-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P5tIe11jRA50dHkyeUsbpjnFX1rNnrGPK+X/Eq9j0mvMJcheVZnmVGhPF3r9GEKp WCZIVp+Ua/lqDH7Pk9f4Hg== 0000950116-98-001927.txt : 19980929 0000950116-98-001927.hdr.sgml : 19980929 ACCESSION NUMBER: 0000950116-98-001927 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980928 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAM CORP CENTRAL INDEX KEY: 0000925741 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-LEGAL SERVICES [8111] IRS NUMBER: 232753988 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-21419 FILM NUMBER: 98715637 BUSINESS ADDRESS: STREET 1: 1010 NORTHERN BLVD STREET 2: STE 336 CITY: GREAT NECK STATE: NY ZIP: 11021 MAIL ADDRESS: STREET 1: 1010 NORTHERN BLVD., SUITE 336 CITY: GREAT NECK STATE: NY ZIP: 11021 10KSB 1 ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM 10-KSB |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1998 | | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-21419 NAM CORPORATION --------------- (Name of small business issuer as specified in its charter) Delaware 23-2753988 -------- ---------- (State or Other Jurisdiction (IRS Employer of Incorporation or Organization) Identification No.) 1010 NORTHERN BOULEVARD, SUITE 336 GREAT NECK, NEW YORK 10021 -------------------------- (Address of Principal Executive Offices) (516) 829-4343 -------------- (Issuer's Telephone Number, Including Area Code) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Common Stock $.001 Par Value NASDAQ Small Cap Market Warrants NASDAQ Small Cap Market Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Common Stock $.001 Par Value Boston Stock Exchange Warrants Boston Stock Exchange Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes__X__ No____ Check if there is no disclosure of delinquent files in response to Item 405 of Regulation S-B is not contained in this Form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-KSB or any amendments to this Form 10-KSB.| | State issuer's revenues for its most recent fiscal year. $3,847,975 The aggregate market value of the voting stock held by non-affiliates per the closing stock price of September 8, 1998 is $2,772,869. As of September 8, 1998, 3,334,978 shares of common stock of the issuer were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part I. -- None Part II. -- None Part III. -- Proxy statement to be filed by October 28, 1998 Transitional Small Business Disclosure Format Yes____ No__X__ 2 PART I From time to time, including in this annual report on Form 10-KSB, NAM Corporation (the "Company") may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, future operations, new products, research and development activities, and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, without limitation, the following: changes in the markets and/or regions currently served by the Company and in those markets and/or regions that the Company may expand into; changes in the insurance industry; the Company's inability to retain current or new hearing officers; and changes in the public court system. ITEM 1. DESCRIPTION OF BUSINESS The Company The Company provides alternative dispute resolution ("ADR") services principally to insurance companies, law firms, self-insured corporations and municipalities. An ADR proceeding is designed to replace the public court system as a forum for resolving civil disputes. The Company offers its clients personalized attention and access to qualified hearing officers (generally retired judges) to either mediate or arbitrate their disputes. The cases currently handled by the Company are primarily disputes involving claims for injury to persons or property allegedly arising out of acts of negligence and are usually covered by insurance. The Company believes it is one of the leading providers of ADR services in New York State based upon the number of cases processed since 1993. The Company operates from locations in New York, Massachusetts, Pennsylvania, South Carolina, Tennessee and Illinois, through which it has the ability to provide ADR services on a nationwide basis with a roster of over 900 qualified hearing officers. The Company believes that the ADR business is a growing service industry based upon the continuing inability of the public court system to manage effectively its docket of civil cases. An ADR proceeding is intended to streamline the traditional cumbersome public litigation process. As compared to the public court system, an ADR proceeding generally offers litigants a faster resolution, confidentiality, reduced expenses, flexibility in procedures and solutions, and control over the process. The ADR proceeding also has the potential to preserve business relations among the parties because its nature is less adversarial and the potential for a prompt resolution. The Company's objective is to become one of the leading providers of ADR services on a national basis. The Company intends to achieve this goal by employing the following strategies. Firstly, the Company initiated an advertising campaign during the third quarter of fiscal year 1998 intended to increase awareness of its services with respect to litigants in most types of civil disputes, including complex commercial issues, construction, employment, matrimonial and worker's compensation cases. Total fiscal year 1998 advertising and external public relations costs incurred with respect thereto approximated $566,000. The Company currently anticipates spending at least a comparable amount on advertising in fiscal year 1999. Secondly, in order to increase business, the Company is currently pursuing exclusive relationships with corporations and law firms in order to obtain contracts on a national and regional basis. Thirdly, the Company is 3 exploring strategic alliances with business entities that have the ability to promote NAM's ADR services to their customers. Finally, the Company may open offices in areas where it does not presently have an office. For example, the establishment of a sales office to develop business in Oregon is currently planned for fiscal year 1999. The Company believes that the domestic ADR industry is, other than a few national entities, generally fragmented into small ADR service providers. The Company further believes that the trend in the ADR industry is towards consolidation of providers who are capable of offering national and regional ADR programs. Management believes that its current expansion and marketing plans will enable the Company to exploit this trend. The Company was formed on January 12, 1994 under the laws of the State of Delaware. On October 31, 1994 the Company acquired all of the outstanding common stock of National Arbitration & Mediation, Inc. ("NA&M"), a New York corporation, formed on February 6, 1992, which was owned by the Company's Chief Executive Officer and President, and the Company's Executive Vice President. NA&M began operations in March 1992 as a provider of ADR services. Services Offered Arbitration: The Company's arbitration procedure follows a format essentially similar to a non-jury trial in the public court system. This procedure is designed to grant the parties a forum in which to present their cases, while at the same time sparing the litigants the time delays and some of the cumbersome procedures commonly associated with public court trials. The Company's hearings are generally governed by its rules of procedure. The parties, however, may depart from these rules and proceed in the fashion they deem desirable for the resolution of the case. The parties select a panel member from the Company's list of hearing officers. The hearings are non-public, thereby providing a level of confidentiality not readily available in the public court system. Subject to the parties' agreement, the proceedings may include discovery, examination of non-party witnesses, the filing of post-hearing briefs and other matters that may arise in the conduct of non-jury trials. The arbitrations are usually one of the following: (i) a regular arbitration, in which the hearing officer has authority to issue a ruling and/or award a remedy without limitations; (ii) a "high/low" arbitration, where the parties may choose to set the parameters of the award by pre-selecting the high and low dollar limits that can be awarded by the hearing officer; and (iii) the so-called "baseball" arbitration, which typically involves the submission by each party of their last best figure and the reason why it should be accepted; the hearing officer's binding recommendation is restricted to either one figure or the other. These types of arbitration are not exclusive, and the hearing officers may fashion remedies in accordance with whatever parameters are agreed to by the parties. Generally arbitration decisions are binding in nature and, unless otherwise stipulated by the parties, are appealable in only limited circumstances in the public court system. The Company does not currently offer any type of appeal procedure. The Company's arbitration decisions are generally enforceable in the public court system by following prescribed filing procedures in the applicable local jurisdiction. Mediation (Settlement Conferencing): The mediation method used by the Company is settlement conferencing, in essence a non-binding process. The principal advantage of settlement 4 conferencing is that it provides an opportunity for parties to reach an early, amicable resolution without undue expense and time-consuming litigation. The voluntary process of settlement conference mediation can be an effective tool for a wide variety of disputes, including tort claims and commercial conflicts. Settlement conferences are attended by each party to the dispute and/or a representative of each party and a hearing officer selected by the parties from a list available in the applicable region. Each party may choose to submit a settlement conference memorandum setting forth a brief summary of facts, indicating, for example, why each party has or does not have liability and, if applicable, a statement of the party's damage. At the settlement conference, each party is given an opportunity to describe the facts of the case and explain its position. Thereafter, the hearing officer meets privately with each side on an alternating basis to evaluate their respective cases, and receives proposed concessions that each party might make, and potential settlement figures that each party may offer, with a view toward guiding the parties to the settlement of their dispute. Settlement figures and possible concessions are typically not discussed between a party and the hearing officer without the other party's express consent to disclosing its position. In many instances, the settlement conference procedure results in the resolution of all issues. Other ADR Services: In addition to mediations and arbitrations, the Company offers, among other services, advisory opinions and specialized dispute resolution programs depending on the parties' particular needs. The Company also offers Case Resolution Days which are events usually scheduled at an insurance company client's office in which the Company arranges for parties to hold high volume direct settlement meetings without the participation of a hearing officer. In the event that the individual meetings do not resolve the dispute, the Company provides a hearing officer to mediate the dispute if the parties wish to pursue settlement. On-Line Case Management Software Service: During fiscal year 1998, the Company developed a service allowing its clients the ability to be "on-line" with the Company. This enables clients to submit cases electronically and to review the status of their cases from their offices. At the same time, clients also have the ability to access the status of hearings, updated hearing officer rosters and schedules, promotional materials and ADR news information. The Company also maintains a website offering similar information and case submission capability. Video Conferencing: The Company has the ability to offer video conferencing capabilities. This service allows clients to participate in and observe hearings without leaving their offices, resulting in the reduction of certain costs to the client associated with the ADR process. This capability allows the Company to provide services to a wider range of clients on a geographical basis. In addition, the video conferencing equipment, which can be purchased or leased directly from the Company, has applications beyond the ADR area for clients. Marketing and Sales As of September 8, 1998, the Company employed 20 account representatives to market its ADR services. Account representatives solicit prospective clients through telemarketing efforts and in-person meetings. They also provide presentations, educational seminars relating to ADR services and periodic monitoring of a client's ADR activity. Account representatives are typically compensated based upon a draw against commissions earned, which are based on total collected revenue from a representative's clients. 5 In the New York office, account executives are grouped into sales teams, which are directly managed by team leaders who also have accounts. The team leaders in the New York office, as well as account executives in the regional offices, are supervised directly by a regional manager. Regional managers report to the Vice President of Marketing and the Executive Vice President. Several of the employment agreements with regional managers provide for additional compensation based on the profits of the manager's operation. With regard to the hiring and training of account executives, they are usually interviewed by each office's regional manager and then by the Vice President of Marketing or the Executive Vice President. Account executives are trained by a team leader, or the office's regional manager, over approximately a two-week period. This training period may vary depending on the overall abilities of each candidate, the level or lack of prior experience and their aptitude to assimilate the required marketing skills. The training includes the development of sales techniques and the introduction to customers of the Company. After this initial period, the new account executive's performance is closely monitored. In addition, staff meetings are generally held twice a week to review progress against goals and to enhance marketing skills. The majority of clients of the Company are insurance carriers and law firms. One insurance company customer represented approximately 12% and 14% of total revenues for the years ended June 30, 1998 and 1997, respectively. However, the Company works with more than 70 individual offices of the insurance company, which in total equal the aforementioned percentages of revenue. The next largest insurance company customer represented less than 3% of revenues for the years ended June 30, 1998 and 1997. The balance of the revenue base is distributed among approximately 2,200 and 1,950 clients, respectively, in fiscal years 1998 and 1997. The Company, when appropriate, seeks membership contracts with its clients. Further, the Company is currently enhancing its efforts to obtain volume commitments from existing and new clients. Competition The ADR business is highly competitive, both on a national and regional level. Management believes that barriers to entry in the ADR business are relatively low, and new competitors can begin doing business relatively quickly. The basis of this belief is that the provision of ADR services only requires the consent of all parties to submit their dispute for resolution through a proposed ADR provider. There are two types of competitors: not-for-profit and for-profit entities. The Company believes the largest not-for-profit competitor is the American Arbitration Association which has significant market share in complex commercial cases. The insurance industry has also continued its support for Arbitration Forums, a not-for-profit organization created to service primarily the insurance subrogation market. The Company believes that the domestic ADR industry is, other than a few national entities, generally fragmented into small ADR service providers. The Company believes that Judicial Arbitration Mediation Services, Inc./Endispute ("JAMS") is the largest for-profit ADR provider in the country. In New York State, the Company's competitors include, among others, Settlement Systems, Inc., Expedite NYC, JAMS, Resolute, Inc. and Island Arbitration and Mediation. In addition, several public court systems, including the federal and certain state courts in New York, the Company's major market, have instituted court coordinated programs. To the 6 extent that the public courts reduce case backlogs and provide effective dispute resolution mechanisms, the Company's business opportunities in such markets may be significantly reduced. Increased competition could decrease the fees the Company is able to charge for its services, and limit the Company's ability to obtain experienced hearing officers. This could have a materially adverse effect on the Company's ability to be profitable in the future. In addition, the Company competes with other ADR providers to retain the services of qualified hearing officers. As compared to the majority of its competitors, the Company believes that it competes based primarily upon reputation, price, and the ability to manage scheduling of hearings effectively. Management believes the Company has certain advantages that enable it to better serve its clients. These advantages include: (1) exclusive agreements with qualified hearing officers, who are generally former judges; (2) software which provides detailed case management reporting that can be customized to meet a client's needs; (3) account executives dedicated to specified clients; (4) the ability to monitor and control the scheduling of matters; and (5) videoconferencing capability that allows clients to participate in or observe a proceeding without leaving their office. There can be no assurance, however, that these perceived advantages will enable the Company to compete successfully in the future. Government Regulation ADR services that are offered by private companies, such as the Company, are not presently subject to any form of local, state or federal regulation. ADR services that are offered by the public courts are subject to the rules set forth by each jurisdiction and the dictates of the individual judge assigned to preside over the dispute. Employees As of September 8, 1998, the Company employed 44 persons, including 2 part-time employees; of these, 4 were in executive positions, two of which devote substantially all their attention to sales; 25 were sales managers and sales account representatives and 15 were engaged in administrative and clerical activities. Hearing Officers As of September 8, 1998, the Company maintained relationships with over 900 hearing officers and has exclusive agreements with respect to ADR proceedings with approximately 50 of them. These hearing officers accounted for approximately 60% of the number of cases handled by the Company for the year ended June 30, 1998. The balance of non-exclusive hearing officers makes their services available to the Company on a case-by-case basis. With the exception of the exclusive hearing officers, the remainder of the Company's roster of hearing officers can provide their services to competing ADR providers. Compensation to the hearing officers is based on the number of proceedings conducted and the length of time of such proceedings. 7 ITEM 2. DESCRIPTION OF PROPERTIES The Company currently maintains 5 leased facilities, all of which are located in office buildings. The Company leases 4,800 square feet of space at 1010 Northern Boulevard, Great Neck, New York for its corporate headquarters and for providing ADR services in the metropolitan New York area. The lease expires October 2000. The Company intends to lease an additional 1,530 square feet of space adjacent to its existing offices when it becomes available during the 1999 fiscal year. The Company also leases: (i) 2,168 square feet of space, which lease expires February 2000, for its Philadelphia, Pennsylvania office; (ii) 174 square feet of space, which lease expires December 1998, for its Easton, Massachusetts office; (iii) 108 square feet of space, which lease is on a monthly basis, for its Boston, Massachusetts office; and (iv) 601 square feet of space, which lease expires March 1999, for its Hendersonville, Tennessee office. The Company believes this space is adequate for its reasonably anticipated future needs. The aggregate rental expense for all of the Company's offices was $180,968 during the year ended June 30, 1998. ITEM 3. LEGAL PROCEEDINGS There is no material litigation currently pending against the Company. ITEM 4. SUBMISSION OF MATERIALS TO A VOTE OF SECURITY HOLDERS None. 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS A. The Company's Common Stock and Warrants are quoted on the NASDAQ Small Cap Market under the trading symbols "NAMC" and "NAMCW," respectively, and have been quoted since the Company commenced public trading on November 18, 1996. The Company voluntarily delisted its units, which consisted of one share of Common Stock and one redeemable Warrant, from trading on January 26, 1998 in order to avoid confusion in the marketplace and to avoid additional and future administrative costs. Prior to November 18, 1996, there was no public market for the Company's Securities. The following table sets forth the range of high and low closing sales prices (based on transaction data as reported by the NASDAQ Small Cap Market) for each fiscal quarter during the periods indicated.
