-----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, MhfaYNFV/dXdc1OtrCqxGFKiY6hX2AjXnWzyybgs8YOw0H4XzcvbmhNO//kGmWGK gDXsAMUXWY+nkDsuVr8kMw== 0000950116-00-000645.txt : 20000329 0000950116-00-000645.hdr.sgml : 20000329 ACCESSION NUMBER: 0000950116-00-000645 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20000328 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: SB-2 SEC ACT: SEC FILE NUMBER: 333-33420 FILM NUMBER: 581304 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 SB-2 1 As filed with the Securities and Exchange Commission on March 27, 2000 Registration No. 333- ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------------- NAM CORPORATION (Name of Small Business Issuer in its Charter))
Delaware 8111 23-2753988 ------------------ ---------------------- -------------- (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
1010 Northern Boulevard, Suite 336 Great Neck, New York 11021 (516) 829-4343 ---------------------------------- (Address and telephone number of principal executive offices and principal place of business or intended principal place of business) Roy Israel Chief Executive Officer NAM Corporation 1010 Northern Boulevard, Suite 336 Great Neck, New York 11021 (516) 829-4343 ---------------------------------- (Name, address and telephone number of agent for service) Copies of all communications to: Robert S. Matlin, Esq. Eric M. Roth, Esq. Camhy Karlinsky & Stein LLP 1740 Broadway, Sixteenth Floor New York, New York 10019-4315 (212) 977-6600 Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please check the following box. [x] CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------- Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of To Be Registered Registered Offering Price Per Aggregate Offering Registration Share Price Fee - -------------------------------------------------------------------------------------------------------------------- Common stock underlying certain 1,610,000 7.56(1) 12,171,600 3,213 Redeemable Warrants - -------------------------------------------------------------------------------------------------------------------- Common stock underlying 130,876 7.56(1) 989,423 261 certain Unit Purchase Warrants (2) - -------------------------------------------------------------------------------------------------------------------- Redeemable Warrants underlying 130,876 2.56(4) 335,043 88 Such Warrants (3) - -------------------------------------------------------------------------------------------------------------------- Common stock underlying the Redeemable 130,876 7.56(1) 989,423 261 Warrants included in such Warrants - -------------------------------------------------------------------------------------------------------------------- Common stock underlying the Equity 1,850,000 7.56(1) 13,986,000 3,692 Line of Credit - -------------------------------------------------------------------------------------------------------------------- Common stock underlying the Series A 500,000 7.56(1) 3,780,000 998 Exchangeable Preferred Stock (5) - -------------------------------------------------------------------------------------------------------------------- Common stock underlying warrants 46,250 7.56(1) 349,650 92 granted on the Series A Exchangeable Preferred Stock (5) - -------------------------------------------------------------------------------------------------------------------- Common stock underlying warrants 60,000 7.56(1) 453,600 120 granted on the Equity Line of Credit - -------------------------------------------------------------------------------------------------------------------- Common stock granted to placement 10,000 7.56(1) 75,600 20 agent in connection with the Series A Exchangeable Preferred Stock and the Equity Line of Credit - -------------------------------------------------------------------------------------------------------------------- Total 4,468,878 33,130,339 8,746 - --------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Securities Act of 1933, as amended (the 'Act'), based on the average of the high and low prices of the common stock on March 15, 2000, which was $7.56. (2) Represents shares which may be acquired by the Selling Securityholders upon exercise of certain Unit Warrants and resold pursuant to the Selling Securityholder Prospectus included in this Registration Statement. (3) Represents warrants which may be acquired by the Selling Securityholders upon exercise of the Unit Warrants and resold pursuant to the Selling Securityholder Prospectus included in this Registration Statement. (4) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Act, based on the average of the high and low prices of the Warrants on March 15, 2000, which was $2.56. (5) Series A Exchangeable Preferred Stock and warrants sold in connection with Series A Exchangeable Preferred Stock are subject to certain anti-dilution provisions. Pursuant to Rule 416, this registration statement shall also be deemed to register an indeterminate number of additional shares which may become issuable upon exercise of such Series A Exchangeable Preferred Stock and warrants as a result of any further adjustments pursuant to the anti-dilution provisions of the Series A Exchangeable Preferred Stock and warrant agreements. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. SUBJECT TO COMPLETION, DATED March 27, 2000 PROSPECTUS NAM CORPORATION 4,338,002 Shares of common stock 130,876 Redeemable Warrants to purchase common stock This prospectus is part of a registration statement that covers the issuance of up to (i) 1,610,000 shares of our common stock which is issuable by us upon the exercise of our publicly traded Redeemable Warrants which were issued as part of units in our initial public offering in November 1996, (ii) 130,876 shares of our common stock issuable by us upon the exercise of a warrant owned by Joseph Stevens & Company, the managing underwriter of such public offering, and one of its affiliates, (iii) 130,876 Redeemable Warrants issuable by us to Joseph Stevens & Company and one of its affiliates upon exercise of such warrant, (iv) the 130,876 shares of our common stock issuable by us upon exercise of the Redeemable Warrants issuable upon exercise of such warrant, and (v) 1,850,000 shares of our common stock issuable by us upon exercise from time to time of an Equity Line of Credit established for us by Moldbury Holdings Limited. This prospectus also covers the sale by (i) Joseph Stevens & Company and one of its affiliates, of an aggregate of 261,752 shares of our common stock, and the 130,876 Redeemable Warrants contained in the unit warrants, (ii) the sale by Moldbury Holdings Limited of our common stock issuable upon exercise from time to time of an Equity Line of Credit, (iii) the sale by certain holders of the shares of our common stock issuable upon conversion of our Series A Exchangeable Preferred Stock, (iv) the sale by certain holders of the shares of our common stock issuable upon exercise of certain warrants held by the purchasers of our Series A Exchangeable Preferred Stock and Moldbury Holdings Limited, and (v) 10,000 shares of our common stock held by Trinity Capital Advisors, Inc., the placement agent for our Series A Exchangeable Preferred Stock Offering. Our common stock is traded on Nasdaq SmallCap Market System under the symbol "NAMC". Our Redeemable Warrants are also publicly traded on the Nasdaq SmallCap Market System under the symbol "NAMCW." On March 15, 2000, the last reported sales price of our common stock was $7.41 and the last reported sale price of our publicly traded Warrants was $2.56. ----------------------- THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING AT PAGE 7. ----------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. In this prospectus, references to the "Company," "NAM," "we," "us," and "our" all refer to NAM Corporation. The date of this prospectus is March 27, 2000. The Information in this prospectus is not complete and may be changed. We may not sell these Securities until the registration statement filed with the SEC is effective. This prospectus is not an offer to sell these Securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. 2 TABLE OF CONTENTS
Page ---- Disclosure Regarding Forward-Looking Statements...................................................................3 Prospectus Summary................................................................................................4 Summary Financial Information.....................................................................................6 Risk Factors......................................................................................................7 Use of Proceeds..................................................................................................13 Dividend Policy..................................................................................................13 Selected Financial Data..........................................................................................14 Management's Discussion and Analysis of Financial Condition and Results of Operations............................15 Our Business.....................................................................................................21 Management.......................................................................................................28 Principal Stockholders...........................................................................................34 Certain Transactions.............................................................................................35 Description of Capital Stock.....................................................................................36 Selling Securityholders and Plan of Distribution.................................................................39 Shares Eligible for Future Sale..................................................................................41 Legal Matters....................................................................................................42 Experts..........................................................................................................42 Disclosure of Commission Position on Indemnification for Securities Act Liabilities..............................42 Market for Our Common Equity.....................................................................................43 Financial Statements.............................................................................................44
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When we use words like "intend," "anticipate," "believe," "estimate," "plan" or "expect," we are making forward-looking statements. We believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, based on information available to us on the date of this prospectus, but we cannot assure you that these assumptions and expectations will prove to have been correct or that we will take any action that we may presently be planning. We have disclosed certain important factors that could cause our actual results to differ materially from our current expectations under "Risk Factors" and elsewhere in this prospectus. You should understand that forward-looking statements made in connection with this offering are necessarily qualified by these factors. We are not undertaking to publicly update or revise any forward-looking statement if we obtain new information or upon the occurrence of future events or otherwise. 3 PROSPECTUS SUMMARY Since this is a summary, it does not contain all the information that may be important to you in evaluating your investment. You should read the following summary, and the "Risk Factors" section, along with the more detailed information and Financial Statements and the notes to the Financial Statements appearing elsewhere in this prospectus or incorporated by reference in this prospectus, before you decide whether to participate in this offering. About NAM Corporation Our Business We provide arbitration and mediation services, also known as alternative dispute resolution services, or ADR services, principally to insurance companies, law firms, corporations and municipalities, both in person and over the Internet through our "clickNsettle.com" Web site. An ADR proceeding is designed as an alternative forum to the public court system for resolving civil disputes. We offer our clients access to qualified hearing officers (generally retired judges) to either mediate or arbitrate their disputes. We believe that we are one of the leading providers of ADR to the insurance industry in the United States based upon the number of cases processed by us since 1992. We have offices currently located in New York, Massachusetts and Tennessee, through which we have the ability to provide ADR services on a nationwide basis with a roster of over 1,100 qualified hearing officers. We derive our revenues for our in-person ADR service from fees charged to the parties in an ADR proceeding. These fees are charged on an hourly basis for hearings, conferences and deliberations by hearing officers, and are set for administrative services. Fees for our clickNsettle.com Web site are based on usage of the service. As compared to the majority of our competitors, we believe that we have certain advantages which enable us to better serve our clients. These advantages include: o a case resolution Web site which enables parties to resolve disputes 24 hours a day, 7 days a week. clickNsettle.com offers a cost effective forum for resolving disputes globally using a unique, fully interactive "blind" bid negotiating process. Additionally, the program serves as a lead generator for our in-person arbitration and mediation services o exclusive agreements with some of the nation's most qualified hearing officers, who are generally former judges o superior service and response to our clients through our trained staff o the ability to monitor and control the scheduling of matters o videoconferencing capability that allows clients to participate in or observe a proceeding without leaving their office 4 clickNsettle.com clickNsettle.com is our Internet based case resolution service that offers an alternative to traditional litigation and in-person ADR services by providing litigants with the ability to negotiate and settle cases via the World Wide Web. The service can be accessed 24 hours a day, 7 days a week on the World Wide Web and is targeted towards any dispute which can be resolved with a monetary settlement. Cases can be resolved globally in a matter of minutes. clickNsettle.com utilizes a format that allows disputing parties to enter an unlimited number of "blind" and confidential settlement offers and demands over the Internet. The service provides disputants with the ability to negotiate a case with their adversary without actually "tipping their hand" about what amount they would accept for settlement. The demands and offers are secure. Only the settlement figures are ever revealed. This ensures that neither party loses any negotiating leverage in the event the case does not settle. Cases may be submitted by both claimants and defendants. Our History We were formed on January 12, 1994 under the laws of the State of Delaware. On October 31, 1994, we acquired all of the outstanding common stock of National Arbitration & Mediation, Inc., which was a New York corporation formed on February 6, 1992 and which was owned by our current Chief Executive Officer and President and a current Director and Vice President, Sales Development. National Arbitration & Mediation, which had existed as a wholly-owned subsidiary of NAM, was merged into NAM as of the end of June 1999. Our executive offices are located at 1010 Northern Boulevard, Suite 336, Great Neck, New York 11021. Our Internet address is http://www.namadr.com. The Internet address for clickNsettle.com is http://www.clicknsettle.com. Information contained on either of our Web sites is not, and should not be considered as, part of this prospectus. The Offering Securities offered by NAM Up to 3,828,002 shares of our common stock issuable upon the exercise of Redeemable Warrants, the exercise from time to time of an Equity Line of Credit established by Moldbury Holdings Limited, up to 130,876 Redeemable Warrants to purchase up to 130,876 shares of our common stock and warrants granted to investors in our Equity Line of Credit and Series A Exchangeable Preferred shares. Securities offered by others 640,876 shares. Common stock to be outstanding after the offering(1) 7,770,235 shares. Use of proceeds Promotion of our clickNsettle.com Web site and general corporate purposes. Risk factors An investment in the shares involves a high degree of risk. See "Risk Factors." 5 Nasdaq SmallCap System trading symbols "NAMC" and "NAMCW" - ------------------- (1) Assumes all warrants are exercised including warrants granted to Joseph Stevens & Company as managing underwriter in connection with our initial public offering and does not include shares issuable upon exercise of all options under our 1996 Stock Option Plan, of which 1,115,500 have been granted. Summary Financial Information The summary financial information set forth below is derived from and should be read in conjunction with the consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus.
Six Months Ended December 31 Year Ended June 30, 1999 1998 1999 1998 ---- ---- ---- ---- (unaudited) (unaudited) Statement of Operations Data Net revenues......................................... 1,975,752 2,112,256 4,158,506 3,847,975 Loss from operations................................. (795,372) (673,071) (1,227,120) (1,144,119) Other income (expenses), net......................... 255,702 (249,330) (67,595) 514,985 Net loss............................................. (539,670) (922,401) (1,294,765) (629,134) Net loss per common share, basic and diluted.......................................... $(0.16) $(0.28) $(0.39) $(0.19) Weighted average shares outstanding, basic and diluted.................................... 3,413,185 3,334,978 3,337,623 3,334,978
As of As of As of December 31, 1999 June 30, 1999 June 30, 1998 ----------------- ------------- ------------- (unaudited) Balance Sheet Data Working capital........................................... 1,327,565 1,925,911 3,060,771 Total assets.............................................. 2,396,004 3,200,953 4,109,556 Total liabilities......................................... 731,526 968,135 755,714 Stockholders' equity...................................... 1,664,478 2,232,818 3,353,842
6 RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully review and consider the information below, as well as the other information contained in this prospectus and incorporated by reference, before you make an investment in our common stock. We have Recent and Anticipate Continuing Losses. We have incurred operating losses for the last three fiscal years, and we have incurred and we anticipate further losses during the present fiscal year. We expect to continue to incur significant operating and capital expenditures and, as a result, we will need to generate significant revenues to achieve and maintain profitability. We cannot assure you that we can achieve or sustain profitability in the future. If revenues grow slower than we anticipate, or if operating expenses exceed our current expectations and cannot be adjusted accordingly, our business, the results of our operations, and our financial condition may be materially and adversely affected. clickNsettle.com is a Relatively New Venture. clickNsettle.com is a relatively new venture which began serving clients in June 1999. Although we believe that this new service will enable us to build a significant part of our future growth through the Internet, we cannot assure you of its success. You should consider the prospects of clickNsettle.com in the light of the risks and expenses of other new Internet ventures. We Depend On Insurance-Related Disputes. The majority of our ADR business involves claims for damages to persons and/or property arising from alleged acts of negligence, which are usually covered by insurance. Generally we resolve these disputes in a matter of hours. Since our revenues are derived primarily from certain administrative and hourly fees, a high volume of these cases is required in order for us to generate revenues sufficient to maintain our operations. There can be no assurance that we will be able to expand a significant portion of our business outside of the insurance-related dispute segment, or maintain or increase our current level of cases. In addition, we cannot assure you that changes in the insurance industry will not affect our business. Possible Improvements in the Public Court System, Including Use of ADR Services, May Affect Our Business. The ADR industry in general furnishes an alternative to public dispute mechanisms, principally the local, state and federal court systems. Our marketing efforts have been based on our belief that there exists a high degree of dissatisfaction among litigants and their counsel with the public court system. If the public courts, in the markets we are currently serving or seek to serve, reduce case backlogs and provide effective settlement mechanisms at no, or substantially reduced cost to litigants, our business opportunities in such markets may be significantly reduced. Several public court systems, both on the federal and state level, including certain federal and state courts located in New York State, have instituted court coordinated ADR programs. Similar programs are under consideration in a number of states and may be adopted at any time. The success of such ADR programs could have a material adverse effect on our business by diminishing the demand for private ADR services. 7 The Private ADR Services Business is Highly Competitive. The private ADR business is highly competitive, both on a national and regional level. Barriers to entry in the ADR business are relatively low, and new competitors can begin doing business relatively quickly. There are two types of competitors, not-for-profit and for-profit entities: o We believe that our largest not-for-profit competitor is the American Arbitration Association which has significant market share in complex commercial cases. o We believe that our largest for-profit competitor is Judicial Arbitration Mediation Services, Inc./Endispute. At this time, we believe that numerous other private ADR firms are competing with us in the regions we currently serve. Increased competition could decrease the fees we are able to charge for our services and limit our ability to obtain qualified hearing officers. This could have a material adverse effect on our ability to be profitable in the future. Certain competitors may have greater financial or other capabilities than us. In addition, there are competitors to our clickNsettle.com service such as Cybersettle. Accordingly, there is no assurance that we can successfully compete in the present or future marketplace for ADR services. We Depend Upon Our Key Personnel. Our success will be largely dependent on the personal efforts of Roy Israel, our Chief Executive Officer, President and Chairman of the Board of Directors. Although we have entered into an employment agreement with Mr. Israel, which expires in 2002, the loss of his services could have a material adverse effect on our business and prospects. We have obtained "key-man" life insurance on the life of Mr. Israel. We are the sole beneficiary in the amount of $1 million. Our success is also dependent upon our ability to hire and retain qualified marketing and other personnel in our offices. We may not be able to hire or retain such necessary personnel. We Do Not Have Written Contracts with the Majority of Our Clients. We currently rely on our relationships with, and marketing efforts to insurance companies, law firms, corporations, and municipalities to obtain cases. We do not have written agreements with the majority of our clients, but we have instituted the process of obtaining written agreements with our existing clients and with new clients. We also rely on case referrals from our current clients. We may not continue to receive our current level of, or an adequate level of, referrals of cases. If we do not maintain such levels, there could be a material adverse effect on our business. We Depend Upon Qualified Hearing Officers. The market for our services depends on a perception by our clients that our hearing officers are impartial, qualified, and experienced. Our ability to retain qualified hearing officers in the event that competition increases would be uncertain. For our fiscal year ended June 30, 1999, 35% of the number of our cases were heard by non-exclusive hearing officers. Accordingly, at any time, these hearing officers can refuse to continue to provide their services to us and are free to render services independently or through competing ADR services. If qualified hearing officers are unwilling or unable to continue to provide their services through us for any reason, including possible agreements to provide their services to our competitors on an exclusive basis, our business and operations could be materially and adversely effected. 8 Our Current Stockholders Have the Ability to Exert Significant Control. Our executive officers, directors, and their affiliates will beneficially own 1,868,809 shares or approximately 48.1% of the common stock outstanding based on 3,442,233 shares of common stock outstanding as of March 1, 2000. Of that number, Mr. Israel will beneficially own 1,394,889 shares or approximately 38.4% of the common stock. As a result, these stockholders acting in concert may have significant influence on votes to elect or remove any or all of our directors and to control substantially all corporate activities in which we are involved, including tender offers, mergers, proxy contests or other purchases of common stock that could give our stockholders the opportunity to realize a premium over the then prevailing market price for their shares of common stock. We May Encounter System Interruptions. Customer access to our clickNsettle.com Web site directly affects the volume of disputes we resolve via the Internet and thus may affect our revenues. If we experience system interruptions due to a high degree of traffic, our Web site may be unavailable for periods of time and may impede the performance of our services, which may reduce the attractiveness of our products and services. We intend to add additional hardware and upgrade our systems and network infrastructure to accommodate increased traffic on our Web sites and increased sales volume. We currently monitor system usage with regard thereto. However, as the service only recently was introduced in June 1999, we may not be able to accurately project the rate or timing of significant increases in traffic on our Web site and, therefore, the integration and timing of these upgrades may be delayed. We maintain substantially all of our computer and communications hardware at a single facility in Great Neck, New York. Our systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, break-ins, and similar events. We do not have fully redundant off-site systems or alternative providers of hosting services. Despite any precautions we may take, the occurrence of natural disasters or other unanticipated problems could cause system interruptions, delays, and loss of critical data and could prevent us from providing services. Our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays, loss of data or the inability to complete transactions. We May Be Unable to Protect Our Domain Names in the Future. We hold rights to various Internet domain names, including "clickNsettle.com", "namadr.com" and "namarb.com." Governmental agencies typically regulate domain names. These regulations are subject to change. Regulations governing domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or diminish the value of our trademarks and other proprietary rights. 9 We May Be Unable to Protect Our Proprietary Technology and We May Be Sued for Infringing on the Rights of Others. Our success depends, in part, upon our ability to protect our proprietary software technology and operate without infringing upon the rights of others, specifically the technology involved in the clickNsettle.com program. We rely on a combination of methods to protect our proprietary intellectual property, technology and know-how, such as: o trade secret laws o copyright law o trademark law o patent law o contractual provisions o confidentiality agreements o certain technology and security measures The steps we have taken regarding our proprietary technology, however, may be insufficient to deter misappropriation. In the systems and software industries, it is common that companies receive notices from time to time alleging infringement of patents, copyrights or other intellectual property rights of others. We may from time to time be notified of claims that we may be infringing upon patents, copyrights or other intellectual property rights owned by third parties. Companies may pursue claims against us with respect to the alleged infringement of patents, copyrights or other intellectual property rights owned by third parties. Although we believe we have not violated or infringed upon any intellectual property patents and have taken measures to protect our own rights, there is no assurance that we will avoid litigation. Litigation may be necessary to protect our intellectual property rights and trade secrets, to determine the validity of and scope of the proprietary rights of others or to defend against third party claims of invalidity. Any litigation could result in substantial costs and diversion of resources away from the day-to-day operation of our business. Existing copyright, trademark, patent and trade secret laws afford only limited protection. Existing laws, in combination with the steps we have taken to protect our proprietary rights may be inadequate to prevent misappropriation of our technology or other proprietary rights. Also, such protections do not preclude competitors from independently developing products with functionality or features similar or superior to our products and technologies. We May Have Issues With Our Continued Listing on the Nasdaq SmallCap Market in the Future. Although our securities are quoted on the Nasdaq SmallCap Market, we cannot assure you that a trading market will be maintained. In addition, we cannot assure you that we will in the future meet the maintenance criteria for continued quotation of the securities on the Nasdaq SmallCap Market. The maintenance criteria for the Nasdaq SmallCap Market include, among other things: o $2,000,000 in net tangible assets; or $35,000,000 in market capitalization; or $500,000 Net Income (in the latest fiscal year or two of the last three fiscal years); o a public float of 500,000 shares with a market value equal to $1,000,000; o two market makers; o a minimum bid price of $1.00 per share of common stock; and o 300 shareholders (round lot holders). 10 If we were removed from the Nasdaq SmallCap Market, trading, if any, in our securities would thereafter have to be conducted in the over-the-counter market in the so-called "pink sheets" or, if then available, the NASD's OTC Electronic Bulletin Board. As a result, an investor would find it more difficult to purchase, dispose of, and to obtain accurate quotations as to the value of, our securities. In addition, if our common stock is delisted from trading on the Nasdaq SmallCap Market and the trading price of the common stock is less than $5.00 per share, trading in the common stock would also be subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under that rule, broker/dealers who recommend such low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including: o a requirement that they make an individualized written suitability determination for the purchaser; and o receive the purchaser's written consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a penny stock (generally, any equity security not traded on an exchange or quoted on Nasdaq SmallCap that has a market price of less than $5.00 per share), including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith. Such requirements could severely limit the market liquidity of our securities and the ability of purchasers in this Offering to sell their securities in the secondary market. We cannot assure purchasers of our securities that our securities will not be delisted or treated as a penny stock. The Price of Our Common Stock in the Public Market May Be Volatile. The trading price of our common stock has been and may continue to be subject to fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, announcements of technological innovations or new products introduced by us or our competitors and other events or factors. The stock market in general, and the shares of technology companies in particular, has experienced extreme price fluctuations in recent years. This volatility has had a substantial impact on the market prices of securities issued by many companies for reasons unrelated to the operating performance of the companies affected. These broad market fluctuations may adversely affect the market price of our common stock. We Do Not Pay Dividends. We have not paid any cash dividends on our common stock, except with respect to certain distributions relating to when we were an S-corporation, and do not expect to do so in the foreseeable future. 11 The Conversion of Our Outstanding Preferred Stock and the Exercise of Our Equity Line of Credit May Make it Difficult to Evaluate a Shareholder's Equity Position in the Company. The number of shares of our common stock which is issuable upon conversion of our outstanding Series A Exchangeable Preferred Stock will fluctuate based on the average closing bid price of our common stock as listed on the Nasdaq SmallCap Stock Market for three consecutive days in the prior thirty days. The number of shares of our common stock which is issuable upon exercise from time to time under our Equity Line of Credit will fluctuate based on the average closing bid price of our common stock as listed on the Nasdaq SmallCap Stock Market for the two days prior, the day of and the two days after. Therefore, the percentage of our common stock held by a shareholder on any given day may be substantially different from another day depending on our closing bid prices, as the number of shares of our common stock issuable pursuant to our Series A Exchangeable Preferred Stock and our Equity Line of Credit may vary significantly from day to day. The Issuance of Preferred Stock Could Affect Voting Rights or Delay or Prevent a Corporate Takeover. Although we have previously designated 2,100 shares as Series A Exchangeable Preferred Stock, we are authorized to issue up to an additional 4,997,900 shares of Preferred Stock. For so long as the Series A Exchangeable Preferred Stock is outstanding, additional series of Preferred Stock may not rank senior to the Series A Exchangeable Preferred Stock without the approval of 75% of the holders of such stock. Without violating such restriction, our Board of Directors is authorized to determine the rights and restrictions granted to and imposed upon any additional series of Preferred Stock. They can decide the number of shares of any series of Preferred Stock and the designation of any such series. Our Board of Directors may authorize and issue Preferred Stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. In addition, the potential issuance of Preferred Stock may: o have the effect of delaying, deferring or preventing a change in control of the Company; o may discourage bids for the common stock at a premium over the market price of the common stock; and o may adversely affect the market price of the common stock. Shares Eligible for Public Sale after the Offering could Adversely Affect our Stock Price. As of March 1, 2000, there were 3,442,233 shares of our common stock outstanding. An additional 2,778,126 shares of our common stock are issuable upon the exercise of currently exercisable warrants and options, not including any draw downs on the Equity Line of Credit. If all these shares were issued, we would have 6,220,359 shares of our common stock outstanding. In addition, 769,376 shares of our common stock are issuable upon the exercise of outstanding options and warrants that are not currently exercisable. Although the exercise of such shares could raise a significant amount of money for us, any sale of a substantial number of shares of our common stock in public market after this offering, or the perception that such sales could occur, may adversely affect the market price of our common stock. 12 USE OF PROCEEDS We intend to use the proceeds from draw downs under the Equity Line of Credit for general working capital purposes. We have a maximum of $7,000,000 available under such credit facility. We have the right to increase our credit facility to $14,000,000 by notice to Moldbury Holdings Limited within ten days of the date which is fourteen months after the first closing date provided that certain financial conditions are met by us. In addition, we shall receive proceeds from the exercise of 1,610,000 Redeemable Warrants, at an exercise price of $6.00 per share and are entitled to receive proceeds from 130,876 unit warrants and Redeemable Warrants held by Joseph Stevens & Company and one of its affiliates at exercise prices of $5.80 per unit and $6 per share, respectively. However, we will not receive any proceeds from the sale of shares by the Selling Shareholders. The proceeds received by us from the Equity Line of Credit and exercise of any or all of such Warrants will be used for our general working capital purposes. The use of any proceeds from the exercise of such Warrants, and the timing of such use, will depend on the availability to us of cash from other sources. Proceeds not immediately required for the purposes described above will be invested by us principally in United States government obligations, short term certificates of deposit, money market funds or other short term, interest bearing investments. DIVIDEND POLICY The payment by us of dividends, if any, in the future rests within the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition, as well as other relevant factors. We do not contemplate or anticipate paying any dividends upon our common stock in the foreseeable future. 13 SELECTED FINANCIAL DATA The selected financial data as of June 30, 1999 and 1998 and for the years ended June 30, 1999 and 1998 have been derived from our audited consolidated financial statements included elsewhere in this Prospectus. Our audited consolidated financial statements have been audited by Grant Thornton LLP, independent certified public accountants. The information set forth below should be read in conjunction with our consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein.
