person, if any, who controls the Company within the meaning of the Securities
Act, against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all reasonable costs
of defense and investigation and all reasonable attorneys' fees) to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, or any related preliminary prospectus, final
prospectus or amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Distributing Investor, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Distributing Investor may otherwise have.
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(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
except to the extent of actual prejudice demonstrated by the indemnifying party.
In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is the Distributing Investor, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Investor and the
indemnifying party and the Distributing Investor shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party in conflict with any legal defenses which may be available to
the Distributing Investor (in which case the indemnifying party shall not have
the right to assume the defense of such action on behalf of the Distributing
Investor, it being understood, however, that the indemnifying party shall, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the Distributing Investor, which
firm shall be designated in writing by the Distributing Investor). No settlement
of any action against an indemnified party shall be made without the prior
written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 7. Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 6 hereof
but is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 6 hereof provide for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any indemnified party,
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then the Company and the applicable Distributing Investor shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the applicable Distributing Investor
on the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Distributing Investor agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in this Section 7. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section 7
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Notwithstanding any other provision of this Section 7, in no event shall any (i)
Investor be required to undertake liability to any person under this Section 7
for any amounts in excess of the dollar amount of the net proceeds to be
received by such Investor from the sale of such Investor's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are to be registered under the Securities Act and (ii) underwriter be
required to undertake liability to any person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by it
and distributed pursuant to the Registration Statement.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be delivered as set forth
in the Purchase Agreement. Either party hereto may from time to time change its
address or facsimile number for notices under this Section 8 by giving at least
ten (10) days' prior written notice of such changed address or facsimile number
to the other party hereto.
Section 9. Assignment. Neither this Agreement nor any rights
of the Investor or the Company hereunder may be assigned by either party to any
other person. Notwithstanding the foregoing, (a) the provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any transferee
of any of the Common Stock purchased by the Investor pursuant to the Purchase
Agreement, and (b) upon the prior written consent of the Company, which consent
shall not be unreasonably withheld or delayed in the case of an assignment to an
affiliate of the Investor, the Investor's interest in this Agreement may be
assigned at any time, in whole or in part, to any other person or entity
(including any affiliate of the Investor) who agrees to be bound hereby.
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Section 10. Additional Covenants of the Company. The Company
agrees that at such time as it meets all the requirements for the use of
Securities Act Registration Statement on Form S-3 it shall file all reports and
information required to be filed by it with the SEC in a timely manner and take
all such other action so as to maintain such eligibility for the use of such
form.
Section 11. Counterparts/Facsimile. This Agreement may be
executed in two or more counterparts, each of which shall constitute an
original, but all of which, when together shall constitute but one and the same
instrument, and shall become effective when one or more counterparts have been
signed by each party hereto and delivered to the other party. In lieu of the
original, a facsimile transmission or copy of the original shall be as effective
and enforceable as the original.
Section 12. Remedies. The remedies provided in this Agreement
are cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.
Section 13. Conflicting Agreements. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement or otherwise prevents the Company from complying with all of its
obligations hereunder.
Section 14. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 15. Governing Law, Jurisdiction and Venue. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York applicable to contracts made in New York by persons domiciled
in New York City and without regard to its principles of conflicts of laws. Any
dispute under this Agreement shall be adjudicated as set forth in the Purchase
Agreement.
Section 16. Severability. If any provision of this Agreement
shall for any reason be held invalid or unenforceable, such invalidity or
unenforceablity shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein. Terms not otherwise defined herein shall be defined in
accordance with the Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
NAM Corporation
By: /s/ Roy Israel
----------------------------------
Roy Israel, President
Moldbury Holdings Limited
By: /s/ Hans Gassner
----------------------------------
Hans Gassner, Authorized Signatory
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NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase 60,000 Shares of Common Stock of
NAM Corporation
THIS CERTIFIES that, for value received, Moldbury Holdings
Limited (the "Holder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after February 17, 2000 (the
"Initial Exercise Date") and on or prior to the close of business on February
17, 2003 (the "Termination Date") but not thereafter, to subscribe for and
purchase from NAM Corporation, a corporation incorporated in Delaware (the
"Company"), up to Sixty Thousand (60,000) shares (the "Warrant Shares") of
Common Stock, $.001 par value, of the Company (the "Common Stock"). The purchase
price of one share of Common Stock (the "Exercise Price") under this Warrant
shall be $9.34. The Exercise Price and the number of shares for which the
Warrant is exercisable shall be subject to adjustment as provided herein. In the
event of any conflict between the terms of this Warrant and the Private Equity
Line of Credit Agreement dated as of February 16, 2000, pursuant to which this
Warrant has been issued (the "Purchase Agreement"), the Purchase Agreement shall
control. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.