Units Common Stock Warrants High Low High Low High Low --------------------------------------------------- Fiscal Year 1998: - ----------------- First quarter (07/1/97-9/30/97) $4.72 $3.50 $3.88 $2.63 $1.38 $0.63 Second quarter (10/01/97-12/31/97) 5.13 3.50 4.25 2.81 1.41 0.88 Third quarter (01/01/98-03/31/98) 4.50 3.75 4.00 2.00 1.25 0.44 Fourth quarter (04/01/98-06/30/98) NA NA 2.38 1.50 0.50 0.22 Fiscal Year 1997: - ----------------- Second quarter (11/18/96-12/31/96) $6.50 $4.50 $4.50 $3.50 $1.75 $1.00 Third quarter (01/01/97-03/31/97) 5.97 4.25 5.00 3.50 1.50 1.00 Fourth quarter (04/01/97-06/30/97) 4.97 3.75 4.25 3.00 1.38 0.75
On September 8, 1998 the closing bid price for the Common Stock and Warrants, as reported by the NASDAQ Small Cap Market, were $1.38 and $0.19, respectively. As of September 8, 1998 there were in excess of 300 holders of the Company's securities. The payment by the Company of dividends, if any, in the future rests within the discretion of its Board of Directors and will depend, among other things, upon the Company's earnings, capital requirements and financial condition, as well as other relevant factors. The Company does not contemplate or anticipate paying any dividends upon its Common Stock in the foreseeable future. B. In November 1996, the Company raised additional capital through an initial public offering of its securities. Net proceeds after offering expenses approximated $4,700,000 of which $970,000 had been utilized through June 30, 1997. During the year ended June 30, 1998, the Company additionally expended approximately $335,000 for working capital and general corporate purposes, including its advertising campaign. The remaining funds were invested in cash and cash equivalents, U.S. government securities, corporate preferred securities and a diversified portfolio of marketable equity securities. 9 The preceding information updates Form SR filed by the Company in February 1997 pursuant to former Rule 463. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company provides ADR services to insurance companies, law firms, self-insured corporations and municipalities. To date, the Company has focused the majority of its marketing efforts on developing relationships, and expanding existing relationships, with insurance companies which the Company believes are some of the largest consumers of ADR services. The Company opened for business in March 1992 in New York and currently operates from locations in New York, Massachusetts, Pennsylvania, South Carolina, Tennessee and the Midwest. The Midwest region commenced operations in the third quarter of the 1997 fiscal year. The Company's objective is to become one of the leading providers of ADR services on a national basis. The Company intends to achieve this goal by employing the following strategies. Firstly, the Company initiated an advertising campaign during the third quarter of fiscal year 1998 intended to increase awareness of its services with respect to litigants in most types of civil disputes, including complex commercial issues, construction, employment, matrimonial and worker's compensation cases. Total fiscal year 1998 advertising and external public relations costs incurred with respect thereto approximated $566,000. The Company currently anticipates spending at least a comparable amount on advertising in fiscal year 1999. Secondly, in order to increase business, the Company is currently pursuing exclusive relationships with corporations and law firms in order to obtain contracts on a national and regional basis. Thirdly, the Company is exploring strategic alliances with business entities that have the ability to promote NAM's ADR services to their customers. Finally, the Company may open offices in areas where it presently does not have an office. For example, the establishment of a sales office to develop business in Oregon is currently planned for fiscal year 1999. Future Trends Management believes that the ADR industry is, and will continue to be, undergoing a consolidation of ADR service providers so as to better serve clients requiring national and regional multi-state ADR programs. The Company's objective is to expand its national presence to exploit this trend. In addition, ADR clients continue to seek volume discounts on the charges applied by the Company for services rendered. The Company believes that this trend may have an overall positive impact on the Company because the discounts are usually applied only when an ADR client makes a commitment to refer a minimum number of cases to the Company. The Company has and will continue to incur net losses in the short-term future as a result of the extensive advertising campaign commenced during the second half of fiscal year 1998. In connection therewith, the Company has placed advertisements in a variety of print media, radio, outdoor and television. The campaign is expected to continue throughout the 1999 fiscal year as well. The Company believes that the campaign has increased awareness of the Company and its services. However, there can be no assurance that this effort will result in increased revenues. In addition, the Company has enhanced the status and capability of its present offices. Significant costs have been and will continue to be incurred in connection with establishing, maintaining 10 and operating offices, including expenses such as leases, office equipment, furnishings and salaries for management, sales and administrative personnel. The Company believes its investment in these resources will ultimately be beneficial in that a higher volume of business will be able to be processed in a more efficient manner when and if the advertising campaign produces the desired effect. Year Ended June 30, 1998 Compared to Year Ended June 30, 1997 Results of Operations Revenues. Revenues increased 14% to $3,847,975 for the year ended June 30, 1998 from $3,377,062 for the year ended June 30, 1997. Management attributes this increase in sales to a growing acceptance of the Company's services as shown by the overall increase in the number of cases heard. Additionally, the opening of the Midwest region in the third quarter of the 1997 fiscal year contributed approximately $100,000 to the revenue growth in fiscal 1998. Cost of Services. Cost of services increased 14% to $969,345 for the year ended June 30, 1998 from $853,048 for the year ended June 30, 1997. The higher volume of business serviced resulted in greater hearing officer fees. Cost of services as a percentage of revenue remained stable at 25% for both fiscal years. The ratio of cost of services to revenues will fluctuate based on the number of hours per case, as well as the ability (or inability) of an office to take advantage of volume arrangements with hearing officers which usually lower the cost per case. Sales and Marketing. Sales and marketing costs increased 48% to $2,090,591 for the year ended June 30, 1998 from $1,412,348 for year ended June 30, 1997. This expense category includes amounts directly related to the production of sales; that is, salaries and commissions for sales executives, sales managers and account executives and applicable payroll taxes and employee benefits; advertising; promotions and travel and entertainment. Sales and marketing costs as a percentage of revenues increased to 54% for fiscal year 1998 from 42% for fiscal year 1997. Most of this increase relates to advertising costs which rose by approximately $472,000 to $566,000 for the year ended June 30, 1998. The increase was largely due to the commencement of an advertising campaign during the third quarter of the 1998 fiscal year whereby the Company placed advertisements in a variety of media (newspapers, law journals, insurance and business publications, outdoor, radio and television). The objective of the campaign is to increase awareness of the Company and its services. There can be no assurance that such expenditures will produce higher revenues. The remaining increase (approximately $206,000) relates to salary and related items. Firstly, higher sales commissions were incurred based on the higher volume of business. Secondly, primarily during the second half of fiscal year 1997 and into fiscal year 1998, personnel were hired to staff and support the Company's expansion plans. In particular, sales management was strengthened at the Company's headquarters in New York to better prepare the Company for a higher volume of cases. Finally, the Midwest region opened during the third quarter of fiscal 1997. General and Administrative. General and administrative costs increased 10% to $1,932,158 for the year ended June 30, 1998 from $1,761,994 for the year ended June 30, 1997. Furthermore, general and administrative costs as a percentage of revenues decreased slightly to 50% for fiscal year 1998 from 52% for fiscal year 1997. This category includes salaries of executives, accounting, data processing and administration/clerical and related payroll taxes and employee benefits, as well as all other overhead costs. Salary-related costs increased by approximately $189,000 as the Company expanded personnel, particularly at its headquarters in New York, primarily during the second half of fiscal year 1997 and into fiscal year 1998. All corporate activities, including marketing, finance, data processing, billing and collections, purchasing and scheduling of hearings, are centralized in New York. Management believes that this structure provides a uniform and high-quality level of service for clients, 11 in addition to enhancing the control environment and producing a more streamlined and efficient approach as the Company grows. Higher costs with respect to fees relating to being a public company (approximately $18,000) were more than offset by a decline in professional fees ($40,000). Other Income (Expenses). Other income (expenses) increased from $12,771 for the year ended June 30, 1997 to $514,985 for the year ended June 30, 1998. In the current fiscal year, other income was composed primarily of investment income and realized gains (losses) generated from investments. During the second half of the 1998 fiscal year, the Company sold a portion of its marketable securities and, as a result, net realized gains increased to approximately $356,000 for the year ended June 30, 1998 from approximately $16,000 for the year ended June 30, 1997. Also, in the prior year, in connection with the initial public offering, the Company contributed warrants underlying units sold by two executive officers and also agreed to pay the underwriting costs associated with shares sold by them. With respect thereto, the Company expensed $115,500 upon the consummation of the initial public offering in the second quarter of fiscal year 1997. In addition, other expenses in that period also included interest expense from a past private placement financing. This debt was satisfied in full as of November 20, 1996 with proceeds from the Company's initial public offering. Income Taxes. Tax benefits resulting from net losses incurred for the years ended June 30, 1998 and 1997 were not recognized as the Company recorded a full valuation allowance against the net operating loss carryforwards during the periods. As of June 30, 1998, the Company had net operating loss carryforwards for Federal tax purposes of approximately $1,007,000. Net Loss. For the year ended June 30, 1998, the Company had a net loss of $629,134 as compared to a net loss of $637,557 for the year ended June 30, 1997. The loss decreased slightly as expenditures for a comprehensive advertising campaign and an investment in the Company's infrastructure to support future growth were partially offset by higher revenues and realized gains on marketable securities. Year Ended June 30, 1997 Compared to Year Ended June 30, 1996 Results of Operations Revenues. Revenues increased 7% to $3,377,062 for the year ended June 30, 1997 from $3,147,886 for the year ended June 30, 1996. Management attributes this growth in sales to a higher level of business with existing as well as new clients in all offices other than Pennsylvania. Excluding Pennsylvania, revenues grew by approximately 14% over the prior period for all other offices combined. The Company has focused its resources on re-staffing and rebuilding the Pennsylvania office in an effort to reverse the downward trend. Cost of Services. Cost of services, direct costs incurred for hearing officers, increased 17% to $853,048 for the year ended June 30, 1997 from $727,613 for the year ended June 30, 1996. The higher volume of business serviced resulted in greater hearing officer fees. In addition, cost of services as a percentage of revenues increased slightly to 25% in the 1997 fiscal year from 23% in the prior period. The ratio of cost of services to revenues will fluctuate based on the number of hours per case, as well as the ability (or inability) of an office to take advantage of volume arrangements with hearing officers as such lowers the cost per case. Sales and Marketing. Sales and marketing costs decreased 4% to $1,412,348 for the year ended June 30, 1997 from $1,472,152 for the year ended June 30, 1996. Furthermore, sales and marketing costs as a percentage of revenues for the year ended June 30, 1997 decreased to 42% from 47% for the year ended June 30, 1996. In fiscal year 1996 and prior, all employees were considered to 12 spend a majority of their time performing sales-related functions. As a result, this expense category includes all salary and related payroll and employee benefit costs as well as advertising and promotional expenses in fiscal 1996. In fiscal 1997, the Company expanded in size and was organizationally restructured to provide for future growth. Sales and marketing costs include amounts directly related to the production of sales; that is, salaries and commissions for sales executives, sales managers and account executives and applicable payroll taxes and employee benefits; advertising; promotions and travel and entertainment. Salaries and related expenses for individuals who do not spend a majority of their time involved in marketing the Company's services are included in general and administrative expenses in fiscal 1997. If sales and marketing costs had been classified in the same manner in fiscal 1996 as it was in fiscal 1997, this category of expense would have increased by approximately $380,000. Most of this increase (approximately $281,000) relates to salary and related items. Firstly, higher sales commissions were incurred based on the higher volume of business. Secondly, personnel were hired and upgraded to staff and support the Company's expansion plans. In particular, sales management was strengthened at the Company's headquarters in New York to better prepare the Company for higher revenue levels. Finally, the Midwest region, with personnel in Wisconsin and Illinois, opened during the third quarter of fiscal 1997. Additionally, the Company embarked on an advertising campaign with the goal of creating an increased national presence through a variety of media. As a result, advertising costs increased by approximately $60,000. There can be no assurance that expenditures related to the advertising campaign will produce higher revenues in the near future. General and Administrative. General and administrative costs increased 138% to $1,761,994 for the year ended June 30, 1997 from $741,892 for the year ended June 30, 1996. Furthermore, general and administrative costs as a percentage of revenues for the year ended June 30, 1997 increased to 52% from 24% for the comparable prior period. As explained previously, in fiscal 1996, general and administrative costs do not include any salary or salary related expenses. However, in fiscal 1997, this category includes salaries of executives, accounting, data processing and administration/clerical and related payroll taxes and employee benefits, which were previously included in sales and marketing, as well as all other overhead costs. If general and administrative costs had been classified in the same manner in fiscal 1996 as it was in fiscal 1997, this category of expense would have increased by approximately $609,000. Of this increase, salary-related costs increased by approximately $219,000 as the Company upgraded and expanded personnel, particularly at its headquarters in New York. All corporate activities, including marketing, finance, data processing, billing and collections, purchasing, scheduling of hearings, etc., are centralized in New York. Management believes that this structure enhances the control environment as well as produces a more streamlined and efficient approach as the Company grows. In addition, a portion of the increase relates to higher rent expense (which increased by approximately $54,000). To support business opportunities throughout the country, larger office space was obtained in four locations and a new office was opened in Wisconsin. Higher costs with respect to professional fees, insurance, employee recruitment, stock market fees, depreciation, office supplies and stationery were due to the expansion of the Company and its status as a publicly traded entity. Such costs increased by approximately $298,000 in total. Other Income (Expense). Other income (expense) changed from a net expense of ($67,105) for the year ended June 30, 1996 to income of $12,771 for the year ended June 30, 1997. In fiscal 1997, other income was composed primarily of (i) investment income, generated from available proceeds received from the initial public offering, less (ii) interest expense from a past private placement financing and (iii) costs incurred for the benefit of selling shareholders. In connection with the initial public offering, the Company contributed warrants underlying units sold by two executive officers and also agreed to pay the underwriting costs associated with shares sold by them. With