Six Months ended December 31, Year Ended June 30, 1999 1998 1999 1998 ---- ---- ---- ---- (unaudited) (unaudited) Statement of Operations Data Net revenues......................................... 1,975,752 2,112,256 4,158,506 3,847,975 Operating costs and expenses:........................ Cost of services................................ 494,408 565,788 1,081,309 969,345 Sales and marketing expenses.................... 1,057,295 1,118,863 2,048,058 2,090,591 General and administrative expenses............. 1,219,421 1,100,676 2,256,309 1,932,158 Total operating expenses..................... 2,771,124 2,785,327 5,385,676 4,992,094 Loss from operations................................. (795,372) (673,071) (1,227,170) (1,144,119) Other income (expenses), net......................... 255,702 (249,330) (67,595) 514,985 Loss before income taxes............................. (539,670) (922,401) (1,294,765) (629,134) Income taxes......................................... - - - - Net loss............................................. (539,670) (922,401) (1,294,765) (629,134) Net loss per common share, basic and diluted......... $(0.16) $(0.28) $(0.39) $(0.19) Weighted average shares outstanding, basic and diluted.................................... 3,413,185 3,334,978 3,337,623 3,334,978
As of As of As of December 31, 1999 June 30, 1999 June 30, 1998 ----------------- ------------- ------------- (unaudited) Balance Sheet Data Working capital.................................... 1,327,565 1,925,911 3,060,771 Total assets....................................... 2,396,004 3,200,953 4,109,556 Total liabilities.................................. 731,526 968,135 755,714 Stockholders' equity............................... 1,664,478 2,232,818 3,353,842
14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this prospectus, particularly in "Risk Factors." General We provide alternative dispute resolution ("ADR") services principally to insurance companies, law firms, corporations and municipalities, on an in-person basis, via video conferencing and on the Internet through our clickNsettle.com Web site. We focus the majority of our marketing efforts on developing and expanding relationships with these entities, which we believe are some of the largest consumers of ADR services. We believe that with our global roster of qualified hearing officers, video conferencing capabilities, knowledge of dispute resolution, reputation within the corporate and legal communities and Internet based dispute resolution programs we are uniquely positioned to provide a comprehensive Web-enabled solution to disputing parties worldwide. We opened for business in March 1992 in New York, and currently operate from locations in New York, Massachusetts and Tennessee. Our objective is to become the leading global provider of Web-enabled dispute resolution services; to offer one-step shopping for anyone involved in any type of dispute, anywhere in the world; and to provide this service more quickly, economically and efficiently than previously possible. We intend to achieve this goal by employing the following strategies: o marketing our Internet settlement Web site, clickNsettle.com, which is designed to attract a larger customer base on a global scale with lower incremental costs; o expanding the functionality of clickNsettle.com to address multi-party disputes, class-action litigation and other new markets, including multi-jurisdictional claims which are becoming more commonplace as a result of the global transition towards e-commerce; o focusing the advertising campaign initiated during fiscal year 1998 towards building brand recognition for clickNsettle.com; o accelerating efforts to secure exclusive relationships with corporations and law firms in order to obtain contracts on a national and regional basis by capitalizing on our market position; o exploring strategic alliances with business entities that have the ability to promote clickNsettle.com and our legacy ADR services to their customers; and o becoming a primary provider of international dispute resolution 15 We believe that ADR is becoming a more commonly utilized option for the resolution of various dispute types including insurance, contract, commercial, matrimonial, mass-tort and e-commerce. In addition, the ADR industry is, and will continue to be, undergoing a consolidation of ADR service providers as clients seek vendors who can offer technologically sophisticated international, national, and regional multi-state ADR programs. Our objective is to continue the expansion of our presence and technology to exploit this trend. We further believe ADR clients continue to seek volume discounts on the charges applied by us for services rendered. We believe that this trend may have an overall positive impact on our business because the discounts are usually applied only when an ADR client makes a commitment to refer a minimum number of cases to us. We have and will continue to incur net losses in the short-term future as a result of (a) design, development and continuing costs associated with clickNsettle.com, our Internet case resolution Web site and (b) our continuing advertising campaign. With respect to clickNsettle.com, we have invested a large portion of our available resources in developing and marketing the product during fiscal year 1999. We anticipate incurring additional expenses during the fiscal year 2000 for further enhancement of the system, computer hardware and software, legal, marketing, printing and salary and related expenses including the hiring of an Executive Vice President of clickNsettle.com in the first quarter of fiscal year 2000. Although we are actively promoting this product, we cannot assure you that the revenues to be realized from clickNsettle.com will exceed the expenses to be incurred. Additionally, our advertising campaign, which commenced during the second half of fiscal year 1998, will continue through fiscal year 2000. In connection with such campaign, we have hired public relations and investor relations firms to assist in promoting our services, including clickNsettle.com. Currently, advertisements are scheduled to appear on television, over the Internet and in a variety of print media. We believe that the campaign will continue to increase awareness of our business and our services. However, we cannot assure you that this effort will result in increased revenues. Six Months Ended December 31, 1999 Compared to Six Months Ended December 31, 1998 Revenues. Revenues decreased 6% to $1,975,762 for the six months ended December 31, 1999 from $2,112,256 for the comparable prior period. We attribute the decrease in revenues to an overall decline in the number of in-person hearings conducted during the period. We believe this is primarily the result of many of our marketing and other resources being devoted to the introduction and promotion of clickNsettle.com in the first quarter and the subsequent shift towards an Internet based business with more efficient primary customer service centers and national account arrangements rather than numerous regional locations. During the second quarter of fiscal year 2000, we introduced an enhanced version of clickNsettle.com which focused on its unique, unlimited bid, real-time negotiating format. We believe that continuous improvement of its Internet negotiating model is critical to the success of the clickNsettle.com Web site and will continue to invest resources in this area. Cost of Services. Cost of services decreased 13% to $494,408 for the six months ended December 31, 1999 from $565,788, for the six months ended December 31, 1998. The decrease in absolute dollars relates primarily to the decrease in sales and a charge in the six months of fiscal year 1999 for the granting and vesting of stock options with respect to a hearing officer as well as payments to hearing officers in connection with the commencement of exclusive arrangements with us. As a result, the cost of services as a percentage of revenues decreased to 25% for the first six months of fiscal year 2000 from 27% for the first six months of fiscal year 1999. The ratio of cost of services to revenues will fluctuate based on the number of hours per case, as well as the ability (or inability) of an office to take advantage of volume arrangements with hearing officers which usually lower the cost per case. 16 Sales and Marketing. Sales and marketing costs decreased 5.5% to $1,057,295 for the six months ended December 31, 1999 from $1,118,863 for the six months ended December 31, 1998. Sales and marketing costs as a percentage of revenues remained stable at 53% for both periods. The decrease largely relates to advertising and external public relations costs which declined by approximately $151,000 from the first six months of fiscal year 1999 to the first six months of fiscal year 2000. This decline was offset by higher salary and travel and promotional costs arising from the establishment of a separate clickNsettle.com marketing group. General and Administrative. General and administrative costs increased 11% to $1,219,421 for the six months ended December 31, 1999 from $1,100,676 for the six months ended December 31, 1998. Most of the increase (approximately $91,000) relates to salary and related items (including payroll taxes, benefits and employee recruitment fees) due to increases in staff for data processing and other administrative functions, including temporary help, to support and develop clickNsettle.com, as well as our in-person traditional arbitration and mediation services. The remaining increase was largely related to higher corporate legal fees (partially attributable to patent and trademark filings related to clickNsettle.com). Furthermore, general and administrative costs as a percentage of revenues increased to 62% in the first six months of fiscal year 2000 from 52% for the comparable prior period. Other Income. Other income (expenses) changed from an expense of ($249,330) for the first six months of fiscal year 1999 to income of $255,702 for the first six months of fiscal year 2000. Other income is composed primarily of investment income and realized gains (losses) generated from investments. During the first six months of the 2000 fiscal year, we sold a portion of our marketable securities. As a result, net realized gains approximated $213,000 for the first six months of fiscal year 2000 as compared to losses of approximately $303,000 in the prior fiscal period. Income Taxes. Tax benefits resulting from net losses incurred for the six month periods ended December 31, 1999 and 1998 were not recognized as we recorded a full valuation allowance against the net operating loss carryforwards during the periods. Net Loss. For the six months ended December 31, 1999, we had a net loss of ($539,670) or ($.16) loss per share as compared to a net loss of ($922,401) or ($.28) loss per share for the six months ended December 31, 1998. The loss decreased primarily due to higher realized gains on the sale of marketable securities offset by higher sales and marketing costs incurred to promote clickNsettle.com. Year Ended June 30, 1999 Compared to Year Ended June 30, 1998 Revenues. Revenues increased 8% to $4,158,506 for the year ended June 30, 1999 from $3,847,975 for the year ended June 30, 1998. Both the number of cases heard and the average dollars earned per case increased in the current year from the prior year. At the end of the second quarter of fiscal year 1999, we realigned our sales operations in order to enhance our ability to process a higher volume of cases as well as to better market our services to potential customers. This was evidenced by a 16% increase in revenues in the fourth quarter of fiscal year 1999 as compared to the fourth quarter of fiscal year 1998. Cost of Services. Cost of services increased 12% to $1,081,309 for the year ended June 30, 1999 from $969,345 for the year ended June 30, 1998. The higher volume of business serviced resulted in greater hearing officer fees. Additionally, higher fees were incurred in fiscal year 1999 primarily due to a compensation charge relating to stock options granted to a hearing officer as well as payments to hearing officers in connection with the commencement of exclusive arrangements with the Company. Without these charges, the cost of services as a percentage of revenues remained stable at 25% for the fiscal years ended June 30, 1999 and 1998, respectively. The ratio of cost of services to revenues will fluctuate based on the number of hours per case, as well as the ability (or inability) of an office to take advantage of volume arrangements with hearing officers which usually lower the cost per case. Sales and Marketing. Sales and marketing costs decreased 2% to $2,048,058 for the year ended June 30, 1999 from $2,090,591 for the year ended June 30, 1998. Sales and marketing costs as a percentage of revenues decreased to 49% for fiscal year 1999 from 54% for fiscal year 1998. The decrease largely relates to advertising and external public relations expenditures. Such costs decreased by approximately $176,000 from $566,000 in fiscal year 1998 to $390,000 in fiscal year 1999. The decrease was largely due to the commencement of an advertising campaign during the third quarter of the 1998 fiscal year whereby we placed advertisements in a variety of media. The campaign was aimed at quickly establishing NAM as a brand name within the dispute resolution industry. As we believe we have made significant progress in achieving this goal, we have continued advertising to maintain our name recognition but at a reduced level. There can be no assurance that such expenditures will produce higher revenues. Offsetting this decline was an increase in sales salaries and related costs of approximately $102,000 as sales management and the sales force was strengthened to pursue additional business opportunities. Additionally, entertainment, promotions and travel expenses increased by approximately $33,000 as a result of sales visits to corporate headquarters of targeted clients throughout the country and Company-sponsored events for clients to promote the NAM brand name. 17 General and Administrative. General and administrative costs increased 17% to $2,256,309 for the year ended June 30, 1999 from $1,932,158 for the year ended June 30, 1998. Furthermore, general and administrative costs as a percentage of revenues increased to 54% for fiscal year 1999 from 50% for fiscal year 1998. Most of the increase (approximately $185,000) relates to salary and related items due to increases in staff for data processing and other administrative functions, including temporary help, to support and develop clickNsettle.com, as well as NAM's traditional arbitration and mediation services. Secondly, there was an increase of approximately $67,000 relating to costs incurred in connection with seminars/conferences sponsored by us for marketing our services to potential clients in the arbitration and mediation industry and for employee training. Higher expenses were also incurred for rent (as the New York headquarters was expanded mid-year), legal fees and depreciation. Other Income (Expenses). Other income (expenses) changed from income of $514,985 for the year ended June 30, 1998 to an expense of ($67,595) for the year ended June 30, 1999. Other income (expense) is composed primarily of investment income and realized gains (losses) generated from investments. During the 1999 fiscal year, we sold a substantial portion of our marketable securities. As a result, net realized losses approximated ($166,000) for the year ended June 30, 1999 as compared to $356,000 of realized gains for the year ended June 30, 1998. In addition, investment income also declined as we reduced our investment portfolio and conservatively decreased our equity portfolio in favor of a larger concentration in money market funds. Income Taxes. Tax benefits resulting from net losses incurred for the years ended June 30, 1999 and 1998 were not recognized as we recorded a full valuation allowance against the net operating loss carryforwards during the periods. As of June 30, 1999, we had net operating loss carryforwards for Federal tax purposes of approximately $2,062,000 and net capital loss carryforwards for Federal tax purposes of approximately $166,000. Net Loss. For the year ended June 30, 1999, we had a net loss of ($1,294,765) or ($.39) loss per share as compared to a net loss of ($629,134) or ($.19) loss per share for the year ended June 30, 1998. The loss increased primarily due to lower investment income mainly as a result of losses realized from the sale of marketable equity securities, as well as higher costs incurred to develop, market and support our new electronic case resolution products and anticipated future growth. Year Ended June 30, 1998 Compared to Year Ended June 30, 1997 Revenues. Revenues increased 14% to $3,847,975 for the year ended June 30, 1998 from $3,377,062 for the year ended June 30, 1997. We attribute this increase in sales to a growing acceptance of our services as shown by the overall increase in the number of cases heard. Additionally, the opening of the Midwest region in the third quarter of the 1997 fiscal year contributed approximately $100,000 to the revenue growth in fiscal 1998. Cost of Services. Cost of services increased 14% to $969,345 for the year ended June 30, 1998 from $853,048 for the year ended June 30, 1997. The higher volume of business serviced resulted in greater hearing officer fees. Cost of services as a percentage of revenue remained stable at 25% for both fiscal years. The ratio of cost of services to revenues will fluctuate based on the number of hours per case, as well as the ability (or inability) of an office to take advantage of volume arrangements with hearing officers which usually lower the cost per case. Sales and Marketing. Sales and marketing costs increased 48% to $2,090,591 for the year ended June 30, 1998 from $1,412,348 for year ended June 30, 1997. This expense category includes amounts directly related to the production of sales; that is, salaries and commissions for sales executives, sales managers and account executives and applicable payroll taxes and employee benefits; advertising; promotions and travel and entertainment. Sales and marketing costs as a percentage of revenues increased to 54% for fiscal year 1998 from 42% for fiscal year 1997. Most of this increase relates to advertising costs which rose by approximately $472,000 to $566,000 for the year ended June 30, 1998. The increase was largely due to the commencement of an advertising campaign during the third quarter of the 1998 fiscal year whereby we placed advertisements in a variety of media (newspapers, law journals, insurance and business publications, outdoor, radio and television). The objective of the campaign is to increase awareness of us and our services. There can be no assurance that such expenditures will produce higher revenues. The remaining increase (approximately $206,000) relates to salary and related items. Firstly, higher sales commissions were incurred based on the higher volume of business. Secondly, primarily during the second half of fiscal year 1997 and into fiscal year 1998, personnel were hired to staff and support our expansion plans. In particular, sales management was strengthened at our headquarters in New York to better prepare us for a higher volume of cases. Finally, the Midwest region opened during the third quarter of fiscal 1997. General and Administrative. General and administrative costs increased 10% to $1,932,158 for the year ended June 30, 1998 from $1,761,994 for the year ended June 30, 1997. Furthermore, general and administrative costs as a percentage of revenues decreased slightly to 50% for fiscal year 1998 from 52% for fiscal year 1997. This category includes salaries of executives, accounting, 18 data processing and administration/clerical and related payroll taxes and employee benefits, as well as all other overhead costs. Salary-related costs increased by approximately $189,000 as we expanded personnel, particularly at our headquarters in New York, primarily during the second half of fiscal year 1997 and into fiscal year 1998. All corporate activities, including marketing, finance, data processing, billing and collections, purchasing and scheduling of hearings, are centralized in New York. We believe that this structure provides a uniform and high-quality level of service for clients, in addition to enhancing the control environment and producing a more streamlined and efficient approach as we grow. Higher costs with respect to fees relating to being a public company (approximately $18,000) were more than offset by a decline in professional fees ($40,000). Other Income (Expenses). Other income (expenses) increased from $12,771 for the year ended June 30, 1997 to $514,985 for the year ended June 30, 1998. In the current fiscal year, other income was composed primarily of investment income and realized gains (losses) generated from investments. During the second half of the 1998 fiscal year, we sold a portion of our marketable securities and, as a result, net realized gains increased to approximately $356,000 for the year ended June 30, 1998 from approximately $16,000 for the year ended June 30, 1997. Also, in the prior year, in connection with the initial public offering, we contributed warrants underlying units sold by two executive officers and also agreed to pay the underwriting costs associated with shares sold by them. With respect thereto, we expensed $115,500 upon the consummation of the initial public offering in the second quarter of fiscal year 1997. In addition, other expenses in that period also included interest expense from a past private placement financing. This debt was satisfied in full as of November 20, 1996 with proceeds from our initial public offering. Income Taxes. Tax benefits resulting from net losses incurred for the years ended June 30, 1998 and 1997 were not recognized as we recorded a full valuation allowance against the net operating loss carryforwards during the periods. As of June 30, 1998, we had net operating loss carryforwards for Federal tax purposes of approximately $1,007,000. Net Loss. For the year ended June 30, 1998, we had a net loss of $629,134 as compared to a net loss of $637,557 for the year ended June 30, 1997. The loss decreased slightly as expenditures for a comprehensive advertising campaign and an investment in our infrastructure to support future growth were partially offset by higher revenues and realized gains on marketable securities. Liquidity and Capital Resources At December 31, 1999, we had working capital surplus of $1,327,565 compared to $1,925,911 at June 30, 1999. Net cash used in operating activities was $845,895 for the six months ended December 31, 1999 versus $720,640 in the prior comparable period. The decrease in working capital and the increase in net cash used in operating activities occurred primarily as a result of the loss from operations. Net cash used in investing activities was $85,185 for the six months ended December 31, 1999 versus net cash provided by investing activities of $1,407,936 in the comparable prior period. The change in cash from investing activities was principally due to the higher level of net purchases of marketable securities during the current period as compared to the net sales and maturities of marketable securities in the prior period. Additionally, the establishment of a separate marketing group for clickNsettle.com resulted in higher purchases of computer equipment. We anticipate that cash flows, together with cash and marketable securities on hand, will be sufficient to fund our operations for the next year. In February 2000, we closed on a private placement offering with up to $8,850,000 in new equity financing. The financing included the issuance of $1,850,000 of Series A Exchangeable Preferred Stock and the availability of a $7,000,000 common stock Equity Line of Credit upon completion of an effective registration statement. The financing was made with a series of institutional investors. The purpose of the financing is to provide additional funds to further promote, market and enhance our clickNsettle.com Web site, and for general working capital. Year 2000 The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. We have completed its evaluation of the impact of the year 2000 issue on our business and currently do not expect to incur significant costs in the current fiscal year associated with year 2000 compliance or that year 2000 issues will have a material impact on our business, results of operations or financial condition. Our financial reporting system is currently year 2000 compliant. The relational database system used to manage our operations is capable of recognizing four digits to designate the year. We have converted our usage of the date fields from two digits to four digits with respect to our major operating system. We upgraded our network operating systems and all servers including our main system, email, Web site and file transfer protocol (FTP) servers to be year 2000 compliant. We contacted most of our major vendors that provide non-operating systems (i.e., those which supply payroll and benefit information, in particular) to ensure that they have properly addressed year 2000 issues. 19 OUR BUSINESS The Company We operate in one business segment to provide arbitration and mediation services, also known as alternative dispute resolution services, or ADR services, principally to insurance companies, law firms, corporations and municipalities, via in-person hearings, video-conferencing and over the Internet through our "clickNsettle.com" Web site. An ADR proceeding is designed as an alternative forum to the public court system for resolving civil disputes. We offer our clients access to qualified hearing officers (generally retired judges) to either mediate or arbitrate their disputes. We believe that we are one of the leading providers of ADR services to the insurance industry in the United States based upon the number of cases processed by us since 1992. We have offices currently located in New York, Massachusetts and Tennessee, through which we have the ability to provide ADR services on a global basis with a roster of over 1,100 qualified hearing officers. Our dispute resolution web site, clickNsettle.com was introduced in June 1999. The service, with patent pending, can be accessed 24 hours a day, 7 days a week and is being targeted to the multi-billion dollar litigation market. Although additional amounts will be expended in further developing and refining this service during most of fiscal year 2000, we believe that clickNsettle.com has the potential to be successful for the following reasons: o designed to process a large volume of cases electronically with a lower cost per case; o ability to broaden our client base as the program is beneficial to all litigants with disputes that can be resolved with a monetary settlement; o easy accessibility by potential users via the Internet; o ability to reach potential users on a global basis; o lead generator for traditional ADR business; o ability to benchmark data on settlements by injury and venue; and o reporting capabilities to summarize and provide analysis of a client's entire ADR program including traditional arbitration and mediation conferences and electronic settlements over the Internet. We believe that ADR business is a growing service industry based upon the continuing inability of the public court system to manage effectively its docket of civil cases. An ADR proceeding streamlines the traditional cumbersome public litigation process. As compared to the public court system, an ADR proceeding generally offers litigants: o a faster resolution; o confidentiality; o reduced expenses; 20 o flexibility in procedures and solutions; and o control over the process. With respect to business-to-business disputes, ADR proceedings also can preserve business relations among the parties because its nature is less adversarial and may be resolved promptly. Our objective is to become the leading global provider of Web-enabled dispute resolution services; to offer one-step shopping for anyone involved in any type of dispute, anywhere in the world; and to provide this service more quickly, economically and efficiently than previously possible. We intend to achieve this goal by employing the following strategies: o marketing our Internet settlement Web site, clickNsettle.com, which is designed to attract a larger customer base on a global scale with lower incremental costs; o expanding the functionality of clickNsettle.com to address multi-party disputes, class-action litigation and other new markets, including multi-jurisdictional claims which are becoming more commonplace as a result of the global transition towards e-commerce; o focusing the advertising campaign initiated during fiscal year 1998 towards building brand recognition for clickNsettle.com; o accelerating efforts to secure exclusive relationships with corporations and law firms in order to obtain contracts on a national and regional basis by capitalizing on our market position; o exploring strategic alliances with business entities that have the ability to promote clickNsettle.com and our legacy ADR services to their customers; and o becoming a primary provider of international dispute resolution We believe that the domestic ADR industry is, other than a few national entities, generally fragmented into small ADR service providers. We further believe that the trend in the ADR industry is toward consolidation of providers who are capable of offering national and regional ADR programs. We believe that our current strategies and marketing plans will enable us to exploit this trend. Services Offered clickNsettle.com. At the end of June 1999, we introduced clickNsettle.com, an Internet based, interactive virtual court service that offers an alternative to traditional litigation. clickNsettle.com utilizes a direct settlement format that allows disputing parties to enter an unlimited number of "blind" and confidential offers and demands, via the Internet, to settle cases. Through this service we provide disputants with the ability to negotiate a case with their adversary without actually "tipping their hand" about what amount they would accept for settlement. The demands and offers are secure. Only the settlement figures are ever revealed. This ensures that neither party loses any negotiating leverage if a settlement is not reached. In the event of non-settlement, the parties may automatically submit the case for traditional arbitration and mediation with us. The service, with patent pending, can be accessed 24 hours a day, 7 days a week and also provides detailed reporting of both in-person arbitration and mediation results and electronic settlement statistics. 21 Arbitration. Our arbitration procedure follows a format essentially similar to a non-jury trial in the public court system. Parties are given a forum in which to present their cases. Litigants are spared the time delays and some of the cumbersome procedures commonly associated with public court trials. Our hearings are generally governed by our rules of procedure. The parties, however, may depart from these rules and proceed in the fashion they deem desirable for the resolution of the case. The parties select a panel member from a list of our hearing officers. The hearings are private, thereby providing a level of confidentiality not readily available in the public court system. Subject to the parties' agreement, the proceedings may include discovery, examination of non-party witnesses, the filing of post-hearing briefs and other matters that may arise in the conduct of non-jury trials. The arbitrations are usually one of the following: o a regular arbitration, in which the hearing officer has authority to issue a ruling and/or award a remedy without limitations; o a "high/low" arbitration, where the parties may choose to set the parameters of the award by pre-selecting the high and low dollar limits that can be awarded by the hearing officer; and o the so-called "baseball" arbitration, which typically involves the submission by each party of their last best figure and the reason why it should be accepted; the hearing officer's binding recommendation is restricted to either one figure or the other. These types of arbitration are not exclusive, and the hearing officers may fashion remedies in accordance with whatever parameters are agreed to by the parties. Generally arbitration decisions are binding in nature and, unless otherwise stipulated by the parties, are appealable in only limited circumstances in the public court system. We do not currently offer any type of appeal procedure. Our arbitration decisions are generally enforceable in the public court system by following prescribed filing procedures in the applicable local jurisdiction. Mediation (Settlement Conferencing). The mediation method used by us is settlement conferencing, in essence a non-binding process. Settlement conferencing provides an opportunity for parties to reach an early, amicable resolution without undue expense and time-consuming litigation. The voluntary process of settlement conference mediation can be an effective tool for a wide variety of disputes, including tort claims and commercial conflicts. The parties and a hearing officer attend the settlement conference. Each party may choose to submit a settlement conference memorandum setting forth a brief summary of facts, indicating, for example, why each party has or does not have liability and, if applicable, a statement of the party's damages. At the settlement conference, each party is given an opportunity to describe the facts of the case and explain its position. Thereafter, the hearing officer meets privately with each side on an alternating basis to evaluate their respective cases, and receives proposed concessions that each party might make, and potential settlement figures that each party may offer, with a view toward guiding the parties to the settlement of their dispute. Settlement figures and possible concessions are typically not discussed between a party and the hearing officer without the other party's express consent to disclosing 22 its position. In the majority of instances, the settlement conference procedure results in the resolution of all issues. Other ADR Services. In addition to mediations and arbitrations, we offer, among other services, advisory opinions and specialized dispute resolution programs depending on the parties' particular needs. We also offer Case Resolution Days. Case Resolution Days are events usually scheduled at an insurance company client's office in which we arrange for parties to hold high volume direct settlement meetings without the participation of a hearing officer. If the individual meetings do not resolve the dispute, we provide a hearing officer to mediate the dispute if the parties wish to further pursue settlement. Video Conferencing. We have the ability to offer video conferencing capabilities. Clients can participate in and observe hearings without leaving their offices, using this service. This results in the reduction of certain costs to the client associated with the ADR process. This capability allows us to provide services to a wider range of clients on a geographical basis. In addition, the video conferencing equipment, which can be purchased or leased directly from us, has applications beyond the ADR area for clients. Marketing and Sales At the end of the second quarter of fiscal year 1999, we realigned our sales operations to enhance our ability to process a higher volume of cases as well as to better market our services to potential customers. We appointed certain account representatives as regional marketing supervisors. Regional marketing supervisors actively pursue new business as well as increase the volume of business with existing clients through in-person meetings, presentations, educational seminars relating to ADR services and periodic monitoring of a client's ADR activity. The remaining account representatives concentrate their time and efforts on processing case submissions and working closely with clients on a daily basis to ensure the highest level of customer satisfaction. Additionally, during the first quarter of fiscal year 2000, we designated a team of account representatives to concentrate their marketing efforts on our Internet case resolution service, clickNsettle.com. As of March 1, 2000, we employed 21 account representatives to market both our ADR and Internet case resolution services. Account representatives are salaried employees. For the most part, our Executive Vice Presidents supervise account executives. Account executives in the regional offices may first report to a regional manager who then reports to an Executive Vice President. The regional managers' employment agreements provide for additional compensation based on the profits of the manager's operation. With regard to the hiring and training of account executives, the Executive Vice Presidents are usually involved in the interview process. Account executives are trained over approximately a two-week period. This training period may vary depending on the overall abilities of each candidate, the level of prior experience and their aptitude to assimilate the required marketing skills. The training includes the development of sales/service techniques and the introduction to our customers. After this initial period, the new account executive's performance is closely monitored. In addition, staff meetings are generally held weekly to review progress against goals and to enhance marketing skills. The majority of our clients are insurance carriers and law firms. One insurance company customer represented approximately 9% and 12% of total revenues for the years ended June 30, 1999 and 1998, respectively. However, we work with more than 70 individual offices of the insurance 23 company, which in total equal the aforementioned percentages of revenue. The next largest insurance company customer represented approximately 3% of revenues for the years ended June 30, 1999 and 1998, respectively. The balance of the revenue base is distributed among approximately 2,200 clients in both fiscal years 1999 and 1998. We, when appropriate, seek contracts with our clients. Further, we are currently enhancing our efforts to obtain volume commitments from existing and new clients. Competition The ADR business is highly competitive, both on a national and regional level. We believe that barriers to entry in the private ADR business are relatively low, and new competitors can begin doing business relatively quickly. We believe this because the provision of ADR services only requires the consent of all parties to submit their dispute for resolution through a proposed ADR provider. There are two types of competitors: not-for-profit and for-profit entities. We believe the largest not-for-profit competitor is the American Arbitration Association and that they have a significant market share in complex commercial cases. The insurance industry has also continued its support for Arbitration Forums, a not-for-profit organization created to service primarily the insurance subrogation market. We believe that the domestic private ADR industry is, other than a few national entities, generally fragmented into small ADR service providers. We believe that Judicial Arbitration Mediation Services, Inc./Endispute ("JAMS") is the largest for-profit ADR provider in the country. Our competitors include, among others, o JAMS, o Cybersettle, o National Arbitration Forums and o Island Arbitration and Mediation. In addition, several public court systems, including the federal and certain state courts in New York, our major market, have instituted court-coordinated programs. To the extent that the public courts reduce case backlogs and provide effective dispute resolution mechanisms, our business opportunities in such markets may be significantly reduced. Increased competition could decrease the fee charged for our services, and limit our ability to obtain experienced hearing officers. This could have a materially adverse effect on our ability to be profitable in the future. In addition, we compete with other ADR providers to retain the services of qualified hearing officers. As compared to the majority of our competitors, we believe that we compete based primarily upon reputation, price, and the ability to manage scheduling of hearings effectively. We believe that we have certain advantages that enable us to better serve our clients. These advantages include: o a fully interactive case resolution Web site which enables parties to resolve disputes by making an unlimited number of blind and confidential settlement offers and demands via the Internet from anywhere in the world, 24 hours a day, 7 days a week; 24 o exclusive agreements with many of our qualified hearing officers, who are generally former judges; o account executives dedicated to specified clients; o the ability to monitor and control the scheduling of matters; and o videoconferencing capability that allows clients to participate in or observe a proceeding without leaving their office. We cannot assure you, however, that these perceived advantages will enable us to compete successfully in the future. Government Regulation ADR services that are offered by private companies, like us, are not presently subject to any form of local, state or federal regulation. ADR services that are offered by the public courts are subject to the rules set forth by each jurisdiction and the dictates of the individual judge assigned to preside over the dispute. Employees As of March 1, 2000, we employed 49 persons, including four part time employees; of these, five were in executive positions, three of which devote substantially all their attention to sales; 24 were sales managers and sales account representatives and the remaining 20 employees support our operations with respect to information technology, accounting, scheduling, confirming, billing and other administrative duties. We also currently utilize the services of various temporary employees who are eligible for long-term employment. Hearing Officers As of March 1, 2000, we maintained relationships with over 1,100 hearing officers and have exclusive agreements with respect to ADR proceedings with a number of these hearing officers. Such hearing officers accounted for approximately 65% of the number of cases handled by us for the year ended June 30, 1999. The balance of non-exclusive hearing officers makes their services available to us on a case-by-case basis. With the exception of the exclusive hearing officers, the remainder of our roster of hearing officers can provide their services to competing ADR providers. Compensation to the hearing officers is based on the number of proceedings conducted and the length of time of such proceedings. Properties We currently maintain two leased facilities, all of which are located in office buildings. We lease 6,330 square feet of space at 1010 Northern Boulevard, Great Neck, New York for our corporate headquarters and for providing ADR services in the metropolitan New York area. The lease expires December 2003. We also lease 1,320 square feet of space, which lease expires November 2000, for our North Easton, Massachusetts office. We believe this space is adequate for our reasonably anticipated future needs. 25 The aggregate rental expense for all of our offices was $191,983 during the year ended June 30, 1999. Legal Proceedings There is no material litigation currently pending against us. 26 MANAGEMENT The following table sets forth certain information regarding our executive officers and directors:
Name Age Position ---- --- -------- Roy Israel 40 Chief Executive Officer, President and Chairman of the Board of Directors Cynthia Sanders 40 Vice President, Sales Development and Director Daniel Jansen 36 National Accounts Manager and Director Patricia Giuliani-Rheaume 42 Chief Financial Officer, Vice President and Treasurer Robert P. Mack 30 Executive Vice President of clickNsettle.com, LLC Kathleen O'Donnell 36 Executive Vice President of Client Services Ronald Katz 43 Director Jeffrey L. Lederer 52 Director Anthony J. Mercorella 76 Director
