<PAGE>
As filed with the Securities and Exchange Commission on April 21, 2000
Registration No. 333-33420
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
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 56,250 7.56(1) 425,250 113
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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Common stock underlying warrants 40,000 7.56(1) 302,400 80
granted to an investor relations firm
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Total 4,518,878 33,508,339 8,846
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</TABLE>
(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 April 21, 2000
PROSPECTUS
NAM CORPORATION
4,388,002 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, (v) 10,000 shares of our common stock held by Triton West Group, Inc.,
the placement agent for our Series A Exchangeable Preferred Stock Offering and
(vi) the sale by Venture Catalyst, Inc. of the shares of common stock issuable
upon the exercise of certain warrants.
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 April 21, 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 3,878,002 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) 7,820,235 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"
- -------------------
(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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<CAPTION>
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
<PAGE>
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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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
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<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, 2001. 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 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 56,250 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.
In connection with an agreement with Venture Catalyst, Inc. to provide
investor relations and consulting services for us, we issued a warrant to
Venture Catalyst, Inc. to purchase up to 40,000 shares of common stock. Of the
40,000 warrants, 10,000 were granted upon execution of binding agreement between
us and Venture Catalyst, Inc. The remaining 30,000 warrants shall be granted in
intervals of 10,000 warrants every six months for a period of eighteen months.
All warrants shall vest the earlier of six (6) months from date of grant or
termination of the agreement with Venture Catalyst, Inc., and will be issued at
a 25% premium to the market as of the date of each grant. Once vested, the
warrants shall be immediately exercisable in whole or in part. The warrant shall
expire five (5) years from date of this contract. If Venture Catalyst's
engagement hereunder is terminated, no further warrants other than that portion
of the 40,000 shares already granted shall be granted to Venture Catalyst.
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, Triton West Group 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 shares of common stock offerred hereby for sale by Venture
Catalyst, Inc. will be acquired by such Selling Securityholder pursuant to an
investor relations consulting agreement which was completed on April 10, 2000.
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 3.1 *
Marc Steinberg 8,376 8,376 * *
Moldbury Holding Limited 1,850,000 60,000 24.4 *
Triton West Group Inc. 10,000 - * *
Esquire Trade & Finance Inc. 121,622 13,977 1.7 *
Austinvest Anstalt Balzers 114,865 13,201 1.6 *
AMRO International, S.A. 236,486 25,966 3.4 *
Mabcrown, Inc. 27,027 3,106 * *
Venture Catalyst, Inc. - 40,000 * *
Total 2,490,876 287,126
</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
7,820,235.
38
<PAGE>
(2) Based upon a total number of shares of Common Stock outstanding of
7,820,235.
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 and consulting 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 56,250 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, Triton
West Group, 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, Triton West Group, Inc. A fee of 5% of the gross proceeds
will be paid 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.......................................$8,846
*Printing and EDGARization................................$10,000
*Accountants' fees and expenses...........................$22,000
*Attorneys' fees and expenses.............................$40,000
*Miscellaneous.............................................$3,000
*Total....................................................$83,846
- ----------------
*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 Triton West Group, 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 56,250 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 13,977 Warrant shares
Austinvest Anstalt Balzers 13,201 Warrant shares
AMRO International, S. A. 25,966 Warrant shares
Mabcrown, Inc. 3,106 Warrant shares
On February 15, 2000, we issued 10,000 shares of our common stock to
Triton West Group, 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.
On April 10, 2000, we issued a Warrant to Venture Catalyst, Inc. to
purchase up to 40,000 shares of our common stock. This warrant was issued in
connection with an agreement with Venture Catalyst, Inc. to provide investor
relations and consulting services for us. Of the 40,000 warrants, 10,000 were
granted upon execution of binding agreement between us and Venture Catalyst,
Inc. The remaining 30,000 warrants shall be granted in intervals of 10,000
warrants every six months for a period of eighteen months. All warrants shall
vest the earlier of six (6) months from date of grant or termination of the
agreement with Venture Catalyst, Inc., and will be issued at a 25% premium to
the market as of the date of each grant. Once vested, the warrants shall be
immediately exercisable in whole or in part. The warrant shall expire five (5)
years from date of this contract. If Venture Catalyst's engagement hereunder is
terminated, no further warrants other than that portion of the 40,000 shares
already granted shall be granted to Venture Catalyst.
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(8)
3.1(c) Certificate of Correction of Certificate of
Designation of Series A Exchangeable Preferred Stock,
filed with the State of Delaware Office of the
Secretary of State on April 18, 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(8)
5.1 Opinion of Camhy Karlinsky & Stein LLP, counsel for
the Registrant(8)
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(8)
10.9 Preferred Stock Registration Rights Agreement, dated
as of February 15, 2000(8)
10.10 Form of Stock Purchase Warrant(8)
10.11 Private Equity Line of Credit Agreement between
Moldbury Holdings Limited and the Company, dated as
of February 16, 2000(8)
10.12 Private Equity Line of Credit Registration Rights
Agreement, dated as of February 16, 2000(8)
10.13 Stock Purchase Warrant for Moldbury Holdings
Limited(8)
10.14 Stock Purchase Warrant for Venture Catalyst, Inc.*
21.1 List of Subsidiaries(8)
23.1 Consent of Grant Thornton LLP*
23.2 Consent of Camhy Karlinsky & Stein LLP (included in
Exhibit 5.1)(8)
II-3
<PAGE>
- --------------------
*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.
(8) Incorporated herein in its entirety by reference to the Company's SB-2
filed on March 28, 2000.