respect thereto, the Company expensed $115,500, of which $37,500 related to the contributed warrants, upon the consummation of the initial public offering in the second quarter of fiscal 1997. Other expenses in the prior fiscal year included a write-off of previously deferred offering costs of $61,127 associated with a 13 public offering that was abandoned in October 1995 and interest expense of $32,000 relating to a past private placement financing. This debt was satisfied in full on November 20, 1996 with proceeds from the initial public offering. Income Taxes. The Company's tax expense for the years ended June 30, 1997 and 1996 was $0 and $3,525, respectively. Tax benefits resulting from net losses incurred for the year ended June 30, 1997 were not recognized as the Company recorded a full valuation allowance against the net operating loss carryforwards. As of June 30, 1997, the Company had net operating loss carryforwards for Federal tax purposes of approximately $440,000. Net Income (Loss). For the year ended June 30, 1997, the Company had a net loss of ($637,557) as compared to net income of $135,599 for the year ended June 30, 1996. As discussed above, this change was primarily due to higher general and administrative expenditures incurred as an investment in the Company's infrastructure in anticipation of future growth. In addition, the current period was adversely affected by non-recurring charges incurred in connection with the initial public offering. Liquidity and Capital Resources At June 30, 1998, the Company had a working capital surplus of $3,060,771 as compared to $3,853,430 at June 30, 1997. The decrease in working capital occurred as cash was used to fund the Company's net loss. Net cash used in operating activities was $688,132 for the year ended June 30, 1998 versus $535,152 in the prior year. The change is partially attributable to expenditures related to advertising costs. Net cash provided by investing activities was $1,929,926 for the year ended June 30, 1998 versus cash used in investing activities of $3,725,439 for the year ended June 30, 1997. Investing activity began in the third quarter of the 1997 fiscal year after the net proceeds from the Company's initial public offering were received. During fiscal 1998, various investments in government securities matured and the Company sold a portion of its corporate bonds and equity securities. Such proceeds were largely reinvested in government securities and money market funds. Net cash provided by financing activities was $4,404,603 for the year ended June 30, 1997 versus no activity in the current year. The prior period reflects the receipt of the proceeds from the Company's initial public offering which was consummated in November 1996. A portion of the proceeds was utilized to repay promissory notes in the aggregate amount of $400,000. The notes bore interest at a rate of 8% per annum, and were originally due June 30, 1996. Subsequently, the due dates of the notes were extended to March 31, 1997. On November 20, 1996, the notes were repaid in full. The Company anticipates that cash flows, together with cash and marketable securities on hand, will be sufficient to fund the Company's operations, including its expansion plans and the advertising campaign which will continue into the 1999 fiscal year. The Year 2000 The Year 2000 ("Y2K") issue is the result of computer programs using a two-digit format, as opposed to four digits, to indicate the year. Such computer systems will be unable to interpret dates 14 beyond the year 1999, which could cause a system failure or other computer errors, leading to disruptions in operations. The Company is taking actions to make its systems, products and infrastructure year Y2K compliant. During fiscal year 1998, the Company identified those systems that may be impacted by the Y2K issue: (1) financial reporting system; (2) relational database system used to manage the operations of the Company; and (3) third-party relationships. The Company has initiated certain action plans with respect to the areas identified. First, the Company recently upgraded the software utilized for financial reporting to a version that is Y2K compliant. Secondly, the software that manages the operations of the business is already capable of recognizing four digits to designate the year. The Company intends to convert its usage of the date fields from 2 digits to 4 digits during the first half of fiscal year 1999. It is anticipated that the programming effort required could be accomplished with existing resources and that no material external costs will be incurred. Finally, in the third-party area, the Company has contacted most of its major vendors who have stated that they intend to be Y2K compliant by 2000. Management believes that, based on available information, the Company will be able to manage the year 2000 transition without any material adverse effects on its business operations, products or financial prospects. ITEM 7. FINANCIAL STATEMENTS Information in response to this item is set forth in the Financial Statements, beginning on Page F-1 of this filing. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES The Company filed Form 8-K on March 11, 1997 with respect to a change in accountants. 15 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Report of Independent Certified Public Accountants F-2 Financial Statements Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statement of Changes in Stockholders' Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 - F-21 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders NAM Corporation We have audited the accompanying consolidated balance sheets of NAM Corporation and Subsidiaries (the "Company") as of June 30, 1998 and 1997, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of NAM Corporation and Subsidiaries as of June 30, 1998 and 1997, and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with generally accepted accounting principles. GRANT THORNTON LLP Melville, New York August 28, 1998 F-2 NAM Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS June 30,
ASSETS 1998 1997 ------------ ----------- CURRENT ASSETS Cash and cash equivalents $1,417,280 $ 175,486 Marketable securities 1,950,880 3,792,381 Accounts receivable (net of allowance for doubtful accounts of $90,000 and $80,000, respectively) 385,300 408,260 Other receivables 17,945 34,490 Prepaid expenses 45,080 54,682 ---------- ----------- Total current assets 3,816,485 4,465,299 FURNITURE AND EQUIPMENT - AT COST, less accumulated depreciation 248,679 201,113 ORGANIZATION COSTS (net of accumulated amortization of $30,478 and $21,885, respectively) 12,484 21,077 OTHER ASSETS 31,908 39,756 ---------- ----------- $4,109,556 $4,727,245 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 315,323 $ 158,846 Accrued liabilities 163,641 140,192 Accrued payroll and employee benefits 126,361 174,115 Deferred revenues 150,389 138,716 ---------- ----------- Total current liabilities 755,714 611,869 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock - $.001 par value; 5,000,000 shares authorized; none issued - - Common stock - $.001 par value; 15,000,000 shares authorized; 3,334,978 shares issued and outstanding 3,335 3,335 Additional paid-in capital 4,778,179 4,772,569 Accumulated deficit (1,368,681) (739,547) Unrealized (loss) gain on marketable securities (58,888) 79,224 Unearned compensation - stock bonus plan (103) (205) ---------- ----------- Total stockholders' equity 3,353,842 4,115,376 ---------- ----------- $4,109,556 $4,727,245 ========== ==========
The accompanying notes are an integral part of these statements. F-3 NAM Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Year ended June 30,
1998 1997 ----------- ---------- Net revenues $ 3,847,975 $3,377,062 ----------- ---------- Operating costs and expenses Cost of services 969,345 853,048 Sales and marketing expenses 2,090,591 1,412,348 General and administrative expenses 1,932,158 1,761,994 ----------- ---------- 4,992,094 4,027,390 ----------- ---------- Loss from operations (1,144,119) (650,328) Other income (expenses) Investment income 510,063 136,572 Other income 4,922 4,237 Costs incurred for the benefit of selling shareholders - (115,500) Interest expense - (12,538) ----------- ---------- 514,985 12,771 ----------- ---------- Loss before income taxes (629,134) (637,557) Income taxes - - ----------- ---------- NET LOSS $ (629,134) $ (637,557) =========== =========== Net loss per common share - basic and diluted $(.19) $(.23) ===== ===== Weighted average shares outstanding - basic and diluted 3,334,978 2,762,348 =========== ===========
The accompanying notes are an integral part of these statements. F-4 NAM Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Years ended June 30, 1998 and 1997
Unearned Unrealized compensation- Total Common stock Additional (loss) gain on stock stockholders' ------------------- paid-in Accumulated marketable bonus equity Shares Amount capital deficit securities plan (deficit) ------ ------ ------- ------- ---------- ---- --------- Balances at July 1, 1996 1,813,075 $1,813 $ 28,739 $ (101,990) $(308) $ (71,746) Net loss (637,557) (637,557) Shares issued pursuant to initial public offering 1,460,000 1,460 4,700,084 4,701,544 Shares issued pursuant to restricted stock award 61,903 62 (62) Unrealized gain on marketable securities $ 79,224 79,224 Compensation related to stock option plan and contributed warrants 43,808 43,808 Earned portion of stock bonus plan 103 103 --------- ------ ---------- ----------- ---------- ----- ---------- Balances at June 30, 1997 3,334,978 3,335 4,772,569 (739,547) 79,224 (205) 4,115,376 Net loss (629,134) (629,134) Change in unrealized (loss) gain on marketable securities (138,112) (138,112) Compensation related to stock option plan 5,610 5,610 Earned portion of stock bonus plan 102 102 --------- ------ ---------- ----------- ----------- ----- ---------- Balances at June 30, 1998 3,334,978 $3,335 $4,778,179 $(1,368,681) $ (58,888) $(103) $3,353,842 ========= ====== ========== =========== =========== ===== =========
The accompanying notes are an integral part of this statement. F-5 NAM Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended June 30,
1998 1997 ----------- ------------ Cash flows from operating activities Net loss $ (629,134) $ (637,557) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 75,488 58,653 Provision for bad debts 10,000 40,000 (Gains) on sales of marketable securities (356,390) (7,123) Losses on sales of furniture and equipment 129 - Earned portion of stock bonus plan 102 103 Compensation related to stock option plan and contributed warrants 5,610 43,808 Changes in operating assets and liabilities Decrease in accounts receivable 12,960 7,696 Decrease (increase) in other receivables 16,545 (28,617) Decrease (increase) in prepaid expenses 9,602 (1,672) Decrease (increase) in other assets 7,848 (5,252) Increase (decrease) in accounts payable and accrued liabilities 195,189 (146,115) (Decrease) increase in accrued payroll and employee benefits (47,754) 128,588 Increase in deferred revenues 11,673 12,336 ----------- ------------ Net cash used in operating activities (688,132) (535,152) ----------- ------------ Cash flows from investing activities Purchases of marketable securities (2,313,195) (4,086,959) Proceeds from maturities of marketable securities 2,075,000 325,000 Proceeds from sales of marketable securities 2,311,367 62,373 (Decrease) increase in payable for securities purchased (15,263) 15,263 Purchases of furniture and equipment (133,113) (41,116) Sales of furniture and equipment 5,130 - ----------- ------------ Net cash provided by (used in) investing activities 1,929,926 (3,725,439) ----------- ------------ Cash flows from financing activities Issuance of common stock, net of issuance costs - 4,701,544 Repayment of notes payable - (400,000) Distributions to shareholders - (8,942) Decrease in deferred offering costs - 112,001 ----------- ------------ Net cash provided by financing activities - 4,404,603 ----------- ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 1,241,794 144,012 Cash and cash equivalents at beginning of year 175,486 31,474 ----------- ------------ Cash and cash equivalents at end of year $ 1,417,280 $ 175,486 =========== ============
The accompanying notes are an integral part of these statements. F-6 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1998 and 1997 NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS NAM Corporation ("NAM") provides a broad range of Alternative Dispute Resolution ("ADR") services, including arbitration and mediation, in the United States. NAM incorporated on January 12, 1994 and began operations on February 15, 1994. On October 31, 1994, National Arbitration & Mediation, Inc. ("NA&M"), which was owned by NAM's Chief Executive Officer and Executive Vice President, was acquired by and became a wholly-owned subsidiary of NAM. The transaction was accounted for as a transfer of assets between companies under common control, with the assets and liabilities of NA&M combined with those of NAM at their historical carrying values. NA&M also provided a broad range of ADR services, including arbitrations and mediations. NA&M began operations in March 1992. On November 18, 1996, NAM completed an Initial Public Offering ("IPO") of its securities, which resulted in the sale of 1,400,000 units, each unit consisting of one share of common stock and one redeemable warrant. Of this total, 150,000 shares of common stock were not newly issued; rather, they were sold by two executive officers of NAM. On December 3, 1996, an additional 210,000 units were sold upon the exercise of an overallotment option by the underwriter. Units were sold at a price of $4.00 per unit. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting and reporting policies applied on a consistent basis which conform with generally accepted accounting principles follow: a. Basis of Presentation The accompanying consolidated financial statements of NAM Corporation and Subsidiaries include the accounts of its wholly-owned subsidiaries, NA&M, National Video Conferencing, Inc., a Delaware corporation formed in April 1995, Michael Marketing, Inc., a Delaware corporation formed in November 1991 and NAMSYS Corporation, a Delaware corporation F-7 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 2 (continued) formed in January 1998 (collectively referred to herein as the "Company"). The Company operates in only one business segment, ADR. All significant intercompany transactions and balances were eliminated in consolidation. b. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the revenues and expenses during the reporting period. Actual results may differ from those estimates. Estimates are used when accounting for the allowance for uncollectible accounts receivable, depreciation, taxes and contingencies, among others. c. Revenue Recognition The Company principally derives its revenues from fees charged for arbitration and mediation services. Each party to a proceeding is charged an administrative fee, a portion of which is nonrefundable when each party agrees to utilize the Company's services. The Company recognizes revenue when the arbitration or mediation occurs. Fees received prior to the arbitration or mediation are reflected as deferred revenue. d. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, money market funds and short-term notes with a maturity at date of purchase of three months or less. e. Marketable Securities Investments classified as marketable securities include fixed maturities (bonds and redeemable preferred stocks) and equity securities (common and nonredeemable preferred stocks) which are reported at their fair values. Unrealized gains or losses on these securities are reported as a separate component of stockholders' equity, net of related tax effects. The Company categorizes F-8 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 2 (continued) all fixed maturity and equity securities as available-for-sale in order to provide the Company flexibility to respond to various factors, including changes in market conditions and tax planning considerations. Investment income, consisting of interest and dividends, is recognized when earned. Realized gains and losses on sales, maturities or liquidation of investments are determined on a specific identification basis. The amortization of premiums and accretion of discounts for fixed maturity securities are computed on a straight-line basis. Fair values of investments are based on quoted market prices or on dealer quotes. f. Furniture and Equipment Furniture and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method to allocate the cost of those assets over their expected useful lives which generally range from five to seven years. g. Organizational Costs Organizational costs arose from NAM's organization in 1994. Organizational costs are amortized over five years. h. Income Taxes The Company follows the asset and liability method of accounting for income taxes by applying statutory tax rates in effect at the balance sheet date to differences among the book and tax bases of assets and liabilities. The resulting deferred tax liabilities or assets are adjusted to reflect changes in tax laws or rates by means of charges or credits to income tax expense. A valuation allowance is recognized to the extent a portion or all of a deferred tax asset may not be realizable. i. Advertising Costs The cost of advertising is expensed when the advertising takes place. During the second half of fiscal 1998, the Company commenced an advertising campaign intended to increase awareness of its services with respect to litigants in most types of civil disputes, including complex F-9 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 2 (continued) commercial issues, construction, employment, matrimonial and worker's compensation cases. The Company incurred $566,084 and $93,696 for advertising and external public relations costs in fiscal 1998 and 1997, respectively. j. Offering Costs Costs incurred in connection with the IPO in November 1996, consisting of professional fees directly associated with the offering, were charged to additional paid-in capital during the year ended June 30, 1997. k. Earnings (Loss) Per Common Share In fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," which requires public companies to present basic earnings per share and, if applicable, diluted earnings per share. In accordance with SFAS No. 128, all comparative periods have been restated, if applicable. Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share are based on the weighted average number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the period. Diluted earnings per share is the same as basic earnings per share as potential common shares would be antidilutive as the Company incurred net losses for the years ended June 30, 1998 and 1997. F-10 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 2 (continued) l. Accounting Pronouncement Not Yet Adopted In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which is effective for the Company's 1999 fiscal year. SFAS No. 130 establishes standards to report and display comprehensive income and its components in a full set of general-purpose financial statements. Earnings (loss) per share will only be reported for net income (loss) but not for comprehensive income. Adoption of SFAS No. 130 relates to disclosure within the financial statements and is not expected to have a material impact on the Company's financial statements. NOTE 3 - MARKETABLE SECURITIES Marketable securities are carried at fair value. A summary of investments in marketable securities and a reconciliation of amortized cost to the fair value follow:
Gross Gross Amortized unrealized unrealized Fair cost gains losses value ---------- ---------- ---------- ---------- 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 ========== ======= ========= ==========
F-11 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 3 (continued)
Gross Gross Amortized unrealized unrealized Fair cost gains losses value ---------- ---------- ---------- ---------- June 30, 1997 Fixed maturities U.S. Treasury securities $2,088,713 $ 97 $ (1,225) $2,087,585 Corporate preferred securities 550,000 500 - 550,500 ---------- ------- -------- ---------- 2,638,713 597 (1,225) 2,638,085 Equity securities 1,074,444 89,657 (9,805) 1,154,296 ---------- ------- -------- ---------- Total marketable securities $3,713,157 $90,254 $(11,030) $3,792,381 ========== ======= ======== ==========
The amortized cost and fair value of investments in fixed maturities classified as securities available-for-sale at June 30, 1998 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because borrowers have the right to call obligations without call penalties. Amortized Fair cost value -------- -------- Due in one year or less $569,470 $569,679 Due after one through five years 100,419 100,344 Due after ten years 250,000 255,620 -------- -------- $919,889 $925,643 ======== ======== Proceeds on sales of securities were $2,311,367 and $62,373 for the years ended June 30, 1998 and 1997, respectively. During fiscal 1998 and 1997, gross gains of $386,155 and $7,123, respectively, and gross losses of $29,765 and $0, respectively, were realized on these sales. Net unrealized (losses) gains on marketable securities were $(58,888) and $79,224 at June 30, 1998 and 1997, respectively. During fiscal 1998 and 1997, no income taxes (benefits) were provided on the unrealized gains (losses) due to the Company's net operating loss. F-12 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 4 - FURNITURE AND EQUIPMENT Furniture and equipment consist of the following: June 30, ----------------------------- 1998 1997 --------- --------- Furniture $ 169,717 $ 159,447 Equipment 307,311 191,093 --------- --------- 477,028 350,540 Less accumulated depreciation (228,349) (149,427) --------- --------- $ 248,679 $ 201,113 ========= ========= Depreciation expense for the years ended June 30, 1998 and 1997 was $80,288 and $56,510, respectively. NOTE 5 - INCOME TAXES Temporary differences which give rise to deferred taxes are summarized as follows:
1998 1997 --------- --------- Deferred tax assets Net operating loss and other carryforwards $ 406,000 $ 139,000 Provision for bad debts 36,000 32,000 Deferred compensation 21,000 26,000 Deferred rent and other 10,000 6,000 --------- --------- 473,000 203,000 Deferred tax liabilities Depreciation 6,000 17,000 --------- --------- Net deferred tax asset before valuation allowance 467,000 186,000 Valuation allowance (467,000) (186,000) --------- --------- Net deferred tax asset $ - $ - ========= =========
F-13 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 5 (continued) The Company has recorded a full valuation allowance to reflect the estimated amount of deferred tax assets which may not be realized. The Company's effective income tax rate differs from the statutory Federal income tax rate as a result of the following:
1998 1997 --------- --------- Benefit at statutory rate $(213,906) $(216,769) State and local benefit, net of Federal tax (42,096) - Nontaxable (income)/nondeductible expenses - net (24,668) 30,589 Increase in the valuation allowance 280,670 186,180 --------- --------- $ - $ - ========= =========
The provision for Federal income taxes has been determined on the basis of a consolidated tax return. At June 30, 1998, the Company had a net operating loss carryforward for Federal income tax reporting purposes amounting to approximately $1,007,000, expiring through 2018. No Federal taxes were paid in the years ended June 30, 1998 and 1997. NOTE 6 - STOCKHOLDERS' EQUITY a. Initial Public Offering In November 1996, the Company completed an IPO. The IPO consisted of 1,400,000 units, each unit consisting of one share of common stock and one redeemable warrant. Of the total units sold, 150,000 units were offered by two executive officers of the Company. Each redeemable warrant entitles the holder to purchase one share of common stock at $6.00 per share, subject to adjustment, at any time from issuance until November 13, 2001. Such warrants are redeemable by the Company, with the prior written consent of the underwriter, at a redemption price of $.05 commencing November 13, 1997 provided that the average closing bid price of the common stock equals or exceeds $9.00, subject to adjustment, for a specified period of time. In addition, there was an overallotment option for 210,000 units which was exercised by the F-14 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 6 (continued) underwriter, resulting in a total of 1,610,000 units being sold, of which 1,460,000 units were sold by the Company. Gross proceeds to the Company totaled $5,840,000 and offering expenses aggregated $1,138,456, resulting in net proceeds of $4,701,544. In connection with the IPO, the Company sold to the underwriter, for nominal consideration, warrants to purchase from the Company 140,000 units (the "underwriter's warrants"). The underwriter's warrants are initially exercisable at $5.80. The shares of common stock and redeemable warrants issuable upon exercise of the underwriter's warrants are identical to those offered to the public. The underwriter's warrants contain provisions providing for adjustment of the number of warrants and exercise price under certain circumstances. The underwriter's warrants grant to the holders thereof certain rights of registration of the securities issuable upon exercise of the underwriter's warrants. Further, in connection with the IPO, the Company contributed warrants underlying units sold by two executive officers and agreed to pay the underwriting costs associated with shares sold by them. With respect thereto, the Company expensed $115,500 during the year ended June 30, 1997, of which $37,500 related to the contributed warrants. b. Stock Award Plan In June 1994, the Company adopted an Executive Stock Bonus Plan. Under the plan, the Company granted shares to three employees pursuant to their employment agreements. All of the shares vest after providing two to five years of service to the Company from the grant date. Unearned compensation based on the estimated market value per share at date of grant of $0.01 was recorded and shown as a separate component of stockholders' equity. The Company recognized compensation expense of $102 and $103 during the years ended June 30, 1998 and 1997, respectively, representing the amortization of unearned compensation over the vesting period. During the year ended June 30, 1997, 61,903 shares were issued upon vesting. As of June 30, 1998, 36,744 awards are outstanding, all of which will vest in June 1999 provided such employees are employed by the Company at that time. In addition, in September 1994, the Company granted the manager of a regional office restricted common stock for the purchase price of $0.17 per share, pursuant to his employment agreement. Of the total shares granted, 7,152 vested and were issued in June 1996, while the remaining 35,761 shares will vest in June 1999 if the manager is still employed by the Company. F-15 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 6 (continued) In December 1994, the Company entered into an agreement with a hearing officer whereby the hearing officer had a contractual right to receive 6,500 shares of restricted common stock or a payment in cash, not to exceed $26,000, on March 1, 1997. The agreement was reflected as deferred compensation and amortized over the related term. The hearing officer elected to receive a cash settlement in lieu of the shares during the year ended June 30, 1997. c. Stock Option Plan In May 1996, the Company adopted an Incentive and Nonqualified Stock Option Plan (the "Plan") for employees, officers, directors, consultants and advisors of the Company, pursuant to which the Company may grant options to purchase up to 750,000 shares of the Company's common stock. The Plan is administered by the board of directors, which has the authority to designate the number of shares to be covered by each award and the vesting schedule of such award, among other terms. The option period during which an option may be exercised shall not exceed ten years from the date of grant and will be subject to such other terms and conditions of the Plan. Unless the board of directors provides otherwise, option awards terminate when a participant's employment or services end, except that a participant may exercise an option to the extent that it was exercisable on the date of termination for a period of time thereafter. The Plan will terminate automatically on April 1, 2006. Commencing June 30, 1997, directors who are not officers of the Company receive annually, on the last trading day of June, stock options for 1,000 shares at an exercise price equal to the fair market value of the stock on the date of grant. Such options vest immediately upon grant. In addition to the stock options granted under the Plan, a hearing officer of the Company has a contractual right under his agreement to receive options to purchase 10,000 shares of common stock provided services are being rendered to the Company through November 18, 1998 (the obligation and vesting date). Price per share will be the closing bid price on the obligation date. On May 11, 1998, the Company's Board of Directors approved the repricing of outstanding stock options previously granted to employees. The repricing provided for the exercise price of 230,500 options to be reduced from a range of $3.00 to $4.38 per share to a range of $1.63 to $2.25 per share, to reflect current fair value. The repricing did not affect the term or vesting period of the options. F-16 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 6 (continued) The Company's stock option awards granted to employees, directors and consultants as of and for the years ended June 30, 1998 and 1997 are summarized as follows:
1998 1997 ---------------------------- --------------------------- Weighted - Weighted - average average exercise exercise Shares price Shares price ------ --------- ------ ---------- Outstanding at beginning of year 155,500 $ 3.18 - Awards granted 451,500 $ 2.22 155,500 $3.18 Awards exercised - - Awards canceled (233,500) $(3.20) - -------- ------- Outstanding at end of year 373,500 $ 2.01 155,500 $3.18 ======== ======= Options exercisable at year-end 37,000 $ 2.49 16,000 $3.00 Weighted-average fair value of options granted during the year $ .99 $1.66
The following information applies to options outstanding and exercisable at June 30, 1998:
Outstanding Exercisable ------------------------------------------- ----------------------------- Weighted- average Weighted- Weighted- remaining average average Number life in exercise Number exercise Range of exercise prices outstanding years price exercisable price ------------------------ ----------- --------- --------- ----------- --------- $1.63 to $1.94 240,300 7.65 $1.72 9,002 $1.78 $2.09 to $2.25 96,200 7.60 $2.17 9,998 $2.20 $3.00 to $4.00 37,000 7.89 $3.41 18,000 $3.00 -------- ------ 373,500 37,000 ======= ======
Stock option awards are granted at prices equal to or above the closing bid price on the date of grant. As of June 30, 1998, 376,500 shares were available for granting of options under the Plan. F-17 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 6 (continued) Effective in fiscal 1997, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 allows for a choice of the method of accounting used for stock-based compensation. Entities may elect the "intrinsic value" method based on APB Opinion No. 25, "Accounting for Stock Issued to Employees,"("APB No. 25") or the new "fair value" method contained in SFAS No. 123. The Company has elected to continue to account for stock-based compensation under the guidelines of APB No. 25. Accordingly, no compensation expense was recognized concerning options granted to key employees and to members of the board of directors, as such options were granted to board members in their capacity as directors. Compensation expense of $5,610 and $6,308 was recognized in fiscal 1998 and 1997, respectively, for options granted to consultants. If the Company had elected to recognize compensation expense based upon the fair value at the grant date for options granted to key employees and to members of the board of directors consistent with the methodology prescribed by SFAS No. 123, the Company's net loss and net loss per share for the years ended June 30, 1998 and 1997 would be reduced to the pro forma amounts indicated below: 1998 1997 --------- --------- Net loss As reported $(629,134) $(637,557) Pro forma (762,728) (679,965) Net loss per common share - basic As reported $(.19) $(.23) Pro forma (.23) (.25) These pro forma amounts may not be representative of future disclosures because they do not take into effect pro forma compensation expense related to awards made before 1996. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1998 and 1997, respectively: dividend yields of zero for both years; risk-free interest rates ranging from 5.52% to 5.94% in 1998 and 6.04% to 6.71% in 1997; expected terms ranging from 2 to 6 years in 1998 and 3 to 6 years in 1997; and expected stock price volatility of 64.15% in 1998 and 60.17% in 1997. F-18 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 7 - TRANSACTIONS WITH RELATED PARTIES Certain members of the board of directors perform services for the benefit of the Company. Such services included those of public relations, legal and other professional, and hearings. The related expenditures for these services for the years ended June 30, 1998 and 1997 were $75,425 and $166,932, respectively, of which $66,776 was charged to additional paid-in capital in fiscal 1997 as it was incurred in connection with the November 1996 IPO. NOTE 8 - COMMITMENTS AND CONTINGENCIES a. Leases As of June 30, 1998, the Company has lease agreements for equipment and office space. Rent expense amounted to $205,308 and $204,762 for the years ended June 30, 1998 and 1997, respectively. The minimum lease payments under noncancelable leases as of June 30, 1998 are as follows: 1999 $177,000 2000 163,000 2001 47,000 2002 1,000 -------- $388,000 b. Employment/Consulting Agreements In October 1997, the Company entered into an employment agreement with its Chief Executive Officer retroactive to July 1, 1997 as the prior agreement expired on June 30, 1997. The new agreement expires June 30, 2002 and provides for an annual base salary of $225,000, an annual cost of living increase of the greater of 6% per annum or the increase in the Urban Consumer Price Index and an annual bonus at the discretion of the Company's Board of Directors. If this agreement is terminated as a result of a change in duties of the executive or due to a change in control, the officer will be entitled to a lump-sum severance payment equal to three times his then current base salary. F-19 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 8 (continued) The Company has also entered into employment agreements with three officers expiring through July 20, 2001. Such contracts are cancelable at any time without further liability to the Company with the exception of one contract which provides for six months of severance pay. Minimum salary commitments under these contracts follow: 1999 $336,000 2000 303,000 2001 233,000 2002 6,000 -------- $878,000 ======== The Company has also entered into employment agreements with certain of its regional office managers. Certain of these agreements provide for additional compensation based on the profits of the manager's operation. In July 1996, the Company entered into a financial public relations consulting agreement with two individuals who are founders of the Company, current stockholders and former directors. The agreement has a four-year term and provides for annual payments of $48,000 payable in equal monthly payments of $4,000 through November 2000. The related expense for the year ended June 30, 1998 and 1997 was $48,000 and $28,000, respectively. NOTE 9 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS At June 30, 1998 and 1997, the Company's financial instruments included cash and cash equivalents, marketable securities, receivables, accounts payable and notes payable. The fair values of cash and cash equivalents, receivables, accounts payable and notes payable approximated carrying values because of the short-term nature of these instruments. The estimated fair values of marketable securities were determined based on broker quotes or quoted market prices. F-20 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1998 and 1997 NOTE 10 - CREDIT CONCENTRATIONS Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities and accounts receivable. The Company maintains its cash which consists primarily of demand deposits and an insured money market fund with one financial institution. Such balances generally do not exceed the Federally insured limits. Additionally, the Company maintains its cash equivalents and all other investments with two financial institutions. The Company primarily sells its services to insurance companies and law firms. One insurance company customer represented approximately 12% and 14% of total revenues for the years ended June 30, 1998 and 1997, respectively. However, the Company works with more than 70 individual offices of the insurance company, which in total equal the aforementioned percentages of revenue. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. F-21 PART III ITEM 9. (Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act); ITEM 10. (Executive Compensation); ITEM 11 (Security Ownership of Certain Beneficial Owners and Management); and ITEM 12 (Certain Relationships and Related Transactions) will be incorporated in the Company's Proxy Statement to be filed within 120 days of June 30, 1998, and are incorporated herein by reference. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K Exhibit Number Description of Document - ------- ----------------------- 3.1 Certificate of Incorporation, as amended (1) 3.2 By-Laws of the Company, as amended** 10.1 1996 Stock Option Plan, amended and restated** 10.2 Employment Agreement between Company and Roy Israel (3) 10.2.1 Amendment to Employment Agreement between Company and Roy Israel ** 10.3 Employment Agreement between Company and Cynthia Sanders** 10.4 Employment Agreement between Company and Daniel Jansen (1) 10.5 Employment Agreement between Company and Patricia Giuliani-Rheaume (2) 10.6 Employment Agreement between Company and Rina Bloch** 10.7 Lease Agreement for Great Neck, New York facility (1) 21.1 List of Subsidiaries** 27 Financial Data Schedule** _____________________ (1) Incorporated herein in its entirety by reference to the Company's Registration Statement on Form SB-2, Registration No. 333-9493, as filed with the Securities and Exchange Commission on August 2, 1996. (2) Incorporated herein in its entirety by reference to the Company's 1997 Annual Report on Form 10-KSB. (3) Incorporated herein in its entirety by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997. ** Filed herewith. Reports on Form 8-K: None during the fourth quarter. 16 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NAM CORPORATION Date: September 23, 1998 By: /s/ Roy Israel -------------------------------------------- Roy Israel, Chairman of the Board, CEO and President In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: September 23, 1998 By: /s/ Roy Israel -------------------------------------------- Roy Israel, Chairman of the Board, CEO and President Date: September 23, 1998 By: /s/ Patricia Giuliani-Rheaume -------------------------------------------- Patricia Giuliani-Rheaume, Vice President, Chief Financial Officer and Treasurer Date: September 23, 1998 By: /s/ Cynthia Sanders -------------------------------------------- Cynthia Sanders, Executive Vice President and Director Date: September 23, 1998 By: /s/ Daniel P. Jansen -------------------------------------------- Daniel P. Jansen, National Accounts Manager and Director Date: September 23, 1998 By: /s/ Michael I. Thaler -------------------------------------------- Michael I. Thaler, Director Date: September 23, 1998 By: /s/ Stephen H. Acunto -------------------------------------------- Stephen H. Acunto, Director Date: September 23, 1998 By: /s/ Anthony J. Mercorella -------------------------------------------- Anthony J. Mercorella, Director Date: September 23, 1998 By: /s/ Ronald Katz -------------------------------------------- Ronald Katz, Director 17 EX-3.2 2 EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF NAM CORPORATION ARTICLE I Stockholders ------------ SECTION 1. Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held on such date, at such time and at such place within or without the State of Delaware as may be designated by the Board of Directors, for the purpose of electing Directors and for the transaction of such other business as may be properly brought before the meeting. SECTION 2. Special Meetings. Special meetings of the stockholders for any purpose or purposes may be held at any time upon the call of the Chairman of the Board of Directors, the Chief Executive Officer ("CEO"), the President or a majority of the Board of Directors on such date, at such time and at such place within or without the State of Delaware as stated in the notice. A special meeting of stockholders shall be called by the CEO, the President or the Secretary upon the written request, stating time, place, and the purpose or purposes of the meeting, of stockholders who together own of record a majority of the outstanding stock of all classes entitled to vote at such meeting. SECTION 3. Notice of Meetings. Except as otherwise provided in these By-Laws or by law, a written notice of each meeting of the stockholders shall be given not less than ten (10) nor more than sixty (60) calendar days before the date of the meeting to each stockholder of the Corporation entitled to vote at such meeting at such stockholder's address as it appears on the records of the Corporation. The notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. SECTION 4. Adjourned Meetings. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the stockholders, or the holders of any class of stock entitled to vote separately as a class, as the case may be, may transact any business which might have been transacted by them at the original meeting. If the adjournment is for more than thirty (30) calendar days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. SECTION 5. Organization. The Chairman of the Board of Directors shall act as chairman of all meetings of the stockholders. In the absence of the Chairman of the Board of Directors, any director or officer designated by the Board of Directors or, in the absence of any such designation, any person designated by the holders of a majority in number of the shares of stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting shall act as chairman of the meeting. The Secretary of the Corporation shall act as secretary of all meetings of the stockholders, but, in the absence of the Secretary, the chairman of the meeting may appoint any person to act as secretary of the meeting. It shall be the duty of the Secretary to prepare and make, at least -2- ten (10) calendar days before every meeting of stockholders, a complete list of stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, for the ten (10) calendar days preceding the meeting, to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, and shall be produced and kept at the time and place of the meeting during the whole time thereof and subject to the inspection of any stockholder who may be present. SECTION 6. Voting. Except as otherwise provided in the Certificate of Incorporation or by law, each stockholder shall be entitled to one vote for each share of the capital stock of the Corporation registered in the name of such stockholder upon the books of the Corporation. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. When directed by the presiding officer or upon the demand of any stockholder, the vote upon any matter before a meeting of stockholders shall be by ballot. Except as otherwise provided by law or by the Certificate of Incorporation, (a) Directors shall be elected by a plurality of the votes cast at a meeting of stockholders by the stockholders entitled to vote in the election, and (b) whenever any corporate action other than the election of Directors is to be taken, it shall be authorized by a majority of the votes cast at a meeting of stockholders by the stockholders entitled to vote thereon. -3- Shares of the capital stock of the Corporation belonging to the Corporation shall neither be entitled to vote nor be counted for quorum purposes. SECTION 7. Procedure. At each meeting of stockholders, the chairman of the meeting shall determine the order of business and all other matters of procedure. Except to the extent inconsistent with any such rules and regulations as adopted by the Board of Directors, the chairman of the meeting may establish rules, which need not be in writing, to maintain order and safety and for the proper conduct of the meeting. Without limiting the foregoing, he or she may: (a) restrict attendance at any time to bona fide stockholders of record and their proxies and other persons in attendance; (b) restrict dissemination of solicitation materials and use of audio or visual recording devices at the meeting; (c) establish seating arrangements; (d) adjourn the meeting without a vote of the stockholders, whether or not there is a quorum present; and (e) make rules governing speeches and debate including time limits and access to microphones. The chairman of the meeting acts in his or her absolute discretion and his or her rulings are not subject to appeal. SECTION 8. Inspectors. The Board of Directors by resolution shall, in advance of any meeting of stockholders, appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, -4- agents or representatives of the Corporation, to act at the meeting and make a written report thereof. One or more persons may be designated by the Board as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by the General Corporation Law of the State of Delaware. SECTION 9. Action by Consent in Lieu of a Meeting. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of stockholders of such stockholders, may be taken without a meeting, without prior written notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. -5- ARTICLE II Board of Directors ------------------ SECTION 1. Number of Directors, Term of Office, Place of Meetings. The business, property, and affairs of the Corporation shall be managed by or under the direction of a Board of six (6) directors; provided, however, that the Board, by resolution adopted by vote of a majority of the then authorized number of directors, may increase or decrease the number of directors. The directors shall be elected by the holders of shares entitled to vote thereon at an annual meeting of stockholders, and each shall serve (subject to the provisions of Sections 10, 11, and 12 of this Article) until the next succeeding annual meeting of stockholders and until a respective successor has been elected and qualified. The Board of Directors may hold its meetings in such place or places within or without the State of Delaware as the Board of Directors from time to time shall determine. SECTION 2. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such times and places as the Board from time to time by resolution shall determine. SECTION 3. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman of the Board or by a majority of the Directors then in office. -6- Notice of the day, hour and place of holding of each special meeting shall be given (i) by mailing the same at least five (5) calendar days before the meeting or (ii) by causing the same to be transmitted by telecopier, telegraph, cable, overnight courier, or personal service (A) at least twenty-four (24) hours before the meeting or (B) in the case of a meeting held in accordance with Section 7 of this Article II, at least six (6) hours before the meeting, in each case to each Director. Unless otherwise indicated in the notice thereof, any and all business may be transacted at any special meeting without specification of such business in the notice. SECTION 4. Quorum. A majority of the members of the Board of Directors in office shall constitute a quorum for the transaction of business, and, except as otherwise provided in the Certificate of Incorporation, the vote of the majority of the Directors at any meeting of the Board of Directors at which a quorum is present shall be the act of the Board of Directors. If at any meeting of the Board there is less than a quorum present, a majority of those present may adjourn the meeting from time to time. SECTION 5. Organization. The Chairman of the Board shall be elected by a majority of the Board of Directors and shall serve until removed from such position by a majority of the Board of Directors. The Chairman of the Board shall preside at all meetings of the Board of Directors. In the absence of the Chairman, any person selected by a majority of the Board of Directors shall act as chairman of the meeting. The Secretary of the Corporation shall act as secretary of all meetings of the Directors, but, in the absence of the Secretary, the chairman of the meeting may appoint any person to act as secretary of the meeting. SECTION 6. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any -7- committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business, property, and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporation Law of Delaware to be submitted to stockholders for approval or (ii) adopting, amending or repealing any by-law of the corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee which may be established by the Board of Directors pursuant to these By-Laws may fix its own rules and procedures. Notice of meetings of committees, other than of regular meetings provided for by the rules, shall be given to committee members. All action taken by committees shall be recorded in minutes of the meetings. SECTION 7. Conference Telephone Meetings. Unless otherwise restricted by the Certificate of Incorporation or by these By-Laws, the members of the Board of Directors or any committee designated by the Board of Directors may -8- participate in a meeting of the Board of Directors or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. SECTION 8. Consent of Directors or Committee in Lieu of Meeting. Unless otherwise restricted by the Certificate of Incorporation or by these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee, as the case may be. SECTION 9. Compensation. For their services an Directors or as members of committees, every Director shall receive such compensation, attendance fees and other allowances as determined by resolution of the Board of Directors. SECTION 10. Resignations. Any director of the Corporation, or any member of any committee, may resign at any time by giving written notice to the Board of Directors, the CEO, the President, or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time be not specified therein, then upon receipt thereof. The acceptance of such resignation shall not be necessary to make it effective. SECTION 11. Removals. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares entitled at the time to vote at an election of directors. In addition, any Director may be removed, with or without cause, by a vote of the majority of the Board of Directors. -9- SECTION 12. Vacancies. Any vacancy on the Board of Directors through death, resignation, removal, disqualification, or other cause, and any additional directorship resulting from increase in the number of directors, may be filled at any time by a majority of the directors then in office (even though less than a quorum remains) or by the stockholders, and, subject to the provisions of this Article II, the person so chosen shall hold office until his successor shall have been elected and qualified or for the unexpired term of his predecessor. ARTICLE III Officers -------- SECTION 1. Officers. The officers of the Corporation shall be a CEO, President, one or more Vice Presidents, a Chief Financial Officer ("CFO"), a Secretary, and a Treasurer, and such additional officers, if any, as shall be elected by the Board of Directors pursuant to the provisions of Section 2 of this Article III. The CEO, the President, one or more Vice Presidents, the CFO, the Secretary and the Treasurer shall be elected by the Board of Directors at its first meeting after each annual meeting of the stockholders unless otherwise provided by contract or by the majority of the Board of Directors. The failure to hold such election shall not of itself terminate the term of office of any officer. All officers shall hold office at the pleasure of the Board of Directors. Any number of offices may be held by the same person. Officers may, but need not, be Directors. All officers shall be subject to removal, with or without cause, at any time by a vote of not less than a majority of the entire Board of Directors or by unanimous written consent of the Board of Directors. The removal of an officer without cause shall be without prejudice to his or -10- her contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. Any vacancy caused by the death of any officer, his or her resignation, his or her removal, or otherwise, may be filled by a majority of the Board of Directors, and any officer so elected shall hold office at the pleasure of the Board of Directors for the unexpired term of his predecessor (unless such term is determined by contract). The officers shall have such authority and shall perform such duties as from time to time may be determined by the Board of Directors, or the CEO or as shall be confirmed or required by law or these By-Laws or as shall be incidental to the office. SECTION 2. Additional Officers. The Board of Directors may from time to time elect such other officers (who may but need not be Directors), including Assistant Treasurers and Assistant Secretaries, as the Board may deem advisable, and such officers shall have such authority and shall perform such duties as may from time to time be assigned to them by the Board of Directors or the CEO or as shall be conferred or required by law or these By-Laws or as shall be incidental to the office. ARTICLE IV Stock, Seal and Fiscal Year --------------------------- SECTION 1. Transfer of Shares. Shares of stock, of the Corporation shall be transferred on the books of the Corporation by the record holder thereof, in person or by such holder's attorney duly authorized in writing, upon surrender and cancellation of certificates for the number of shares of stock to be transferred, except as otherwise required by law. -11- SECTION 2. Regulations. The Board of Directors, the CEO, the President or the Secretary shall have power and authority to make such rules and regulations as it or such officer may deem expedient concerning the issue, transfer, registration, cancellation or replacement of certificates for shares of stock of the Corporation. SECTION 3. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof (or to express consent to corporate action in writing in lieu of a meeting), or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, as the case may be, the Board of Directors may fix, in advance, a record date, which, unless otherwise provided by law, shall not be more than sixty (60) calendar days nor less than ten (10) calendar days before the date of such meeting, nor more than sixty (60) calendar days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. -12- SECTION 4. Dividends. Subject to the provisions of the Certificate of Incorporation, the Board of Directors shall have the power to declare and pay dividends upon shares of stock of the Corporation, but only out of funds available for the payment of dividends as provided by law. Subject to the provisions of the Certificate of Incorporation, any dividends declared upon the stock of the Corporation shall be payable on such date or dates as the Board of Directors shall determine. If the date fixed for the payment of any dividend shall in any year fall upon a legal holiday, then the dividend payable on such date shall be paid on the next day not a legal holiday. SECTION 5. Corporate Seal. The Corporation shall have a suitable seal, containing the name of the Corporation. The Secretary shall have custody of the seal, but he or she may authorize others to keep and use a duplicate seal. SECTION 6. Fiscal Year. The fiscal year of the Corporation shall be such fiscal year as the Board of Directors from time to time by resolution shall determine. SECTION 7. Lost Certificates. The Board of Directors or any transfer agent of the Corporation may direct a new certificate or certificates representing stock of the Corporation to be issued in place of any certificate or certificates theretofore issued by the Corporation, alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by -13- the person claiming the certificate to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors (or any transfer agent of the Corporation authorized to do so by a resolution of the Board of Directors) may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as the Board of Directors (or any transfer agent so authorized) shall direct to indemnify the Corporation against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed or the issuance of such new certificates, and such requirement may be general or confined to specific instances. ARTICLE V Miscellaneous Provisions ------------------------ SECTION 1. Waivers of Notice. Whenever any notice whatever is required to be given by law, by the Certificate of Incorporation or by these By-Laws to any person or persons, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. SECTION 2. Stock of Other Corporations or Other Interests. Unless otherwise ordered by the Board of Directors, the CEO, the President, the Secretary, and such attorneys or agents of the Corporation as may be from time to time authorized by the Board of Directors or the CEO, shall have full power -14- and authority on behalf of this Corporation to attend and to act and vote in person or by proxy at any meeting of the holders of securities of any corporation or other entity in which this Corporation may own or hold shares or other securities, and at such meetings shall possess and may exercise all the rights and powers incident to the ownership of such shares or other securities which this Corporation, as the owner or holder thereof, might have possessed and exercised if present. The CEO, the President, the Secretary, or such attorneys or agents, may also execute and deliver on behalf of this Corporation powers of attorney, proxies, consents, waivers, and other instruments relating to the shares or securities owned or held by this Corporation. ARTICLE VI Amendments ---------- SECTION 1. Amendments. The holders of shares entitled at the time to vote for the election of directors shall have power to adopt, amend, or repeal the By-Laws of the Corporation by vote of not less than a majority of such shares, and except as otherwise provided by law, the Board of Directors shall have power equal in all respects to that of the stockholders to adopt, amend, or repeal the By-Laws by vote of not less than a majority of the entire Board. However, any By-Law adopted by the Board may be amended or repealed by vote of the holders of a majority of the shares entitled at the time to vote for the -15- election of directors. Such power to adopt, amend or repeal the By-Laws conferred upon the Board of Directors shall not divest or limit the power of the stockholders to adopt, amend and repeal the By-Laws. Dated: December 17, 1997 /s/ Carla Israel ---------------------------------------- Carla Israel, Secretary -16- EX-10.1 3 EXHIBIT 10.1 NAM CORPORATION AMENDED AND RESTATED 1996 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN --------------------------------------- 1. Purpose The purpose of this Stock Option Plan (the "Plan") is to encourage and enable key employees (which term, as used herein, shall include officers), and directors, of NAM Corporation or a parent (if any) or subsidiary thereof (collectively, unless the context otherwise requires, the "Corporation"), consultants, and advisors to the Corporation, and other persons or entities providing goods or services to the Corporation to acquire a proprietary interest in the Corporation through the ownership of common stock of the Corporation. As used herein, the term "parent" or "subsidiary" shall mean any present or future corporation which is or would be a "parent corporation" or "subsidiary corporation" of the Corporation as the term is defined in section 424 of the Internal Revenue Code of 1986, as amended (the "Code") (determined as if the Corporation were the employer corporation). Such directors, consultants, advisors, and other persons or entities providing goods or services to the Corporation and entitled to receive options hereunder are hereinafter collectively referred to as the "Associates," and the relationship of the Associates to the Corporation is hereinafter referred to as "association with" the Corporation. An employee or Associate to whom an option has been granted is referred to as a "Grantee". Such ownership will provide such Grantees with a more direct stake in the future welfare of the Corporation and encourage them to remain employed by or associated with the Corporation. It is also expected that the Plan will encourage qualified persons to seek and accept employment or association with the Corporation. 2. Administration (a) The Plan shall be administered by the Board of Directors (the "Board"). (b) As it applies to the administration of the Plan, a majority of the members of the Board shall constitute a quorum, and the action of a majority of the members of the Board present at a meeting at which a quorum is present, as well as actions taken pursuant to the unanimous written consent of all of the members of the Board without holding a meeting, shall be deemed to be actions of the Board. All actions of the Board and all interpretations and decisions made by the Board with respect to any question arising under the Plan shall be final and conclusive and shall be binding upon the Corporation and all other interested parties. (c) Subject to the terms and conditions of the Plan, the Board shall be responsible for the overall management and administration of the Plan and shall have such authority as shall be necessary or appropriate in order to carry out its responsibilities, including, without limitation, the authority to (i) interpret and construe the Plan and to determine the terms of all options granted pursuant to the Plan, including, but not limited to, the persons to whom, and the time or times at which grants shall be made, the number of options to be included in the grants, the number of options which shall be treated as incentive stock options (in the case of options granted to employees) as described in section 422 of the Code, the number of options which do not qualify as incentive stock options ("nonqualified options"), and the terms and conditions thereof; (ii) to adopt rules and regulations and to prescribe forms for the operation and administration of the Plan; and (iii) to take any other action not inconsistent with the provisions of the Plan that it may deem necessary or appropriate. 3. Eligibility and Participation (a) Key employees and Associates are eligible to receive options. Each option shall be granted, and the number of shares and the vesting schedule of such shares subject thereto shall be determined by the Board. (b) Directors who are not officers of the Corporation shall receive, on an annual basis on the last trading day of each June starting June 1997, stock options for 1,000 shares of the Corporation's Common Stock, at an exercise price equal to the fair market value of the stock on the date of grant, and such options shall vest immediately upon grant. The fair market value shall be determined in accordance with Section 8 hereof. 4. Shares Subject to the Plan (a) Options shall be evidenced by written agreements which shall, among other things (i) designate the option as either an incentive stock option or a nonqualified stock option, (ii) specify the number of shares covered by the option; (iii) specify the exercise price, determined in accordance with paragraph 7 hereof, for the shares subject to the option; (iv) specify the option period determined in accordance with paragraph 6 hereof; (v) set forth specifically or incorporate by reference the applicable provisions of the Plan; and (vi) contain such other terms and conditions consistent with the Plan as the Board may, in its discretion, prescribe. -2- (b) The stock to be offered and delivered under the Plan, pursuant to the exercise of an option, shall be shares of the Corporation's authorized common stock and may be unissued shares or reacquired shares, as the Board may from time to time determine. Subject to adjustment as provided in paragraph 13 hereof, the aggregate number of shares to be delivered under the Plan shall not exceed seven hundred and fifty thousand (750,000) shares. If an option expires or terminates for any reason during the term of the Plan prior to the exercise thereof in full, the shares subject to but not delivered under such option shall be available for options thereafter granted. 5. Incentive Stock options (a) An option designated by the Board as an "incentive stock option" is intended to qualify as an "incentive stock option" within the meaning of section 422 of the Code. An incentive stock option shall be granted only to an employee of the Corporation. (b) No incentive stock option shall provide any person with a right to purchase shares to the extent that such right first becomes exercisable during a prescribed calendar year and the sum of (i) the fair market value (determined as of the date of grant) of the shares subject to such incentive stock option which first become available for purchase during such calendar year, plus (ii) the fair market value (determined as of the date of grant) of all shares subject to incentive stock options previously granted to such person under all plans of the Corporation first become available for purchase during such calendar year exceeds $100,000. (c) Without prior written notice to the Board, a Grantee may not dispose of shares acquired pursuant to the exercise of an incentive stock option until after the later of (i) the second anniversary of the date on which the incentive stock option was granted, or (ii) the first anniversary of the date on which the shares were acquired; provided, however, that a transfer to a trustee, receiver, or other fiduciary in any insolvency proceeding, as described in section 422(c)(3) of the Code, shall not be deemed to be such a disposition. The optionee shall make appropriate arrangements with the Corporation for any taxes which the Corporation is obligated to collect in connection with any disposition of shares acquired pursuant to the exercise of an incentive stock option, including any Federal, state or local withholding taxes. (d) Should Section 422 of the Code be amended during the term of the Plan, the Board may modify the Plan consistently with such amendment. -3- 6. Term of Option Period The term during which options may be granted under the Plan shall expire on April 1, 2006 and the option period during which each option may be exercised shall, subject to the provisions of paragraph 12 hereof, be during such period, expiring not later than the tenth anniversary (the fifth anniversary in the case of incentive stock options granted to a person who owns (within the meaning of section 424(d) of the Code) more than 10 percent of the total combined voting power of all classes of stock of the Corporation at the time such option is granted) of the date the option is granted, as may be determined by the Board. 7. Option Price The price at which shares may be purchased upon exercise of a particular option shall be such price as may be fixed by the Board but in no event less than the minimum required in order to comply with any applicable law, rule or regulation and, in the case of incentive stock options, shall not be less than 100 percent, or in the case of incentive stock options granted to an optionee who is a 10 percent stockholder (within the meaning of paragraph 6 hereof), shall not be less than 110 percent, of the fair market value (as defined in paragraph 8) of such shares on the date such option is granted. 8. Stock as Form of Exercise Payment At the discretion of the Board, a Grantee who owns shares of the Corporation's common stock may elect to use such shares, with the value thereof to be determined as the fair market value of such shares on the day prior to the date of exercise of the option, to pay all or part of the option price required under the Plan. As used herein, fair market value shall be deemed to be the closing price on such day of the Corporation's common stock if the Corporation's common stock is then traded on a national securities exchange or the closing bid price on such day of the Corporation's common stock, if such stock is traded on the NASDAQ National Market System or Small-Cap Market System or, if not so traded, the average of the closing bid and asked prices thereof on such day. 9. Exercise of Options (a) Each option granted shall be exercisable in whole or in part at any time, or from time to time, during the option period as the Board may provide in the terms of such option; provided that the election to exercise an option shall be made in accordance with applicable federal and state laws and regulations. (b) No option may at any time be exercised with respect to a fractional share. (c) No shares shall be delivered pursuant to the exercise of any option, in whole or in part, until qualified for delivery under such securities laws and regulations as may be deemed by the Board to be applicable thereto, until such shares are listed on each securities exchange on which the Corporation's common stock may then be listed, until, in the case of the exercise of an option, payment in full of the option price is received by the Corporation in cash or stock as provided in paragraph 8 and until payment in -4- cash of any applicable withholding taxes is received by the Corporation. Unless prior to the exercise of the option the shares of the Corporation's common stock issuable upon such exercise have been registered with the Securities and Exchange Commission pursuant to the Securities Act of 1933, the notice of exercise shall be accompanied by a representation or agreement of the individual exercising the option to the Corporation to the effect that such shares are being acquired for investment and not with a view to the resale or distribution thereof or such other documentation as may be required by the Corporation unless in the opinion of counsel to the Corporation such representation, agreement, or documentation is not necessary to comply with said Act. No holder of an option, or such holder's legal representative, legatee, or distributee shall be or be deemed to be a holder of any shares subject to such option unless and until a certificate or certificates therefor is issued in his name. 10. Acceleration of Vesting (a) An option shall automatically be vested and immediately exercisable in full upon the occurrence of any of the following events: (i) Any person within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, other than the Corporation, has become the beneficial owner, within the meaning of Rule 13d-3 under such Act, of 30 percent or more of the combined voting power of the Corporation's then outstanding voting securities, unless such ownership by such person has been approved by the Board immediately prior to the acquisition of such securities by such person; (ii) The first day on which shares of the Corporation's common stock are purchased pursuant to a tender offer or exchange offer, unless such offer is made by the corporation or unless such officer has been approved or not opposed by the Board; (iii) The stockholders of the Corporation have approved an agreement to merge or consolidate with or into another corporation (and the Corporation is not the survivor of such merger or consolidation) or an agreement to sell or otherwise dispose of all or substantially all of the Corporation's assets (including a plan of liquidation), unless the Board has resolved that options shall not automatically vest; or (iv) During any period of two consecutive years, individuals who at the beginning of such period constitute the Board of the Corporation cease for any reason to constitute at least a majority thereof, unless the election or the nomination for the election by the Corporation's stockholders of each new director was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period. -5- (b) Other than upon the occurrence of any of the events described in paragraph 10(a), the Board shall have the authority at any time or from time to time to accelerate the vesting of any individual option and to permit any stock option not theretofore exercisable to become immediately exercisable. 