Mr. Israel has been our Chairman of the Board of Directors, Chief Executive Officer, and President since February 1994. Immediately prior to holding such positions, Mr. Israel was President, Director, and founder of National Arbitration & Mediation, Inc. ("NA&M"), a wholly-owned subsidiary of the Company until merged with the Company in June 1999. Ms. Sanders has been Vice President, Sales Development since December 1999 and was Executive Vice President from February 1994 through December 1999. Immediately prior to holding such positions, Ms. Sanders was the Executive Vice President of NA&M since May 1993. She has been one of our directors since February 1994. Mr. Jansen has been our National Accounts Manager since June 1997. Prior to such date, he had served as the Director of Regional Offices of the Company since February 1994. Immediately prior to holding such positions, he had been a Senior Account Executive with NA&M since September 1992. He has been one of our directors since February 1994. Ms. Giuliani-Rheaume has been our Vice President, Chief Financial Officer, and Treasurer of the Company since February 1997. Immediately prior to holding such positions, Ms. Giuliani-Rheaume was the Vice President and Corporate Controller of The Robert Plan Corporation, an insurance services company, since April 1991. Prior thereto, Ms. Giuliani-Rheaume was an audit 27 senior manager with KPMG Peat Marwick LLP. Ms. Giuliani-Rheaume is a certified public accountant and a member of the AICPA and the New York State Society of CPAs. Mr. Mack has been Executive Vice President of clickNsettle.com, LLC, a wholly owned subsidiary of the Company, since September 1999. Immediately prior thereto, Mr. Mack held various positions at Ingersoll-Rand and/or its subsidiaries since 1993: Manager of Business Development from January 1999 to September 1999; Regional Manager, Asia/Pacific, from March 1996 to December 1998 and Senior Auditor from August 1993 to February 1996. Prior thereto, Mr. Mack was a senior accountant at KPMG Peat Marwick LLP. Mr. Mack is a certified public accountant. Ms. O'Donnell has been our Executive Vice President of Client Services since February 2000. Immediately prior to holding such position, Ms. O'Donnell was our Vice President, Marketing since February 1999. Prior thereto, Ms. O'Donnell held various positions with NAM since 1994: New York Regional Manager from March 1997 to February 1999; Team Leader from December 1995 to March 1997 and Account Executive from September 1994 to December 1995. Mr. Katz is a partner at Rubin & Katz LLP, a Certified Public Accounting Firm and has been affiliated with such firm since December 1986. Mr. Katz is a certified public accountant and a member of the AICPA and the New York State Society of CPAs. He has been one of our directors since February 1998. Mr. Lederer is currently a senior principal of Brook Asset Management LLC and was a general partner of Glickenhaus Company until December 1995. Prior thereto, he was a general partner of Neuberger & Berman, a New York investment firm. He has been one of our directors since July 1999. Hon. Mercorella is a senior partner of the law firm of Wilson, Elser, Moskowitz, Edelman & Dicker and has been a partner with such firm since 1984, which he joined upon his retirement as a Justice of the Supreme Court of the State of New York. Judge Mercorella also serves as a hearing officer for the Company. He has been one of our directors since February 1997. Committees of the Board of Directors The Compensation Committee is authorized to review and make recommendations to the Board of Directors on all matters regarding the remuneration of our executive officers, including the administration of our compensation plans, other than our Stock Option Plan. The current member of this Committee is Mr. Mercorella. The Audit Committee is responsible for making recommendations to the Board of Directors as to the selection of our independent auditor, maintaining communication between the Board and the independent auditor, reviewing the annual audit report submitted by the independent auditor, and determining the nature and extent of issues, if any, presented by such audit warranting consideration by the Board. The current members of this Committee are Mr. Katz and Mr. Lederer. The Special Financing Committee is responsible for negotiating, finalizing and executing all proposed financing transactions. The current members of this Committee are Mr. Israel, Mr. Katz and Mr. Lederer. 28 Directors' Compensation Non-employee directors receive a fee of $250 for each meeting of the Board attended, a fee of $150 for each meeting of any committee of the Board attended and reimbursement of their actual expenses. In addition, pursuant to our Amended and Restated 1996 Incentive and Nonqualified Stock Option Plan (the "Plan"), each non-employee director will be granted options to purchase 2,500 shares of our common stock per annum at an exercise price equal to the closing bid price of the underlying common stock as reported by the Nasdaq SmallCap Market on the date of grant, which shall be the last trading date in June of each year. Compensation Committee Interlocks No interlocking relationships exist between the Board of Directors or the Compensation Committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationships existed in the past. Employment Contracts and Termination of Employment and Change In Control Arrangements Roy Israel. Mr. Israel's employment agreement with the Company expires June 30, 2002. Pursuant to this agreement, he currently receives an annual base salary of $252,810, an annual base salary increase equal to the greater of 6% or an amount which reflects the increase in the Urban Consumer Price Index, and an annual bonus at the discretion of the Board of Directors. In addition, the agreement provides, among other things, that NAM shall pay up to an aggregate of $15,000 per policy year for a key man life insurance policy in favor of the Company for $1,000,000 and life insurance in favor of the estate of Mr. Israel, as well as a disability policy for coverage of 60% of his base salary, and an allowance for leasing an automobile (up to a monthly lease payment of $1,000.) If his duties are changed without his consent and such change results in Mr. Israel no longer being our most senior executive officer, then he is entitled to terminate the agreement and receive three times of his then current base salary, payable over a one year period, and the maintenance of his benefits for a one year period or until the end of the term of the agreement, whichever is longer. In addition, if within two years of a change in control of the Company, as such term is defined in the agreement, Mr. Israel is terminated without cause or the agreement is terminated by Mr. Israel due to a change of duties, Mr. Israel shall receive a lump sum payment equal to three times his then current base salary, and the maintenance of his benefits for one year. The agreement also contains a one-year non-competition clause if the agreement is terminated for any reason or upon expiration. Cynthia Sanders. Ms. Sanders's employment agreement with the Company expires June 14, 2001 (with automatic one-year renewals unless terminated within 60 days of the end of an employment term by either party). Pursuant to this agreement, she currently receives an annual base salary of approximately $92,500, an annual base salary increase equal to 5% and an annual bonus at the discretion of our Chief Executive Officer. In addition, the agreement provides, among other things, that we shall pay for full family health insurance, and a $400 a month allowance for leasing an automobile. The agreement also contains a one-year non-competition clause if the agreement is terminated for any reason or upon expiration. Patricia Giuliani-Rheaume. Ms. Giuliani-Rheaume's employment agreement with the Company currently expires December 31, 2000. It automatically renews for one-year terms unless terminated within 45 days of the end of an employment term by either party. Pursuant to this agreement, she 29 currently receives an annual base salary of $135,000, an annual bonus at the discretion of the Company's Chief Executive Officer, and options to purchase 40,000 shares of common stock. In addition, the agreement provides, among other things, that we shall pay for a life insurance policy of $250,000, full family health insurance, and a $400 a month allowance for leasing an automobile. The agreement also contains a one-year non-competition clause if the agreement is terminated for any reason or upon expiration. If the agreement is terminated without cause, Ms. Giuliani-Rheaume shall receive a payment of severance of an amount equal to six months of the base salary in effect at such time. Robert P. Mack. Mr. Mack's employment agreement with the Company expires September 12, 2000. Pursuant to this agreement, he is entitled to receive an annual base salary of $100,000, an annual bonus at the discretion of the Company, a signing bonus of $22,000 to cover costs of relocation, a payment of $23,430 plus tax gross up to cover tuition costs to be repaid to his former employer and options to purchase 75,000 shares of common stock. In addition, the agreement provides that Mr. Mack shall be entitled to participate in our benefits programs and shall be entitled to a $400 a month allowance for leasing an automobile. The agreement also contains a one-year non-competition clause if the agreement is terminated for any reason or upon expiration. Executive Compensation and Other Information The following summarizes the aggregate compensation paid during fiscal year 1999 to the Company's Chief Executive Officer and any officer who earned more than $100,000 in salary and bonus pursuant to their contracts (the "Named Persons"):
Summary Compensation Table Long Term Other Annual Compensation Compensation Compensation Other Annual All Other Name and Principal Position Year Salary Bonus Compensation Options Compensation(1) - --------------------------- ---- ------ ----- ------------ ------- --------------- Roy Israel, President, Chief 1999 $239,417 $60,000 $18,064(1) 210,000(2) $ 14,110(3) Executive Officer and Chairman 1998 $225,865 $25,000 $14,924(1) 60,000 $ 14,110(3) of the Board 1997 $ 94,202 -- -- -- $124,000(4) Cynthia Sanders, Executive 1999 $105,197 -- -- 52,600(2) $ 2,500(3) Vice President and Director 1998 $ 96,271 -- -- 35,000 $ 2,500(3) 1997 $ 90,675 -- -- $ 2,500(3) Patricia Giuliani-Rheaume, Vice 1999 $124,746 -- -- 43,400(2) $ 2,400(3) President, Chief Financial 1998 $118,965 -- -- 20,000 $ 2,400(3) Officer and Treasurer 1997 $ 47,292 $5,000 -- 40,000 $ 1,000(3)
- ---------- (1) Such amount represents tax gross ups for Mr. Israel for medical, life and disability payments. (2) Such figure is also reflected in the table for Options Granted in Last Fiscal Year. (3) Such amount represents premium payments on life insurance policies for the named executive officer. (4) Such amount includes life insurance expenses and a one-time insurance pay out in the amount of $43,000 pursuant to Mr. Israel's former employment contract that terminated on June 30, 1997. 30
Option Granted in the last fiscal year Name and Principal Number of Securities % of Total Exercise or Base Market Expiration Date Position Underlying Options Options Price Price on of the Options Granted Granted to Date of Employees in Grant Fiscal Year Roy Israel 210,000 35.6% (A) $1.375 (B) Cynthia Sanders 52,600 8.9% $1.375 $1.375 11/18/08 Patricia Giuliani-Rheaume 43,400 7.3% $1.375 $1.375 11/18/08
(A) 114,000 options are exercisable at a price of $1.375 per share and 96,000 options at a price of $1.5125 per share. (B) The expiration date for 114,000 options is 11/18/08 and the expiration date for 96,000 options is 11/18/03. Stock Option Plan Our Amended and Restated 1996 Incentive and Nonqualified Stock Option Plan allows us to grant options to our employees, officers, directors, consultants and advisors to purchase up to 2,000,000 shares of our common stock. The Plan is administered by the board of directors, which has the authority to designate the number of shares to be covered by each award and the vesting schedule of such award, among other terms. The option period during which an option may be exercised shall not exceed ten years from the date of grant and will be subject to such other terms and conditions of the Plan. Unless the board of directors provides otherwise, option awards terminate when a participant's employment or services end, except that a participant may exercise an option to the extent that it was exercisable on the date of termination for a period of time thereafter. Directors who are not officers of the Company receive annually, on the last trading day of June, stock options for 2,500 shares at an exercise price equal to the fair market value of the stock on the date of the grant. As of March 1, 2000, 1,115,500 shares of our common stock have been granted under our Stock Option Plan. Indemnification of Directors and Executive Officers and Limitation of Liability Our certificate of incorporation provides that none of our directors shall be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability o for any breach of the director's duty of loyalty to us or our stockholders; o for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; o under section 174 of the General Corporation Law; or 31 o for any transaction from which such director derives improper personal benefit. The effect of this provision is to eliminate our rights and those of our stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of his or her fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described above. The limitations summarized above, however, do not affect our ability or that of our stockholders to seek nonmonetary remedies, such as an injunction or rescission, against a director for breach of his or her fiduciary duty. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers, or persons controlling our Company pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. No dealer, salesperson, or other person has been authorized to give any information or to make any representations other than those contained in this prospectus and, if given or made, such information or representations must not be relied upon as having been authorized. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs since the date hereof or that the information contained herein is correct as of any date subsequent to the date hereof. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered hereby by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making the offer is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. 32 PRINCIPAL STOCKHOLDERS The following table sets forth, as of March 1, 2000, certain information with respect to the beneficial ownership of each class of the Company's equity securities by each director and director nominee, beneficial owners of 5% or more of common stock of the Company, the Named Persons and all directors and executive officers of the Company as a group:(1)
Amount and Nature of Name of Beneficial Owner(2) Beneficial Ownership Percent of Total - --------------------------- -------------------- ---------------- Roy Israel (3) 1,394,889 38.4% President, Chief Executive Officer and Chairman of the Board Cynthia Sanders(4) 174,355 5.0% Vice President and Director Daniel Jansen 23,165 * National Accounts Manager and Director Ronald Katz(5) 103,000 3.0% Director Jeffrey L. Lederer(6) 75,000 2.1% Director Anthony J. Mercorella(7) 6,000 * Director Joseph Stevens & Company, Inc. 286,073 7.7% (8) All Officers and Directors as a 1,868,809 48.1% Group (9 persons) (3)(4)(5)(6)(7)(9)
- ------------------- * Less than one percent (1%). (1) Applicable percentage of ownership is based on 3,442,233 shares of common stock, which were outstanding on March 1, 2000, plus, for each person or group, any securities that person or group has the right to acquire within sixty (60) days pursuant to options and warrants. 33 (2) The address for each individual is c/o NAM Corporation, 1010 Northern Boulevard, Suite 336, Great Neck, New York 11021. (3) Includes options to purchase 165,000 shares of common stock and warrants to purchase 7,000 shares of common stock, all of which have vested and are exercisable. Also includes 61,903 shares owned by Mr. Israel's wife, Carla Israel, the Secretary of the Company, and options to purchase 17,750 shares of the Company's common stock which is fully vested and exercisable. Mr. Israel disclaims beneficial ownership as to such shares. (4) Includes options to purchase 61,300 shares of the Company's common stock, which have fully vested and are exercisable. (5) Includes warrants to purchase 7,500 shares of the Company's common stock, which are vested and exercisable, and options to purchase 3,500 shares of the Company's common stock, which are fully vested and exercisable. (6) Consists of warrants to purchase 75,000 shares of common stock which are fully vested and exercisable. (7) Includes warrants to purchase 1,000 shares of common stock, which are currently exercisable and options to purchase 3,000 shares of the Company's common stock, which are fully vested and exercisable. (8) 31,023 shares and 10,050 warrants are held in Joseph Stevens & Company, Inc.'s market making account. This information was taken from Form 13G as filed by Joseph Stevens & Company, Inc. on February 10, 1999 as well as other information known to the Company. On such form, Joseph Stevens & Company, Inc. listed Joseph Sorbara and Steven Markowitz as controlling shareholders and directors of Joseph Stevens & Company, Inc., and therefore, as beneficial owners of these same shares and warrants. (9) Includes (i) options to purchase 81,700 shares of common stock held by Patricia Giuliani-Rheaume, the Chief Financial Officer and Treasurer of the Company, which have vested and are fully exercisable; (ii) options to purchase 10,000 shares of common stock held by Kathleen O'Donnell, the Executive Vice President of Client Services, which have vested and are fully exercisable; and (iii) warrants to purchase 400 shares of common stock, which are currently exercisable, and 300 shares of common stock held by Robert P. Mack, Executive Vice President of clickNsettle.com, LLC. CERTAIN TRANSACTIONS In the last two years, there has not been, nor is there currently proposed, any material transactions between us and any of our officers, directors, or 5% stockholders, other than compensation agreements and other arrangements, which are described where required in "Management." On March 25, 1998, we announced our intention to acquire, in open market transactions, up to 300,000 shares of our common stock. On March 25, 1999 we extended the plan by an additional 300,000 shares of our common stock. Purchases, if any, are to be made from time to time at prevailing market prices through March 25, 2000. Purchases may be discontinued at any time with or without 34 purchasing any or all of the 600,000 shares. As of March 1, 2000, we have not acquired any such shares of our common stock. DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 15,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of Preferred Stock, $0.001 par value per share, 2,100 of which have been designated as Series A Exchangeable Preferred Stock. As of March 1, 2000, there were 3,442,233 shares of common stock and 1,850 shares of Series A Exchangeable Preferred Stock outstanding. Common Stock Subject to preferences that may be applicable to any prior rights of holders of outstanding stock having prior rights as to dividends, the holders of outstanding shares of our common stock are entitled to receive dividends out of assets legally available therefore at such times and in such amounts as the Board from time to time may determine. Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders. Cumulative voting for the election of directors is not authorized by our certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding stock having prior rights on such distributions and payment of other claims of creditors. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be upon payment therefor, duly and validly issued, fully paid and nonassessable. Equity Line of Credit. On February 16, 2000, we entered into an Equity Line of Credit Agreement with Moldbury Holdings Limited. Under this agreement, we have the right, until February 15, 2003, to require that Moldbury Holdings Limited purchase between $500,000 and $7,000,000 of our common stock. The maximum and minimum amounts that we can require Moldbury Holdings Limited to purchase at any given time is subject to a floating number based on our closing bid price and our average trading volume in a thirty day period. The price per share in each such purchase shall be the greater of (i) 89% of the average closing bid price for the day of our notice to Moldbury Holdings Limited requesting its purchase and the two days preceding our notice and the two days following our notice and (ii) the minimum price set by us for such purchase. Moldbury Holdings Limited is not required to make any purchase if the shares being purchased are not registered pursuant to a then-effective registration statement. Preferred Stock The Board is authorized, subject to any limitations prescribed by Delaware law, to issue preferred stock in one or more series. The Board can fix the rights, preferences and privileges of the shares of each series and any qualifications, limitations or restrictions thereon. The Board may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of 35 preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes could, among other things, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of NAM. We have designated 2,100 shares of our preferred stock as Series A Exchangeable Preferred Stock. The Series A Exchangeable Preferred Stock has the following terms: o No voting rights, except that holders of 75% of the Series A Exchangeable Preferred Stock must approve changes to the Certificate of Designation for the Series A Exchangeable Preferred Stock and issuances of our securities with rights senior to the Series A Exchangeable Preferred Stock. o Dividends accrue at a rate of 4% annually, unless our 30 day average trading price is equal to or greater than $9.00 at any time after July 15, 2000, in which case dividends will cease to accrue and accrued but unpaid dividends will be canceled. Dividends may be paid, at our option, in cash or in registered common stock. o In the event of our liquidation, the holders of the Series A Exchangeable Preferred Stock shall receive, before any payments to our common stock holders, $1,000 per share plus any accrued but unpaid dividends. o In the event of a change in control of the corporation the holders of the Series A Exchangeable Preferred Stock may receive, before any payments to our common stock holders, $1,000 per share plus any accrued but unpaid dividends. o Holders of the Series A Exchangeable Preferred Stock may exchange such shares into shares of our common stock at any time and must exchange such shares upon our written request which cannot be made until the earlier of February 14, 2002 or the date upon which the average closing bid price of our common stock for five consecutive trading days is at least $10.00 and our average daily trading volume for the thirty consecutive trading days ending on the fifth day is at least 40,000 shares and the common stock underlying the outstanding Series A Exchangeable Preferred Stock is registered pursuant to a then-effective registration statement. o Until July 15, 2000 the exchange rate for each share of the Series A Exchangeable Preferred Stock is equal to the stated value of $1,000 divided by the Set Price, which is $10.45. o On July 15, 2000 and after, the exchange rate for each share of Series A Exchangeable Preferred Stock is equal to $1,000 divided by the lesser of (i) the Set Price or (ii) the Market Price, which is the average of any three consecutive closing bid prices of our common stock during the thirty trading day period ending on the day immediately prior to the exchange. o In the event that at the time of any exchange, the exchange rate per share is less than $6.00, at our option, we can pay the exchange in common stock, cash, or a combination of common stock and cash. o Until February 14, 2001, the exchange rate will never be greater than the Set Price or less than $2.375. 36 o After the earlier of an underwritten secondary offering of our common stock or August 15, 2000, we can redeem the Series A Exchangeable Preferred Stock, in whole or in part, at a price equal to $1,400 per share, plus accrued, but unpaid dividends. Warrants In connection with the sale to certain investors of the Series A Exchangeable Preferred Stock, we issued warrants to purchase up to 46,250 shares of our common stock at a price per share of $10.52, exercisable on or after August 15, 2000 and expiring on the close of business on August 15, 2005. In connection with the Equity Line of Credit Agreement with Moldbury Holdings Limited, we issued a warrant to Moldbury Holdings Limited to purchase up to 60,000 shares of common stock at a price per share of $9.34, seventy-five percent (75%) of which vested and became exercisable on February 17, 2000 and the remaining twenty-five percent (25%) which will vest and become exercisable after Moldbury Holdings Limited has invested three million five hundred thousand dollars ($3,500,000) to purchase shares of common stock under the terms and conditions of the Equity Line of Credit Agreement. Such warrants expire on the close of business on February 17, 2003. Redeemable Warrants Each Warrant entitles the registered holder thereof to purchase one share of common stock at a price of $6.00, subject to adjustment in certain circumstances. These warrants expire on November 13, 2001. The Warrants are redeemable by us at any time, subject to the prior written consent of Joseph Stevens & Company, the managing underwriter in our initial public offering, upon written notice of not less than 30 days, at a price of $.05 per Redeemable Warrant, provided that the closing bid price of our common stock on Nasdaq (or last sale price if quoted on a national securities exchange) equals or exceeds 150% of the warrant exercise price per share for any 20 trading days within a period of 30 consecutive trading days ending on the fifth trading day prior to the date of the notice of redemption. The Warrant Holders shall lose their right to exercise their Warrants if such right is not exercised prior to redemption by the Company on the date for redemption specified in the notice of redemption or any later date specified in a subsequent notice. The exercise price and number of shares of common stock or other securities or property issuable on exercise of the Redeemable Warrants are subject to adjustment in certain circumstances, including in the event of a stock dividend, recapitalization, reorganization, merger or consolidation of the Company. The Warrant holders do not have the rights or privileges of holders of common stock. Upon notice to the holders of the Redeemable Warrant, we have the right to reduce the exercise price or extend the expiration date of the Redeemable Warrants. The Redeemable Warrants may be exercised upon surrender of the Redeemable Warrant certificate on or prior to the respective expiration date (or earlier redemption date) of such Warrants at the office of Continental Stock Transfer & Trust Company, the agent for the Warrants, with a completed and executed "Election of Purchase" form and payment of the full exercise price for the number of Warrants being exercised. 37 Transfer Agent, Warrant Agent, and Registrar Our Transfer Agent, Warrant Agent, and Registrar is Continental Stock Transfer & Trust Company. Their address is 2 Broadway, New York, New York 10004. SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION The shares of common stock and Redeemable Warrants offered hereby for sale by Joseph Stevens & Company and by Marc Steinberg will be acquired by such Selling Securityholders upon exercise of Unit Warrants and upon exercise of the Warrants underlying the Unit Warrants. The Unit Warrants were sold to Joseph Stevens & Company, the Managing Underwriter of our initial public offering, for an aggregate purchase price of $14 in connection with our IPO as part of their underwriting compensation. The Unit Warrants, which are exercisable during the four-year period commencing November 13, 1997, entitle the holders thereof to purchase, in the aggregate, up to 140,000 shares of common stock at an exercise price of $5.80 per share and up to 140,000 Warrants to purchase 140,000 shares of common stock at an exercise price of $6.00 per share. The shares of common stock offered hereby for sale by Moldbury Holdings Limited, Trinity Capital Advisors, Inc. and the holders of our Series A Exchangeable Preferred Stock have been or will be acquired by such Selling Securityholders pursuant to our Equity Line of Credit Agreement or a private placement of our Series A Exchangeable Preferred Stock which was completed on February 16, 2000 and February 15, 2000 respectively. The table below sets forth certain information, as of the date of this prospectus, with respect to the amount and percentage ownership of each selling shareholder before this offering, the number of shares covered by this prospectus with respect to each selling shareholder, and the amount and percentage ownership of each selling shareholder after this offering, assuming that all of the shares covered by this prospectus are sold by the selling shareholders. None of the selling shareholders has had any position, office, or other material relationship with us within the past three years, other than as a result of the ownership of the shares or other securities of ours.
Selling Security Holders Number of Shares Number of % Owned Before % Owned After Name of Security Holder being Registered Warrants Offering(1) Offering(2) - ----------------------- ----------------- --------- ----------- ----------- Joseph Stevens & Co. 122,500 122,500 3.7 * Marc Steinberg 8,376 8,376 * * Moldbury Holding Limited 1,850,000 60,000 24.6 * Trinity Capital Advisors, Inc. 10,000 - * * Esquire Trade & Finance Inc. 121,622 11,250 1.7 * Austinvest Anstalt Balzers 114,865 10,625 1.6 * AMRO International, S.A. 236,486 21,875 3.3 * Mabcrown, Inc. 27,027 2,500 * * Total 2,490,876 237,126
- -------------- * Less than one percent (1%). Assuming no purchase by any Selling Private Placement Stockholder of Units, Common Stock or Redeemable Warrants offered in the Offering. (1) Based upon a total number of shares of Common Stock outstanding of 7,770,235. 38 (2) Based upon a total number of shares of Common Stock outstanding of 7,770,235. The shares and Redeemable Warrants held by the Selling Securityholders may be sold or otherwise disposed of from time to time by the Selling Securityholders, or by pledgees, donees, tranferees or other successors in interest thereof, should they or any such other parties determine to make such sales. We are unable to predict whether or when they will determine to proceed with sales of common stock and/or Redeemable Warrants, as such determination will be made by the Selling Securityholders or such other parties. The sale or other disposition of common stock and/or Redeemable Warrants by the Selling Securityholders, or by pledgees, donees, transferees or other successors in interest thereof, may be effected from time to time in transactions (which may include block transactions) on the Nasdaq SmallCap Market, the over-the-counter market or otherwise, in private sales or in negotiated transactions, through the writing of options on common stock or Redeemable Warrants, or a combination of such methods of sale, at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices. The Selling Securityholders or such other parties may effect such transactions by selling common stock or Redeemable Warrants to or through broker-dealers or otherwise, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of common stock and/or Redeemable Warrants for whom such broker-dealers may act as agent or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). In addition, any common stock or Redeemable Warrants covered by this prospectus which qualify for sale pursuant to Rule 144 promulgated under the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus. Under the Exchange Act and the regulations thereunder, any person engaged in a distribution of the shares of common stock offered by this prospectus may not simultaneously engage in market making activities with respect to the shares of common stock during the applicable 'cooling off' periods prior to the commencement of such distribution. In addition, and without limiting the foregoing, the Selling Securityholders will need to comply with applicable provisions of the Exchange Act and the rules and regulations thereunder, which provisions may limit the timing of purchases and sales of common stock by the Selling Securityholders. The Selling Securityholders and any broker-dealers that act in connection with the sale of common stock and/or Redeemable Warrants hereunder might be deemed to be 'underwriters' within the meaning of Section 2(11) of the Securities Act and any commissions received by them and any profit on the resale of common stock or Redeemable Warrants as principal might be deemed to be underwriting discounts and commissions under the Securities Act. We have agreed to pay all expenses of registration incurred in connection herewith; provided, however, that all selling and other expenses incurred by the Selling Securityholders will be paid by the Selling Securityholders. 39 SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices of our common stock. Upon the consummation of this offering, the Company will have 7,663,985 shares of common stock outstanding (assuming complete draw down of equity line and no exercise of any outstanding options or warrants from financing arrangements), of which 6,222,426 shares of common stock will be freely tradable without restriction or further registration under the Securities Act, unless such shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. The remaining 1,441,559 shares of common stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or 701 promulgated under the Securities Act, which rules are summarized below. Rule 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: o 1% of the number of shares of common stock then outstanding; or o the average weekly trading volume of the common stock on the Nasdaq SmallCap Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately upon the completion of this offering. Rule 701 In general, under Rule 701 of the Securities Act as currently in effect, any of our employees, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement is eligible to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144. 40 LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Camhy Karlinsky & Stein LLP, New York, New York. A member of our the firm has options in the Company to purchase 6,000 shares of common stock. EXPERTS Our consolidated financial statements as of June 30, 1999 and June 30, 1998 and the years ended June 30, 1999 and 1998 included in this prospectus have been so included in reliance upon the report of Grant Thornton LLP, independent certified public accountants, given on the authority of such firm as experts in auditing and accounting. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Our certificate of incorporation provides that none of our directors shall be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability o for any breach of the director's duty of loyalty to us or our stockholders; o for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; o under section 174 of the General Corporation Law; or o for any transaction from which such director derives improper personal benefit. The effect of this provision is to eliminate our rights and those of our stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of his or her fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described above. The limitations summarized above, however, do not affect our ability or that of our stockholders to seek nonmonetary remedies, such as an injunction or rescission, against a director for breach of his or her fiduciary duty. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers, or persons controlling our Company pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. No dealer, salesperson, or other person has been authorized to give any information or to make any representations other than those contained in this prospectus and, if given or made, such information or representations must not be relied upon as having been authorized. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs since the date hereof or that the information contained herein is correct as of any date subsequent to the date hereof. This prospectus does not constitute an 41 offer to sell or a solicitation of an offer to buy any securities offered hereby by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making the offer is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. MARKET FOR OUR COMMON EQUITY Our common stock and Redeemable Warrants are quoted on the NASDAQ SmallCap Market under the trading symbols "NAMC" and "NAMCW," respectively, and have been quoted since we commenced public trading on November 18, 1996. We voluntarily delisted our units, which consisted of one share of common stock and one Redeemable Warrant, from trading on January 26, 1998 in order to avoid confusion in the marketplace and to avoid additional and future administrative costs. Prior to November 18, 1996, there was no public market for our securities. The following table sets forth the range of high and low closing sales prices (based on transaction data as reported by the NASDAQ SmallCap Market) for each fiscal quarter during the periods indicated.
Units Common Stock Warrants High Low High Low High Low Fiscal Year 2000: First Quarter (7/1/99-9/30/99) NA NA $9.00 $2.00 $3.31 $1.03 Second Quarter (10/01/99-12/31//99) NA NA 8.09 4.68 2.68 1.06 Fiscal Year 1999: First quarter (07/l/98-9/30/98) NA NA $2.75 $1.25 $0.38 $0.13 Second quarter (10/01/98-12/31/98) NA NA 2.16 1.00 0.25 0.06 Third quarter (01/01/99-03/31/99) NA NA 1.63 0.69 0.19 0.13 Fourth quarter (04/01/99-06/30/99) NA NA 1.75 0.81 0.44 0.09 Fiscal Year 1998: First quarter (07/l/97-9/30/97) $4.72 $3.50 $3.88 $2.63 $1.38 $0.63 Second quarter (10/01/97-12/31/97) 5.13 3.50 4.25 2.81 1.41 0.88 Third quarter (01-01/98-3/31/98) 4.50 3.75 4.00 2.00 1.25 0.44 Fourth quarter (04/01/98-06/30/98) NA NA 2.38 1.50 0.50 0.22
On March 15, 2000 the closing bid price for the common stock and Warrants, as reported by the NASDAQ SmallCap Market, were $7.41 and $2.53, respectively. As of March 1, 2000 there were in excess of 300 holders of the Company's securities. 42 FINANCIAL STATEMENTS Grant Thornton LLP, independent public accountants, have audited our consolidated financial statements for the fiscal years ended June 30, 1999 and 1998. Information in response to this item is set forth in the Financial Statements, beginning on Page F-1 of this filing. 43 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Report of Independent Certified Public Accountants F-2 Financial Statements Consolidated Balance Sheets at December 31, 1999 (unaudited) and June 30, 1999 F-3 Consolidated Statements of Operations for the six months ended December 31, 1999 and 1998 (unaudited) and the years ended June 30, 1999 and 1998 F-4 Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Loss for the six months ended December 31, 1999 and 1998 (unaudited) and the years ended June 30, 1999 and 1998 F-5 Consolidated Statements of Cash Flows for the six months ended December 31, 1999 and 1998(unaudited) and the years ended June 30, 1999 and 1998 F-7 Notes to Consolidated Financial Statements F-8 - F-24 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders NAM Corporation We have audited the accompanying consolidated balance sheets of NAM Corporation and Subsidiaries (the "Company") as of June 30, 1999 and 1998, and the related consolidated statements of operations, changes in stockholders' equity and comprehensive loss, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of NAM Corporation and Subsidiaries as of June 30, 1999 and 1998, and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ GRANT THORNTON LLP Melville, New York August 30, 1999 F-2 NAM Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS
December 31, June 30, ASSETS 1999 1999 --------------- ------- (unaudited) CURRENT ASSETS Cash and cash equivalents $ 866,020 $ 1,776,261 Marketable securities 638,318 436,283 Accounts receivable (net of allowance for doubtful accounts of $110,000) 445,037 515,088 Other receivables 42,808 86,496 Prepaid expenses 66,908 79,918 ------------ ------------ Total current assets 2,059,091 2,894,046 FURNITURE AND EQUIPMENT - AT COST, less accumulated depreciation 306,201 269,393 OTHER ASSETS 30,712 37,514 ------------ ------------ $ 2,396,004 $ 3,200,953 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 253,207 $ 313,740 Accrued liabilities 202,404 249,551 Accrued payroll and employee benefits 45,536 166,620 Deferred revenues 230,379 238,224 ----------- ----------- Total current liabilities 731,526 968,135 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock - $.001 par value; 5,000,000 shares authorized; none issued - - Common stock - $.001 par value; 15,000,000 shares authorized; shares issued and outstanding, 3,416,233 and 3,370,739, respectively 3,416 3,371 Additional paid-in capital 4,828,875 4,797,637 Accumulated deficit (3,203,116) (2,663,446) Accumulated other comprehensive income 35,303 95,256 ------------ ------------ Total stockholders' equity 1,664,478 2,232,818 ------------ ------------ $ 2,396,004 $ 3,200,953 ============ ============
The accompanying notes are an integral part of these statements. F-3 NAM Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended December 31, Year ended June 30, --------------------------------- ------------------------- 1999 1998 1999 1998 -------------- -------------- ----------- --------- (unaudited) (unaudited) Net revenues $1,975,752 $2,112,256 $ 4,158,506 $ 3,847,975 --------- --------- ---------- ---------- Operating costs and expenses Cost of services 494,408 565,788 1,081,309 969,345 Sales and marketing expenses 1,057,295 1,118,863 2,048,058 2,090,591 General and administrative expenses 1,219,421 1,100,676 2,256,309 1,932,158 --------- --------- ---------- ---------- 2,771,124 2,785,327 5,385,676 4,992,094 --------- --------- ---------- ---------- Loss from operations (795,372) (673,071) (1,227,170) (1,144,119) Other income (expenses) Investment income (loss) 244,535 (259,432) (85,581) 510,063 Other income 11,167 10,102 17,986 4,922 --------- --------- ---------- ---------- 255,702 (249,330) (67,595) 514,985 --------- --------- ---------- ---------- Loss before income taxes (539,670) (922,401) (1,294,765) (629,134) Income taxes - - - - --------- --------- ---------- ---------- NET LOSS $ (539,670) $ (922,401) $(1,294,765) $ (629,134) ========= ========= ========== ========== Net loss per common share - basic and diluted $(.16) $(.28) $(.39) $(.19) ==== ==== === === Weighted average shares outstanding - basic and diluted 3,413,185 3,334,978 3,337,623 3,334,978 ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. F-4 NAM Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS Six months ended December 31, 1999 (unaudited) and years ended June 30, 1999 and 1998
Accumulated Common stock Additional other ------------------------ paid-in Accumulated comprehensive Shares Amount capital deficit income (loss) ---------- ------- --------- ------------- -------------- Balances at July 1, 1997 3,334,978 $3,335 $4,772,569 $ (739,547) $ 79,224 Compensation related to stock option plan 5,610 Net loss (629,134) Change in unrealized gain (loss) on marketable securities (138,112) Earned portion of stock bonus plan --------- ------ ---------- ----------- --------- Comprehensive loss Balances at June 30, 1998 3,334,978 3,335 4,778,179 (1,368,681) (58,888) Compensation related to stock option plan 19,494 Shares issued pursuant to restricted stock award 35,761 36 (36) Net loss (1,294,765) Change in unrealized gain (loss) on marketable securities 154,144 Earned portion of stock bonus plan --------- ------ ---------- ----------- --------- Comprehensive loss Balances at June 30, 1999 (brought forward) 3,370,739 3,371 4,797,637 (2,663,446) 95,256
[RESTUB]
Unearned compensation - Total stock stockholders' Comprehensive bonus plan equity loss ------------- ------------- ------------- Balances at July 1, 1997 $(205) $4,115,376 Compensation related to stock option plan 5,610 Net loss (629,134) $ (629,134) Change in unrealized gain (loss) on marketable securities (138,112) (138,112) Earned portion of stock bonus plan 102 102 ---- ----------- ------------ Comprehensive loss $ (767,246) =========== Balances at June 30, 1998 (103) 3,353,842 Compensation related to stock option plan 19,494 Shares issued pursuant to restricted stock award Net loss (1,294,765) $(1,294,765) Change in unrealized gain (loss) on marketable securities 154,144 154,144 Earned portion of stock bonus plan 103 103 ---- ----------- ------------ Comprehensive loss $(1,140,621) =========== Balances at June 30, 1999 (brought forward) - 2,232,818
F-5 NAM Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS (continued) Six months ended December 31, 1999 (unaudited) and years ended June 30, 1999 and 1998
Accumulated Common stock Additional other ------------------------ paid-in Accumulated comprehensive Shares Amount capital deficit income (loss) ---------- -------- --------- ------------- ------------- Balances at June 30, 1999 (carried forward) 3,370,739 $3,371 $4,797,637 $(2,663,446) $ 95,256 Compensation related to stock option plan 10,444 Shares issued pursuant to restricted stock awards 36,744 36 (36) Shares issued upon exercise of stock options 8,750 9 19,110 Gain on shareholder's stock 1,720 Net loss (539,670) Change in unrealized gain (loss) on marketable securities (59,953) --------- ------ ---------- ----------- --------- Comprehensive loss Balances at December 31, 1999 (unaudited) 3,416,233 $3,416 $4,828,875 $(3,203,116) $ 35,303 ========= ====== ========== =========== =========
[RESTUB]
Unearned compensation - Total stock stockholders' Comprehensive bonus plan equity loss -------------- ----------- ------------- Balances at June 30, 1999 (carried forward) $ - $2,232,818 Compensation related to stock option plan 10,444 Shares issued pursuant to restricted stock awards Shares issued upon exercise of stock options 19,119 Gain on shareholder's stock 1,720 Net loss (539,670) $ (539,670) Change in unrealized gain (loss) on marketable securities (59,953) (59,953) ----- ---------- ------------ Comprehensive loss $ (599,623) ============ Balances at December 31, 1999 (unaudited) $ - $1,664,478 ===== ==========