<PAGE>
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Except as provided in Section 4 herein,
exercise of the purchase rights represented by this Warrant may be made at any
time or times on or after the Initial Exercise Date as to 45,000 shares, and as
to the remaining 15,000 shares, only after Holder has purchased no less than
$3,500,000 of Common Stock from the Company pursuant to the Purchase Agreement,
and before the close of business on the Termination Date by the surrender of
this Warrant and the Notice of Exercise Form annexed hereto duly executed, at
the office of the Company (or such other office or agency of the Company as it
may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company) and upon payment
of the Exercise Price of the shares thereby purchased by wire transfer or
cashier's check drawn on a United States bank, the holder of this Warrant shall
be entitled to receive a certificate for the number of shares of Common Stock so
purchased. Certificates for shares purchased hereunder shall be delivered to the
holder hereof within three (3) Trading Days after the date on which this Warrant
shall have been exercised as aforesaid. This Warrant shall be deemed to have
been exercised and such certificate or certificates shall be deemed to have been
issued, and Holder or any other person so designated to be named therein shall
be deemed to have become a holder of record of such shares for all purposes, as
of the date the Warrant has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by Holder, if any, pursuant to
Section 5 prior to the issuance of such shares, have been paid. If this Warrant
shall have been exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing Warrant Shares, deliver to Holder a
new Warrant evidencing the rights of Holder to purchase the unpurchased shares
of Common Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant. If no registration statement is
effective permitting the resale of the shares of Common Stock issued upon
exercise of this Warrant at any time commencing one year after the issuance date
hereof, then this Warrant shall also be exercisable by means of a "cashless
exercise" in which the holder shall be entitled to receive a certificate for the
number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A) = the closing bid price per share of Common Stock on the Trading Day
preceding the date of such election;
(B) = the Exercise Price of the Warrants; and
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(X) = the number of shares issuable upon exercise of the Warrants in accordance
with the terms of this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and the Company may require, as a condition thereto, the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its shareholder books
or records in any manner which prevents the timely exercise of this Warrant.
7. Transfer, Division and Combination. (a) Subject to compliance with
any applicable securities laws, transfer of this Warrant and all rights
hereunder, in whole or in part, shall be registered on the books of the Company
to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company, together with a written assignment of this
Warrant substantially in the form attached hereto duly executed by Holder or its
agent or attorney and funds sufficient to pay any transfer taxes payable upon
the making of such transfer. Upon such surrender and, if required, such payment,
the Company shall execute and deliver a new Warrant or Warrants in the name of
the assignee or assignees and in the denomination or denominations specified in
such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled. A Warrant, if properly assigned, may be exercised by a
new holder for the purchase of shares of Common Stock without having a new
Warrant issued.
(b) This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by Holder or its agent or attorney. Subject to compliance
with Section 7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
(c) The Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section 7.
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(d) The Company agrees to maintain, at its aforesaid office, books
for the registration and the registration of transfer of the Warrants.
(e) The Company shall have a right of first refusal to purchase this
Warrant if the Holder intends to sell this Warrant. The Holder shall give the
Company at least five (5) days' prior written notice (as set forth in the
Purchase Agreement) of its intention to sell this Warrant or any portion
thereof, and the terms and conditions of such sale and the identity of the
proposed purchaser. The Company shall have the right within such five day period
to advise the Holder of its intention to purchase this Warrant (or portion
sought to be sold) and the Company must complete such purchase within five (5)
further days, or this right shall be void.
8. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be and be deemed to be issued to such holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant certificate
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and dated
as of such cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares. (a)
Stock Splits, etc. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the happening of any of the following. In case the
Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock to holders of its outstanding Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the holder of this Warrant shall be entitled
to receive the kind and number of Warrant Shares or other securities of the
Company which he would have owned or have been entitled to receive had such
Warrant been exercised in advance thereof. Upon each such adjustment of the kind
and number of Warrant Shares or other securities of the Company which are
purchasable hereunder, the holder of this Warrant shall thereafter be entitled
to purchase the number of Warrant Shares or other securities resulting from such
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<PAGE>
adjustment at an Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
(b) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares of
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 11.
For purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 11 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
12. Voluntary Adjustment by the Company. The Company may at any time
during the term of this Warrant, reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.
13. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting forth
the computation by which such adjustment was made. Such notice, in the absence
of manifest error, shall be conclusive evidence of the correctness of such
adjustment.
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14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 30
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 16(d).
15. Authorized Shares. The Company covenants that during the period the Warrant
is outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares
upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
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exercise of the purchase rights under this Warrant. The Company will take all
such reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the Principal Market upon which the Common
Stock may be listed.
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form reasonably
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
Before taking any action which would cause an adjustment reducing
the current Exercise Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Exercise Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any successors
or assigns of the Company. This Warrant shall constitute a contract under the
laws of New York without regard to its conflict of law, principles or rules, and
be subject to arbitration pursuant to the terms set forth in the Purchase
Agreement.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
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(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination Date. If the
Company fails to comply with any provision of this Warrant, the Company shall
pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof by the Company shall be
delivered in accordance with the notice provisions of the Purchase Agreement.
(e) Limitation of Liability. No provision hereof, in the absence of
affirmative action by Holder to purchase shares of Common Stock, and no
enumeration herein of the rights or privileges of Holder hereof, shall give rise
to any liability of Holder for the purchase price of any Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
(g) Successors and Assigns. Subject to applicable securities laws,
this Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a final
non-appealable judgment by a court to have resulted from Holder's negligence,
bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
(i) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.
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(j) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: February 17, 2000
NAM Corporation
By: /s/ Roy Israel
-----------------------------------
Roy Israel, Chief Executive Officer
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_________________________________________________________________.
_________________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
NOTICE OF EXERCISE
To: NAM Corporation
(1)______The undersigned hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of NAM Corporation pursuant to the terms of
the attached Warrant, and tenders herewith payment of the exercise price in
full, together with all applicable transfer taxes, if any.
(2)______Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
________________________________________
(Name)
________________________________________
(Address)
________________________________________
Dated:
_____________________________
Signature
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF NAM CORPORATION
Set forth below are the names of all subsidiaries of the Company.
Percentage
Owned By Jurisdiction
Name Company Formed
- ---- ------- ------
Michael Marketing, LLC 100% Delaware
clickNsettle.com, LLC 100% Delaware
NAM Structured Settlement Company, LLC 50% Delaware
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated August 30, 1999 accompanying the
consolidated financial statements of NAM Corporation and Subsidiaries contained
in the Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus and to the
use of our name as it appears under the caption "Experts".
GRANT THORNTON LLP
Melville, New York
March 24, 2000