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 April 21, 2000.
NAM CORPORATION
By: /s/ Roy Israel
--------------------------------------
Roy Israel
Chief Executive Officer, President and
Chairman of the Board
Power of Attorney
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 April 21, 2000
- ----------------------------- Board (Principal Executive Officer)
Roy Israel
/s/ Patricia Giuliani-Rheaume Vice President, Chief Financial Officer and Treasurer April 21, 2000
- ----------------------------- (Principal Financial and Accounting Officer)
Patricia Giuliani-Rheaume
/s/ * Vice President and Director April 21, 2000
- -----------------------------
Cyntha Sanders
/s/ * National Accounts Manager and Director April 21, 2000
- -----------------------------
Daniel Jansen
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ * Director April 21, 2000
- -----------------------------
Ronald Katz
/s/ * Director April 21, 2000
- -----------------------------
Jeffrey L. Lederer
/s/ * Director April 21, 2000
- -----------------------------
Anthony J. Mercorella
By: /s/ Roy Israel
--------------------------------------
Attorney-in-fact
</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(8)
3.1(c) Certificate of Correction of Certificate of
Designation of Series A Exchangeable Preferred Stock,
filed with the State of Delaware Office of the
Secretary of State on April 18, 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(8)
5.1 Opinion of Camhy Karlinsky & Stein LLP, counsel for
the Registrant(8)
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 (8)
10.9 Preferred Stock Registration Rights Agreement, dated
as of February 15, 2000 (8)
10.10 Form of Stock Purchase Warrant (8)
10.11 Private Equity Line of Credit Agreement between
Moldbury Holdings Limited and the Company, dated as of
February 16, 2000 (8)
10.12 Private Equity Line of Credit Registration Rights
Agreement, dated as of February 16, 2000 (8)
10.14 Stock Purchase Warrant for Venture Catalyst, Inc. (8)
10.13 Stock Purchase Warrant for Moldbury Holdings
Limited (8)
21.1 List of Subsidiaries (8)
23.1 Consent of Grant Thornton LLP*
23.2 Consent of Camhy Karlinsky & Stein LLP (included in
Exhibit 5.1 (8)
- --------------------
*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.
(8) Incorporated herein in its entirety by reference to the Company's SB-2
filed on March 28, 2000.
<PAGE>
CERTIFICATE OF CORRECTION FILED TO CORRECT
CERTAIN ERRORS IN THE CERTIFICATE OF DESIGNATION OF SERIES A
EXCHANGEABLE PREFERRED STOCK OF NAM CORPORATION
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON FEBRUARY 15, 2000.
NAM Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is NAM Corporation.
2. That a Certificate of Designation of Series A Exchangeable Preferred
Stock of NAM Corporation was filed in the Office of the Secretary of State of
Delaware on February 15, 2000 and that said Certificate requires correction as
permitted by Section 103 of the General Corporation Law of the State of
Delaware.
3. The inaccuracies or defects of said Certificate to be corrected are
as follows:
(1) Section 4(b) is deleted in its entirety.
(2) Section 4(c) is renumbered as Section 4(b).
(3) The following portion of Section 5(a) is deleted:
"or if the Corporation does not have registered shares of Common
Stock available with which to honor Exchanges,"
(4) The following portion of Section 5(d)(ii) is deleted:
"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 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")."
<PAGE>
IN WITNESS WHEREOF, said NAM Corporation has caused this Certificate to
be signed by Roy Israel, its Chief Executive Officer and President, and attested
by Carla Israel, its Secretary, this 18th day of April, 2000.
By: /s/ Roy Israel
-----------------------------
Roy Israel, CEO and President
ATTEST:
By: /s/ Carla Israel
-----------------------
Carla Israel, Secretary
<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.
April 10, 2000 No. 1
Great Neck, New York
STOCK PURCHASE WARRANT
To Purchase 10,000 Shares of Common Stock of
NAM Corporation
THIS CERTIFIES that, for value received, Venture Catalyst
Incorporated (the "Holder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time on or after the earlier of six (6)
months from (x) April 10, 2000 or (y) or termination of the Letter Agreement,
dated as of April 10, 2000 (the "Letter Agreement") (the "Initial Exercise
Date") and on or prior to the close of business on April 10, 2005 (the
"Termination Date") but not thereafter, to subscribe for and purchase from NAM
Corporation, a corporation incorporated in Delaware (the "Company"), up to ten
thousand (10,000) 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 under this Warrant shall be $7.34 (the "Exercise 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 Letter Agreement, the Letter Agreement
shall control. Capitalized terms used and not otherwise defined herein shall
have the meanings set forth for such terms in the Letter 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.
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).
<PAGE>
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.
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.
<PAGE>
(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 Letter 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. 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.
(d) The Company agrees to maintain, at its aforesaid
office, books for the registration and the registration of transfer of the
Warrants.
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.
<PAGE>
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
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.
<PAGE>
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.
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).
<PAGE>
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 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. 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.
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
Letter 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) 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
Letter Agreement.
(d) 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.
(e) 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.
<PAGE>
(f) Amendment. This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.
(g) 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.
(h) 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: April 10, 2000
NAM Corporation
By: /s/ Roy Israel
---------------------------
Roy Israel, President & CEO
<PAGE>
NOTICE OF EXERCISE
To: NAM Corporation
1010 Northern Boulevard, Suite 336
Great Neck, New York 11021
(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>
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".
/s/ Grant Thorton LLP
- ------------------------------
GRANT THORNTON LLP
Melville, New York
April 19, 2000