The accompanying notes are an integral part of this statement. F-6 NAM Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, Year ended June 30, --------------------------------- --------------------------- 1999 1998 1999 1998 -------------- -------------- ----------- --------- (unaudited) (unaudited) Cash flows from operating activities Net loss $ (539,670) $ (922,401) $(1,294,765) $ (629,134) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 59,020 49,350 101,948 75,488 Provision for bad debts - - 20,000 10,000 (Gains) losses on sales of marketable securities (213,697) 303,130 166,259 (356,390) Losses on sales/disposals of furniture and equipment 383 523 490 129 Earned portion of stock bonus plan - 52 103 102 Compensation related to stock option plan 10,444 17,754 19,494 5,610 Changes in operating assets and liabilities Decrease (increase) in accounts receivable 70,051 (49,538) (149,788) 12,960 (Increase) decrease in other receivables (11,738) (11,408) (13,125) 16,545 Decrease (increase) in prepaid expenses 13,010 (59,456) (34,838) 9,602 Decrease (increase) in other assets 2,911 (8,734) (1,715) 7,848 (Decrease) increase in accounts payable and accrued liabilities (107,680) 24,424 84,327 195,189 (Decrease) increase in accrued payroll and employee benefits (121,084) (83,214) 40,259 (47,754) (Decrease) increase in deferred revenues (7,845) 18,878 87,835 11,673 ------------ ----------- ----------- ---------- Net cash used in operating activities (845,895) (720,640) (973,516) (688,132) ------------ ----------- ----------- ---------- Cash flows from investing activities Purchases of marketable securities (718,056) (818,813) (1,334,887) (2,313,195) Proceeds from sales of marketable securities 669,765 1,708,647 2,267,481 2,311,367 Proceeds from maturities of marketable securities - 570,000 570,000 2,075,000 Decrease (increase) in receivable for securities sold 55,426 - (55,426) - Decrease in payable for securities purchased - - - (15,263) Purchases of furniture and equipment (92,320) (51,898) (115,471) (133,113) Sales of furniture and equipment - - 800 5,130 ------------ ----------- ----------- ---------- Net cash (used in) provided by investing activities (85,185) 1,407,936 1,332,497 1,929,926 ------------ ----------- ----------- ---------- Cash flows from financing activities Issuance of common stock 19,119 - - - Gain on shareholder's stock 1,720 - - - ------------ ----------- ----------- ---------- Net cash provided by financing activities 20,839 - - - ------------ ----------- ----------- ---------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (910,241) 687,296 358,981 1,241,794 Cash and cash equivalents at beginning of period 1,776,261 1,417,280 1,417,280 175,486 ------------ ----------- ----------- ---------- Cash and cash equivalents at end of period $ 866,020 $ 2,104,576 $ 1,776,261 $ 1,417,280 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. F-7 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 (unaudited) and June 30, 1999 NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS NAM Corporation ("NAM") provides a broad range of Alternative Dispute Resolution ("ADR") services, including arbitration and mediation, in the United States. NAM incorporated on January 12, 1994 and began operations on February 15, 1994. On October 31, 1994, National Arbitration & Mediation, Inc. ("NA&M"), which was owned by NAM's Chief Executive Officer and Executive Vice President, was acquired by and became a wholly-owned subsidiary of NAM. The transaction was accounted for as a transfer of assets between companies under common control, with the assets and liabilities of NA&M combined with those of NAM at their historical carrying values. NA&M also provided a broad range of ADR services, including arbitrations and mediations. NA&M began operations in March 1992. In June 1999, NA&M was merged into NAM, along with several other wholly-owned subsidiaries, National Video Conferencing Inc. and NAMSYS Corporation. Additionally, Michael Marketing LLC and clickNsettle.com LLC, wholly-owned limited liability companies, were formed in June 1999 in Delaware. Michael Marketing, Inc., a Delaware corporation formed in November 1991, formerly a wholly-owned subsidiary, was merged into Michael Marketing LLC in June 1999. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting and reporting policies applied on a consistent basis which conform with generally accepted accounting principles follow: a. Basis of Presentation The accompanying consolidated financial statements of NAM Corporation and Subsidiaries include the accounts of its wholly-owned subsidiaries, Michael Marketing LLC, clickNsettle.com LLC and its merged entities, NA&M, National Video Conferencing Inc. and NAMSYS Corporation, effective in 1999, (collectively referred to herein as the "Company"). The Company operates in one business segment, ADR. All significant intercompany transactions and balances were eliminated in consolidation. F-8 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 2 (continued) b. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the revenues and expenses during the reporting period. Actual results may differ from those estimates. Estimates are used when accounting for the allowance for uncollectible accounts receivable, depreciation, taxes and contingencies, among others. c. Revenue Recognition The Company principally derives its revenues from fees charged for arbitration and mediation services. Each party to a proceeding is charged an administrative fee, a portion of which is nonrefundable when each party agrees to utilize the Company's services. The Company recognizes revenue when the arbitration or mediation occurs. Fees received prior to the arbitration or mediation are reflected as deferred revenue. d. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand, money market funds and short-term notes with a maturity at date of purchase of three months or less. e. Marketable Securities Investments classified as marketable securities include fixed maturities (bonds and redeemable preferred stocks) and equity securities (common and nonredeemable preferred stocks) which are reported at their fair values. Unrealized gains or losses on these securities are reported as a separate component of accumulated other comprehensive income (loss), net of related tax effects, within stockholders' equity. The Company categorizes all fixed maturity and equity securities as available-for-sale in order to provide the Company flexibility to respond to various factors, including changes in market conditions and tax planning considerations. F-9 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 2 (continued) Investment income, consisting of interest and dividends, is recognized when earned. Realized gains and losses on sales, maturities or liquidation of investments are determined on a specific identification basis. The amortization of premiums and accretion of discounts for fixed maturity securities are computed on a straight-line basis. Fair values of investments are based on quoted market prices or on dealer quotes. f. Furniture and Equipment Furniture and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method to allocate the cost of those assets over their expected useful lives which generally range from five to seven years. Leasehold improvements are amortized over the life of the remaining lease. g. Product Development Costs Product development costs include expenses incurred by the Company to develop, enhance, manage and operate the Company's website and its internet case resolution service, click Nsettle.com. Product development costs are expensed as incurred. h. Income Taxes The Company follows the asset and liability method of accounting for income taxes by applying statutory tax rates in effect at the balance sheet date to differences among the book and tax bases of assets and liabilities. The resulting deferred tax liabilities or assets are adjusted to reflect changes in tax laws or rates by means of charges or credits to income tax expense. A valuation allowance is recognized to the extent a portion or all of a deferred tax asset may not be realizable. i. Advertising Costs The cost of advertising is expensed when the advertising takes place. During the second half of fiscal 1998, the Company commenced an advertising campaign intended to increase awareness of its services with respect to litigants in most types of civil disputes, including complex commercial issues, construction, employment, matrimonial and worker's compensation cases. The Company incurred $389,553 and $566,084 for advertising and external public relations costs in fiscal 1999 and 1998, respectively. F-10 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 2 (continued) j. Earnings (Loss) Per Common Share In fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," which requires public companies to present basic earnings per share and, if applicable, diluted earnings per share. Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share are based on the weighted average number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the period. Diluted earnings per share is the same as basic earnings per share as potential common shares would be antidilutive as the Company incurred net losses for the years ended June 30, 1999 and 1998. k. Unaudited Interim Financial Statements The unaudited interim financial statements as of December 31, 1999 and for the six months ended December 31, 1999 and 1998 have been prepared on the same basis as the audited financial statements and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial information set forth therein, in accordance with generally accepted accounting principles. The results of operations for the six months ended December 31, 1999 are not necessarily indicative of the results to be expected for the full year. NOTE 3 - COMPREHENSIVE INCOME (LOSS) In fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS No. 130 had no impact on the Company's net loss or stockholders' equity. SFAS No. 130 requires unrealized gains or losses on marketable securities which, prior to adoption, were reported separately in stockholders' equity, to be included in accumulated other comprehensive income (loss). Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130. Accumulated other comprehensive loss represents the unrealized gain (loss) on marketable equity securities, net of tax effects of $0 in 1999 and 1998. F-11 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 3 (continued) The components of comprehensive loss, net of tax effects, are as follows:
1999 1998 ------------ ---------- Net loss $(1,294,765) $(629,134) Unrealized gain (loss) on marketable securities, net of tax effects of $ 0 in 1999 and 1998, respectively Unrealized gains (losses) arising in period 95,256 (59,963) Reclassification adjustment - gain (loss) included in net loss 58,888 (78,149) ----------- --------- Net unrealized gain (loss) 154,144 (138,112) ----------- --------- Comprehensive loss $(1,140,621) $(767,246) =========== =========
F-12 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 4 - MARKETABLE SECURITIES Marketable securities are carried at fair value. A summary of investments in marketable securities and a reconciliation of amortized cost to the fair value follow:
Gross Gross Amortized unrealized unrealized Fair cost gains losses value ----------- ----------- ---------- -------- June 30, 1999 Equity securities $ 341,027 $95,256 $ - $ 436,283 ----------- ------- --------- ----------- Total marketable securities $ 341,027 $95,256 $ - $ 436,283 =========== ======= ========= =========== June 30, 1998 Fixed maturities U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 669,889 $ 209 $ (75) $ 670,023 Corporate preferred securities 250,000 5,620 - 255,620 ----------- ------- --------- ----------- 919,889 5,829 (75) 925,643 Equity securities 1,089,879 38,083 (102,725) 1,025,237 ----------- ------- --------- ----------- Total marketable securities $2,009,768 $43,912 $(102,800) $1,950,880 ========== ======= ========= ==========
Proceeds on sales of securities were $2,267,481 and $2,311,367 for the years ended June 30, 1999 and 1998, respectively. During fiscal 1999 and 1998, gross gains of $235,431 and $386,155, respectively, and gross losses of $401,690 and $29,765, respectively, were realized on these sales. Net unrealized gains (losses) on marketable securities were $95,256 and $(58,888) at June 30, 1999 and 1998, respectively. During fiscal 1999 and 1998, no income taxes (benefits) were provided on the unrealized gains (losses) due to the Company's net operating loss. F-13 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 5 - FURNITURE AND EQUIPMENT Furniture and equipment consist of the following:
June 30, ----------------------------------- 1999 1998 ----------- ----------- Furniture $ 186,060 $ 169,717 Equipment 382,011 307,311 Leasehold improvements 21,993 - --------- --------- 590,064 477,028 Less accumulated depreciation (320,671) (228,349) --------- --------- $ 269,393 $ 248,679 ========= =========
Depreciation expense for the years ended June 30, 1999 and 1998 was $93,467 and $80,288, respectively. NOTE 6 - INCOME TAXES Temporary differences which give rise to deferred taxes are summarized as follows:
1999 1998 ------------ -------- Deferred tax assets Net operating loss and other carryforwards $ 840,000 $ 406,000 Provision for bad debts 44,000 36,000 Deferred compensation 39,000 21,000 Deferred rent and other 33,000 10,000 Depreciation 9,000 - --------- --------- 965,000 473,000 Deferred tax liabilities Depreciation - 6,000 --------- --------- Net deferred tax asset before valuation allowance 965,000 467,000 Valuation allowance (965,000) (467,000) --------- --------- Net deferred tax asset $ - $ - ========= =========
F-14 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 6 (continued) The Company has recorded a full valuation allowance to reflect the estimated amount of deferred tax assets which may not be realized. The Company's effective income tax rate differs from the statutory Federal income tax rate as a result of the following:
1999 1998 ----------- --------- Benefit at statutory rate $(440,220) $(213,906) State and local benefit, net of Federal tax (74,750) (42,096) Nondeductible expenses/nontaxable (income) - net 16,592 (24,668) Increase in the valuation allowance 498,378 280,670 --------- --------- $ - $ - ========= =========
The provision for Federal income taxes has been determined on the basis of a consolidated tax return. At June 30, 1999, the Company had a net operating loss carryforward for Federal income tax reporting purposes amounting to approximately $2,062,000, expiring from 2012 through 2019. Additionally, the Company has a net capital loss carryforward for Federal income tax reporting purposes amounting to $166,000 expiring in 2004. No Federal income taxes were paid in the years ended June 30, 1999 and 1998. NOTE 7 - STOCKHOLDERS' EQUITY a. Redeemable Warrants In November 1996, the Company completed an initial public offering ("IPO") which consisted of 1,400,000 units, each unit consisting of one share of common stock and one redeemable warrant. Each redeemable warrant entitles the holder to purchase one share of common stock at $6.00 per share, subject to adjustment, at any time from issuance until November 13, 2001. Such warrants are redeemable by the Company, with the prior written consent of the underwriter, at a redemption price of $.05 commencing November 13, 1997 provided that the average closing bid price of the common stock equals or exceeds $9.00, subject to adjustment, for a specified period of time. In addition, there was an overallotment option for 210,000 units which was exercised by the underwriter. F-15 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 7 (continued) In connection with the IPO, the Company sold to the underwriter, for nominal consideration, warrants to purchase from the Company 140,000 units (the "underwriter's warrants"). The underwriter's warrants are initially exercisable at $5.80. The shares of common stock and redeemable warrants issuable upon exercise of the underwriter's warrants are identical to those offered to the public. The underwriter's warrants contain provisions providing for adjustment of the number of warrants and exercise price under certain circumstances. The underwriter's warrants grant to the holders thereof certain rights of registration of the securities issuable upon exercise of the underwriter's warrants. b. Stock Award Plan In June 1994, the Company adopted an Executive Stock Bonus Plan. Under the plan, the Company granted shares to three employees pursuant to their employment agreements. All of the shares vest after providing two to five years of service to the Company from the grant date. Unearned compensation based on the estimated market value per share at date of grant of $0.01 was recorded and shown as a separate component of stockholders' equity. The Company recognized compensation expense of $103 and $102 during the years ended June 30, 1999 and 1998, respectively, representing the amortization of unearned compensation over the vesting period. As of June 30, 1999, 36,744 awards are outstanding, all of which will vest in July 1999 provided such employees are employed by the Company at that time. In addition, in September 1994, the Company granted the manager of a regional office restricted common stock for the purchase price of $0.17 per share, pursuant to his employment agreement. Of the total shares granted, 7,152 vested and were issued in June 1996, while the remaining 35,761 shares vested in June 1999. F-16 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 7 (continued) c. Stock Option Plan In May 1996, the Company adopted an Incentive and Nonqualified Stock Option Plan (the "Plan") for employees, officers, directors, consultants and advisors of the Company, pursuant to which the Company may grant options to purchase up to 750,000 shares of the Company's common stock. The Plan was amended in December 1998 to increase the number of shares of common stock authorized for issuance thereunder from 750,000 shares to 2,000,000 shares. The Plan is administered by the board of directors, which has the authority to designate the number of shares to be covered by each award and the vesting schedule of such award, among other terms. The option period during which an option may be exercised shall not exceed ten years from the date of grant and will be subject to such other terms and conditions of the Plan. Unless the board of directors provides otherwise, option awards terminate when a participant's employment or services end, except that a participant may exercise an option to the extent that it was exercisable on the date of termination for a period of time thereafter. The Plan will terminate automatically on April 1, 2006. Directors who are not officers of the Company receive annually, on the last trading day of June, stock options for 1,000 shares at an exercise price equal to the fair market value of the stock on the date of grant. In December 1998, the Plan was amended to increase the number of options granted annually to each non-employee director from options to purchase 1,000 shares to options to purchase 2,500 shares. On May 11, 1998, the Company's Board of Directors approved the repricing of outstanding stock options previously granted to employees. The repricing provided for the exercise price of 230,500 options to be reduced from a range of $3.00 to $4.38 per share to a range of $1.63 to $2.25 per share, to reflect current fair value. The repricing did not affect the term or vesting period of the options. F-17 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 7 (continued) The Company's stock option awards granted to employees, directors and consultants as of and for the years ended June 30, 1999 and 1998 are summarized as follows:
1999 1998 ------------------------- -------------------------- Weighted- Weighted- average average exercise exercise Shares price Shares price -------- ---------- --------- ---------- Outstanding at beginning of year 373,500 $2.01 155,500 $ 3.18 Awards granted 590,500 $2.02 451,500 $ 2.22 Awards exercised - - Awards canceled (55,000) $1.71 (233,500) $ 3.20 -------- -------- Outstanding at end of year 909,000 $2.03 373,500 $ 2.01 ======== ======== Options exercisable at year-end 201,500 $3.37 37,000 $ 2.49 ======== ======== Weighted-average fair value of options granted during the year $ .75 $ .99
The following information applies to options outstanding and exercisable at June 30, 1999:
Outstanding Exercisable ------------------------------------------ ---------------------------- Weighted- average Weighted- Weighted- remaining average average Number life in exercise Number exercise Range of exercise prices outstanding years price exercisable price ------------------------ ----------- ---------- --------- ------------ ---------- $.81 to $1.69 615,000 7.64 $1.40 51,500 $1.60 $1.78 to $2.25 196,000 6.81 $2.02 80,000 $2.01 $3.00 to $4.00 37,000 6.89 $3.41 20,000 $3.00 $5.00 to $10.00 61,000 8.00 $7.62 50,000 $7.50 -------- -------- 909,000 201,500 ======== ========
Stock option awards are granted at prices equal to or above the closing bid price on the date of grant. As of June 30, 1999, 1,091,000 shares were available for granting of options under the Plan. F-18 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 7 (continued) The Company accounts for stock-based compensation under the guidelines of APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees," as allowed by Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." Accordingly, no compensation expense was recognized concerning options granted to key employees and to members of the board of directors, as such options were granted to board members in their capacity as directors. Compensation expense of $19,494 and $5,610 was recognized in fiscal 1999 and 1998, respectively, for options granted to consultants. If the Company had elected to recognize compensation expense based upon the fair value at the grant date for options granted to key employees and to members of the board of directors consistent with the "fair value" methodology prescribed by SFAS No. 123, the Company's net loss and net loss per share for the years ended June 30, 1999 and 1998 would be reduced to the pro forma amounts indicated below:
1999 1998 ------------ ----------- Net loss As reported $(1,294,765) $(629,134) Pro forma (1,520,232) (762,728) Net loss per common share - basic and diluted As reported $(.39) $(.19) Pro forma (.46) (.23)
These pro forma amounts may not be representative of future disclosures because they do not take into effect pro forma compensation expense related to awards made before 1996. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1999 and 1998, respectively: dividend yields of zero for both years; risk-free interest rates ranging from 4.51% to 5.50% in 1999 and 5.52% to 5.94% in 1998; expected terms of 4 years in 1999 and 2 to 5 years in 1998; and expected stock price volatility of 74.61% in 1999 and 64.15% in 1998. F-19 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 8 - TRANSACTIONS WITH RELATED PARTIES Certain members of the board of directors perform services for the benefit of the Company. The related expenditures for these services for the years ended June 30, 1999 and 1998 were $49,038 and $75,425, respectively. In June 1999, the Company purchased from NAM's Chief Executive Officer the rights to a time-share property to be used as part of an employee incentive program. The sales price of $18,450 was established at the current market value of the time share. NOTE 9 - COMMITMENTS AND CONTINGENCIES a. Leases As of June 30, 1999, the Company has lease agreements for equipment and office space. Rent expense amounted to $220,542 and $205,308 for the years ended June 30, 1999 and 1998, respectively. The minimum lease payments under noncancelable leases as of June 30, 1999 are as follows: 2000 $197,500 2001 187,200 2002 173,400 2003 176,300 2004 89,300 -------- $823,700 ======== b. Employment/Consulting Agreements The Company's employment agreement with its Chief Executive Officer expires June 30, 2002 and provides for an annual base salary of $225,000 as of July 1, 1997, an annual cost of living increase of the greater of 6% per annum or the increase in the Urban Consumer Price Index and an annual bonus at the discretion of the Company's Board of Directors. If this agreement is terminated as a result of a change in duties of the executive or due to a change in control, the officer will be entitled to a lump-sum severance payment equal to three times his then current base salary. F-20 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 9 (continued) The Company has also entered into employment agreements with two officers expiring through June 14, 2001. Such contracts are cancelable at any time without further liability to the Company with the exception of one contract which provides for six months of severance pay. Minimum salary commitments under these contracts follow: 2000 $186,397 2001 112,260 -------- $298,657 ======== The Company has also entered into employment agreements with certain of its regional office managers. Certain of these agreements provide for additional compensation based on the profits of the manager's operation. In July 1996, the Company entered into a financial public relations consulting agreement with two individuals who are founders of the Company, current stockholders and former directors. The agreement has a four-year term and provides for annual payments of $48,000 payable in equal monthly payments of $4,000 through November 2000. In November 1998, the agreement was amended to reduce the fee as of October 1998 to $2,000 per month. The related expense for the year ended June 30, 1999 and 1998 was $30,000 and $48,000, respectively. c. Advertising As of March 1999, the Company signed a noncancellable, two-year media agreement to advertise its services on televised sports events in New York. Minimum commitments under the contract are approximately $115,000 and $59,000 in 2000 and 2001, respectively. d. Legal The Company is subject to various forms of litigation in the normal course of business. It is the opinion of management that the outcome of such litigation will not have a material adverse effect on the Company's financial condition and results of operations. F-21 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 10 - EMPLOYEE RETIREMENT PLAN Effective January 1, 1999, the Company implemented a non-contributory 401(k) savings and retirement plan, whereby eligible employees may contribute 15% of their salaries up to the maximum allowed under the Internal Revenue Code. Although the Company may make discretionary contributions, none were made in 1999. NOTE 11 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS At June 30, 1999 and 1998, the Company's financial instruments included cash and cash equivalents, marketable securities, receivables and accounts payable. The fair values of cash and cash equivalents, receivables and accounts payable approximated carrying values because of the short-term nature of these instruments. The estimated fair values of marketable securities were determined based on broker quotes or quoted market prices. NOTE 12 - CREDIT CONCENTRATIONS Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities and accounts receivable. The Company maintains its cash which consists primarily of demand deposits and an insured money market fund with one financial institution. Such balances generally do not exceed the Federally insured limits. Additionally, the Company maintains its cash equivalents and all other investments with two financial institutions. The Company primarily sells it services to insurance companies and law firms. One insurance company customer represented approximately 12% of total revenues for the year ended June 30, 1998. However, the Company works with more than 70 individual offices of the insurance company, which, in total, equal the aforementioned percentages of revenue. In fiscal 1999, no customer exceeded 10% of total revenue. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. F-22 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 13 - UNAUDITED INTERIM FINANCIAL INFORMATION a. Series A Exchangeable Preferred Stock On February 15, 2000, the Company issued 1,850 shares of its Series A Exchangeable Preferred Stock for an aggregate purchase price of $1,850,000. Holders of the Series A Exchangeable Preferred Stock may exchange such shares into shares of NAM's common stock at any time and must exchange such shares at NAM's request, which cannot be made until the earlier of February 14, 2002 or the date upon which the average closing bid price of NAM's common stock for five consecutive trading days is at least $10 and the average daily trading volume for the thirty consecutive trading days ending on the fifth day is at least 40,000 shares and the common stock underlying the outstanding Series A Exchangeable Preferred Stock is registered pursuant to a then-effective registration statement. Until July 15, 2000, the exchange rate for each share of the Series A Exchangeable Preferred Stock is equal to $1,000 divided by $10.45 . On July 15, 2000 and thereafter, the exchange rate for each share of Series A Exchangeable Preferred Stock is equal to the stated value of $1,000 divided by the lesser of (i) $10.45 or (ii) the market price, which is the average of any three consecutive closing bid prices of NAM's common stock selected by the holders during the thirty trading day period ending on the day immediately prior to the exchange. Until February 14, 2001, the exchange rate will never be greater than $10.45 or less than $2.375. The Series A Exchangeable Preferred Stock accrues dividends at a rate of 4% annually, unless the thirty-day average trading price of NAM's common stock is equal to or greater than $9 at any time after July 15, 2000, in which case dividends will cease to accrue and accrued but unpaid dividends will be canceled. Dividends may be paid at the Company's option, in cash or in registered common stock. In connection with the sale of the Series A Exchangeable Preferred Stock, the Company issued warrants to the preferred holders to purchase an aggregate of 46,250 shares of common stock at a price per share of $10.52. The warrants expire on August 15, 2005. The Company issued 5,000 shares of its common stock and paid a fee of $92,500 to the placement agent, Trinity Capital Advisors, Inc., in connection with the placement. b. Equity Line of Credit Agreement On February 16, 2000, the Company entered into an Equity Line of Credit Agreement with Moldbury Holdings Limited. Under this agreement, the Company has the right, until February 15, 2003, to require that Moldbury Holdings Limited purchase between $500,000 and $7,000,000 of the Company's common stock. The maximum and minimum amounts that Moldbury Holdings Limited would be required to purchase at any given time are subject to a floating number based on the closing bid price of NAM's common stock and the average trading volume of such stock in a thirty-day period. The price per share in each such purchase shall be the greater of (i) 89% of the average closing bid price for the F-23 NAM Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 1999 (unaudited) and June 30, 1999 NOTE 13 (continued) day of NAM's notice to Moldbury Holdings Limited requesting its purchase and the two days preceding the notice and the two days following the notice and (ii) the minimum price set by the Company for such purchase. Moldbury Holdings Limited is not required to make any purchase if the shares being purchased are not registered pursuant to a then-effective registration statement. Under the agreement, the equity line may be increased on or about April 16, 2001 to $14,000,000 provided that certain criteria are met by the Company including the achievement of minimum levels of cash and cash equivalents and quarterly revenues. In connection with the Equity Line of Credit Agreement, the Company issued a warrant to Moldbury Holdings Limited to purchase 60,000 shares of common stock at a price per share of $9.34, of which 45,000 warrants were issued on February 17, 2000 and the remaining 15,000 warrants are to be issued immediately after Moldbury Holdings Limited has invested $3,500,000 to purchase shares of common stock under the terms and conditions of the Equity Line of Credit Agreement. The warrants expire on August 16, 2003. The Company issued 5,000 shares of its common stock to the placement agent for the offering, Trinity Capital Advisors, Inc. They are also entitled to a fee of 5% of the gross proceeds when Moldbury Holdings Limited purchases the Company's common stock, at the Company's request, pursuant to the Equity Line of Credit Agreement. F-24 PART II - INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Our certificate of incorporation provides that none of our directors shall be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability o for any breach of the director's duty of loyalty to us or our stockholders. o for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law. o under section 174 of the Delaware General Corporation Law. o for any transaction from which such director derives improper personal benefit. The effect of this provision is to eliminate our rights and those of our stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of his or her fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described above. The limitations summarized above, however, do not affect our ability or that of our stockholders to seek nonmonetary remedies, such as an injunction or rescission, against a director for breach of his or her fiduciary duty. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers, or persons controlling our Company pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION It is expected that the following expenses will be incurred in connection with the issuance and distribution of the common stock being registered. All such expenses are being paid by us. SEC Registration fee.......................................$8,746 *Printing and EDGARization................................$10,000 *Accountants' fees and expenses...........................$10,000 *Attorneys' fees and expenses.............................$20,000 *Miscellaneous.............................................$3,000 *Total....................................................$51,746 - ---------------- *Estimated ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES On February 15, 2000, we sold 1,850 shares of our Series A Exchangeable Preferred Stock for an aggregate purchase price of $1,850,000. We paid $92,500 to Trinity Capital Advisors, Inc., who acted as placement agent for such II-1 offering. The offering was made pursuant to Rule 506 of the Securities Act of 1933, as amended. The shares were purchased by the following entities: Purchaser Esquire Trade & Finance Inc 450 Shares Austinvest Anstalt Balzers 425 Shares AMRO International, S. A. 875 Shares Mabcrown, Inc. 100 Shares On February 15, 2000, we issued Warrants to purchase 46,250 shares of our common stock at an exercise price of $10.52 per share. These Warrants were issued as part of the purchase of our Series A Exchangeable Preferred Stock. The issuance was made pursuant to Rule 506 of the Securities Act of 1933, as amended. The Warrants were issued to the following entities: Purchaser Esquire Trade & Finance Inc 11,250 Warrant shares Austinvest Anstalt Balzers 10,625 Warrant shares AMRO International, S. A. 21,875 Warrant shares Mabcrown, Inc. 2,500 Warrant shares On February 15, 2000, we issued 10,000 shares of our common stock to Trinity Capital Advisors, Inc. as part of their placement agent fee for the sale of our Series A Exchangeable Preferred Stock and the Equity Line of Credit. The issuance was made pursuant to Rule 506 of the Securities Act of 1933, as amended. On February 17, 2000, we issued a Warrant to Moldbury Holdings Limited to purchase up to 60,000 shares of our common stock at an exercise price of $9.34 per share. This Warrant was issued as part of our Equity Line of Credit. The offering was made pursuant to Rule 506 of the Securities Act of 1933, as amended. The issuance was made pursuant to Rule 506 of the Securities Act of 1933, as amended. ITEM 27. EXHIBITS Exhibit Number Description -------------- ----------- 3.1(a) Certificate of Incorporation, as amended (1) 3.1(b) Certificate of Designation of Series A Exchangeable Preferred Stock, filed with the State of Delaware Office of the Secretary of State on February 15, 2000* 3.2 By-Laws of the Company, as amended (2) 4.1 Specimen of share of Company's common stock (3) 4.2 Form of Redeemable Warrant Agreement to be entered into between Company and Continental Stock Transfer & Trust Co., including form of Redeemable Warrant Certificate (3) II-2 4.3 Form of Certificate evidencing shares of Series A Exchangeable Preferred Stock* 5.1 Opinion of Camhy Karlinsky & Stein LLP, counsel for the Registrant* 10.1 1996 Stock Option Plan, amended and restated (2) 10.2 Employment Agreement between Company and Roy Israel (4) 10.2.1 Amendment to Employment Agreement between Company and Roy Israel (2) 10.3 Employment Agreement between Company and Cynthia Sanders (2) 10.4 Employment Agreement between Company and Daniel Jansen (1) 10.5 Employment Agreement between Company and Patricia Giuliani-Rheaume (5) 10.6 Employment Agreement between Company and Robert P. Mack (7) 10.7 Lease Agreement for Great Neck, New York facility (1) 10.7.1 Amendment to Lease Agreement for Great Neck, New York facility (6) 10.8 Exchangeable Preferred Stock and Warrants Purchase Agreement, dated as of February 15, 2000* 10.9 Preferred Stock Registration Rights Agreement, dated as of February 15, 2000* 10.10 Form of Stock Purchase Warrant* 10.11 Private Equity Line of Credit Agreement between Moldbury Holdings Limited and the Company, dated as of February 16, 2000* 10.12 Private Equity Line of Credit Registration Rights Agreement, dated as of February 16, 2000* 10.13 Stock Purchase Warrant for Moldbury Holdings Limited* 21.1 List of Subsidiaries* 23.1 Consent of Grant Thornton LLP* 23.2 Consent of Camhy Karlinsky & Stein LLP (included in Exhibit 5.1)* II-3 24.1 Power of Attorney* - -------------------- *filed herewith. (1) Incorporated herein in its entirety by reference to the Company's Registration Statement on Form SB-2, Registration No. 333-9493, as filed with the Securities and Exchange Commission on August 2, 1996. (2) Incorporated herein in its entirety by reference to the Company's 1998 Annual Report on Form 10-KSB. (3) Incorporated herein in its entirety by reference to Amendment No. 1 to the Company's Registration Statement on Form SB-2, Registration No. 333-9493, as filed with the Securities and Exchange Commission on October 3, 1996. (4) Incorporated herein in its entirety by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 31, 1997. (5) Incorporated herein in its entirety by reference to the Company's 1997 Annual Report on Form 10-KSB. (6) Incorporated herein in its entirety by reference to the Company's 1999 Annual Report on Form 10-KSB. (7) Incorporated herein in its entirety by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999. ITEM 28. UNDERTAKINGS The Registrant hereby undertakes: 1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to include any prospectus required by section 10(a)(3) of the Securities Act, any material information with respect to the plan of distribution not previously disclosed in this registration statement or any fundamental change to the information in this registration statement. 2. That for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. To remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at the termination of the offering. II-4 4. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, offices and controlling persons of the Registrant pursuant to the Registrant's certificate of incorporation, indemnification agreement, insurance or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-5 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly authorized this Registration Statement or amendment thereto to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Great Neck, State of New York, on March 27, 2000. NAM CORPORATION By: /s/ Roy Israel -------------------------------------- Roy Israel Chief Executive Officer, President and Chairman of the Board Power of Attorney KNOW ALL BY THESE PRESENTS, that each person whose signature appears below under the heading "Signature" constitutes and appoints Roy Israel, Patricia Giuliani-Rheaume and Robert P. Mack, each as his or her true and lawful attorney-in-fact and agent for him or her and in his or her name, place and stead, in any and all capacities to sign this, and any or all amendments to this, Registration Statement on Form SB-2, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:
Signature Title Date - --------- ----- ---- /s/ Roy Israel President, Chief Executive Officer and Chairman of the March 27, 2000 - ----------------------------- Board (Principal Executive Officer) Roy Israel /s/ Patricia Giuliani-Rheaume Vice President, Chief Financial Officer and Treasurer March 27, 2000 - ----------------------------- (Principal Financial and Accounting Officer) Patricia Giuliani-Rheaume /s/ Cynthia Sanders Vice President and Director March 27, 2000 - ----------------------------- Cynthia Sanders /s/ DanielJansen National Accounts Manager and Director March 27, 2000 - ----------------------------- Daniel Jansen
II-6
/s/ Ronald Katz Director March 27, 2000 - ----------------------------- Ronald Katz /s/ Jeffrey L. Lederer Director March 27, 2000 - ----------------------------- Jeffrey L. Lederer /s/ Anthony J.Mercorella Director March 27, 2000 - ----------------------------- Anthony J. Mercorella
II-7 EXHIBIT INDEX Exhibit Number Description -------------- ----------- 3.1(a) Certificate of Incorporation, as amended (1) 3.1(b) Certificate of Designation of Series A Exchangeable Preferred Stock, filed with the State of Delaware Office of the Secretary of State on February 15, 2000* 3.2 By-Laws of the Company, as amended (2) 4.1 Specimen of share of Company's common stock (3) 4.2 Form of Redeemable Warrant Agreement to be entered into between Company and Continental Stock Transfer & Trust Co., including form of Redeemable Warrant Certificate (3) 4.3 Form of Certificate evidencing shares of Series A Exchangeable Preferred Stock* 5.1 Opinion of Camhy Karlinsky & Stein LLP, counsel for the Registrant* 10.1 1996 Stock Option Plan, amended and restated (2) 10.2 Employment Agreement between Company and Roy Israel (4) 10.2.1 Amendment to Employment Agreement between Company and Roy Israel (2) 10.3 Employment Agreement between Company and Cynthia Sanders (2) 10.4 Employment Agreement between Company and Daniel Jansen (1) 10.5 Employment Agreement between Company and Patricia Giuliani-Rheaume (5) 10.6 Employment Agreement between Company and Robert P. Mack (7) 10.7 Lease Agreement for Great Neck, New York facility (1) 10.7.1 Amendment to Lease Agreement for Great Neck, New York facility (6) 10.8 Exchangeable Preferred Stock and Warrants Purchase Agreement, dated as of February 15, 2000* 10.9 Preferred Stock Registration Rights Agreement, dated as of February 15, 2000* 10.10 Form of Stock Purchase Warrant * 10.11 Private Equity Line of Credit Agreement between Moldbury Holdings Limited and the Company, dated as of February 16, 2000* 10.12 Private Equity Line of Credit Registration Rights Agreement, dated as of February 16, 2000* 10.13 Stock Purchase Warrant for Moldbury Holdings Limited* 21.1 List of Subsidiaries* 23.1 Consent of Grant Thornton LLP* 23.2 Consent of Camhy Karlinsky & Stein LLP (included in Exhibit 5.1)* 24.1 Power of Attorney* - -------------------- *filed herewith. (1) Incorporated herein in its entirety by reference to the Company's Registration Statement on Form SB-2, Registration No. 333-9493, as filed with the Securities and Exchange Commission on August 2, 1996. (2) Incorporated herein in its entirety by reference to the Company's 1998 Annual Report on Form 10-KSB. (3) Incorporated herein in its entirety by reference to Amendment No. 1 to the Company's Registration Statement on Form SB-2, Registration No. 333-9493, as filed with the Securities and Exchange Commission on October 3, 1996. (4) Incorporated herein in its entirety by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 31, 1997. (5) Incorporated herein in its entirety by reference to the Company's 1997 Annual Report on Form 10-KSB. (6) Incorporated herein in its entirety by reference to the Company's 1999 Annual Report on Form 10-KSB. (7) Incorporated herein in its entirety by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999. EX-3.1(B) 2 EXHIBIT 3.1B PAGE 1 State of Delaware Office of the Secretary of State _________________________________ I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF DESIGNATION OF "NAM CORPORATION", FILED IN THIS OFFICE ON THE FIFTEENTH DAY OF FEBRUARY, A.D. 2000, AT 10:30 O'CLOCK A.M. A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS. /s/ Edward J. Freel ----------------------------------- Edward J. Freel, Secretary of State 2367783 8100 [GRAPHIC OMITTED] 001075225 AUTHENTICATION: 0257938 DATE: 02-15-00 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A EXCHANGEABLE PREFERRED STOCK OF NAM CORPORATION PURSUANT TO SECTION 151 OF THE DELAWARE GENERAL CORPORATION LAW The undersigned, being the Chief Executive Officer and the Secretary of NAM Corporation, a corporation organized and existing under and by virtue of the laws of the State of Delaware (hereinafter the "Corporation"), DO HEREBY CERTIFY: FIRST: That pursuant to authority expressly granted and vested in the Board of Directors of said Corporation by the provisions of the Corporation's Certificate of Incorporation, said Board of Directors adopted the following resolution on February 7, 2000 determining the designations, preferences and rights of its Series A Exchangeable Preferred Stock: RESOLVED: That pursuant to the authority vested in the Board of Directors of the Corporation by the Corporation's Certificate of Incorporation (the "Certificate of Incorporation"), a series of Preferred Stock of the Corporation be, and it hereby is, created out of the authorized but unissued shares of the capital stock of the Corporation, such series to be designated Series A Exchangeable Preferred Stock (the "Series A Exchangeable Preferred Stock"), to consist of 1,850 shares, par value $0.001 per share, of which the preferences and relative and other rights, and the qualifications, limitations or restrictions thereof, shall be as set forth in the Certificate of Designations annexed hereto: 1. Number of Shares of Series A Exchangeable Preferred Stock. Of the 5,000,000 shares of authorized but unissued Preferred Stock, $0.001 par value ("Preferred Stock") of the Corporation, one thousand eight hundred fifty (1,850) shares shall be designated and known as Series A Exchangeable Preferred Stock, par value $0.001 per share ("Series A Exchangeable Preferred Stock"). 2. Voting. (a) Unless required by law, no holder of any shares of Series A Exchangeable Preferred Stock shall be entitled to vote at any meeting of stockholders of the Corporation (or any written actions of stockholders in lieu of meetings) with respect to any matters presented to the stockholders of the Corporation for their action or consideration. Notwithstanding the foregoing, the Corporation shall provide each holder of record of Series A Exchangeable Preferred Stock with timely notice of every meeting of stockholders of the Corporation and shall provide each holder with copies of all proxy materials distributed in connection therewith. (b) So long as shares of Series A Exchangeable Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by the Delaware General Corporation Law) of the holders of at least 75% in interest of the then outstanding shares of Series A Exchangeable Preferred Stock: 1 (i) alter or change the rights, preferences or privileges of the Series A Exchangeable Preferred Stock; (ii) create any new class or series of capital stock having a preference over the Series A Exchangeable Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation ("Senior Securities") or alter or change the rights, preferences or privileges of any Senior Securities so as to affect adversely the Series A Exchangeable Preferred Stock; (iii) increase the authorized number of shares of Series A Exchangeable Preferred Stock; or (iv) do any act or thing not authorized or contemplated by this Certificate of Designations which would result in taxation of the holders of shares of the Series A Exchangeable Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended). In the event the holders of at least 75% in interest of the then outstanding shares of Series A Exchangeable Preferred Stock agree to allow the Corporation to alter or change the rights, preferences or privileges of the shares of Series A Exchangeable Preferred Stock, pursuant to subsection (b) above, so as to affect the Series A Exchangeable Preferred Stock, then the Corporation will deliver notice of such approved change to the holders of the Series A Exchangeable Preferred Stock that did not agree to such alteration or change (the "Dissenting Holders") and Dissenting Holders shall have the right, but not the obligation, for a period of thirty (30) days to exchange any and all shares of then held Series A Exchangeable Preferred Stock pursuant to the terms of this Certificate of Designation as in effect prior to such alteration or change. 3. Dividends. --------- The holders of shares of Series A Exchangeable Preferred Stock shall be entitled to receive, before any cash dividend shall be declared and paid upon or set aside for the Common Stock in any fiscal year of the Corporation, out of funds legally available for that purpose, cumulative dividends payable in cash or in registered shares of Common Stock (at the sole election of the Corporation) in an amount per share of Series A Exchangeable Preferred Stock outstanding for such fiscal year equal to $40.00 (4%). Such dividends shall accrue daily and be payable upon the earlier of exchange into Common Stock or redemption by the Corporation. Dividends will cease to accrue and all accrued but unpaid dividends shall be cancelled immediately after the day on which the average of the closing bid prices for the Corporation's Common Stock on the Principal Market over the prior thirty (30) Trading Days is equal to or greater than $9.00 (adjusted for any splits etc. since the Original Issuance Date), so long as such day is more than 150 days after the Original Issuance Date (as defined in Section 5) and there is a registration statement in effect permitting the resale of the shares of Common Stock issuable upon any exchange pursuant to Section 5. In the event that the Corporation shall elect to pay any such dividend payment in the form of registered Common Stock, such Common Stock shall be valued at the Market Price on the dividend payment date, as defined in Section 5 below. 