11. Transfer of Options Options granted under the Plan may not be transferred except by will or the laws of descent and distribution and, during the lifetime of the Grantee to whom granted, may be exercised only by such or by such Grantee's guardian or legal representative. 12. Termination of Employment (a) Except as specifically provided in this paragraph 12, if the Grantee's employment or association with the Corporation shall terminate for any reason before the Option has vested in full, then the unvested portion of the Option shall automatically terminate on the date of termination of employment or association and all rights and interests of the Grantee in and to such unvested portion shall thereupon terminate. (b) After the date on which an incentive stock option vests, if the Grantee's employment by the Corporation is terminated for any reason, the incentive stock option shall be exercisable for the lesser of (i) three (3) months from the date of such termination of employment or (ii) the balance of such incentive stock option's term; provided, however, that in the event that the termination is as a result of the death or disability (within the meaning of section 22(e)(3) of the Code) of the Grantee, the incentive stock options held by such Grantee which were otherwise exercisable on the date of his termination of employment shall expire unless exercised by such Grantee, or, in the case of the death of a Grantee, by his heirs, legatees, or personal representatives, within a period of twelve (12) months after the date of termination of employment. In no event, however, shall any incentive stock option be exercisable after ten years from the date it was granted. Nothing in the Plan or in any option shall confer upon any Grantee the right to continue in the employ of the Corporation or interfere in any way with the right of the Corporation to terminate the employment of a Grantee at any time. The Board's determination that a Grantee's employment has terminated and the date thereof shall be final and conclusive on all persons affected thereby. (c) The Board may, if it determines that to do so would be in the Corporation's best interests, provide in a specific case or cases for the exercise of options which would otherwise terminate upon termination of employment with the Corporation for any reason, upon such terms and conditions as the Board determines to be appropriate. -6- (d) In the case of a Grantee on an approved leave of absence, the Board may, if it determines that to do so would be in the best interests of the Corporation, provide in a specific case for continuation of options during such leave of absence, such continuation to be on such terms and conditions as the Board determines to be appropriate. Leaves of absence for such period and purposes conforming to the personnel policy of the Corporation as may be approved by the Board shall not be deemed terminations or interruptions of employment. 13. Adjustments Upon Changes in Capitalization (a) If the Corporation's outstanding common stock is hereafter changed by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination, or exchange of shares or the like, or dividends payable in shares of the Corporation's common stock, an appropriate adjustment shall be made by the Board in the aggregate number of shares available under the Plan and in the number of shares and price per share subject to outstanding options. If the Corporation shall be reorganized, consolidated, or merged with another corporation, or if all or substantially all of the assets of the Corporation shall be sold or exchanged, the holder of an option shall, after the occurrence of such a corporate event, be entitled to receive upon the exercise of his option the same number and kind of shares of stock or the same amount of property, cash, or securities as he would have been entitled to receive upon the happening of any such corporate event as if he had exercised such option and had been, immediately prior to such event, the holder of the number of shares covered by such option. All adjustments made pursuant to this paragraph to the terms or conditions of an incentive stock option shall be subject to the requirements of section 424 of the Code. (b) Any adjustment in the number of shares shall apply proportionately to only the unexercised portion of any option granted hereunder. If fractions of a share would result from any such adjustment, the adjustment shall be revised to the next higher whole number of shares. 14. Termination, Modification, and Amendment (a) The Plan shall terminate on April 1, 2006, which is 10 years from the earlier of the date of its adoption by the Board or the date on which the Plan is approved by the stockholders of the Corporation and no option shall be granted after termination of the Plan. -7- (b) The Plan may from time to time be terminated, modified, or amended by the affirmative vote of a majority of the votes cast at a duly held stockholders' meeting at which a quorum representing a majority of all outstanding voting stock is, either in person or by proxy, present and voting on the plan, or pursuant to any other procedure allowed under applicable state law. (c) The Board may at any time terminate the Plan or from time to time make such modifications or amendments of the Plan as it may deem advisable including, without limitation, modifications to reflect changes in applicable law; provided, however, that the Board of Directors shall not (i) modify or amend the Plan in any way that would disqualify any incentive stock option issued pursuant to the Plan as an incentive stock option as defined in section 422 of the Code or (ii) without approval by the affirmative vote of a majority of the votes cast at a duly held stockholders' meeting at which a quorum representing a majority of all outstanding voting stock is, either in person or by proxy, present and voting on the plan, or pursuant to any other procedure allowed under applicable state law, increase (except as provided by paragraph 14) the maximum number of shares as to which options may be granted under the Plan. (d) No termination, modification, or amendment of the Plan, may, without the consent of the Grantee, adversely affect the rights conferred by such option. 15. Effective Date The Plan became effective on April 1, 1996 upon the adoption by the Board subject to the approval by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation which occurred on May 29, 1996. All options granted prior to the date of such stockholder approval shall be subject to such approval. -8- EX-10.2.1 4 EXHIBIT 10.2.1 AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN NAM CORPORATION AND ROY ISRAEL -------------------------------------- THIS AMENDMENT AGREEMENT (the "Amendment"), dated as of August 19, 1998, is by and between NAM CORPORATION (the "Company") and ROY ISRAEL ("Executive"). WHEREAS, the parties had entered into an employment agreement dated as of October 21, 1997 (the "Employment Agreement"); and WHEREAS, the parties now desire to amend the Employment Agreement as provided for herein. NOW, THEREFORE, in consideration of the mutual premises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Subsection (a) of Paragraph 3 of the Employment Agreement is deleted and replaced with the following: (a) Base Salary. The Company shall pay to the Executive a minimum annual base salary of $225,000 (the "Base Salary") for the first year of the Initial Term. Effective on each anniversary of the Commencement Date during the Employment Term, the Base Salary shall be increased in an amount which is the greater of (i) six percent (6%) per annum or (ii) such amount which reflects an increase in the Urban Consumer Price Index for all Urban Consumers for the New York metropolitan area (or any successor Consumer Price Index), based on data published by the Bureau of Labor Statistics of the United States Department of Labor for the period that corresponds with the preceding twelve month period. Such Base Salary shall be paid in accordance with Company policy. 2. This Amendment is effective as of June 30, 1998. In addition, the Company shall immediately pay all sums owed to the Executive due to the retroactive application of this change. 3. All other terms of the Employment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above. NAM CORPORATION By: /s/ Patricia Giuliani-Rheaume /s/ Roy Israel ------------------------------------- --------------------------- Name: Patricia Giuliani-Rheaume Roy Israel Title: Vice President and Chief Financial Officer EX-10.3 5 EXHIBIT 10.3 EMPLOYMENT AGREEMENT THIS AGREEMENT (the "Agreement"), dated as of June 15, 1998, by and between Cynthia Sanders (the "Executive") and NAM Corporation, a Delaware corporation (the "Company"). W I T N E S S E T H : WHEREAS, the Executive has an Employment Agreement with the Company; and WHEREAS, it is important to the Company that it continues to have the benefits of the Executive's services, experience and loyalty, and Executive has indicated her willingness to continue to provide her services on the terms and conditions set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties, subject to the terms and conditions set forth below, intending to be legally bound, hereto agree as follows: 1. Employment. (a) General. The Company hereby employs the Executive and the Executive agrees upon the terms and conditions herein set forth to serve as Executive Vice President of the Company. The Executive shall devote all of her efforts to the Company and will work at the Company's New York office and travel as required. (b) Duties. Executive shall be employed by the Company. The duties of the Executive as Executive Vice President shall include primary responsibility for the staffing and performance of the Company's offices and such other responsibilities as the Chief Executive Officer (the "CEO") of the Company may reasonably delegate to the Executive. The Executive shall report to the CEO and the CEO may alter the duties of the Executive as necessary for the benefit of the Company. (c) All prior agreements between the Company and the Executive are terminated and are superceded by this Agreement. 1. Term of Employment. The Company hereby employs the Executive and the Executive shall serve in the employ of the Company for a period commencing on June 15, 1998 and extending through and including June 14, 2001 (the "Employment Term"). This Agreement shall automatically renew for additional terms of one (1) year unless terminated on sixty (60) days written notice prior to the end of any Employment Term given by either party. The term Employment Term shall include all renewal periods under this Agreement. 2. Compensation and Other Benefits. The Company shall pay and provide the following compensation and other benefits to the Executive during the Employment Term: (a) Base Salary. The Company shall pay to the Executive a minimum annual base salary of $125,000 (the "Base Salary") for the first year of this Agreement. The Base Salary shall increase by five percent (5%) on June 15 of each succeeding year of this Agreement. Such Base Salary shall be paid every two (2) weeks to the Executive. -2- (b) Fringe Benefits. The Executive shall be entitled to receive fifteen (15) days paid vacation for each twelve (12) month period (the "Vacation Time") during the Employment Term. The Executive shall receive $400 a month towards the lease and operation of an automobile. The Executive shall also receive a life insurance policy of $250,000. Further, the Executive shall not contribute toward her full family health insurance coverage. In addition, the Executive during the Employment Term shall participate in all present or future employee benefit plans of the Company that she meet the eligibility requirements therefore. (c) Business Expenses. During the Employment Term, the Company shall promptly reimburse the Executive for all ordinary and necessary travel expenses, business expenses, and other disbursements incurred by her for or on behalf of the Company, in the performance of her duties hereunder subject to the approval of the CEO of the Company. (d) Bonus. The Executive is eligible to receive an annual bonus at the discretion of the Company's Chief Executive Officer. 3. Representations and Warranties of Employee. Executive represents and warrants to the Company that the: (a) Executive is under no contractual or other restriction or obligation which is inconsistent with the execution of this Agreement, the performance of her duties hereunder, or the other rights of the Company hereunder; and (b) Executive is under no physical or mental disability that would hinder her performance of duties under this Agreement. -3- 4. Non-Competition. Executive agrees that she will not (a) during the period she is employed under this Agreement engage in, or otherwise directly or indirectly be employed by, or act as a consultant or lender to, or be a director, officer, employee, owner, member, or partner of, any other business or organization that is or shall then be competing with the Company, and (b) for a period of one year after she ceases to be employed by the Company under this Agreement, directly or indirectly compete with or be engaged in the same business as the Company, or be employed by, or act as consultant or lender to, or be a director, officer, employee, owner, member, or partner of, any business or organization which, at the time of such cessation, competes with or is engaged in the same business as the Company. 5. Patents; Copyrights. Any interest in patents, patent applications, inventions, copyrights, developments, and processes ("Such Inventions") which Executive now or hereafter during the period she is employed by the Company under this Agreement may own or develop relating to the fields in which the Company may then be engaged shall belong to the Company; and forthwith upon request of the Company, Executive shall execute all such assignments and other documents and take all such other action as the Company may reasonably request in order to vest in the Company all her right, title, and interest in and to Such Inventions, free and clear of all liens, charges, and encumbrances. 6. Confidential Information. All confidential information which Executive may now possess, may obtain during the Employment Term, or may create prior to the end of the period she is employed by the Company under this Agreement, relating to the business of the Company or of any customer or supplier of the Company shall not be published, disclosed, or made accessible by her to any other person, firm, or corporation during the Employment Term or any time thereafter without the prior written consent of the Company. Executive shall return all tangible evidence of such confidential information to the Company prior to or at the termination of her employment and will attend an exit interview at such time. -4- 7. Termination. (a) Notwithstanding anything herein contained, if on or after the date hereof and prior to the end of the Employment Term, Executive is terminated "For Cause" (as defined below) then the Company shall have the right to give notice of termination of Employee's services hereunder as of a date to be specified in such notice, and this Agreement shall terminate on the date so specified. Termination "For Cause" shall mean Executive shall (i) be convicted of a felony crime, (ii) commit any act or omit to take any action in bad faith and to the detriment of the Company, (iii) commit an act of moral turpitude, (iv) commit an act of fraud against the Company, or (v) materially breach any term of this Agreement and fail to correct such breach within ten days after commission thereof. (b) In the event that Executive shall be physically or mentally incapacitated or disabled or otherwise unable fully to discharge her duties hereunder for a period of six months, then this Agreement shall terminate upon 90 days' written notice to Executive, and no further compensation shall be payable to Executive, except as may otherwise be provided under any disability insurance policy. -5- (c) In the event that Executive shall die, then this Agreement shall terminate on the date of Executive's death, and no further compensation shall be payable to Executive, except as may otherwise be provided under any insurance policy or similar instrument. (d) In the event that this Agreement is terminated "For Cause" pursuant to Section 8(a), then Executive shall be entitled to receive only her salary at the rate provided in Section 3 to the date on which termination shall take effect. Further, Executive shall immediately resign from the Board of Directors. (e) Nothing contained in this Section 8 shall be deemed to limit any other right the Company may have to terminate Employee's employment hereunder upon any ground permitted by law. 8. Merger, Etc. (a) In the event of a future disposition of the properties and business of the Company, substantially as an entirety, by merger, consolidation, sale of assets, sale of stock, or otherwise, then the Company may elect to assign this Agreement and all of its rights and obligations hereunder to the acquiring or surviving corporation. 