4. Liquidation. (a) If the Corporation shall commence a voluntary case under the Federal bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, 2 trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of ninety (90) consecutive days and, on account of any such event, the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up (each such event being considered a "Liquidating Event"), no distribution shall be made to the holders of any shares of capital stock of the Corporation other than Senior Securities upon liquidation, dissolution or winding up unless prior thereto, the holders of shares of Series A Exchangeable Preferred Stock shall have received the Liquidation Preference (as defined in Section 4(c)) with respect to each share. If upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the holders of the Series A Exchangeable Preferred Stock and holders of securities ranking pari passu as to preference upon liquidation with the Series A Exchangeable Preferred Stock shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Corporation legally available for distribution to the Series A Exchangeable Preferred Stock and such pari passu securities shall be distributed ratably among such shares in proportion to the ratio that that Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. (b) At the option of each holder, the sale, conveyance of disposition of all or substantially all of the assets of the Corporation, the effectuation by the Corporation of a transaction or series or related transactions in which more than 50% of the voting power of the Corporation is disposed of, or the consolidation, merger or other business combination of the Corporation with or into any other person or persons when the Corporation is not the survivor shall be deemed to be a liquidation, dissolution or winding up of the Corporation pursuant to which the Corporation shall be required to distribute, upon consummation of and as a condition to such transaction an amount equal to the Liquidation Preference with respect to each outstanding share of Series A Exchangeable Preferred Stock held by such holder in accordance with and subject to the terms of this Section 4. (c) The Liquidation Preference shall be the Stated Value of $1,000 per share of Series A Exchangeable Preferred Stock plus all accrued but unpaid dividends. 5. Optional Exchange. The holders of shares of Series A Exchangeable Preferred Stock shall have the following exchange rights: (a) Right to Exchange; Exchange Price. Subject to the terms, conditions, and restrictions of this Section 5, the holder of any shares of Series A Exchangeable Preferred Stock shall have the right to exchange each such share of Series A Exchangeable Preferred Stock (except that upon any liquidation of the Corporation, the right of exchange shall terminate at the close of business on the business day fixed for payment of the amount distributable on the Series A Exchangeable Preferred Stock) for an amount of shares of Common Stock equal to the Stated Value of such share or shares of Series A Exchangeable Preferred Stock divided by (i) during the one hundred fifty (150) day period following the Original Issuance Date, the Set Price, and (iii) on and after the 151st day after the Original Issuance Date, the lesser of the Set Price and the Market Price, to determine the exchange price (the "Exchange Price"). However, in no event shall the Exchange Price be greater than the Set Price (the "Maximum Exchange Price") or less than fifty percent (50%) of the Market Price on February 7, 2000 during the period ending twelve months from the Original Issuance Date. In addition, if the Exchange Price on any Exchange Date is less than $6.00 (adjusted for any splits, reverse splits or dividends in the form of shares of Common Stock after the Original Issuance Date), or upon any redemption as set forth in Section 7(a), then the Corporation shall have the option, to pay the holder in cash, shares of Common Stock or any combination thereof. If the Corporation elects to pay the holder in cash, the payment shall be an amount equal to (i) the average of the closing bid and asked prices on the Principal Market on the Exchange Date multiplied by (ii) the number of shares of Common Stock which would otherwise be issuable to the holder upon such exchange. If any payment, or portion thereof, is to be made in cash, notice of the Corporation's election to pay the holder in cash must be given to the holder two (2) days 3 prior to the receipt by the Corporation of an Exchange Notice. If such notice is not given, the Corporation shall issue Common Stock to the holder unless otherwise agreed to by the holder. Unless the Corporation shall have obtained the approval of its voting stockholders to such issuance in accordance with the rules of the Principal Market, the Corporation shall not issue shares of Common Stock upon exchange of any shares of Series A Exchangeable Preferred Stock if such issuance of Common Stock, when added to the number of shares of Common Stock previously issued by the Corporation upon exchange of shares of the Series A Exchangeable Preferred Stock or upon exercise of the Warrants issued in connection with the issuance of the Series A Exchangeable Preferred Stock, would exceed 19.9% of the number of shares of the Corporation's Common Stock which were issued and outstanding on the Original Issuance Date; and, in such event, or if the Corporation does not have registered shares of Common Stock available with which to honor Exchanges, the Corporation shall honor such exchange request in cash in accordance with the previous sentence, irrespective of the Exchange Price, and the holder shall be a creditor of the Corporation in respect of such sum. The right to exchange shares of Series A Exchangeable Preferred Stock shall be pro-rated among the original purchasers of such shares or their respective subsequent transferees, if any, in order to comply with the aforesaid overall limitation. Any exchange which is paid in cash shall be paid within three (3) business days of the Exchange Date, or else the late delivery payments set forth in the Purchase Agreement shall apply to such late payment, and, upon demand of the holder in such event of late delivery, the holder may require the Corporation to deliver the shares otherwise issuable upon such exchange. (b) Exchange Date. (i) The holder of any shares of Series A Exchangeable Preferred Stock may exchange such shares immediately after the date upon which such shares of Series A Preferred Stock were originally issued (the "Original Issuance Date"); provided, that the Corporation shall have the right, on no more than four (4) occasions during the life the Series A Exchangeable Preferred Stock, by at least two (2) Trading Days' prior written notice to the holders, to refuse to honor any Exchange Notice delivered during any specified seven (7) calendar day period. (ii) In no event shall a holder be permitted to exchange any shares of Series A Exchangeable Preferred Stock in excess of the number of such shares upon the exchange of which, (x) the number of shares of Common Stock owned by such holder (other than shares of Common Stock issuable upon exchange of shares of Series A Exchangeable Preferred Stock) plus (y) the number of shares of Common Stock issuable upon such exchange of such shares of Series A Exchangeable Preferred Stock, would be equal to or exceed 9.9% of the number of shares of Common Stock then issued and outstanding, including shares issuable upon exchange of the Series A Exchangeable Preferred Stock held by such holder after application of this Section 5(b)(ii). As used herein, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. To the extent that the limitation contained in this Section 5(b)(ii) applies, the determination of whether shares of Series A Exchangeable Preferred Stock are exchangeable (in relation to other securities owned by holder) and of which shares of Series A Exchangeable Preferred Stock are exchangeable shall be in the sole discretion of such holder, and the submission of shares of Series A Exchangeable Preferred Stock for exchange shall be deemed to be such holder's determination of whether such shares of Series A Exchangeable Preferred Stock are exchangeable (in relation to other securities owned by such holder) and of which shares of Series A Exchangeable Preferred Stock are exchangeable, in each case subject to such aggregate percentage limitation, and the Corporation shall have no obligation to verify or confirm the accuracy of such determination, and shall have no liability to holder with respect thereto. Nothing contained herein shall be deemed to restrict the right of a holder to exchange such shares of Series A Exchangeable Preferred Stock at such time as such exchange will not violate the provisions of this paragraph. The provisions of this Section 5(b)(ii) may be waived by a holder of Series A Exchangeable Preferred Stock as to itself (and solely as to itself) upon not less than 75 days' prior notice to the Corporation, and the provisions of this Section 5(b)(ii) shall continue to apply until such 75th day (or such later date as may be specified in such notice of waiver). No exchange in violation of this paragraph but otherwise in accordance with this Certificate of Designation shall affect the status of the Common Stock issued upon such exchange as validly issued, fully-paid and nonassessable. 4 (c) Notice of Exchange. The right of exchange shall be exercised by the holder thereof by giving written notice (the "Exchange Notice") to the Corporation, by facsimile or by registered mail or overnight delivery service, with a copy by facsimile to the Corporation's then transfer agent for its Common Stock, as designated by the Corporation from time to time, that the holder elects to exchange a specified number of shares of Series A Exchangeable Preferred Stock representing a specified Stated Value thereof for Common Stock and, if such exchange will result in the exchange of all of such holder's shares of Series A Exchangeable Preferred Stock, by surrender of a certificate or certificates for the shares so to be Exchanged to the Corporation at its principal office (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of the Series A Exchangeable Preferred Stock) at any time during its usual business hours on the date set forth in the Exchange Notice, together with a statement of the name or names (with address) in which the certificate or certificates for shares of Common Stock shall be issued. The Exchange Notice shall include therein the Stated Value of shares of Series A Exchangeable Preferred Stock to be Exchanged, and a calculation, if applicable, (i) of the Market Price, (ii) the Exchange Price, and (iii) the number of shares of Common Stock to be issued in connection with such Exchange. (d) Issuance of Certificates; Time Exchange Effected. (i) Promptly, but in no event more than three business days, after the receipt of the Exchange Notice referred to in Section 5(c) and surrender of the certificate or certificates for the share or shares of Series A Exchangeable Preferred Stock to be exchanged (if required), the Corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, a certificate or certificates for the number of whole shares of Common Stock for which such shares of Series A Exchangeable Preferred Stock are exchanged. To the extent permitted by law, such exchange shall be deemed to have been effected on the date on which such Exchange Notice shall have been received by the Corporation and at the time specified stated in such Exchange Notice, which must be during the calendar day of such notice, and at such time the rights of the holder of such share or shares of Series A Exchangeable Preferred Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such exchange shall be deemed to have become the holder or holders of record of the shares represented thereby. Issuance of shares of Common Stock issuable upon exchange which are requested to be registered in a name other than that of the registered holder shall be subject to compliance with all applicable federal and state securities laws. In the event that the Corporation elects to pay cash in lieu of issuing Common Stock in accordance with Section 5(a) hereof, such cash payment shall be made on or before the third business day after receipt of an Exchange Notice. (ii) The Corporation cannot refuse to effect the exchange of the Series A Exchangeable Preferred Stock into Common Shares or otherwise dishonor or reject any Exchange Notice delivered in accordance with this Section 5 based upon any claim that a holder or any person associated or affiliate with such holder has been engaged in any violation of law or for any other reason, unless an injunction from a court or regulatory body, on notice, restraining or enjoining the exchange of all or some of such shares of Series A Exchangeable Preferred Stock shall have issued and the Corporation shall have posted a surety bond for the benefit of the holder or holder so affected in the amount of the difference between the Exchange Price and the closing ask price on the Trading Day preceding the date of the attempted exchange, multiplied by the number of shares of Common Stock which would have been issuable upon such exchange, which bond shall remain in effect until the completion of the arbitration or litigation of the dispute and the proceeds of which shall be payable to the affected holder or holders in the event its obtains a favorable judgment. If any third party who is not and has never been an Affiliate (as defined in Rule 405 under the Securities Act of 1933, as amended) of the holder obtains a judgment or any injunctive relief from any court or public or governmental authority which denies, enjoins, limits, modifies, delays or disputes the right of the holder hereof to effect the exchange of the Series A Exchangeable Preferred Stock into Common Shares, then the holder shall also have the right, by written 5 notice to the Corporation, to require the Corporation to promptly redeem the Series A Exchangeable Preferred Stock for cash at a redemption price equal to one hundred twenty five percent (125%) of the Stated Value thereof (the "Mandatory Purchase Amount"). Under any of the circumstances set forth above, the Corporation shall be responsible for the payment of all costs and expenses of the holder, including reasonable legal fees and expenses, as and when incurred in disputing any such action or pursuing its rights hereunder (in addition to any other rights of the holder). In the absence of an injunction precluding the same, the Corporation shall issue shares upon a properly noticed exchange. (iii) The holder shall be entitled to exercise its exchange privilege notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). In the event the Corporation is a debtor under the Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in respect of the holder's exchange privilege. The Corporation hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in respect of the exchange of the Series A Exchangeable Preferred Stock. The Corporation agrees, without cost or expense to the holder, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C. ss. 362. (e) Fractional Shares. No fractional shares shall be issued upon exchange of Series A Exchangeable Preferred Stock for Common Stock. All fractional shares shall be payable in cash at the closing price per share on the business day prior to the day such payment is accrued. (f) Reorganization or Reclassification. If any capital reorganization or reclassification of the capital stock of the Corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, or, in the case of any consolidation, merger or mandatory share exchange of the Corporation into any other company, then, as a condition of such reorganization, reclassification or exchange, lawful and adequate provisions shall be made whereby each holder of a share or shares of Series A Exchangeable Preferred Stock shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the exchange of such share or shares of Series A Exchangeable Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such exchange had such reorganization, reclassification or exchange not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the exchange rights) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such exchange rights. (g) Adjustments for Splits, Combinations, etc. The Set Price and the number of shares of Common Stock into which the Series A Exchangeable Preferred Stock shall be Exchangeable shall be adjusted for stock splits, stock dividends, combinations or other similar events. No adjustment to the Exchange Price will be made for dividends (other than stock dividends), if any, paid on the Common Stock or for securities issued pursuant to exercise for fair value of options, warrants or restricted stock. 6. Mandatory Exchange. ------------------ (a) Mandatory Exchange Date. If (i) on or after the second year anniversary of the Original Issuance Date of any share of Series A Exchangeable Preferred Stock, or (ii) at any time on or after the Original Issuance Date if the average of the closing bid prices for the Corporation's Common Stock on the Principal Market for five (5) consecutive Trading Days ending on the Trading Day prior to the date provided for herein is at least $10.00 per share (adjusted for any splits or reverse splits) and the average daily trading volume on the Principal Market for the thirty Trading Days ending on the Trading Day prior to the date provided for herein is at least 40,000 shares (such date as selected by 6 the Corporation being the "Mandatory Exchange Date"), there remain issued and outstanding any shares of Series A Exchangeable Preferred Stock and a registration statement permitting the resale by the holder of the Common Stock issuable upon such exchange is then effective and remains effective through the Mandatory Exchange Date, then the Corporation shall be entitled to require the holders of shares of Series A Exchangeable Preferred Stock then outstanding to exchange any or all their shares of Series A Exchangeable Preferred Stock for shares of Common Stock at the then effective Exchange Price pursuant to Section 5(a). Such right shall be exercised pro-rata among the holders of Series A Exchangeable Preferred Stock if the Mandatory Exchange is for less than all outstanding shares. The Corporation shall provide at least three (3) Trading Days' written notice (the "Mandatory Exchange Notice") to the holders of shares of Series A Exchangeable Preferred Stock of such mandatory exchange. The Mandatory Exchange Notice shall include (i) the Stated Value of the shares of Series A Exchangeable Preferred Stock to be exchanged, (ii) the Exchange Price (which for purposes of this subsection 6(a), shall be the lesser of (A) the Set Price and (B) the average of the three lowest consecutive closing bid prices as reported by Bloomberg L.P. on the Principal Market during the prior thirty (30) consecutive Trading Days immediately prior to the Mandatory Exchange Date) at the Mandatory Exchange Date, and (iii) the number of shares of the Corporation's Common Stock to be issued upon such mandatory exchange at the then applicable Exchange Price. Notwithstanding the foregoing, in no event shall the Corporation exchange that portion of the Series A Exchangeable Preferred Stock to the extent that the issuance of Common Stock upon the exchange of such Series A Exchangeable Preferred Stock, when combined with shares of Common Stock received upon other exchanges of Series A Exchangeable Preferred Stock by such holder and any other holders of Series A Exchangeable Preferred Stock or upon exercise of the Stock Purchase Warrants referred to in Section 5(a), would exceed 19.9% of the Common Stock outstanding on the Original Issuance Date (unless stockholder approval has been obtained as described in Section 5(a)), or as to any individual holder, make such holder the beneficial owner of 9.9% or more of the Corporation's then-outstanding Common Stock. (b) Surrender of Certificates. On or before the Mandatory Exchange Date, each holder of shares of Series A Exchangeable Preferred Stock shall surrender his or its certificate or certificates for all such shares to the Corporation at the place designated in such Mandatory Exchange Notice (or an affidavit of lost certificate in form and content reasonably satisfactory to the Corporation), and shall thereafter receive certificates for the number of shares of Common Stock to which such holder is entitled or, in the event of a buy-out by the Corporation, the amount of cash such holder is entitled within three business days. On the Mandatory Exchange Date, all rights with respect to the Series A Exchangeable Preferred Stock so exchanged, including the rights, if any, to receive notices and vote, will terminate, provided that the Corporation either (i) delivers the shares of Common Stock to be delivered upon such Exchange within five (5) business days of the Mandatory Exchange Date or (ii) in the event of a buy-out in lieu of a Mandatory Exchange, delivers the buy-out price within five (5) business days of the Mandatory Exchange Date, and otherwise such Mandatory Exchange shall be void and the Corporation shall not thereafter have any further right to require a Mandatory Exchange. All certificates evidencing shares of Series A Exchangeable Preferred Stock that are required to be surrendered for Exchange in accordance with the provisions hereof, from and after the Mandatory Exchange Date, shall be deemed to have been retired and cancelled, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. The Corporation may thereafter take such appropriate action as may be necessary to reduce the authorized Series A Exchangeable Preferred Stock accordingly. 7. Redemption of Series A Exchangeable Preferred Stock. (a) Right to Redeem Series A Exchangeable Preferred Stock. At any time and from time to time upon the earlier of (i) the financial closing of an underwritten secondary offering of the Corporation's Common Stock or (ii) six months after the Original Issuance Date, the Corporation may, in its sole discretion, but shall not be obligated to, redeem, in whole or in part, the then issued and outstanding shares of Series A Exchangeable Preferred Stock, at a price equal to 140% of the Stated Value, plus all accrued but unpaid dividends through the Redemption Date. 7 (b) Notice of Redemption. The Corporation shall provide each holder of record of the Series A Exchangeable Preferred Stock being redeemed with written notice of redemption (the "Redemption Notice") not less than 10 days prior to any date stipulated by the Corporation for the redemption of the Series A Exchangeable Preferred Stock (the "Redemption Date"). The Redemption Notice shall contain (i) the Redemption Date, (ii) the number of shares of Series A Exchangeable Preferred Stock to be redeemed from the holder to whom the Redemption Notice is delivered, (iii) instructions for surrender to the Corporation of the certificate or certificates representing the shares of Series A Exchangeable Preferred Stock to be redeemed, and (iv) a procedure for the holder to specify the number of shares of Series A Exchangeable Preferred Stock to be exchanged into Common Stock pursuant to Section 5, subject to the limitation set forth in Section 7(c). (c) Right to Exchange Series A Exchangeable Preferred Stock upon Receipt of Redemption Notice. Upon receipt of the Redemption Notice, the recipient thereof shall have the option, at its sole election, to specify what portion of the Series A Exchangeable Preferred Stock called for redemption in the Redemption Notice shall be redeemed as provided in this Section 7 or exchanged for Common Stock in the manner provided in Section 5 and limited to those shares which would otherwise be exchangeable pursuant to Section 5(b). If the holder of the Series A Exchangeable Preferred Stock called for redemption elects to exchange any of such shares then eligible for exchange, then such exchange shall take place on the Exchange Date specified by the holder, but in no event after the Redemption Date, in accordance with the terms of Section 5. (d) Surrender of Certificates; Payment of Redemption Price. On or before the Redemption Date, each holder of the shares of Series A Exchangeable Preferred Stock to be redeemed shall surrender the required certificate or certificates representing such shares to the Corporation (or an affidavit of lost certificate in form and content reasonably satisfactory to the Corporation), in the manner and at the place designated in the Redemption Notice, and upon payment to the holder of the Redemption Price, each such surrendered certificate shall be cancelled and retired. If payment of such redemption price is not made in full by the Redemption Date, the Corporation's right to redeem any Series A Exchangeable Preferred Stock shall cease and be void, and the Holder shall again have the right to exchange the Series A Exchangeable Preferred Stock as provided in Section 5 hereof. If a certificate is surrendered and all the shares evidenced thereby are not being redeemed, the Corporation shall issue new certificates to be registered in the names of the person(s) whose name(s) appear(s) as the owners on the respective surrendered certificates and deliver such certificate to such person(s). 8. Notices. In case at any time: (a) the Corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other pro rata distribution to the holders of its Common Stock; or (b) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; or (c) there shall be any capital reorganization or reclassification of the capital stock of the Corporation, or a consolidation or merger of the Corporation with or into, or a sale of all or substantially all its assets to, another entity or entities; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; 8 then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, or by telex or facsimile or by recognized overnight delivery service to non-U.S. residents, addressed to each holder of any shares of Series A Exchangeable Preferred Stock at the address of such holder as shown on the books of the Corporation, (i) at least twenty (20) business days' prior written notice of the date on which the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least twenty (20) business days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto and (ii) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 9. Stock to be Reserved. The Corporation, upon the effective date of this Certificate of Designations, has a sufficient number of shares of Common Stock available to reserve for issuance upon the exchange of all outstanding shares of Series A Exchangeable Preferred Stock. The Corporation will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the exchange of Series A Exchangeable Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the exchange of all outstanding shares of Series A Exchangeable Preferred. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued, fully paid and non-assessable. The Corporation will take all such action as may be so taken without violation of any applicable law or regulation, or of any requirement of any national securities exchange upon which the Common Stock may be listed to have a sufficient number of authorized but unissued shares of Common Stock to issue upon exchange of the Series A Exchangeable Preferred Stock. The Corporation will not take any action which results in any adjustment of the exchange rights if the total number of shares of Common Stock issued and issuable after such action upon exchange of the Series A Exchangeable Preferred Stock would exceed the total number of shares of Common Stock then authorized by the Corporation's Certificate of Incorporation. 10. No Reissuance of Series A Exchangeable Preferred Stock. Shares of Series A Exchangeable Preferred Stock which are exchanged for shares of Common Stock as provided herein shall not be reissued. 11. Issue Tax. The issuance of certificates for shares of Common Stock upon exchange of Series A Exchangeable Preferred Stock shall be made without charge to the holder for any United States issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series A Exchangeable Preferred Stock which is being exchanged. 12. Closing of Books. The Corporation will at no time close its transfer books against the transfer of any Series A Exchangeable Preferred Stock or of any shares of Common Stock issued or issuable upon the exchange of any shares of Series A Exchangeable Preferred Stock in any manner which interferes with the timely exchange of such Series A Exchangeable Preferred Stock, except as may otherwise be required to comply with applicable securities laws. 13. Definitions. As used in this Certificate of Designations, the term "Common Stock" shall mean and include the Corporation's authorized Common Stock, $0.001 par value per share, as constituted on the date of filing of these terms of the Series A Exchangeable Preferred Stock, and shall also include any capital stock of any class of the Corporation thereafter authorized which shall neither be limited to a fixed sum or percentage of par value in respect of the rights of the holders thereof to participate in dividends nor entitled to a preference in 9 the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; provided that the shares of Common Stock receivable upon exchange of shares of Series A Exchangeable Preferred Stock shall include only shares designated as Common Stock of the Corporation on the date of filing of this instrument, or in case of any reorganization, reclassification, or stock split of the outstanding shares thereof, the stock, securities or assets provided for in Subparagraph 5(f) and (g). Any capitalized terms used in this Certificate of Designations but not defined herein shall have the meanings set forth in that certain Exchangeable Preferred Stock and Warrant Purchase Agreement dated as of February 15, 2000 among the Corporation and the other persons signatory thereto (the "Purchase Agreement"), a copy of which will be provided to any stockholder of the Corporation upon request to the Secretary of the Corporation, without charge. 14. Loss, Theft, Destruction of Preferred Stock. Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of certificates representing shares of Series A Exchangeable Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender and cancellation of the Series A Exchangeable Preferred Stock certificate, the Corporation shall make, issue and deliver, in lieu of such lost, stolen, destroyed or mutilated certificates for Series A Exchangeable Preferred Stock, new certificates for Series A Exchangeable Preferred Stock of like tenor. The Series A Exchangeable Preferred Stock shall be held and owned upon the express condition that the provisions of this Section 14 are exclusive with respect to the replacement of mutilated, destroyed, lost or stolen shares of Series A Preferred Stock and shall preclude any and all other rights and remedies notwithstanding any law or statue existing or hereafter enacted to the contrary with respect to the replacement of negotiable instruments or other securities without the surrender thereof. 15. Who Deemed Absolute Owner. The Corporation may deem the person in whose name the Series A Exchangeable Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat it as, the absolute owner of the Series A Exchangeable Preferred Stock for the purpose of exchange of the Series A Exchangeable Preferred Stock and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such exchange shall be valid and effectual to satisfy and discharge the liability upon the Series A Exchangeable Preferred Stock to the extent of the sum or sums so paid or the exchange so made. 16. Register. The Corporation shall maintain a transfer agent, which may be the transfer agent for the Common Stock, for the registration of the Series A Exchangeable Preferred Stock. Upon any transfer of the Series A Exchangeable Preferred Stock in accordance with the provisions hereof, the Corporation shall register or cause the transfer agent to register such transfer on the Series A Exchangeable Preferred Stock register. 17. Withholding. To the extent required by applicable law, the Corporation may withhold amounts for or on account of any taxes imposed or levied by or on behalf of any taxing authority in the United States having jurisdiction over the Corporation from any payments made pursuant to the Series A Exchangeable Preferred Stock. 18. Headings. The headings of the Sections of this Certificate of Designations are inserted for convenience only and do not constitute a part of this Certificate of Designations. 10 IN WITNESS WHEREOF, Roy Israel, President and Chief Executive Officer of the Corporation, under penalties of perjury, does hereby declare and certify that this is the act and deed of the Corporation and the facts stated herein are true and accordingly has signed this Certificate of Designations as of this 9th day of February, 2000. NAM CORPORATION By: /s/ Roy Israel ----------------------------- Roy Israel, President and Chief Executive Officer Attest: /s/ Carla Israel - ----------------------- Carla Israel, Secretary 11 EX-4.1 3 EXHIBIT 4.1 NUMBER BEARER INCORPORATED BY THE LAWS OF THE STATE OF DELAWARE NAM CORPORATION
See Reverse for 2,100 SHARES PAR VALUE $.001 EACH 5,000,000 SHARES PAR VALUE $.001 EACH Certain Definations SERIES A PREFERRED STOCK PREFERRED STOCK
SPECIMEN This is to Certify that_______________________________________is the owner of _____________________________________________________________________________ FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES A PREFERRED STOCK OF NAM Corporation transferable on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. Witness, the seal of the Corporation and the signatures of its duly authorized officers. Dated ________________________ _____________________________ The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian --------- ---------- TEN ENT - as tenants by the entireties (Cust) (Minor) under Uniform Gifts to Minors JT TEN - as joint tenants with right of Act survivorship and not as tenants --------------------------- in common (State) Additional abbreviations may also be used though not in the above list
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. For value received _______________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- | | | | - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares - ------------------------------------------------------------------------- represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney - --------------------------------------------------------------------- to transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises. Dated__________________ __________ In presence of ___________________________ ____________________________ The shares of stock represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be sold or transferred without an effective registration statement under the Securities Act or an exemption from the registration provisions thereof. EX-5.1 4 EXHIBIT 5.1 EXHIBIT 5.1 LEGAL OPINION [LETTERHEAD OF CAMHY KARLINSKY & STEIN LLP] March 27, 2000 Board of Directors NAM Corporation 1010 Northern Boulevard, Suite 336 Great Neck, New York 11021 Re: NAM Corporation -- Registration Statement on Form SB-2 Gentlemen: You have requested our opinion in connection with the above-captioned Registration Statement on Form SB-2 (the "Registration Statement") to be filed by NAM Corporation, a New York corporation ("the Company"), with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"), and the rules and regulations promulgated thereunder (the "Rules"). The Registration Statement relates to the issuance by the Company of 4,468,878 shares of common stock, par value $.001 per share. We have examined such records and documents and have made such examination of law as we considered necessary to form a basis for the opinions set forth herein. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity with the originals of all documents submitted to us as copies thereof. Based upon such examination, it is our opinion that, when there has been compliance with the Act and applicable state securities laws, the shares of common stock, when issued, delivered and paid for, shall be validly issued, fully paid and non-assessable. Please note that a member of our the firm has options in the Company to purchase 6,000 shares of common stock. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to all references to our Firm included in this Form SB-2 Registration Statement. In giving this consent, we do not admit that we are in the category of persons whose consent is required pursuant to Section 7 of the Act or under the Rules. Very truly yours, CAMHY KARLINSKY & STEIN LLP EX-10.8 5 EXHIBIT 10.8 EXCHANGEABLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT Between NAM Corporation and the Investors Signatory Hereto EXCHANGEABLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT dated as of February 15, 2000 (the "Agreement"), between the Investors signatory hereto (each an "Investor" and together the "Investors"), and NAM Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Company"). WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Investors, and the Investors shall purchase in the aggregate, (i) $1,850,000 Stated Value of Exchangeable Preferred Stock (as defined below), and (ii) Warrants (as defined below) to purchase up to 46,250 shares of the Common Stock (as defined below) at the Set Price (as defined below) for such Common Stock. WHEREAS, such investments will be made in reliance upon the provisions of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act and/or Regulation D ("Regulation D") and the other rules and regulations promulgated thereunder (the "Securities Act"), and/or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments in securities to be made hereunder. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I Certain Definitions Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of any other class of common stock whether now or hereafter authorized, having the right to participate in the distribution of earnings and assets of the Company. Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights, or obligations that are convertible into or exchangeable for or give any right to subscribe for any Capital Shares of the Company or any Warrants, options or other rights to subscribe for or purchase Capital Shares or any such convertible or exchangeable securities. 1 Section 1.3. "Certificate of Designations" shall mean the Certificate of Designations setting forth the terms of the Exchangeable Preferred Stock in the form of Exhibit A hereto. Section 1.4. "Closing" shall mean the closing of the purchase and sale of the Exchangeable Preferred Stock, and Warrants pursuant to Section 2.1. Section 1.5. "Closing Date" shall mean the date on which all conditions to the Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the Closing shall have occurred. Section 1.6. "Common Stock" shall mean the Company's common stock, $.001 par value per share. Section 1.7. "Damages" shall mean any loss, claim, damage, judgment, penalty, deficiency, liability, costs and expenses (including, without limitation, reasonable attorney's fees and disbursements and reasonable costs and expenses of expert witnesses and investigation). Section 1.8. "Effective Date" shall mean the date on which the SEC first declares effective a Registration Statement registering the resale of the Registrable Securities as set forth in the Registration Rights Agreement. Section 1.9. "Escrow Agent" shall have the meaning set forth in the Escrow Agreement. Section 1.10. "Escrow Agreement" shall mean the Escrow Agreement in substantially the form of Exhibit D hereto executed and delivered contemporaneously with this Agreement. Section 1.11. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Section 1.12. "Exchange Shares" shall mean the shares of Common Stock issuable upon exchange of the Exchangeable Preferred Stock and any shares of Common Stock issued as dividends upon the Exchangeable Preferred Stock. Section 1.13. "Exchangeable Preferred Stock" shall mean the up to $1,850,000 Stated Value (1,850 shares) of Series A Exchangeable Preferred Stock, as described in the Certificate of Designations to be issued to the Investors pursuant to this Agreement. Section 1.14. "Legend" shall mean the legend set forth in Section 9.1. Section 1.15. "Market Price" on any given date shall mean the average of any three (3) consecutive closing bid prices on the Principal Market (as reported by Bloomberg L.P.) of the Common Stock selected by the Investor during the thirty (30) consecutive Trading Day period ending on the Trading Day immediately prior to the date for which the Market Price is to be determined. 2 Section 1.16. "Material Adverse Effect" shall mean any effect on the business, operations, properties, prospects, stock price or financial condition of the Company that is material and adverse to the Company and its subsidiaries and affiliates, taken as a whole, and/or any condition, circumstance, or situation that would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Certificate of Designations or the Warrants in any material respect. Section 1.17. "Outstanding" when used with reference to shares of Common Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as of which the number of such Shares is to be determined, all issued and outstanding Shares, and shall include all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; provided, however, that "Outstanding" shall not mean any such Shares then directly or indirectly owned or held by or for the account of the Company. Section 1.18. "Person" shall mean an individual, a corporation, a partnership, a limited liability company, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. Section 1.19. "Principal Market" shall mean the American Stock Exchange, the New York Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap Market, or the OTC Bulletin Board, whichever is at the time the principal trading exchange or market for the Common Stock. Section 1.20. "Purchase Price" shall mean the Stated Value per share of Exchangeable Preferred Stock, as defined in the Certificate of Designations. Section 1.21. "Registrable Securities" shall mean the Exchange Shares, and the Warrant Shares until (i) the Registration Statement has been declared effective by the SEC, and all Exchange Shares and Warrant Shares have been disposed of pursuant to the Registration Statement, (ii) all Exchange Shares and Warrant Shares have been sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) all Exchange Shares and Warrant Shares have been otherwise transferred to holders who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend or (iv) such time as, in the opinion of counsel to the Company, all Exchange Shares and Warrant Shares may be sold without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. Section 1.22. "Registration Rights Agreement" shall mean the agreement regarding the filing of the Registration Statement for the resale of the Registrable Securities, entered into between the Company and the Investor as of the Closing Date in the form annexed hereto as Exhibit C. 3 Section 1.23. "Registration Statement" shall mean a registration statement on Form S-3 (if use of such form is then available to the Company pursuant to the rules of the SEC and, if not, on such other form promulgated by the SEC for which the Company then qualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the resale by the Investors of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement, the Registration Rights Agreement and in accordance with the intended method of distribution of such securities), for the registration of the resale by the Investor of the Registrable Securities under the Securities Act. Section 1.24. "Regulation D" shall have the meaning set forth in the recitals of this Agreement. Section 1.25. "SEC" shall mean the Securities and Exchange Commission. Section 1.26. "Section 4(2)" and "Section 4(6)" shall have the meanings set forth in the recitals of this Agreement. Section 1.27. "Securities Act" shall have the meaning set forth in the recitals of this Agreement. Section 1.28. "SEC Documents" shall mean the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1999 and each report, proxy statement or registration statement filed by the Company with the SEC pursuant to the Exchange Act or the Securities Act since the filing of such Annual Report through the date hereof. Section 1.29. "Set Price" shall mean 140% of the average of the closing bid prices of the Company on the Principal Market of the Common Stock during the five (5) Trading Day period ending on the Trading Day immediately prior to the Closing Date. Section 1.30. "Shares" shall have the meaning set forth in Section 1.6. Section 1.31. "Stated Value" shall have the meaning set forth in the Certificate of Designations. Section 1.32. "Trading Day" shall mean any day during which the Principal Market shall be open for business. Section 1.33. "Warrants" shall mean the Warrants substantially in the form of Exhibit B to be issued to the Investors hereunder. Section 1.34. "Warrant Shares" shall mean all shares of Common Stock or other securities issued or issuable pursuant to exercise of the Warrants. 4 ARTICLE II Purchase and Sale of Exchangeable Preferred Stock and Warrants Section 2.1. Investment. (a) Upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and the Investors agree, severally and not jointly, to purchase the Exchangeable Preferred Stock together with the Warrants at the Purchase Price. On the Closing Date, the Investors shall purchase $1,850,000 (1,850 shares) of Exchangeable Preferred Stock as follows: (i) Upon execution and delivery of this Agreement, each Investor shall deliver to the Escrow Agent immediately available funds in their proportionate amount of the Purchase Price as set forth on the signature pages hereto, and the Company shall deliver the Exchangeable Preferred Stock certificates and the Warrants to the Escrow Agent, in each case to be held by the Escrow Agent pursuant to the Escrow Agreement. (ii) Upon satisfaction of the conditions set forth in Section 2.1(b), the Closing ("Closing") shall occur at the offices of the Escrow Agent at which the Escrow Agent (x) shall release the Exchangeable Preferred Stock, (after all fees have been paid as set forth in the Escrow Agreement), and the Warrants to the Investors and (y) shall release the Purchase Price, pursuant to the terms of the Escrow Agreement. 5 (b) The Closing is subject to the satisfaction, or waiver by the party to be benefited thereby, of the following conditions: (i) acceptance and execution by the Company and by the Investors, of this Agreement and all Exhibits hereto; (ii) delivery into escrow by each Investor of immediately available funds in the amount of the Purchase Price of the Exchangeable Preferred Stock and the Warrants, as more fully set forth in the Escrow Agreement (as a condition to the Company's obligations); (iii) all representations and warranties of the Investors contained herein shall remain true and correct as of the Closing Date (as a condition to the Company's obligations); (iv) all representations and warranties of the Company contained herein shall remain true and correct as of the Closing Date (as a condition to the Investors' obligations); (v) the Company shall have obtained all permits and qualifications required by any state for the offer and sale of the Exchangeable Preferred Stock and Warrants, or shall have the availability of exemptions therefrom; (vi) the sale and issuance of the Exchangeable Preferred Stock and the Warrants hereunder, and the proposed issuance by the Company to the Investors of the Common Stock underlying the Exchangeable Preferred Stock and the Warrants upon the exchange or exercise thereof shall be legally permitted by all laws and regulations to which the Investors and the Company are subject and there shall be no ruling, judgment or writ of any court prohibiting the transactions contemplated by this Agreement; (vii) delivery of the original fully executed Exchangeable Preferred Stock certificates and Warrants certificates to the Escrow Agent; (viii) delivery to the Escrow Agent of an opinion of Camhy Karlinsky & Stein, LLP, counsel to the Company, in the form of Exhibit E hereto; (ix) delivery to the Escrow Agent of the Irrevocable Instructions to Transfer Agent in the form attached hereto as Exhibit F; (x) delivery to the Escrow Agent of the Registration Rights Agreement; and (xi) delivery to the Escrow Agent of the written agreements of each officer and director of the Company addressed to the Investors, agreeing to vote all shares of Common Stock over which they have voting control in favor of a shareholder proposal permitting the issuance of a number of Exchange Shares in excess of 19.9% of the number of shares of Common Stock issued and outstanding on the Closing Date. 6 Section 2.2. Liquidated Damages. The Company understands that a delay in the issuance of the Exchange Shares beyond four Trading Days after delivery by an Investor of an Exchange Notice could result in economic loss to the Investor. As compensation to the Investor for such loss, the Company agrees to pay late payments to the Investor for late issuance of shares of Common Stock upon exchange in accordance with the following schedule (where "No. Trading Days Late" is defined as the number of Trading Days beyond four (4) Trading Days from the date of receipt by the Company of the Exchange Notice): 7
Late Payment For Each $5,000 of Liquidation Preference No. Trading Days Late Amount Being Exchanged - ------------------------------------------------------- --------------------------------------------------------- 1 $100 2 $200 3 $300 4 $400 5 $500 6 $600 7 $700 8 $800 9 $900 10 $1,000 >10 $1,000 + $200 for each Trading Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Nothing herein shall limit the Investor's right to pursue injunctive relief and/or actual damages for the Company's failure to issue and deliver Common Stock to the Investor, including, without limitation, the Investor's actual losses occasioned by any "buy-in" of Common Stock necessitated by such late delivery. Furthermore, in addition to any other remedies which may be available to the Investor, in the event that the Company fails for any reason to effect delivery of such shares of Common Stock within five Trading Days the date of receipt of the Exchange Notice, the holder will be entitled to revoke the relevant Exchange Notice by delivering a notice to such effect to the Company whereupon the Company and the holder shall each be restored to their respective positions immediately prior to delivery of such Exchange Notice. The parties hereto acknowledge and agree that the sums payable pursuant to the foregoing paragraph and pursuant to the Registration Rights Agreement shall constitute liquidated damages and not penalties. The parties further acknowledge that (a) the amount of loss or damages likely to be incurred is incapable or is difficult to precisely estimate, (b) the amounts specified in such Sections bear a reasonable proportion and are not plainly or grossly disproportionate to the probable loss likely to be incurred by the Investors in connection with the failure by the Company to timely cause the registration of the Registrable Securities and (c) the parties are sophisticated business parties and have been represented by sophisticated and able legal and financial counsel and negotiated this Agreement at arm's length. 8 ARTICLE III Representations and Warranties of Investor Each Investor, severally and not jointly, represents and warrants to the Company that: Section 3.1. Intent. The Investor is entering into this Agreement for its own account and not with a view to or for sale in connection with any distribution of the Common Stock. The Investor has no present arrangement (whether or not legally binding) at any time to sell the Exchangeable Preferred Stock, the Warrants, any Exchange Shares or Warrant Shares to or through any person or entity except in compliance with the Securities Act or an exemption therefrom; provided, however, that by making the representations herein, the Investor does not agree to hold such securities for any minimum or other specific term and reserves the right to dispose of the Exchange Shares and Warrant Shares at any time in accordance with federal and state securities laws applicable to such disposition. Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in Rule 501 of Regulation D), and Investor has such experience in business and financial matters that it has the capacity to protect its own interests in connection with this transaction and is capable of evaluating the merits and risks of an investment in the Exchangeable Preferred Stock, the Warrants and the underlying Common Stock. The Investor acknowledges that an investment in the Exchangeable Preferred Stock, the Warrants and the underlying Common Stock is speculative and involves a high degree of risk. Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit hereto which is required to be executed by Investor has been duly authorized and validly executed and delivered by the Investor and is a valid and binding agreement of the Investor enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. Section 3.4. Not an Affiliate. The Investor is not an officer, director or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of the Company. Section 3.5. Absence of Conflicts. The execution and delivery of this Agreement and each agreement which is attached as an Exhibit hereto and executed by the Investor in connection herewith, and the consummation of the transactions contemplated hereby and thereby, and compliance with the requirements hereof and thereof by the Investor, will not violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Investor or (a) violate any provision of any indenture, instrument or agreement to which Investor is a party or is subject, or by which Investor or any of its assets is bound; (b) conflict with or constitute a material default thereunder; (c) result in the creation or imposition of any lien pursuant to the terms of any such indenture, instrument or agreement, or constitute a breach of any fiduciary duty owed by Investor to any third party; or (d) require the approval of any third-party (which has not been obtained) pursuant to any material contract, agreement, instrument, relationship or legal obligation to which Investor is subject or to which any of its assets, operations or management may be subject. 9 Section 3.6. Disclosure; Access to Information. The Investor has received all documents, records, books and other publicly available information pertaining to Investor's investment in the Company that have been requested by the Investor. The Company is subject to the periodic reporting requirements of the Exchange Act, and the Investor has reviewed copies of all SEC Documents deemed relevant by Investor. Section 3.7. Manner of Sale. At no time was Investor presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or any other form of general solicitation or advertising. Section 3.8. No Brokers. The Investor has not employed any investment banker, broker, finder, or intermediary in connection with the transactions contemplated by this Agreement who will seek a fee from the Company. The Investor agrees to indemnify and hold harmless the Company from and against any and all liabilities to any person claiming brokerage commissions or finder's fees on account of services purported to have been rendered on behalf of the Investor in connection with this Agreement or the transactions contemplated hereby. ARTICLE IV Representations and Warranties of the Company The Company represents and Warrants to the Investors that, except as set forth on the Disclosure Schedule prepared by the Company and attached hereto: Section 4.1. Organization of the Company. The Company is a corporation duly incorporated and existing in good standing under the laws of the State of Delaware and has all requisite corporate authority to own its properties and to carry on its business as now being conducted. The Company does not have any subsidiaries and does not own more that fifty percent (50%) of or control any other business entity except as set forth in the SEC Documents. The Company is duly qualified and is in good standing as a foreign corporation to do business in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a Material Adverse Effect. Section 4.2. Authority. (i) The Company has the requisite corporate power and corporate authority to enter into and perform its obligations under this Agreement, the Registration Rights Agreement, the Escrow Agreement, and the Warrants and the Exchangeable Preferred Stock, the Exchange Shares, the Warrants and the Warrant Shares pursuant to their respective terms, (ii) the execution, issuance and delivery of this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Certificate of Designations, the Exchangeable Preferred Stock certificates and the Warrants by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its 10 Board of Directors or stockholders is required, and (iii) this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Exchangeable Preferred Stock certificates and the Warrants have been duly executed and delivered by the Company and at the Closing shall constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. The Company has duly and validly authorized and reserved for issuance shares of Common Stock sufficient in number for the exchange of the Exchangeable Preferred Stock and for the exercise of the Warrants. The Company understands and acknowledges the potentially dilutive effect to the Common Stock of the issuance of the Exchange Shares. The Company further acknowledges that its obligation to issue Exchange Shares upon exchange of the Exchangeable Preferred Stock and Warrant Shares upon exercise of the Warrants in accordance with this Agreement and the Certificate of Designations is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company and notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). The Company shall not seek judicial relief from its obligations hereunder except pursuant to the Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in respect of the exchange of the Exchangeable Preferred Stock and the exercise of the Warrants. The Company agrees, without cost or expense to the Investors, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C. ss. 362. Section 4.3. Capitalization. The authorized capital stock of the Company consists of 15,000,000 shares of Common Stock, $.001 par value per share, of which 3,416,233 shares are issued and outstanding as of November 12, 1999 and 5,000,000 shares of preferred stock, par value $.001 per share, none of which have been designated as to series or are issued and outstanding prior to the Closing. The Company has duly and validly designated 2,100 shares of its preferred stock as Series A Exchangeable Preferred Stock. Except for (i) outstanding options and warrants as set forth in the SEC Documents, (ii) stock options awarded under the Company's 1996 Stock Option Plan, as amended, and (iii) as set forth in the Disclosure Schedule, there are no outstanding Capital Shares Equivalents nor any agreements or understandings pursuant to which any Capital Shares Equivalents may become outstanding. The Company is not a party to any agreement granting registration or anti-dilution rights to any person with respect to any of its equity or debt securities. All of the outstanding shares of Common Stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable. Section 4.4. Common Stock. The Company has registered its Common Stock pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance with all reporting requirements of the Exchange Act, and the Company is in compliance with all requirements for the continued listing or quotation of its Common Stock, and such Common Stock is currently listed or quoted on, the Principal Market. As of the date hereof, the Principal Market is the NASDAQ SmallCap Market and the Company has not received any notice regarding, and to its knowledge there is no threat, of the termination or discontinuance of the eligibility of the Common Stock for such listing. 11 Section 4.5. SEC Documents. The Company has made available to the Investors true and complete copies of the SEC Documents. The Company has not provided to the Investors any information that, according to applicable law, rule or regulation, should have been disclosed publicly prior to the date hereof by the Company, but which has not been so disclosed. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act, and rules and regulations of the SEC promulgated thereunder and the SEC Documents did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto at the time of such inclusion. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited interim statements, to normal year-end audit adjustments). Neither the Company nor any of its subsidiaries has any material indebtedness, obligations or liabilities of any kind (whether accrued, absolute, contingent or otherwise, and whether due or to become due) that would have been required to be reflected in, reserved against or otherwise described in the financial statements or in the notes thereto in accordance with GAAP, which was not fully reflected in, reserved against or otherwise described in the financial statements or the notes thereto included in the SEC Documents or was not incurred in the ordinary course of business consistent with the Company's past practices since the last date of such financial statements. Section 4.6. Exemption from Registration; Valid Issuances. Subject to the accuracy of the Investors' representations in Article III, the sale of the Exchangeable Preferred Stock, the Exchange Shares, the Warrants and the Warrant Shares will not require registration under the Securities Act and/or any applicable state securities law. When issued and paid for in accordance with the Warrants and validly exchanged in accordance with the terms of the Exchangeable Preferred Stock, the Exchange Shares and the Warrant Shares will be duly and validly issued, fully paid, and non-assessable. Neither the sales of the Exchangeable Preferred Stock, the Exchange Shares, the Warrants or the Warrant Shares pursuant to, nor the Company's performance of its obligations under, this Agreement, the Registration Rights Agreement, the Escrow Agreement, the Certificate of Designations or the Warrants will (i) result in the creation or imposition by the Company of any liens, charges, claims or other encumbrances upon the Exchangeable Preferred Stock, the Exchange Shares, the Warrants or the Warrant Shares or, except as contemplated herein, any of the assets of the Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive or other rights to subscribe for or acquire the Capital Shares or other securities of the Company. The Exchangeable Preferred Stock, the Exchange Shares, the Warrants and the Warrant Shares shall not subject the Investors to personal liability to the Company or its creditors by reason of the possession thereof. 12 Section 4.7. No General Solicitation or Advertising in Regard to this Transaction. Neither the Company nor any of its affiliates nor, to the knowledge of the Company, any person acting on its or their behalf (i) has conducted or will conduct any general solicitation (as that term is used in Rule 502(c) of Regulation D) or general advertising with respect to the sale of the Exchangeable Preferred Stock or the Warrants, or (ii) made any offers or sales of any security or solicited any offers to buy any security under any circumstances that would require registration of the Exchangeable Preferred Stock, the Exchange Shares, the Warrants or the Warrant Shares under the Securities Act. Section 4.8. No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, including without limitation the issuance of and payment of dividends upon the Exchangeable Preferred Stock, the Exchange Shares, the Warrants and the Warrant Shares do not and will not (i) result in a violation of the Company's Certificate of Incorporation or By-Laws or (ii) conflict with, or constitute a material default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument, or any "lock-up" or similar provision of any underwriting or similar agreement to which the Company is a party, or (iii) result in a violation of any federal, state or local law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or by which any material property or asset of the Company is bound or affected, nor is the Company otherwise in violation of, conflict with or default under any of the foregoing (except in each case for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not have, individually or in the aggregate, a Material Adverse Effect). The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental entity, except for possible violations that either singly or in the aggregate would not have a Material Adverse Effect. The Company is not required under any Federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or issue and sell the Common Stock, the Exchangeable Preferred Stock or the Warrants in accordance with the terms hereof (other than any SEC, Principal Market or state securities filings that may be required to be made by the Company subsequent to Closing, any registration statement that may be filed pursuant hereto, and any shareholder approval required by the rules applicable to companies whose common stock trades on the Principal Market); provided that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of the Investors herein. Section 4.9. No Material Adverse Change. Since September 30, 1999, no Material Adverse Effect has occurred or exists with respect to the Company, except as disclosed in the SEC Documents. Section 4.10. No Undisclosed Events or Circumstances. Since September 30, 1999, no material event or circumstance has occurred or exists with respect to the Company or its businesses, properties, prospects, operations or financial condition, which has not been publicly announced or disclosed in the SEC Documents. 13 Section 4.11. No Integrated Offering. Other than pursuant to an effective registration statement under the Securities Act, or pursuant to the issuance or exercise of employee stock options, or pursuant to its discussion with the Investors in connection with the transactions contemplated hereby, the Company has not issued, offered or sold the Exchangeable Preferred Stock, the Warrants or any shares of Common Stock (including for this purpose any securities of the same or a similar class as the Exchangeable Preferred Stock, the Warrants or Common Stock, or any securities exchangeable into or exercisable for the Exchangeable Preferred Stock or Common Stock or any such other securities) within the six-month period next preceding the date hereof, and the Company shall not permit any of its directors, officers or affiliates directly or indirectly to take, any action (including, without limitation, any offering or sale to any Person of the Exchangeable Preferred Stock, Warrants or shares of Common Stock), so as to make unavailable the exemption from Securities Act registration being relied upon by the Company for the offer and sale to Investors of the Exchangeable Preferred Stock (and the Exchange Shares) or the Warrants (and the Warrant Shares) as contemplated by this Agreement. Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC Documents, there are no lawsuits or proceedings pending or, to the knowledge of the Company, threatened, against the Company or any subsidiary, nor has the Company received any written or oral notice of any such action, suit, proceeding or investigation, which could reasonably be expected to have a Material Adverse Effect. Except as set forth in the SEC Documents, no judgment, order, writ, injunction or decree or award has been issued by or, to the knowledge of the Company, requested of any court, arbitrator or governmental agency which could result in a Material Adverse Effect. Section 4.13. No Misleading or Untrue Communication. The Company and, to the knowledge of the Company, any person representing the Company, or any other person selling or offering to sell the Exchangeable Preferred Stock or the Warrants in connection with the transaction contemplated by this Agreement, have not made, at any time, any oral communication in connection with the offer or sale of the same which contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. Section 4.14. Material Non-Public Information. The Company has not disclosed to the Investors any non-public information it believes to be material that (i) if disclosed, would reasonably be expected to have a material effect on the trading price of the Common Stock and (ii) according to applicable law, rule or regulation, should have been disclosed publicly by the Company prior to the date hereof but which has not been so disclosed. Section 4.15. Insurance. The Company and each subsidiary maintains property and casualty, general liability, workers' compensation, personal injury and other similar types of insurance with financially sound and reputable insurers that is adequate, consistent with industry standards and the Company's historical claims experience. The Company has not received notice from, and has no knowledge of any threat by, any insurer (that has issued any insurance policy to the Company) that such insurer intends to deny coverage under or cancel, discontinue or not renew any insurance policy presently in force. 14 Section 4.16. Tax Matters. (a) The Company and each subsidiary has filed all Tax Returns which it is required to file under applicable laws; all such Tax Returns are true and accurate and has been prepared in compliance with all applicable laws; the Company has paid all Taxes due and owing by it or any subsidiary (whether or not such Taxes are required to be shown on a Tax Return) and have withheld and paid over to the appropriate taxing authorities all Taxes which it is required to withhold from amounts paid or owing to any employee, stockholder, creditor or other third parties; and since June 30, 1999, the charges, accruals and reserves for Taxes with respect to the Company (including any provisions for deferred income taxes) reflected on the books of the Company are adequate to cover any Tax liabilities of the Company if its current tax year were treated as ending on the date hereof. (b) No claim has been made by a taxing authority in a jurisdiction where the Company does not file tax returns that the Company or any subsidiary is or may be subject to taxation by that jurisdiction. There are no foreign, federal, state or local tax audits or administrative or judicial proceedings pending or being conducted with respect to the Company or any subsidiary; no information related to Tax matters has been requested by any foreign, federal, state or local taxing authority; and, except as disclosed above, no written notice indicating an intent to open an audit or other review has been received by the Company or any subsidiary from any foreign, federal, state or local taxing authority. There are no material unresolved questions or claims concerning the Company's Tax liability. The Company (A) has not executed or entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any predecessor provision thereof or any similar provision of state, local or foreign law; or (B) has not agreed to or is required to make any adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Company or any of its subsidiaries or has any knowledge that the IRS has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company. The Company has not been a United States real property holding corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal Revenue Code. (c) The Company has not made an election under ss. 341(f) of the Internal Revenue Code. The Company is not liable for the Taxes of another person that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a transferee or successor, (C) by contract or indemnity or (D) otherwise. The Company is not a party to any tax sharing agreement. The Company has not made any payments, is obligated to make payments or is a party to an agreement that could obligate it to make any payments that would not be deductible under ss. 280G of the Internal Revenue Code. (d) For purposes of this Section 4.16: "IRS" means the United States Internal Revenue Service. "Tax" or "Taxes" means federal, state, county, local, foreign, or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, 15 real or personal property, capital stock, license, payroll, wage or other withholding, employment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including, without limitation, deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not. "Tax Return" means any return, information report or filing with respect to Taxes, including any schedules attached thereto and including any amendment thereof. Section 4.17. Property. Neither the Company nor any of its subsidiaries owns any real property except as set forth in the SEC Documents. Each of the Company and its subsidiaries has good and marketable title to all personal property owned by it, free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company; and to the Company's knowledge any real property and buildings held under lease by the Company as tenant are held by it under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and intended to be made of such property and buildings by the Company. Section 4.18. Intellectual Property. Each of the Company and its subsidiaries owns or possesses adequate and enforceable rights to use all patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, "Intangibles") necessary for the conduct of its business as now being conducted. To the Company's knowledge, except as disclosed in the SEC Documents neither the Company nor any of its subsidiaries is infringing upon or in conflict with any right of any other person with respect to any Intangibles. Except as disclosed in the SEC Documents, no adverse claims have been asserted by any person to the ownership or use of any Intangibles and the Company has no knowledge of any basis for such claim. Section 4.19. Internal Controls and Procedures. The Company maintains books and records and internal accounting controls which provide reasonable assurance that (i) all transactions to which the Company or any subsidiary is a party or by which its properties are bound are executed with management's authorization; (ii) the recorded accounting of the Company's consolidated assets is compared with existing assets at regular intervals; (iii) access to the Company's consolidated assets is permitted only in accordance with management's authorization; and (iv) all transactions to which the Company or any subsidiary is a party or by which its properties are bound are recorded as necessary to permit preparation of the financial statements of the Company in accordance with U.S. generally accepted accounting principles. Section 4.20. Payments and Contributions. Neither the Company, any subsidiary, nor any of its directors, officers or, to its knowledge, other employees has (i) used any Company funds for any unlawful contribution, endorsement, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment of Company funds to any foreign or 16 domestic government official or employee; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other similar payment to any person with respect to Company matters. Section 4.21. No Misrepresentation. The representations and warranties of the Company (when read in conjunction with the Disclosure Letter) contained in this Agreement, any schedule, annex or exhibit hereto, do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. ARTICLE V Covenants of the Investors Each Investor, severally and not jointly, covenants with the Company that: Section 5.1. Compliance with Law. The Investor's trading activities with respect to shares of the Company's Common Stock will be in compliance with all applicable state and federal securities laws, rules and regulations and rules and regulations of the Principal Market on which the Company's Common Stock is listed. Section 5.2. No Short Sales. The Investor and its affiliates shall not engage in short sales of the Company's Common Stock (as defined in applicable SEC and NASD rules) so long as the Investor holds any unconverted shares of Exchangeable Preferred Stock. Section 5.3. Limitations on Resale Volume. The Investor shall not sell Exchange Shares in an amount, on a daily basis, which exceeds the greater of (i) 40% of the average daily volume of the Common Stock on the Principal Market for the five (5) Trading Days prior to such sale or (ii) 40% of the daily volume on the date of such sales (based upon Investor's good faith estimate of such daily volume based upon volume reporting from Bloomberg LP, it being understood that the limitation in this clause (ii) cannot be accurately determined until after the end of such Trading Day). ARTICLE VI Covenants of the Company Section 6.1. Registration Rights. The Company shall cause the Registration Rights Agreement to remain in full force and effect and the Company shall comply in all material respects with the terms thereof. 17 Section 6.2. Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, shares of Common Stock for the purpose of enabling the Company to issue the Exchange Shares and the Warrant Shares pursuant to any exchange of the Exchangeable Preferred Stock or exercise of the Warrants. The number of shares so reserved from time to time, as theretofore increased or reduced as hereinafter provided, may be reduced by the number of shares actually delivered pursuant to any exchange of the Exchangeable Preferred Stock or exercise of the Warrants and the number of shares so reserved shall be increased or decreased to reflect potential increases or decreases in the Common Stock that the Company may thereafter be obligated to issue by reason of adjustments to the Warrants. Section 6.3. Listing of Common Stock. The Company hereby agrees to use its best efforts to maintain the listing of the Common Stock on a Principal Market, and as soon as reasonably practicable following the Closing to list the Exchange Shares and the Warrant Shares on the Principal Market. The Company further agrees, if the Company applies to have the Common Stock traded on any other Principal Market, it will include in such application the Exchange Shares and the Warrant Shares, and will take such other action as is reasonably necessary to cause the Exchange Shares and Warrant Shares to be listed on such other Principal Market as promptly as possible. The Company will take all action to continue the listing and trading of its Common Stock on a Principal Market (including, without limitation, maintaining sufficient net tangible assets) and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Principal Market and shall provide Investors with copies of any correspondence to or from such Principal Market which questions or threatens delisting of the Common Stock, within three (3) Trading Days of the Company's receipt thereof, until the Investors have disposed of all of their Registrable Securities. The Company agrees to present a proposal for stockholder approval at the next annual meeting of stockholders to permit the Company to issue a number of Exchange Shares and Warrant Shares which is in excess of 19.9% of the number of the Company's issued and outstanding shares of Common Stock on the Closing Date, with the recommendation of the Board of Directors that such proposal be approved, unless at the date of such meeting, less than two percent (2%) of the Exchangeable Preferred Stock remains issued and outstanding. If such proposal is not presented or not approved, the Company shall either (i) voluntarily de-list its Common Stock from any Principal Market which requires such approval or (ii) redeem any un-exchanged Exchangeable Preferred Stock tendered for exchange, pursuant to Section 7 of the Certificate of Designations, if the exchange of such Exchangeable Preferred Stock would cause such 19.9% limitation to be exceeded, to the extent a conversion exceeds 19.9%. Section 6.4. Exchange Act Registration. The Company will cause its Common Stock to continue to be registered under Section 12(b) or (g) of the Exchange Act, will use its best efforts to comply in all respects with its reporting and filing obligations under the Exchange Act, and will not take any action or file any document (whether or not permitted by the Exchange Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Act until the Investors have disposed of all of their Registrable Securities. 18 Section 6.5. Legends. The certificates evidencing the Registrable Securities shall be free of legends, except as set forth in Article IX. Section 6.6. Corporate Existence; Conflicting Agreements. The Company will take all steps necessary to preserve and continue the corporate existence of the Company. The Company shall not enter into any agreement, the terms of which agreement would restrict or impair the right or ability of the Company to perform any of its obligations under this Agreement or any of the other agreements attached as exhibits hereto or under the Certificate of Designations. Section 6.7. Consolidation; Merger. The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all of the assets of the Company to, another entity (a "Consolidation Event") unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument or by operation of law the obligation to deliver to the Investors such shares of stock and/or securities as the Investors are entitled to receive pursuant to this Agreement and the Certificate of Designations. Section 6.8. Issuance of Exchangeable Preferred Stock and Warrant Shares. The sale of the Exchangeable Preferred Stock and the Warrants and the issuance of the Warrant Shares pursuant to exercise of the Warrants and the Exchange Shares upon exchange of the Exchangeable Preferred Stock shall be made in accordance with the provisions and requirements of Section 4(2), 4(6) or Regulation D and any applicable state securities law. The Company shall make any necessary SEC and "blue sky" filings required to be made by the Company in connection with the sale of the Securities to the Investors as required by all applicable laws, and shall provide a copy thereof to the Investors promptly after such filing. Section 6.9. Limitation on Future Financing. The Company agrees that it will not enter into any sale of its securities for cash at a discount to the then-current bid price of its Common Stock until 180 days after the effective date of the Registration Statement except for any sales (i) of Common Stock for gross proceeds of up to $14,000,000 at a discount of up to 11% pursuant to an equity line of credit arrangement, (ii) pursuant to any presently existing employee benefit plan which plan has been approved by the Company's stockholders, (iii) pursuant to any compensatory plan for a full-time employee or key consultant, (iv) pursuant to a private placement in which the purchasers are not given any registration rights or (v) with the prior approval of a majority in interest of the Investors, which will not be unreasonably withheld, in connection with a strategic partnership or other business transaction, the principal purpose of which is not simply to raise money. Further, the Investors shall have a right of first offer, exercisable within five (5) Trading Days of notice from the Company setting forth the principal terms of any such transaction, to elect to participate, pro-rata, in such subsequent transaction in the case of (i) and (iv) above. Section 6.10. Pro-Rata Redemption. The Company agrees that if it shall redeem or require the mandatory exchange of any of the Exchangeable Preferred Stock, that it shall make such redemption pro-rata among all Investors in proportion to their respective initial purchases of such securities pursuant to this Agreement. 19 ARTICLE VII Survival; Indemnification Section 7.1. Survival. The representations and warranties (when read in conjunction with the Disclosure Schedule) and covenants made by each of the Company and each Investor in this Agreement, the annexes, schedules and exhibits hereto and in each instrument, agreement and certificate entered into and delivered by them pursuant to this Agreement, shall survive the Closing and the consummation of the transactions contemplated hereby until there shall be no shares of Exchangeable Preferred Stock outstanding. In the event of a breach or violation of any of such representations, warranties or covenants, the party to whom such representations, warranties or covenants have been made shall have all rights and remedies for such breach or violation available to it under the provisions of this Agreement, irrespective of any investigation made by or on behalf of such party on or prior to the Closing Date. Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold harmless the Investors, their respective Affiliates and their respective officers, directors, partners and members (collectively, the "Investor Indemnitees"), from and against any and all Damages, and agrees to reimburse the Investor Indemnitees for all reasonable out-of-pocket expenses (including the reasonable fees and expenses of legal counsel), in each case promptly as incurred by the Investor Indemnitees and to the extent arising out of or in connection with: (i) any misrepresentation, omission of fact or breach of any of the Company's representations or warranties (when read in conjunction with the Disclosure Schedule) contained in this Agreement, the annexes, schedules or exhibits hereto or any instrument, agreement or certificate entered into or delivered by the Company pursuant to this Agreement; or (ii) any failure by the Company to perform in any material respect any of its covenants, agreements, undertakings or obligations set forth in this Agreement, the annexes, schedules or exhibits hereto or any instrument, agreement or certificate entered into or delivered by the Company pursuant to this Agreement; or (iii) any action instituted against the Investors, or any of them, by any stockholder of the Company who is not an Affiliate of an Investor, with respect to any of the transactions contemplated by this Agreement. (b) Each Investor, severally and not jointly, hereby agrees to indemnify and hold harmless the Company, its Affiliates and their respective officers, directors, partners and members (collectively, the "Company Indemnitees"), from and against any and all Damages, and agrees to reimburse the Company Indemnitees for reasonable all out-of-pocket expenses (including the reasonable fees and expenses of legal counsel), in each case promptly as incurred by the Company Indemnitees and to the extent arising out of or in connection with any misrepresentation, omission of fact, or breach of any of the Investor's representations or warranties contained in this Agreement, the annexes, schedules or exhibits hereto or any instrument, agreement or certificate entered into or delivered by the Investor pursuant to this Agreement. 20 Section 7.3. Notice. Promptly after receipt by either party hereto seeking indemnification pursuant to Section 7.2 (an "Indemnified Party") of written notice of any investigation, claim, proceeding or other action in respect of which indemnification is being sought (each, a "Claim"), the Indemnified Party promptly shall notify the party from whom indemnification pursuant to Section 7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but the omission to so notify the Indemnifying Party shall not relieve it from any liability that it otherwise may have to the Indemnified Party, except to the extent that the Indemnifying Party is actually prejudiced by such omission or delay. In connection with any Claim as to which both the Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense thereof. Notwithstanding the assumption of the defense of any Claim by the Indemnifying Party, the Indemnified Party shall have the right to employ separate legal counsel and to participate in the defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and expenses of such separate legal counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall have concluded that representation of the Indemnified Party and the Indemnifying Party by the same legal counsel would not be appropriate due to actual or, as reasonably determined by legal counsel to the Indemnified Party, potentially differing interests between such parties in the conduct of the defense of such Claim, or if there may be legal defenses available to the Indemnified Party that are disparate from those available to the Indemnifying Party, or (z) the Indemnifying Party shall have failed to employ legal counsel reasonably satisfactory to the Indemnified Party within a reasonable period of time after notice of the commencement of such Claim. If the Indemnified Party employs separate legal counsel in circumstances other than as described in clauses (x), (y) or (z) above, the fees, costs and expenses of such legal counsel shall be borne exclusively by the Indemnified Party. Except as provided above, the Indemnifying Party shall not, in connection with any Claim in the same jurisdiction, be liable for the fees and expenses of more than one firm of legal counsel for the Indemnified Party (together with appropriate local counsel). The Indemnifying Party shall not, without the prior written consent of the Indemnified Party (which consent shall not unreasonably be withheld), settle or compromise any Claim or consent to the entry of any judgment that does not include an unconditional release of the Indemnified Party from all liabilities with respect to such Claim or judgment. Section 7.4. Direct Claims. In the event one party hereunder should have a claim for indemnification that does not involve a claim or demand being asserted by a third party, the Indemnified Party promptly shall deliver notice of such claim to the Indemnifying Party. If the Indemnified Party disputes the claim, such dispute shall be resolved by mutual agreement of the Indemnified Party and the Indemnifying Party, and if they cannot agree, then as set forth in Article X. 21 ARTICLE VIII Due Diligence Review; Non-Disclosure of Non-Public Information. Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall make available for inspection and review by the Investors, advisors to and representatives of the Investors (who may or may not be affiliated with the Investors and who are reasonably acceptable to the Company), any underwriter participating in any disposition of the Registrable Securities on behalf of the Investors pursuant to the Registration Statement, any such registration statement or amendment or supplement thereto or any blue sky, Nasdaq or other filing, all SEC Documents and other filings with the SEC, and all other publicly available corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company's officers, directors and employees to supply all such publicly available information reasonably requested by the Investors or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investors and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement. Section 8.2. Non-Disclosure of Non-Public Information. (a) The Company shall not disclose non-public information it believes to be material to the Investors, advisors to or representatives of the Investors unless prior to disclosure of such information the Company identifies such information as being non-public information and provides the Investors, such advisors and representatives with the opportunity to accept or refuse to accept such non-public information for review. Other than disclosure of any comment letters received from the SEC staff with respect to the Registration Statement, the Company may, as a condition to disclosing any non-public information hereunder, require the Investors' advisors and representatives to enter into a confidentiality agreement in form and content reasonably satisfactory to the Company and the Investors. (b) Nothing herein shall require the Company to disclose material non-public information to the Investors or their advisors or representatives, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, promptly notify the advisors and representatives of the Investors and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting material non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 8.2 shall be construed to mean that such persons or entities other than the Investors (without the written consent of the Investors prior to disclosure of such information as set forth in Section 8.2(a)) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of a material fact or omits 22 a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading. ARTICLE IX Legends; Transfer Agent Instructions Section 9.1. Legends. Unless otherwise provided below, each certificate representing Registrable Securities will bear the following legend or equivalent (the "Legend"): THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION. Section 9.2. Transfer Agent Instructions. Upon the execution and delivery hereof, the Company is issuing to the transfer agent for its Common Stock (and to any substitute or replacement transfer agent for its Common Stock upon the Company's appointment of any such substitute or replacement transfer agent) instructions substantially in the form of Exhibit F hereto. Such instructions shall be irrevocable by the Company from and after the date hereof or from and after the issuance thereof to any such substitute or replacement transfer agent, as the case may be. Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other than the one specified in Section 9.1 has been or shall be placed on the share certificates representing the Registrable Securities and no instructions or "stop transfer orders," "stock transfer restrictions," or other restrictions have been or shall be given to the Company's transfer agent with respect thereto other than as expressly set forth in this Article IX. Section 9.4. Investors' Compliance. Notwithstanding anything contained in this Agreement to the contrary, each Investor shall comply with all applicable federal and state securities laws upon resale of the Common Stock. 23 ARTICLE X Choice of Law; Jurisdiction and Venue Section 10.1. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made in New York by persons domiciled in New York City and without regard to its principles of conflicts of laws. Each party submits to the exclusive jurisdiction of the state and Federal courts sitting in New York County, New York as the sole forum for hearing disputes arising under this Agreement or any of the agreements attached as exhibits hereto. The non-prevailing party to any proceeding (as determined by the court) shall pay the expenses of the prevailing party, including reasonable attorney's fees, in connection with such proceeding. Any party shall be entitled to obtain injunctive relief from a court in any case where such relief is available. The non-prevailing party to any injunctive proceeding (as determined by the court) shall pay the expenses of the prevailing party, including reasonable attorney's fees, in connection with such injunctive proceeding. ARTICLE XI Assignment Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors or the Company hereunder may be assigned by either party to any other person. Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure to the benefit of, and be enforceable by, any permitted transferee of any of the Exchangeable Preferred Stock or Warrants purchased or acquired by any Investor hereunder with respect to the Exchangeable Preferred Stock or Warrants held by such person, and (b) upon the prior written consent of the Company, which consent shall not unreasonably be withheld or delayed, each Investor's interest in this Agreement may be assigned at any time, in whole or in part, to any other person or entity (including any Affiliate of the Investor) who agrees to make the representations and warranties contained in Article III and who agrees to be bound by the terms of this Agreement, provided, that Investor shall give the Company five (5) days notice of any such proposed assignment or sale, and the Company shall not have notified the Investor in writing that such proposed assignee is a competitor of the Company. ARTICLE XII Notices Section 12.1. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following 24 such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the first business day following the date of sending by reputable courier service, fully prepaid, addressed to such address, or (c) upon actual receipt of such mailing, if mailed. The addresses for such communications shall be: If to the Company: NAM Corporation 1010 Northern Boulevard, Suite 336 Great Neck, NY 10021 Attention: Roy Israel Telephone: 516-829-4343 Facsimile: 516-829-4395 with a copy to Camhy Karlinsky & Stein, LLP (shall not constitute notice): 1740 Broadway, 16th Floor New York, New York 10019 Attention: Robert S. Matlin Telephone: 212-830-5761 Facsimile: 212-977-8389 if to the Investors: As set forth on the signature pages hereto with a copy to: Joseph A. Smith, Esq. (shall not constitute notice) Epstein Becker & Green, P.C. 250 Park Avenue New York, New York 10177 Telephone: (212) 351-4500 Facsimile: (212) 661-0989 Either party hereto may from time to time change its address or facsimile number for notices under this Section 12.1 by giving written notice of such changed address or facsimile number to the other party hereto as provided in this Section 12.1. ARTICLE XIII Miscellaneous Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. Except as otherwise stated herein, in lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original. This Agreement may be amended only by a writing executed by all parties. 25 Section 13.2. Entire Agreement. This Agreement, the agreements attached as Exhibits hereto, which include the Certificate of Designations, the Warrants, the Escrow Agreement, the Instructions to Transfer Agent and the Registration Rights Agreement, set forth the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, negotiations and understandings between the parties, both oral and written relating to the subject matter hereof. The terms and conditions of all Exhibits to this Agreement are incorporated herein by this reference and shall constitute part of this Agreement as is fully set forth herein. Section 13.3. Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party. Section 13.4. Headings. The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Section 13.5. Number and Gender. There may be one or more Investors parties to this Agreement, which Investors may be natural persons or entities. All references to plural Investors shall apply equally to a single Investor if there is only one Investor, and all references to an Investor as "it" shall apply equally to a natural person. Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of the Investors and the Company shall be required to employ any other reporting entity. Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of a certificate representing the Exchangeable Preferred Stock or any Exchange Shares or Warrants or any Warrant Shares and (ii) in the case of any such loss, theft or destruction of such certificate, upon delivery of an indemnity agreement or security reasonably satisfactory in form to the Company (which shall not exceed that customarily charged by the Company's transfer agent) or (iii) in the case of any such mutilation, on surrender and cancellation of such certificate, the Company at its expense will execute and deliver, in lieu thereof, a new certificate of like tenor. Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees to pay its own expenses incident to the performance of its obligations hereunder, except that the Company shall pay the fees, expenses and disbursements of Epstein Becker & Green, P.C., counsel to the Investors, in an amount equal to $10,000, all as set forth in the Escrow Agreement. 26 Section 13.9. Brokerage. Each of the parties hereto represents that it has had no dealings in connection with this transaction with any finder or broker who will demand payment of any fee or commission from the other party. The Company on the one hand, and the Investors, on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any person claiming brokerage commissions or finder's fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby. Publicity. The Company agrees that it will not issue any press release or other public announcement of the transactions contemplated by this Agreement without the prior consent of the Investors, which shall not be unreasonably withheld nor delayed by more than two (2) Trading Days from their receipt of such proposed release. No release shall name the Investors without their express consent. 27 IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above. NAM Corporation By: /s/ Roy Israel ----------------------------- Roy Israel, President & CEO Esquire Trade & Finance Inc. By: /s/ Roland Winiger ------------------------------ Roland Winiger Authorized Signatory Amount subscribed for: $450,000 Address for notices: P.O. Box 2154 Baar, CH-6342 Switzerland Fax: 011-411-760-1031 28 Austinvest Anstalt Balzers By: /s/ Dr. Walter Grill -------------------------------- Dr. Walter Grill, Authorized Signatory Amount subscribed for: $425,000 Address for notices: Landstrasse 938 9494 Balzers Furstentum Liechtenstein Fax:011-431- AMRO International, S.A. By: /s/ H. U. Bachofen --------------------------------- H. U. Bachofen, Authorized Signatory Amount subscribed for: $875,000 Address for notices: C/o Ultrafinanz AG Grossmuensterplatz 6 Zurich CH-8022 Switzerland Fax: 011-411-262-5515 Mabcrown, Inc. By: /s/ H. U. Bachofen ---------------------------------- H. U. Bachofen, Authorized Signatory Amount subscribed for: $100,000 Address for notices: C/o Ultrafinanz AG Grossmuensterplatz 6 Zurich CH-8022 Switzerland Fax: 011-411-262-5515 29 EX-10.9 6 EXHIBIT 10.9 EXHIBIT C REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 15, 2000, between the investor or investors signatory hereto (each an "Investor" and together the "Investors"), and NAM Corporation, a Delaware corporation (the "Company"). WHEREAS, simultaneously with the execution and delivery of this Agreement, the Investors are purchasing from the Company, pursuant to an Exchangeable Preferred Stock and Warrants Purchase Agreement dated the date hereof (the "Purchase Agreement"), $1,850,000 Stated Value of Exchangeable Preferred Stock and Warrants to purchase up to 46,250 shares of the Company's Common Stock (terms not defined herein shall have the meanings ascribed to them in the Purchase Agreement); and WHEREAS, the Company desires to grant to the Investors the registration rights set forth herein with respect to the Exchange Shares of Common Stock issuable upon exchange of or as dividends upon the Exchangeable Preferred Stock purchased pursuant to the Purchase Agreement and shares of Common Stock issuable upon exercise of the Warrants (hereinafter referred to as the "Stock" or "Securities" of the Company). NOW, THEREFORE, the parties hereto mutually agree as follows: Section 1. Registrable Securities. As used herein the term "Registrable Security" means the Securities until (i) the Registration Statement has been declared effective by the SEC, and all Securities have been disposed of pursuant to the Registration Statement, (ii) all Securities have been sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) all Securities have been otherwise transferred to holders who may trade such Securities without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such Securities not bearing a restrictive legend or (iv) such time as, in the opinion of counsel to the Company, all Securities may be sold without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. The term "Registrable Securities" means any and/or all of the securities falling within the foregoing definition of a "Registrable Security." In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be deemed to be made in the definition of "Registrable Security" as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Agreement. Section 2. Restrictions on Transfer. Each Investor acknowledges and understands that prior to the registration of the Securities as provided herein, the Securities are "restricted securities" as defined in Rule 144 promulgated under the Act. Each Investor understands that no disposition or transfer of the Securities may be made by Investor in the absence of (i) an opinion of counsel to the Investor, in form and substance reasonably satisfactory to the Company, that such transfer may be made without registration under the Securities Act or (ii) such registration. 1 With a view to making available to the Investors the benefits of Rule 144 under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) comply with the provisions of paragraph (c)(1) of Rule 144; and (b) file with the SEC in a timely manner all reports and other documents required to be filed with the SEC pursuant to Section 13 or 15(d) under the Exchange Act by companies subject to either of such sections, irrespective of whether the Company is then subject to such reporting requirements. Section 3. Registration Rights With Respect to the Securities. (a) The Company agrees that it will prepare and file with the Securities and Exchange Commission ("SEC"), within forty-five (45) days after the Closing Date a registration statement (on Form S-3, or other appropriate registration statement form) under the Securities Act (the "Registration Statement"), at the sole expense of the Company (except as provided in Section 3(c) hereof), in respect of the Investors, so as to permit a public offering and resale of the Securities under the Act by the Investors as selling stockholders and not as underwriters. The Company shall use its best efforts to cause such Registration Statement to become effective within ninety (90) days from the Closing Date (or 120 days from the Closing Date if the SEC makes a "full review" of the Registration Statement, which shall not include a "plain English" or "Plan of Distribution" review), or, if earlier, within five (5) days of SEC clearance to request acceleration of effectiveness. The number of shares designated in the Registration Statement to be registered shall include all the Warrant Shares, at least 175% of the number of shares issuable upon exchange of the Exchangeable Preferred Stock assuming exchange in full on the day prior to filing date of the Registration Statement, and such number of shares as the Company deems prudent for the purpose of issuing shares of Common Stock as dividends on the Exchangeable Preferred Stock, and shall include appropriate language regarding reliance upon Rule 416 to the extent permitted by the SEC. The Company will notify the Investors of the effectiveness of the Registration Statement within one Trading Day of such event. In the event that the number of shares so registered shall be less than 125% of the number of shares of Registrable Securities remaining unsold (using the Exchange Price of the Exchangeable Preferred Stock from time to time), then the Company shall be obligated to file, within thirty (30) days of such event, a further Registration Statement registering such remaining shares and shall use its best efforts to cause such additional Registration Statement to become effective within ninety (90) days of the date of such event. (b) The Company will maintain the Registration Statement or post-effective amendment filed under this Section 3 effective under the Securities Act until the earlier of (i) the date that none of the Securities covered by such Registration Statement are or may become issued and outstanding, (ii) the date that all of the Securities have been sold pursuant to such Registration Statement, (iii) the date the Investors receive an opinion of counsel to the Company, which counsel shall be reasonably acceptable to the Investors, that the Securities may be sold under the provisions of Rule 144 without limitation as to volume, (iv) all Securities have been otherwise transferred to persons who may 2 trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend, or (v) all Securities may be sold without any time, volume or manner limitations pursuant to Rule 144(k) or any similar provision then in effect under the Securities Act in the opinion of counsel to the Company, which counsel shall be reasonably acceptable to the Investor (the "Effectiveness Period"). (c) All fees, disbursements and out-of-pocket expenses and costs incurred by the Company in connection with the preparation and filing of the Registration Statement under subparagraph 3(a) and in complying with applicable securities and Blue Sky laws (including, without limitation, all attorneys' fees of the Company) shall be borne by the Company. The Investors shall bear the cost of underwriting and/or brokerage discounts, fees and commissions, if any, applicable to the Securities being registered and the fees and expenses of their counsel. The Investors and their counsel shall have a reasonable period, not to exceed five (5) Trading Days, to review the proposed Registration Statement or any amendment thereto, prior to filing with the SEC, and the Company shall provide each Investor with copies of any comment letters received from the SEC with respect thereto within two (2) Trading Days of receipt thereof. The Company shall qualify any of the Securities for sale in such states as any Investor reasonably designates and shall furnish indemnification in the manner provided in Section 6 hereof. However, the Company shall not be required to qualify in any state which will require an escrow or other restriction relating to the Company and/or the sellers, or which will require the Company to qualify to do business in such state or require the Company to file therein any general consent to service of process. The Company at its expense will supply the Investors with copies of the applicable Registration Statement and the prospectus included therein and other related documents in such quantities as may be reasonably requested by the Investors. (d) The Company shall not be required by this Section 3 to include an Investor's Securities in any Registration Statement which is to be filed if, in the opinion of counsel for both the Investor and the Company (or, should they not agree, in the opinion of another counsel experienced in securities law matters acceptable to counsel for the Investor and the Company) the proposed offering or other transfer as to which such registration is requested is exempt from applicable federal and state securities laws and would result in all purchasers or transferees obtaining securities which are not "restricted securities," as defined in Rule 144 under the Securities Act. (e) In the event that (i) the Registration Statement to be filed by the Company pursuant to Section 3(a) above is not filed with the SEC within forty five (45) days from the Closing Date, (ii) such Registration Statement is not declared effective by the SEC within the earlier of ninety (90) days from the Closing Date (or 120 days from the Closing Date if the SEC makes a "full review" of the Registration Statement) or five (5) days of clearance by the SEC to request effectiveness, (iii) such Registration Statement is not maintained as effective by the Company for the period set forth in Section 3(b) above or (iv) the additional Registration Statement referred to in Section 3(a) is not filed within thirty (30) days or declared effective within ninety (90) days as set forth therein (each a "Registration Default") then the Company will pay Investor (pro rated on a daily basis), as liquidated damages for such failure and not as a penalty one percent (1%) of the aggregate market value of shares of Common 3 Stock purchased from the Company (including the Exchange Shares which would be issuable upon Exchange of the Exchangeable Preferred Stock on any date of determination, and whether or not the Exchangeable Preferred Stock are then exchangeable pursuant to their terms) and held by the Investor for the first month and two percent (2%) for each month thereafter until such Registration Statement has been filed, and in the event of late effectiveness (in case of clause (ii) above) or lapsed effectiveness (in the case of clause (iii) above), one percent (1%) of the aggregate market value of shares of Common Stock purchased from the Company and held by the Investor (including the Exchange Shares which would be issuable upon exchange of the Exchangeable Preferred Stock on any date of determination, and whether or not the Exchangeable Preferred Stock are then exchangeable pursuant to their terms) for the first month and two percent (2%) for each month thereafter (regardless of whether one or more such Registration Defaults are then in existence, without duplication of penalties) until such Registration Statement has been declared effective. Such payment of the liquidated damages shall be made to the Investors in cash, within five (5) calendar days of demand, provided, however, that the payment of such liquidated damages shall not relieve the Company from its obligations to register the Securities pursuant to this Section. The market value of the Common Stock for this purpose shall be the closing price (or last trade, if so reported) on the Principal Market for each day during such Registration Default. If the Company does not remit the payment to the Investors as set forth above, the Company will pay the Investors reasonable costs of collection, including attorneys' fees, in addition to the liquidated damages. The registration of the Securities pursuant to this provision shall not affect or limit the Investors' other rights or remedies as set forth in this Agreement. (f) No provision contained herein shall preclude the Company from selling securities pursuant to any Registration Statement in which it is required to include Securities pursuant to this Section 3. (g) If at any time or from time to time after the effective date of any Registration Statement, the Company notifies the Investors in writing of the existence of a Potential Material Event (as defined in Section 3(h) below), the Investors shall not offer or sell any Securities or engage in any other transaction involving or relating to Securities, from the time of the giving of notice with respect to a Potential Material Event until the Investors receive written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event; provided, however, that the Company may not so suspend the right to such holders of Securities for more than thirty (30) days in the aggregate (90 days in the case of an acquisition requiring the filing of audited financial statements of the acquired business under Form 8-K) during any twelve month period, during the period the Registration Statement is required to be in effect, and if such period is exceeded, such event shall be a Registration Default. If a Potential Material Event shall occur prior to the date a Registration Statement is required to be filed, then the Company's obligation to file such Registration Statement shall be delayed without penalty for not more than twenty (20) days, and such delay or delays shall not constitute a Registration Default. The Company must, if lawful, give the Investors notice in writing at least two (2) Trading Days prior to the first day of the blackout period. (h) "Potential Material Event" means any of the following: (a) the possession by the Company of material information not ripe for disclosure in a registration statement, as determined in good faith by the Chief Executive Officer or the 4 Board of Directors of the Company that disclosure of such information in a Registration Statement would be detrimental to the business and affairs of the Company; or (b) any material engagement or activity by the Company which would, in the good faith determination of the Chief Executive Officer or the Board of Directors of the Company, be adversely affected by disclosure in a registration statement at such time. Section 4. Cooperation with Company. The Investors will cooperate with the Company in all respects in connection with this Agreement, including timely supplying all information and confirmations reasonably requested by the Company or the SEC (which shall include all information regarding the Investors and proposed manner of sale of the Registrable Securities required to be disclosed in any Registration Statement) and executing and returning all documents reasonably requested in connection with the registration and sale of the Registrable Securities and entering into and performing their obligations under any underwriting agreement, if the offering is an underwritten offering, in usual and customary form, with the managing underwriter or underwriters of such underwritten offering. Any delay or delays caused by the Investors by failure to cooperate as required hereunder shall not constitute a Registration Default. Section 5. Registration Procedures. If and whenever the Company is required by any of the provisions of this Agreement to effect the registration of any of the Registrable Securities under the Act, the Company shall (except as otherwise provided in this Agreement), as expeditiously as possible, subject to the Investors' assistance and cooperation as reasonably required with respect to each Registration Statement: (a) (i) prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the Investors shall desire to sell or otherwise dispose of the same (including prospectus supplements with respect to the sales of securities from time to time in connection with a registration statement pursuant to Rule 415 promulgated under the Act) and (ii) take all lawful action such that each of (A) the Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (B) the prospectus forming part of the Registration Statement, and any amendment or supplement thereto, does not at any time during the Registration Period include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (b) (i) prior to the filing with the SEC of any Registration Statement (including any amendments thereto) and the distribution or delivery of any prospectus (including any supplements thereto), provide draft copies thereof to the Investors as required by Section 3(c) and reflect in such documents all such comments as the Investors (and their counsel) reasonably may propose respecting the Selling Shareholders and Plan of Distribution sections (or equivalents) and (ii) furnish to each Investor such numbers of copies of a prospectus including a preliminary prospectus or any amendment or supplement to any prospectus, as applicable, in conformity with the requirements of the Act, and such other documents, as such Investor may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such Investor; 5 (c) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Investors shall reasonably request (subject to the limitations set forth in Section 3(c) above), and do any and all other acts and things which may be necessary or advisable to enable each Investor to consummate the public sale or other disposition in such jurisdiction of the securities owned by such Investor; (d) list such Registrable Securities on the Principal Market, if the listing of such Registrable Securities is then permitted under the rules of such Principal Market; (e) notify each Investor at any time when a prospectus relating thereto covered by the Registration Statement is required to be delivered under the Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and the Company shall use its best efforts to prepare and file a curative amendment under Section 5(a) as quickly as commercially possible; (f) as promptly as practicable after becoming aware of such event, notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the SEC of any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time and take all lawful action to effect the withdrawal, recession or removal of such stop order or other suspension; (g) cooperate with the Investors to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Investors reasonably may request and registered in such names as the Investors may request; and, within three (3) Trading Days after a Registration Statement which includes Registrable Securities is declared effective by the SEC, deliver and cause legal counsel selected by the Company to deliver to the transfer agent for the Registrable Securities (with copies to the Investors) an appropriate instruction and, to the extent necessary, an opinion of such counsel; (h) take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Investors of their Registrable Securities in accordance with the intended methods therefor provided in the prospectus which are customary for issuers to perform under the circumstances; (i) in the event of an underwritten offering, promptly include or incorporate in a prospectus supplement or post-effective amendment to the Registration Statement such information as the managers reasonably agree should be included therein and to which the Company does not reasonably object and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment; and (j) maintain a transfer agent and registrar for its Common Stock. 6 Section 6. Indemnification. (a) To the maximum extent permitted by law, the Company agrees to indemnify and hold harmless the Investors and each person, if any, who controls an Investor within the meaning of the Securities Act (each a "Distributing Investor") against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees and expenses), to which the Distributing Investor may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, or any related final prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent, and only to the extent, that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by the Distributing Investor, its counsel, affiliates or any underwriter, specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) To the maximum extent permitted by law, each Distributing Investor agrees that it will indemnify and hold harmless the Company, and each officer and director of the Company or person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages or liabilities (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees and expenses) to which the Company or any such officer, director or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, or any related final prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in such Registration Statement, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by such Distributing Investor, its counsel, affiliates or any underwriter, specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Distributing Investor may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action against such indemnified party, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party in writing of the commencement thereof; but the omission to so notify the 7 indemnifying party will not relieve the indemnifying party from any liability which it may have to any indemnified party except to the extent the failure of the indemnified party to provide such written notification actually prejudices the ability of the indemnifying party to defend such action. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, assume the defense thereof, subject to the provisions herein stated and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless the indemnifying party shall not pursue the action to its final conclusion. The indemnified parties as a group shall have the right to employ one separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the indemnified party unless (i) the employment of such counsel has been specifically authorized in writing by the indemnifying party, or (ii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party and the indemnified party shall have been advised by its counsel that there may be one or more legal defenses available to the indemnifying party different from or in conflict with any legal defenses which may be available to the indemnified party or any other indemnified party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, that the indemnifying party shall, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable only for the reasonable fees and expenses of one separate firm of attorneys for the indemnified party, which firm shall be designated in writing by the indemnified party). No settlement of any action against an indemnified party shall be made without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld so long as such settlement includes a full release of claims against the indemnified party. Section 7. Contribution. In order to provide for just and equitable contribution under the Securities Act in any case in which (i) the indemnified party makes a claim for indemnification pursuant to Section 6 hereof but is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of Section 6 hereof provide for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified party, then the Company and the applicable Distributing Investor shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees and expenses), in either such case (after contribution from others) on the basis of relative fault as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the applicable Distributing Investor on the other hand, and the parties' relative intent, knowledge, access to information and 8 opportunity to correct or prevent such statement or omission. The Company and the Distributing Investor agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 7. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding any other provision of this Section 7, in no event shall any (i) Investor be required to undertake liability to any person under this Section 7 for any amounts in excess of the dollar amount of the proceeds received by such Investor from the sale of such Investor's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are registered under the Securities Act and (ii) underwriter be required to undertake liability to any person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to such Registration Statement. Section 8. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be delivered as set forth in the Purchase Agreement. Section 9. Assignment. This Agreement is binding upon and inures to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. The rights granted the Investors under this Agreement may be assigned to any purchaser of substantially all of the Registrable Securities (or the rights thereto) from an Investor, as otherwise permitted by the Purchase Agreement. Section 10. Additional Covenants of the Company. The Company agrees that at such time as it otherwise meets the requirements for the use of Securities Act Registration Statement on Form S-3 for the purpose of registering the Registrable Securities, it shall file all reports and information required to be filed by it with the SEC in a timely manner and take all such other action so as to maintain such eligibility for the use of such form. Section 11. Counterparts/Facsimile. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when together shall constitute but one and the same instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. In lieu of the original, a facsimile transmission or copy of the original shall be as effective and enforceable as the original. Section 12. Remedies. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of 9 competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. Section 13. Conflicting Agreements. The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise prevents the Company from complying with all of its obligations hereunder. Section 14. Headings. The headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 15. Governing Law, Jurisdiction and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made in New York by persons domiciled in New York City and without regard to its principles of conflicts of laws. Any dispute under this Agreement shall be adjudicated as set forth in the Purchase Agreement. 10 IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed, on the day and year first above written. NAM Corporation By: /s/ Roy Israel ------------------------- Roy Israel, President Esquire Trade & Finance, Inc. By: /s/ Roland Winiger ------------------------- Roland Winiger Authorized Signatory Austinvest Anstalt Balzers By: /s/ Dr. Walter Grill ------------------------- Dr. Walter Grill Authorized Signatory AMRO International S.A. By: /s/ H.U. Bachofen ------------------------- H.U. Bachofen Authorized Signatory Mabcrown, Inc. By: /s/ H.U. Bachofen ------------------------- H.U. Bachofen Authorized Signatory 11 EX-10.10 7 EXHIBIT 10.10 NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT. STOCK PURCHASE WARRANT To Purchase 11,250 Shares of Common Stock of NAM Corporation THIS CERTIFIES that, for value received, Esquire Trade & Finance Inc. (the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after August 15, 2000 (the "Initial Exercise Date") and on or prior to the close of business on August 15, 2005 (the "Termination Date") but not thereafter, to subscribe for and purchase from NAM Corporation, a corporation incorporated in Delaware (the "Company"), up to eleven thousand two hundred fifty (11,250) shares (the "Warrant Shares") of Common Stock, $.001 par value, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $10.52 (the Set Price). The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. In the event of any conflict between the terms of this Warrant and the Exchangeable Preferred Stock and Warrants Purchase Agreement, dated as of February 15, 2000 (the "Purchase Agreement"), the Purchase Agreement shall control. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. 1. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws and the terms of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. 2. Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). 3. Exercise of Warrant. Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date, and before the close of business on the Termination Date by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank, the holder of this Warrant shall be entitled to receive a certificate for the number of shares of Common Stock so purchased. Certificates for shares purchased hereunder shall be delivered to the holder hereof within five (5) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Holder faxes a Notice of Exercise to the Company, provided that such fax notice is followed by delivery of the original notice and payment to the Company of the Exercise Price and all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid within three (3) Trading Days of such fax notice. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. If there is no registration in effect permitting the resale by the Holder of the Warrant Shares at any time from and after one year from the issuance date of this Warrant, then the Holder shall have the right to a "cashless exercise" in which the Holder shall be entitled to receive a certificate for the number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = the closing bid price per share of Common Stock on the Trading Day preceding the date of such election; (B) = the Exercise Price of the Warrant; and (X) = the number of shares issuable upon exercise of the Warrant in accordance with the terms of this Warrant. 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the Exercise Price. 5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or federal or state transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 6. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant. 7. Transfer, Division and Combination. (a) The Holder (and its transferees and assigns), by acceptance of this Warrant, covenants and agrees that it is acquiring the Warrants evidenced hereby, and, upon exercise hereof, the Warrant Shares, for its own account as an investment and not with a view to distribution thereof. The Warrant Shares have not been registered under the Securities Act or any state securities laws and no transfer of any Warrant Shares shall be permitted unless the Company has received notice of such transfer, at the address of its principal office set forth in the Purchase Agreement, in the form of assignment attached hereto, accompanied by an opinion of counsel reasonably satisfactory to the Company that an exemption from registration of such Warrants or Warrant Shares under the Securities Act is available for such transfer, except that no such opinion shall be required after the registration for resale by the Holder of the Warrant Shares, as contemplated by the Registration Rights Agreement. Upon any exercise of the Warrants, certificates representing the Warrant Shares shall bear a restrictive legend substantially identical to that set forth on the face of this Warrant certificate. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. (e) The Company shall have a right of first refusal to purchase this Warrant if the Holder intends to sell this Warrant. The Holder shall give the Company at least five (5) days' prior written notice (as set forth in the Purchase Agreement) of its intention to sell this Warrant or any portion thereof, and the terms and conditions of such sale and the identity of the proposed purchaser. The Company shall have the right within such five day period to advise the Holder of its intention to purchase this Warrant (or portion sought to be sold) and the Company must complete such purchase within five (5) further days, or this right shall be void. 8. No Rights as Shareholder until Exercise. This Warrant does not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so purchased shall be and be deemed to be issued to such holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant certificate or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not exceed that customarily charged by the Company's transfer agent) and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 11. Adjustments of Exercise Price and Number of Warrant Shares. (a) Stock Splits, etc. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which he would have owned or been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the holder of this Warrant shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then Holder shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 11. For purposes of this Section 11, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 11 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 12. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 13. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the holder of this Warrant notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. 14. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 10 days' prior written notice of the record date for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 10 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 16(d). 15. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form reasonably satisfactory to Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. Before taking any action which would cause an adjustment reducing the current Exercise Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Exercise Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 16. Miscellaneous. (a) Jurisdiction. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant shall constitute a contract under the laws of Delaware without regard to its conflict of law, principles or rules, and be subject to arbitration pursuant to the terms set forth in the Purchase Agreement. (b) Restrictions. The holder hereof acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. (c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company fails to comply with any provision of this Warrant, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. (d) Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. (e) Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. (f) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (g) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. (h) Indemnification. The Company agrees to indemnify and hold harmless Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against Holder in any manner relating to or arising out of any failure by the Company to perform or observe in any material respect any of its covenants, agreements, undertakings or obligations set forth in this Warrant; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from Holder's negligence, bad faith or willful misconduct. (i) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. (j) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. (k) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: February 17, 2000 NAM Corporation By: /s/ Roy Israel __________________________ Roy Israel, President NOTICE OF EXERCISE To: NAM Corporation (1) The undersigned hereby elects to purchase ________ shares of Common Stock (the "Common Stock"), of NAM Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: -------------------------------- (Name) -------------------------------- (Address) -------------------------------- Dated: --------------------------- Signature ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to _______________________________________________ whose address is _______________________________________________________________. _______________________________________________________________ Dated: ______________, _______ Holder's Signature: _____________________________ Holder's Address:________________________________ Signature Guaranteed: ___________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in an fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-10.11 8 EXHIBIT 10.11 PRIVATE EQUITY LINE OF CREDIT AGREEMENT Between Moldbury Holdings Limited And NAM Corporation PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of February 16, 2000 (the "Agreement"), between Moldbury Holdings Limited (the "Investor") and NAM Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Company"). WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Investor from time to time as provided herein, and Investor shall purchase, up to $7,000,000 (the "Aggregate Purchase Price") of the Common Stock (as defined below); and WHEREAS, such investments will be made by the Investor as a statutory underwriter of a registered indirect primary offering of such Common Stock by the Company; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I Certain Definitions Section 1.1 "Bid Price" shall mean the closing bid price (as reported by Bloomberg L.P.) of the Common Stock on the Principal Market. Section 1.2 "Capital Shares" shall mean the Common Stock and any shares of any other class of common stock whether now or hereafter authorized, having the right to participate in the distribution of earnings and assets of the Company. Section 1.3 "Capital Shares Equivalents" shall mean any securities, rights, or obligations that are convertible into or exchangeable for or give any right to subscribe for any Capital Shares of the Company or any warrants, options or other rights to subscribe for or purchase Capital Shares or any such convertible or exchangeable securities. Section 1.4 "Closing" shall mean one of the closings of a purchase and sale of the Common Stock pursuant to Section 2.1. Section 1.5 "Closing Date" shall mean, with respect to a Closing, the second Trading Day following the Put Date related to such Closing, provided all conditions to such Closing have been satisfied on or before such Trading Day. Section 1.6 "Commitment Amount" shall mean the $7,000,000 up to which the Investors have agreed to provide to the Company in order to purchase the Put Shares pursuant to the terms and conditions of this Agreement, subject to increase as set forth in Section 2.6. Section 1.7 "Commitment Period" shall mean the period commencing on the Effective Date and expiring on the earliest to occur of (x) the date on which the Investors shall have purchased Put Shares pursuant to this Agreement for an aggregate Purchase Price of $7,000,000, (y) the date this Agreement is terminated pursuant to Section 2.4, or (z) the date occurring three years from the date of commencement of the Commitment Period. Section 1.8 "Common Stock" shall mean the Company's common stock, par value $.001 per share. Section 1.9 "Condition Satisfaction Date" shall have the meaning set forth in Section 7.2. Section 1.10 "Effective Date" shall mean the date on which the SEC first declares effective a Registration Statement registering the sale by the Company and resale by the Investors of the Registrable Securities as set forth in Section 7.2(a). Section 1.11 "Escrow Agent" shall mean the escrow agent designated in the Escrow Agreement. Section 1.12 "Escrow Agreement" shall mean the escrow agreement in the form attached hereto as Exhibit A. Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Section 1.14 "Floor Price" shall mean, with respect to any given Put, that Purchase Price set solely by the Company below which the Put shall be automatically cancelled. Section 1.15 "Investment Amount" shall mean the dollar amount to be invested by the Investor to purchase Put Shares with respect to any Put Date as notified by the Company to the Investor, all in accordance with Section 2.2 hereof. Section 1.16 "Market Price" on any given date shall mean the average of the closing bid prices (as reported by Bloomberg L.P.) of the Common Stock on each Trading Day during the Valuation Period relating to such date. Section 1.17 "Material Adverse Effect" shall mean any effect on the business, Bid Price, operations, properties, prospects, or financial condition of the Company that is material and adverse to the Company and its subsidiaries and affiliates, taken as a whole, and/or any condition, circumstance, or situation that would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement, the Registration Rights Agreement or the Escrow Agreement in any material respect. 2 Section 1.18 "Maximum Put Amount" shall mean the amount indicated by the following table:
- ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- 20,000-35,000 Avg. 35,001-50,000 Avg. 30 50,001-65,000 Avg. 65,001-Above Avg. 30 Stock Bid Price 30 Trading Day Volume Trading Day Volume 30 Trading Day Volume Trading Day Volume - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- 2.00-3.50 $500,000 $500,000 $750,000 $750,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- 3.51-5.00 $500,000 $750,000 $750,000 $1,000,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- 5.01-6.50 $750,000 $1,000,000 $1,000,000 $1,000,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- 6.51-8.50 $750,000 $1,000,000 $1,000,000 $1,500,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- 8.01-Above $1,000,000 $1,000,000 $1,500,000 $2,000,000 - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