9. Survival. The covenants, agreements, representations, and warranties contained in or made pursuant to this Agreement shall survive Executive's termination of employment, irrespective of any investigation made by or on behalf of any party. -6- 10. Amendment; Waiver. This Agreement may not be modified, amended or waived in any manner except by an instrument in writing signed by all the parties hereto. Failure to exercise any rights hereunder shall not constitute a waiver of such rights. 11. Governing Law. All matters affecting or in connection with this Agreement, the employment of the Executive or the termination or resignation of the Executive, are to be governed by, interpreted and construed in accordance with the laws of the State of New York without giving effect to the state's conflict of law principles. Any state or federal court sitting in New York City shall have exclusive venue and jurisdiction regarding any matter arising hereunder. 12. Notices. Any notice or consent hereunder by either party to the other shall be given in writing and shall be deemed to be delivered the same day if delivered by personal delivery or five (5) days from the date if mailed by certified mail, return receipt requested addresses as follows: If to the Executive: Cynthia Sanders 400 East 77th Street, Apt. 9E New York, New York 10021 If to the Company: NAM Corporation 1010 Northern Boulevard Suite 336 Great Neck, New York 11021 Attn.: CEO -7- 13. Severability. Each provision hereof is intended to be severable, and the invalidity of any portion of this Agreement shall not affect the validity or legality of the remainder hereof. 14. Counterparts. This Agreement may be executed by the parties hereto in counterpart, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 15. Headings. The headings of paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 16. Successors and Assigns. This Agreement shall be binding upon any successor or assign of the Company. 17. Arbitration. The parties agree that in the event of any dispute or controversy arising out of or in connection with this Agreement or any alleged breach thereof (a "Dispute"), the parties shall submit the Dispute for arbitration in New York City before three (3) arbitrators; one arbitrator shall be chosen by the Executive, one arbitrator by the Company and the third by the two other arbitrators. If any party fails to choose its arbitrator within thirty (30) days after a request is made to designate an arbitrator, then that party waives its right to choose an arbitrator and the arbitration shall immediately go forward before the one arbitrator chosen by the non-breaching party. The decision of the arbitrators will be final and binding upon the parties, and the judgment of a court of competent jurisdiction may be entered thereon. Fees of the arbitrators and the cost of arbitration shall be borne as determined by the arbitrators. -8- IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first written above. NAM CORPORATION By: /s/ Roy Israel /s/ Cynthia Sanders ---------------------------------- ------------------------------- Name: ROY ISRAEL CYNTHIA SANDERS Title: CEO -9- EX-10.6 6 EXHIBIT 10.6 AGREEMENT THIS AGREEMENT (the "Agreement") is being made as of this 11th day of May, 1998, between NAM Corporation, a Delaware corporation, with offices at 1010 Northern Boulevard, Suite 336, Great Neck, New York 11021 (the "Company"), and Rina Bloch, an individual residing at 70 Wicks Path, Commack, New York 11725 (the "Employee"). W I T N E S S E T H : WHEREAS, the Employee has expertise in providing the services sought by the Company; and WHEREAS, the Company desires to employ the Employee during the term of this Agreement, and Employee is willing to be employed subject to the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the mutual premises and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows: 1. Engagement and Duties. During the term of this Agreement, the Company shall employ Employee and Employee agrees to be employed by the Company as Vice President of Marketing and to devote her full time and efforts in performing the services requested by the Company. The Employee shall at all times serve at the direction of the Chief Executive Officer. 2. Term. This Agreement shall commence on July 20, 1998 and shall continue until July 20, 2001 (the "Initial Term"). This Agreement shall automatically renew for an additional one (1) year (the "First Renewal Term") period unless the Company or the Employee gives notice of termination at least forty-five (45) days prior to the end of the Initial Term. Thereafter, this Agreement shall automatically renew for additional one (1) year periods (the "Successive Renewal Term") unless the Company or Employee gives notice of termination at least forty-five (45) days prior to the end of the First Renewal Term or any Successive Renewal Term thereafter. 3. Compensation. As compensation for her services hereunder, the Company shall pay Employee a base salary of $92,000 per annum ("Base Salary") which shall be payable in equal bi-weekly installments. In addition, Employee shall receive from the Company the following: (a) Employee shall be entitled to receive an annual bonus at the discretion of the Chief Executive Officer which will be paid in accordance with the policies of the Company; (b) The Base Salary shall be increased each year of only the Initial Term by of 5% beginning in July 1999. Thereafter, all increases to the Base Salary will be at the discretion of the Chief Executive Officer. (c) Employee shall receive $400 a month toward the lease and operation of an automobile. (d) Upon execution of the Agreement, the Employee shall be granted options to purchase 20,000 shares of Common Stock (the "Options") with an exercise price equal to the closing bid price on the date of this Agreement as reported by the NASDAQ Small Cap Market. The Options shall vest as follows: (i) 1/3 on July 20, 1999, (ii) 1/3 on July 20, 2000, and (iii) 1/3 on July 20, 2001, as long as the Employee is employed by the Company on each date pursuant to this Agreement. If the Employee is not employed by the Company on such dates, then the Employee will have no rights or interests to the non-vested portions of the Options. The Options shall be for 8 years from the date hereof and shall be subject to the terms and conditions of the Company's 1996 Stock Option Plan and memorialized in a stock option certificate to be issued by the Company. Employee shall also be eligible to receive additional options under the Plan at the discretion of the Board of Directors. -2- 4. Benefits/Vacation. Employee shall be entitled to participate in all benefit programs offered by the Company subject to the terms and conditions of such programs. 5. Expenses. Employee shall be entitled to reimbursement of reasonable expenses incurred on behalf of the Company. At the end of each month, Employee shall submit an itemized expense report with each expense documented by appropriate receipts. Reimbursement of an expense shall be at the sole discretion of the Company and Employee shall receive reimbursement in accordance with Company policy. 6. Employee's Representations. Employee hereby represents and warrants that she has full power and authority to enter into this contract and that she has no obligation, contractual or otherwise, (i) to provide services to any entity or person besides the Company; or (ii) that would conflict with her obligations to the Company under this Agreement. 7. Inability to Work/Death. (a) If Employee is mentally or physically unable to perform his duties under this Agreement for a period of ninety (90) days then the Company may terminate this Agreement upon ten (10) days notice and the Company shall be liable to Employee only for the amount of Base Salary owed through the date of termination as set forth in the notice. -3- (b) If Employee dies during the term of this Agreement, this Agreement shall terminate on the date of her death and the Company shall be liable to Employee only for the amount of Base Salary owed through such date. 8. Termination. (a) Notwithstanding anything herein contained, if on or after the date hereof and prior to the end of the term of this Agreement, Employee is terminated "For Cause" (as defined below) then the Company shall have the right to give notice of termination of Employee's services hereunder as of a date to be specified in such notice, and this Agreement shall terminate on the date so specified. Termination "For Cause" shall mean Employee shall: (i) be convicted of a felony crime, (ii) commit any act or omit to take any action in bad faith and to the detriment of the Company, (iii) commit an act of moral turpitude, (iv) commit an act of fraud against the Company, or (v) materially breach any term of this Agreement and fail to correct such breach within five (5) days after commission thereof. If Employee is terminated pursuant to this subsection then the Company shall be liable to Employee only for the amount of Base Salary owed through the date of termination as set forth in the notice. (b) Notwithstanding anything herein contained, the Employee may be terminated "Without Cause" upon notice from the Company. -4- 9. Confidentiality. In order to induce the Company to enter into this Agreement, Employee hereby agrees that, except with the written consent of the Company, Employee shall keep confidential and not divulge to any person that is not affiliated with the Company, during the term of this Agreement or any time thereafter, any of the Company's confidential information and business secrets, including, without limitation, confidential information and business secrets relating to such matters as the Company's finances and operations, the materials, processes, and procedures used in the Company's operations, the names of the Company's clients and their requirements, and the names of the Company's suppliers. All papers, books, and records of every description, including, without limitation, handbooks, manuals, client lists, computer software, programs, modules, or source codes, as well as all reproductions thereof, relating to the business and affairs of the Company, its clients or suppliers, whether or not prepared by Employee, shall be the sole and exclusive property of the Company. Employee shall surrender all tangible evidence of such information to the Company at the termination of this Agreement or at any time during the term of this Agreement upon request by the Company. 10. Non-Compete. In consideration of the compensation to be received by Employee from the Company, Employee shall not: (a) during the period Employee is employed with the Company, engage in, or otherwise directly or indirectly be employed by, or act as a consultant or lender to, or be a director, officer, employee, owner, member or partner of, any business or organization that is or shall then be competing with the Company; and (b) for a period of one (1) year after the termination of this Agreement, directly or indirectly, (i) market or provide any competitive services to, or solicit any business from, any clients of the Company; or (ii) solicit, contact, or employ or offer to employ any person who is employed by the Company at the time that Employee ceases being employed by the Company or any person hired by the Company after such time. If any restriction contained in this section shall be deemed invalid, illegal, or unenforceable by reason of the extent, duration, or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope or other provision hereof to the fullest extent allowed by law, and in its reduced form such restriction shall then be enforceable in the manner contemplated hereby. -5- 11. Arbitration. The parties agree that in the event of any dispute or controversy arising out of or in connection with this Agreement, or any alleged breach thereof, (a "Dispute"), the parties shall arbitrate the Dispute before three arbitrators with the arbitration to be held in New York City under the rules promulgated by NAM Corporation. The Company and the Employee shall each choose 1 arbitrator and then the 2 arbitrators chosen shall jointly choose the 3rd arbitrator. The parties shall have 10 business days from receipt of a demand for arbitration in which to choose an arbitrator. If a party fails to choose an arbitrator within such time period then the arbitrator chosen by the non-defaulting party shall choose an arbitrator and the arbitration shall proceed before only 2 arbitrators. Nothing in this Agreement shall prevent the Company or the Employee from seeking appropriate injunctive relief in aid of arbitration to enforce any provision of this Agreement from a federal or state court located in New York, and the parties irrevocably and unconditionally consent to the exclusive jurisdiction of such courts in New York solely for any such injunctive action. The decision of the arbitrators will be final and binding upon the parties, and the judgment of a court of competent jurisdiction may be entered thereon. Fees of the arbitrator and the cost of arbitration shall be borne as determined by the arbitrators. -6- 12. Modification. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, and may be modified only by a written instrument duly executed by each party. 13. Notices. All notices, requests, demands, and other communications hereunder must be in writing and shall be deemed to have been duly given if delivered by hand, mailed within the continental United States by first class, certified mail, return receipt requested, postage and registry fees prepaid, or sent by Federal Express or any other nationally recognized overnight courier, or sent by telecopy or facsimile transmission (with receipt confirmed), to the applicable party and addressed to the addresses set forth in the preamble. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof. Any notice or other communication given by overnight courier shall be deemed given one day after delivery to such courier. Any notice or other communication sent by telecopy or facsimile transmission shall be deemed given at the time of confirmation of receipt. 14. Waiver. Any waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing. -7- 15. Merger. In the event of a future disposition of the properties and business of the Company, substantially as an entirety, by merger, consolidation, sale of assets, sale of stock, or otherwise, then the Company may elect to assign this Agreement and all of its rights and obligations hereunder to the acquiring or surviving corporation. 16. Binding Effect. Employee's rights and obligations under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to encumbrance or the claims of Employee's creditors, and any attempt to do any of the foregoing shall be void. The provisions of this Agreement shall be binding upon and inure to the benefit of Employee and his heirs and personal representatives, and shall be binding upon and inure to the benefit of the Company and its successors and those who are its assigns. 17. Headings. The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 18. Miscellaneous. (a) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (b) It shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the rules governing conflicts of laws. -8- (c) Employee irrevocably consents to the jurisdiction of the courts of the State of New York and of all federal courts located in such state in connection with any action or proceeding arising out of or relating to this Agreement or the breach thereof. In any such action or proceeding, Employee waives personal service of any summons, complaint, or other process and agrees that service thereof may be made in accordance with Section 14 hereof. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above. NAM CORPORATION /s/ Rina Bloch By: /s/ Roy Israel - --------------------------- --------------------------- Rina Bloch Name: Roy Israel Title: CEO EX-21.1 7 LIST OF SUBSIDIARIES NAM CORPORATION LIST OF SUBSIDIARIES Exhibit 21.1 Percentage Owned Jurisdiction of Name By Company Incorporation - ---- ---------------- --------------- National Arbitration & Mediation, Inc. 100% New York National Video Conferencing, Inc. 100% Delaware Michael Marketing, Inc. 100% Delaware NAMSYS Corporation 100% Delaware EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDING JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JUN-30-1998 JUN-30-1998 1,417 1,951 475 90 0 3,816 477 228 4,110 756 0 0 0 3 3,351 4,110 3,848 3,848 969 4,992 0 0 0 (629) 0 (629) 0 0 0 (629) (0.19) (0.19)
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