If the Bid Price or the thirty-day average trading volumes shall be less than the parameters set forth in the foregoing table, the Maximum Put Amount shall be $250,000. Section 1.19 "NASD" shall mean the National Association of Securities Dealers, Inc. Section 1.20 "Outstanding" when used with reference to shares of Common Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as of which the number of such Shares is to be determined, all issued and outstanding Shares, and shall include all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; provided, however, that "Outstanding" shall not mean any such Shares then directly or indirectly owned or held by or for the account of the Company. Section 1.21 "Person" shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. Section 1.22 "Principal Market" shall mean the NASDAQ National Market, the NASDAQ Small-Cap Market, the American Stock Exchange or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. Principal Market shall not include the OTC Bulletin Board without the express written consent of the Investors. Section 1.23 "Purchase Price" shall mean with respect to Put Shares, eighty-nine percent (89%) (the "Purchase Price Percentage") of the average of the daily Market Prices during the Valuation Period applicable to a Put Date (or such other date on which the Purchase Price is calculated in accordance with the terms and conditions of this Agreement), provided, however, that in no event shall the Purchase Price for the Put Shares be less than the Floor Price, if any, established for such Put. Upon any Special Activity, the Purchase Price Percentage shall be eighty-six percent (86%) of the Market Price upon a Put Date. 3 Section 1.24 "Put" shall mean each occasion the Company elects to exercise its right to tender a Put Notice requiring the Investor to purchase shares of the Company's Common Stock, subject to the terms of this Agreement. Section 1.25 "Put Date" shall mean the Trading Day during the Commitment Period that a Put Notice to sell Common Stock to the Investor is deemed delivered pursuant to Section 2.2(b) hereof. Section 1.26 "Put Notice" shall mean a written notice to the Investor setting forth the Investment Amount that the Company intends to sell to the Investor. Section 1.27 "Put Shares" shall mean all shares of Common Stock or other securities issued or issuable pursuant to a Put that has occurred or may occur in accordance with the terms and conditions of this Agreement. Section 1.28 "Registrable Securities" shall mean the Put Shares and Warrant Shares until (i) all Put Shares and Warrant Shares have been disposed of pursuant to the Registration Statement, (ii) all Put Shares and Warrant Shares have been sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) all Put Shares and Warrant Shares have been otherwise transferred to persons who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend or (iv) such time as, in the opinion of counsel to the Company, all Put Shares and Warrant Shares may be sold without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. Section 1.29 "Registration Statement" shall mean the Company's registration statement on Form S-3, and any subsequent Form S-3 (if use of such form is then available to the Company pursuant to the rules of the SEC and, if not, on such other form promulgated by the SEC, such as Form S-1 or SB-2, for which the Company then qualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the resale by the Investor of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement, and in accordance with the intended method of distribution of such securities), for the registration of the resale by the Investor of the Registrable Securities under the Securities Act. Section 1.30 "SEC" shall mean the Securities and Exchange Commission. Section 1.31 "Securities Act" shall have the meaning set forth in the recitals of this Agreement. Section 1.32 "SEC Documents" shall mean the Company's latest Form 10-K or 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and the Proxy Statement for its latest fiscal year as of the time in question until such time as the Company no longer has an obligation to maintain the effectiveness of a Registration Statement. 4 Section 1.33 "Special Activity" shall mean a merger, acquisition, or any other event outside the ordinary course of the Company's business for which the Company needs funds in addition to its ordinary working capital needs. Section 1.34 "Trading Cushion" shall mean the mandatory fifteen (15) Trading Days between Put Dates, except for Special Activity, during which period the Trading Cushion shall be seven (7) Trading Days. Section 1.35 "Trading Day" shall mean any day during which the Principal Market shall be open for business. Section 1.36 "Valuation Event" shall mean an event in which the Company at any time after the date of this Agreement and prior to the end of the Commitment Period takes any of the following actions: (a) subdivides or combines its Common Stock; (b) pays a dividend in its Capital Stock or makes any other distribution of its Capital Shares; (c) issues any additional Capital Shares ("Additional Capital Shares"), otherwise than as provided in the foregoing Subsections (a) and (b) above or (d) and (e) below, at a price per share less, or for other consideration lower, than the Bid Price in effect immediately prior to such issuance, or without consideration (other than pursuant to this Agreement); (d) issues any warrants, options or other rights to subscribe for or purchase any Additional Capital Shares and the price per share for which Additional Capital Shares may at any time thereafter be issuable pursuant to such warrants, options or other rights shall be less than the Bid Price in effect immediately prior to such issuance; (e) issues any securities convertible into or exchangeable for Capital Shares and the consideration per share for which Additional Capital Shares may at any time thereafter be issuable pursuant to the terms of such convertible or exchangeable securities shall be less than the Bid Price in effect immediately prior to such issuance; (f) makes a distribution of its assets or evidences of indebtedness to the holders of its Capital Shares as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for dividends under applicable law or any distribution to such holders made in respect of the sale of all or substantially all of the Company's assets (other than under the circumstances provided for in the foregoing subsections (a) through (e); or (g) takes any action affecting the number of Outstanding Capital Shares, other than an action described in any of the foregoing Subsections (a) through (f) hereof, inclusive, which in the opinion of the Company's Board of Directors, determined in good faith, would have a Material Adverse Effect upon the rights of the Investor at the time of a Put. 5 Section 1.37 "Valuation Period" shall mean the period of five (5) Trading Days during which the Purchase Price of the Common Stock is valued, which period shall be with respect to the Purchase Price on any Put Date, the two (2) Trading Days immediately preceding and the two (2) Trading Days following the Trading Day on which a Put Notice is deemed to be delivered, as well as the Trading Day on which such notice is deemed to be delivered; provided, however, that if a Valuation Event occurs during a Valuation Period, a new Valuation Period shall begin on the Trading Day immediately after the occurrence of such Valuation Event and end on the fifth Trading Day thereafter. Section 1.38 "Warrant" shall mean the warrants to purchase up to 60,000 shares of Common Stock to be issued to Investor, seventy-five percent (75%) of which shall be issued at the Initial Closing and the remaining twenty-five percent (25%) to be issued immediately after the Investor has invested three million five hundred thousand dollars ($3,500,000) to purchase Put Shares under the terms and conditions of this Agreement, in the form of Exhibit B hereto. Section 1.39 "Warrant Shares" shall mean the shares of Common Stock issuable upon exercise of the Warrant. ARTICLE II Purchase and Sale of Common Stock Section 2.1 Investments. (a) Puts. Upon the terms and conditions set forth herein (including, without limitation, the provisions of Article VII hereof), on any Put Date the Company may make a Put by the delivery of a Put Notice. The number of Put Shares that the Investor shall purchase pursuant to such Put shall be determined by dividing the Investment Amount specified in the Put Notice by the Purchase Price on such Put Date, which amount shall not exceed the Maximum Put Amount on such date. (b) Maximum Aggregate Amount of Puts. Anything in this Agreement to the contrary notwithstanding, unless the Company obtains shareholder approval of this Agreement pursuant to the applicable corporate governance rules of the Principal Market, the Company may not make a Put (or issue any additional shares under Section 2.5) which results in the issuance of more shares of Common Stock in the aggregate pursuant to all Puts made under the terms of this Agreement and all shares reserved for issuance upon exercise of the Warrants which exceeds 19.9% of the number of shares of Common Stock issued and outstanding on the date hereof. 6 Section 2.2 Mechanics. (a) Put Notice. At any time during the Commitment Period, the Company may deliver a Put Notice to the Investor, subject to the conditions set forth in Section 7.2; provided, however, that the Investment Amount for each Put as designated by the Company in the applicable Put Notice shall be neither less than $250,000 nor more than the Maximum Put Amount. (b) Date of Delivery of Put Notice. A Put Notice shall be deemed delivered on (i) the Trading Day it is received by facsimile or otherwise by the Investor if such notice is received prior to 12:00 noon Eastern Time, or (ii) the immediately succeeding Trading Day if it is received by facsimile or otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day which is not a Trading Day. No Put Notice may be deemed delivered on a day that is not a Trading Day. Section 2.3 Closings. On or before each Closing Date for a Put (i) the Company shall arrange for its transfer agent to deliver the Put Shares to be purchased by the Investor pursuant to Section 2.1 herein, to the Depository Trust Company ("DTC") brokerage account specified by the Investor if the Company has been notified in writing that the Investment Amount is held by the Escrow Agent and (ii) the Investor shall deliver the Investment Amount specified in the Put Notice by wire transfer of immediately available funds to the Escrow Agent on or before the Closing Date. In addition, on or prior to the Closing Date, each of the Company and the Investor shall deliver to the Escrow Agent all documents, instruments and writings required to be delivered or reasonably requested by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein. Payment of funds to the Company shall occur out of escrow in accordance with the Escrow Agreement, provided, however, that to the extent the Company has not paid the fees, expenses, and disbursements of the Investor's counsel in accordance with Section 14.7, the amount of such fees, expenses, and disbursements shall be paid in immediately available funds, at the direction of the Investor, to Investor's counsel with no reduction in the number of Put Shares issuable to the Investor on such Closing Date. Section 2.4 Termination of Investment Obligation. The obligation of the Investor to purchase shares of Common Stock shall terminate permanently (including with respect to a Closing Date that has not yet occurred) in the event that (i) there shall occur any stop order or suspension of the effectiveness of the Registration Statement for an aggregate of twenty (20) consecutive Trading Days during the Commitment Period, for any reason other than deferrals or suspensions in accordance with the Registration Rights Agreement as a result of corporate developments subsequent to the Effective Date that would require such Registration Statement to be amended to reflect such event in order to maintain its compliance with the disclosure requirements of the Securities Act or (ii) the Company shall at any time fail to comply with the requirements of Section 6.3, 6.4 or 6.6. Section 2.5 Additional Shares. In the event that (a) within five Trading Days of any Closing Date, the Company gives notice to the Investor of an impending "blackout period" during which the use of the Registration Statement is not permitted due to the Company's non-disclosure of material information, and (b) the Bid Price on the Trading Day immediately preceding such "blackout 7 period" (the "Old Bid Price") is greater than the Bid Price on the first Trading Day following such "blackout period" (the "New Bid Price") the Company shall issue to the Investor a number of additional shares (the "Blackout Shares") equal to the difference between (y) the product of the number of Registrable Securities held by the Investor during such "blackout period" that are not otherwise freely tradable during such "blackout period" and the Old Bid Price, divided by the New Bid Price and (z) the number of Registrable Securities held by the Investor during such "blackout period" that are not otherwise freely tradable during such "blackout period". If any such issuance would result in the issuance of a number of shares which exceeds the number set forth in Section 2.1(b), then in lieu of such issuance, the Company shall pay each affected Investor the closing bid price of the Blackout Shares on the first Trading Day following the end of the blackout period in cash within five Trading Days. Section 2.6 Increase of Investment Obligation Under Certain Circumstances. The Company shall have the right to increase the Commitment Amount to $14,000,000 in total by notice to the Investor within ten (10) days of the date which is fourteen (14) months after the first Closing Date, provided that all of the following conditions are met: (a) the Company reported cash and equivalents in its most recent Form 10-Q of at least $3,500,000; and (b) the Company has achieved net revenues in each quarter as follows: March 31, 2000 $500,000 June 30, 2000 $1,000,000 September 30, 2000 $1,250,000 December 31, 2000 $2,000,000 March 31, 2001 $2,250,000 (c) Roy Israel must continue to be Chief Executive Officer; and (d) the Registration Statement must be effective. ARTICLE III Representations and Warranties of Investors Investor represents and warrants to the Company that: Section 3.1 Intent. The Investor is entering into this Agreement for its own account and the Investor has no present arrangement (whether or not legally binding) at any time to sell the Common Stock to or through any person or entity; provided, however, that by making the representations herein, the Investor does not agree to hold the Common Stock for any minimum or other specific term and reserves the right to dispose of the Common Stock at any time in accordance with federal and state securities laws applicable to such disposition. 8 Section 3.2 Sophisticated Investor. The Investor is a sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in Rule 501 of Regulation D), and Investor has such experience in business and financial matters that it has the capacity to protect its own interests in connection with this transaction and is capable of evaluating the merits and risks of an investment in Common Stock. The Investor acknowledges that an investment in the Common Stock is speculative and involves a high degree of risk. Section 3.3 Authority. This Agreement has been duly authorized and validly executed and delivered by the Investor and is a valid and binding agreement of the Investor enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. Section 3.4 Not an Affiliate. Investor is not an officer, director or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of the Company. Section 3.5 Organization and Standing. Investor is a corporation duly organized, validly existing, and in good standing under the laws of the British Virgin Islands. Section 3.6 Absence of Conflicts. The execution and delivery of this Agreement and any other document or instrument executed in connection herewith, and the consummation of the transactions contemplated thereby, and compliance with the requirements thereof, will not violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Investor, or, to the Investor's knowledge, (a) violate any provision of any indenture, instrument or agreement to which Investor is a party or is subject, or by which Investor or any of its assets is bound; (b) conflict with or constitute a material default thereunder; (c) result in the creation or imposition of any lien pursuant to the terms of any such indenture, instrument or agreement, or constitute a breach of any fiduciary duty owed by Investor to any third party; or (d) require the approval of any third-party (which has not been obtained) pursuant to any material contract, agreement, instrument, relationship or legal obligation to which Investor is subject or to which any of its assets, operations or management may be subject. Section 3.7 Disclosure; Access to Information. Investor has received and reviewed all documents, records, books and other publicly available information pertaining to Investor's investment in the Company that have been requested by Investor. The Company is subject to the periodic reporting requirements of the Exchange Act, and Investor has reviewed copies of any such reports that have been requested by it. Section 3.8 Manner of Sale. At no time was Investor presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or any other form of general solicitation or advertising. Section 3.9 Financial Capacity. Investor currently has the financial capacity to meet its obligations to the Company hereunder, and the Investor has no present knowledge of any circumstances which could cause it to become unable to meet such obligations in the future. 9 Section 3.10 Underwriter Liability. Investor understands that it is the position of the SEC that the Investor is an underwriter within the meaning of Section 2(11) of the Securities Act and that the Investor will be identified as an underwriter of the Put Shares in the Registration Statement. ARTICLE IV Representations and Warranties of the Company The Company represents and warrants to the Investors that, except as set forth the Schedule of Exceptions attached hereto: Section 4.1 Organization of the Company. The Company is a corporation duly incorporated and existing in good standing under the laws of the State of Delaware and has all requisite corporate authority to own its properties and to carry on its business as now being conducted. The Company does not have any subsidiaries and does not own more that fifty percent (50%) of or control any other business entity except as set forth in the SEC Documents. The Company is duly qualified and is in good standing as a foreign corporation to do business in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a Material Adverse Effect. Section 4.2 Authority. (i) The Company has the requisite corporate power and corporate authority to enter into and perform its obligations under this Agreement, the Registration Rights Agreement, the Warrant and the Escrow Agreement and to issue the Put Shares, the Warrant and the Warrant Shares, (ii) the execution, issuance and delivery of this Agreement, the Registration Rights Agreement, the Warrant and the Escrow Agreement and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required, and (iii) this Agreement, the Registration Rights Agreement, the Warrant and the Escrow Agreement have been duly executed and delivered by the Company and constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. The Company has duly and validly authorized and reserved for issuance shares of Common Stock sufficient in number for the issuance of the Put Shares at the Floor Price. The Company understands and acknowledges the potentially dilutive effect to the Common Stock of the issuance of the Put Shares. Section 4.3 Capitalization. The authorized capital stock of the Company consists of 15,000,000 shares of Common Stock, $.001 par value per share, of which 3,416,233 shares are issued and outstanding as of November 12, 1999 and 5,000,000 shares of preferred stock, par value $.001 per share, 1,850 of which have been designated as Series A Exchangeable Preferred Stock. Except for (i) outstanding options and warrants as set forth in the SEC Documents, (ii) stock options awarded under the Company's 1996 Stock Option Plan, as amended, and (iii) as set forth in the Disclosure Schedule, there are no outstanding Capital 10 Shares Equivalents nor any agreement or understandings pursuant to which any Capital Shares Equivalents may become outstanding. The Company is not a party to any agreement granting registration or anti-dilution rights to any person with respect to any of its equity or debt securities. All of the outstanding shares of Common Stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable. Section 4.4 Common Stock. The Company has registered its Common Stock pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance with all reporting requirements of the Exchange Act, and the Company is in compliance with all requirements for the continued listing or quotation of its Common Stock, and such Common Stock is currently listed or quoted on the Principal Market. As of the date hereof, the Principal Market is the Nasdaq Smallcap Market and the Company has not received any notice regarding, and to its knowledge there is no threat, of the termination or discontinuance of the eligibility of the Common Stock for such listing. Section 4.5 SEC Documents. The Company has delivered or made available to the Investors true and complete copies of the SEC Documents. The Company has not provided to the Investors any information that, according to applicable law, rule or regulation, should have been disclosed publicly prior to the date hereof by the Company, but which has not been so disclosed. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act, and rules and regulations of the SEC promulgated thereunder and the SEC Documents did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto at the time of such inclusion. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited interim statements, to normal year-end audit adjustments). Neither the Company nor any of its subsidiaries has any material indebtedness, obligations or liabilities of any kind (whether accrued, absolute, contingent or otherwise, and whether due or to become due) that would have been required to be reflected in, reserved against or otherwise described in the financial statements or in the notes thereto in accordance with GAAP, which was not fully reflected in, reserved against or otherwise described in the financial statements or the notes thereto included in the SEC Documents or was not incurred in the ordinary course of business consistent with the Company's past practices since the last date of such financial statements. Section 4.6 Valid Issuances. When issued and paid for in accordance with a Put, the Put Shares will be registered for sale to the Investors by the Company and by the Investors to the public, and will be duly and validly issued, fully paid, and non-assessable. When issued and paid for upon exercise of the Warrant, the Warrant Shares will be registered for sale to the Investors by the 11 Company and will be duly and validly issued, fully paid, and non-assessable. Neither the sales of the Put Shares nor the Company's performance of its obligations under this Agreement, the Registration Rights Agreement, the Warrant or the Escrow Agreement will (i) result in the creation or imposition by the Company of any liens, charges, claims or other encumbrances upon the Put Shares or Warrant Shares or, except as contemplated herein, any of the assets of the Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive or other rights to subscribe to or acquire the Capital Shares or other securities of the Company. The Put Shares, the Warrant and the Warrant Shares shall not subject the Investors to personal liability to the Company or its creditors by reason of the possession thereof. Section 4.7 No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, including without limitation the issuance of the Put Shares, the Warrant or the Warrant Shares, do not and will not (i) result in a violation of the Company's Certificate of Incorporation or By-Laws or (ii) conflict with, or constitute a material default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument, or any "lock-up" or similar provision of any underwriting or similar agreement to which the Company is a party, or (iii) result in a violation of any federal, state or local law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or by which any material property or asset of the Company is bound or affected, nor is the Company otherwise in violation of, conflict with or default under any of the foregoing (except in each case for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not have, individually or in the aggregate, a Material Adverse Effect). The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental entity, except for possible violations that either singly or in the aggregate would not have a Material Adverse Effect. The Company is not required under federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or issue and sell the Put Shares, the Warrant or the Warrant Shares in accordance with the terms hereof (other than any SEC, Nasdaq or state securities filings that may be required to be made by the Company subsequent to Closing, any registration statement that may be filed pursuant hereto, and any shareholder approval required by the rules applicable to companies whose common stock trades on the Nasdaq Stock Market); provided that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of the Investors herein. Section 4.8 No Material Adverse Change. Since September 30, 1999, no Material Adverse Effect has occurred or exists with respect to the Company, except as disclosed in the SEC Documents. Section 4.9 No Undisclosed Events or Circumstances. Since September 30, 1999, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, prospects, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed in the SEC Documents. 12 Section 4.10 Litigation and Other Proceedings. Except as disclosed in the SEC Documents, there are no lawsuits or proceedings pending or, to the knowledge of the Company, threatened, against the Company, nor has the Company received any written or oral notice of any such action, suit, proceeding or investigation, which could reasonably be expected to have a Material Adverse Effect. Except as set forth in the SEC Documents, no judgment, order, writ, injunction or decree or award has been issued by or, to the knowledge of the Company, requested of any court, arbitrator or governmental agency which could result in a Material Adverse Effect. Section 4.11 No Misleading or Untrue Communication. The Company and, to the knowledge of the Company, any person representing the Company, or any other person selling or offering to sell the Convertible Preferred Stock or the Warrants in connection with the transaction contemplated by this Agreement, have not made, at any time, any oral communication in connection with the offer or sale of the same which contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. Section 4.12 Material Non-Public Information. Except as set forth in the Disclosure Schedule, the Company has not disclosed to the Investors any material non-public information that (i) if disclosed, would reasonably be expected to have a material effect on the price of the Common Stock or (ii) according to applicable law, rule or regulation, should have been disclosed publicly by the Company prior to the date hereof but which has not been so disclosed. Section 4.13 Insurance. The Company maintains property and casualty, general liability, workers' compensation, environmental hazard, personal injury and other similar types of insurance with financially sound and reputable insurers that is adequate, consistent with industry standards and the Company's historical claims experience. The Company has not received notice from, and has no knowledge of any threat by, any insurer (that has issued any insurance policy to the Company) that such insurer intends to deny coverage under or cancel, discontinue or not renew any insurance policy presently in force. Section 4.14 Tax Matters. (a) The Company has filed all Tax Returns which it is required to file under applicable laws; all such Tax Returns are true and accurate and have been prepared in compliance with all applicable laws; the Company has paid all Taxes due and owing by it (whether or not such Taxes are required to be shown on a Tax Return) and have withheld and paid over to the appropriate taxing authorities all Taxes which it is required to withhold from amounts paid or owing to any employee, stockholder, creditor or other third parties; and since June 30, 1999, the charges, accruals and reserves for Taxes with respect to the Company (including any provisions for deferred income taxes) reflected on the books of the Company are adequate to cover any Tax liabilities of the Company if its current tax year were treated as ending on the date hereof. (b) No claim has been made by a taxing authority in a jurisdiction where the Company does not file tax returns that such corporation is or may be subject to taxation by that jurisdiction. There are no foreign, federal, state or local tax audits or administrative or judicial proceedings pending or being conducted with respect to the Company; no information related to Tax matters has 13 been requested by any foreign, federal, state or local taxing authority; and, except as disclosed above, no written notice indicating an intent to open an audit or other review has been received by the Company from any foreign, federal, state or local taxing authority. There are no material unresolved questions or claims concerning the Company's Tax liability. The Company (A) has not executed or entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any predecessor provision thereof or any similar provision of state, local or foreign law; or (B) has not agreed to or is required to make any adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Company or any of its subsidiaries or has any knowledge that the IRS has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company. The Company has not been a United States real property holding corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal Revenue Code. (c) The Company has not made an election under ss. 341(f) of the Internal Revenue Code. The Company is not liable for the Taxes of another person that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a transferee or successor, (C) by contract or indemnity or (D) otherwise. The Company is not a party to any tax sharing agreement. The Company has not made any payments, is obligated to make payments or is a party to an agreement that could obligate it to make any payments that would not be deductible under ss. 280G of the Internal Revenue Code. (d) For purposes of this Section 4.14: "IRS" means the United States Internal Revenue Service. "Tax" or "Taxes" means federal, state, county, local, foreign, or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, capital stock, license, payroll, wage or other withholding, employment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including, without limitation, deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not. "Tax Return" means any return, information report or filing with respect to Taxes, including any schedules attached thereto and including any amendment thereof. Section 4.15 Property. Neither the Company nor any of its subsidiaries owns any real property except as set forth in the SEC Documents. Each of the Company and its subsidiaries has good and marketable title to all personal property owned by it, free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company; and to the Company's knowledge any real property and buildings held under lease by the Company as tenant are held by it under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and intended to be made of such property and buildings by the Company. 14 Section 4.16 Licensing and Permits. The Company holds all necessary licenses and permits for the conduct of its business. All of such licenses and permits are in good standing and the Company is not in material default of any of the conditions thereof. Section 4.17 Intellectual Property. Each of the Company and its subsidiaries owns or possesses adequate and enforceable rights to use all patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, "Intangibles") necessary for the conduct of its business as now being conducted. To the Company's knowledge, except as disclosed in the SEC Documents neither the Company nor any of its subsidiaries is infringing upon or in conflict with any right of any other person with respect to any Intangibles. Except as disclosed in the SEC Documents, no claims have been asserted by any person to the ownership or use of any Intangibles and the Company has no knowledge of any basis for such claim. Section 4.18 Internal Controls and Procedures. The Company maintains books and records and internal accounting controls which provide reasonable assurance that (i) all transactions to which the Company is a party or by which its properties are bound are executed with management's authorization; (ii) the recorded accounting of the Company's assets is compared with existing assets at regular intervals; (iii) access to the Company's assets is permitted only in accordance with management's authorization; and (iv) all transactions to which the Company is a party or by which its properties are bound are recorded as necessary to permit preparation of the financial statements of the Company in accordance with U.S. generally accepted accounting principles. Section 4.19 Payments and Contributions. Neither the Company nor any of its directors, officers or, to its knowledge, other employees has (i) used any Company funds for any unlawful contribution, endorsement, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment of Company funds to any foreign or domestic government official or employee; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other similar payment to any person with respect to Company matters. Section 4.20 No Misrepresentation. Except as set forth in the Disclosure Schedule, the representations and warranties of the Company contained in this Agreement, any schedule, annex or exhibit hereto and any agreement, instrument or certificate furnished by the Company to the Investor pursuant to this Agreement, do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 15 ARTICLE V Covenants of the Investor The Investor covenants with the Company that: Section 5.1 Compliance with Law. The Investor's trading activities with respect to shares of the Company's Common Stock will be in compliance with all applicable state and federal securities laws, rules and regulations and rules and regulations of the Principal Market on which the Company's Common Stock is listed. Without limiting the generality of the foregoing, the Investor agrees that it will, whenever required by federal securities laws, deliver the prospectus included in the Registration Statement to any purchaser of Put Shares from the Investor. Section 5.2 Short Sales. Section 5.3 The Investor and its affiliates shall not engage in short sales of the Company's Common Stock. ARTICLE VI Covenants of the Company Section 6.1 Registration Rights. The Company shall cause the Registration Statement to become and then remain effective throughout the term of this Agreement, or until all shares of Common Stock registered thereunder have been sold, in which event the Company shall file a further Registration Statement permitting the sale of additional Put Shares and the Warrant Shares, which such additional Registration Statement shall be effective within one hundred twenty (120) days of the termination or withdrawal of the present Registration Statement, or the Investor's obligations under this Agreement shall terminate. Section 6.2 Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, shares of Common Stock for the purpose of enabling the Company issue the Put Shares. The number of shares so reserved from time to time, as theretofore increased or reduced as hereinafter provided, may be reduced by the number of shares actually delivered hereunder. Section 6.3 Listing of Common Stock. The Company hereby agrees to maintain the listing of the Common Stock on a Principal Market, and as soon as practicable (but in any event prior to the commencement of the Commitment Period) to list the Put Shares. The Company further agrees, if the Company applies to have the Common Stock traded on any other Principal Market, it will include in such application the Put Shares and will take such other action as is necessary or desirable in the opinion of the investor to cause the Common Stock to be listed on such other Principal Market as promptly as possible. The Company will take all action to continue the listing and trading of its Common Stock on the Principal Market (including, without limitation, maintaining sufficient net tangible assets) and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Principal Market and shall provide Investor with copies of any correspondence to or from such Principal Market which questions or threatens delisting of the Common Stock, within one Trading Day of the Company's receipt thereof. 16 Section 6.4 Exchange Act Registration. The Company will cause its Common Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will use its best efforts to comply in all respects with its reporting and filing obligations under the Exchange Act, and will not take any action or file any document (whether or not permitted by Exchange Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Act. Section 6.5 Legends. The certificates evidencing the Common Stock to be sold to the Investors shall be free of restrictive legends. Section 6.6 Corporate Existence. The Company will take all steps necessary to preserve and continue the corporate existence of the Company. Section 6.7 . Notice of Certain Events Affecting Registration; Suspension of Right to Make a Put. The Company will immediately notify the Investor upon the occurrence of any of the following events in respect of a registration statement or related prospectus in respect of an offering of Registrable Securities; (i) receipt of any request for additional information from the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement the response to which would require any amendments or supplements to the registration statement or related prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; and the Company will promptly make available to the Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to the Investor any Put Notice during the continuation of any of the foregoing events. Section 6.8 Expectations Regarding Put Notices. Within ten (10) days after the commencement of each calendar quarter occurring subsequent to the commencement of the Commitment Period, the Company must notify the Investor, in writing, as to its reasonable expectations as to the dollar amount it intends to raise during such calendar quarter, if any, through the issuance of Put Notices. Such notification shall constitute only the Company's good faith estimate and shall in no way obligate the Company to raise such amount, or any amount, or otherwise limit its ability to deliver Put Notices. The failure by the Company to comply with this provision can be cured by the Company's notifying the Investor, in writing, at any time as to its reasonable expectations with respect to the current calendar quarter. Section 6.9 Consolidation; Merger. The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all of the assets of the Company to, another entity (a "Consolidation Event") unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument or by operation of law the obligation to deliver to the Investor such shares of stock and/or securities as the Investor is entitled to receive pursuant to this Agreement. Section 6.10 Minimum Issuance of Put Shares. The Company shall issue Put Notices in the minimum amount of $500,000 during the Commitment Period. Section 6.11 Limitation on Similar Financing. The Company agrees that it will not enter into any other equity line of credit type of agreement at a price below the then-current bid price of the Common Stock during the Commitment Period without the prior written consent of the Investor. Section 6.12 Special Activity. The Company shall give the Investor at least twenty-one days' advance written notice of any Special Activity, or else the Trading Cushion shall remain at fifteen (15) Trading Days. ARTICLE VII Conditions to Delivery of Puts and Conditions to Closing Section 7.1 Conditions Precedent to the Obligation of the Company to Issue and Sell Common Stock. The obligation hereunder of the Company to issue and sell the Put Shares to the Investor incident to each Closing is subject to the satisfaction, at or before each such Closing, of each of the conditions set forth below. (a) Accuracy of the Investor's Representation and Warranties. The representations and warranties of the Investor shall be true and correct in all material respects as of the date of this Agreement and as of the date of each such Closing as though made at each such time. (b) Performance by the Investor. The Investor shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Investor at or prior to such Closing. Section 7.2 Conditions Precedent to the Right of the Company to Deliver a Put Notice and the Obligation of the Investor to Purchase Put Shares. The right of the Company to deliver a Put Notice and the obligation of the Investor to acquire and pay for the Put Shares incident to a Closing is subject to the satisfaction, on both (i) the date of delivery of such Put Notice and (ii) the applicable Closing Date (each a "Condition Satisfaction Date"), of each of the following conditions: 18 (a) Closing Certificate. All representations and warranties of the Company contained herein shall remain true and correct as of the Closing Date as though made as of such date (other than warranties which speak as of a specific date) and the Company shall have delivered into escrow an Officer's Certificate signed by its Chief Executive Officer certifying that all of the Company's representations and warranties herein remain true and correct as of the Closing Date and that the Company has performed all covenants and satisfied all conditions to be performed or satisfied by the Company prior to such Closing; (b) Blue Sky. The Company shall have obtained all permits and qualifications required by any state for the offer and sale of the Common Stock to the Investor and by the Investor as set forth in the Registration Rights Agreement or shall have the availability of exemptions therefrom; (c) Delivery of Put Shares. Delivery to the Depository Trust Company DWAC account specified by the Investor of the Put Shares; (d) Opinion of Counsel. Receipt by the Investor of an opinion of counsel to the Company, in the form of Exhibit C hereto; and (e) Registration of the Common Stock with the SEC. The Registration Statement shall remain effective (or, if a further Registration Statement shall be necessary, shall have previously become effective) and shall be available for making resales of the Put Shares by the Investor on each Condition Satisfaction Date and (i) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC's concerns have been addressed and the Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), and (ii) no other suspension of the use or withdrawal of the effectiveness of the Registration Statement or related prospectus shall exist. (f) Authority. The Company will satisfy all laws and regulations pertaining to the sale and issuance of the Put Shares. (g) Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement, the Registration Rights Agreement and the Escrow Agreement to be performed, satisfied or complied with by the Company at or prior to each Condition Satisfaction Date. (h) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits or directly and adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or adversely affecting any of the transactions contemplated by this Agreement. 19 (i) Adverse Changes. Since the date of filing of the Company's most recent SEC Document, no event that had or is reasonably likely to have a Material Adverse Effect has occurred. (j) No Suspension of Trading In or Delisting of Common Stock. The trading of the Common Stock (including, without limitation, the Put Shares) is not suspended by the SEC or the Principal Market, and the Common Stock (including, without limitation, the Put Shares) shall have been approved for listing or quotation on and shall not be delisted from the Principal Market. The issuance of shares of Common Stock with respect to the applicable Closing, if any, shall not violate the shareholder approval requirements of the Principal Market. The Company shall not have received any notice threatening to delist the Common Stock from the Principal Market. (k) Minimum Trading Volume. The dollar value of the average daily trading volume of the Common Stock on the Principal Market during the thirty (30) Trading Days prior to the Put Date shall be at least $20,000. (l) No Knowledge. The Company has no knowledge of any event more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective (which event is reasonably likely to occur within the thirty (30) Trading Days following the Trading Day on which such Notice is deemed delivered). (m) Trading Cushion. The Trading Cushion shall have elapsed since the next preceding Put Date. (n) Other. On each Condition Satisfaction Date, the Investor shall have received and been reasonably satisfied with such other certificates and documents as shall have been reasonably requested by the Investor in order for the Investor to confirm the Company's satisfaction of the conditions set forth in this Section 7.2. ARTICLE VIII Due Diligence Review; Non-Disclosure of Non-Public Information. Section 8.1 Due Diligence Review. The Company shall make available for inspection and review by the Investor, advisors to and representatives of the Investors (who may or may not be affiliated with the Investor and who are reasonably acceptable to the Company), any underwriter participating in any disposition of the Registrable Securities on behalf of the Investors pursuant to the Registration Statement, any such registration statement or amendment or supplement thereto or any blue sky, NASD or other filing, all SEC Documents and other filings with the SEC, and all other publicly available corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company's officers, directors and employees to supply all such publicly available information reasonably requested by the Investors or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investors and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement. 20 Section 8.2 Non-Disclosure of Non-Public Information. (a) The Company shall not disclose non-public information to the Investors, advisors to or representatives of the Investors unless prior to disclosure of such information the Company identifies such information as being non-public information and provides the Investors, such advisors and representatives with the opportunity to accept or refuse to accept such non-public information for review. The Company may, as a condition to disclosing any non-public information hereunder, require the Investors' advisors and representatives to enter into a confidentiality agreement in form reasonably satisfactory to the Company and the Investors. (b) The Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investors and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 8.2 shall be construed to mean that such persons or entities other than the Investors (without the written consent of the Investors prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of a material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading. ARTICLE IX Transfer Agent Instructions Section 9.1 Transfer Agent Instructions. Upon each Closing, the Company will issue to the transfer agent for its Common Stock (and to any substitute or replacement transfer agent for its Common Stock upon the Company's appointment of any such substitute or replacement transfer agent) instructions to deliver the Put Shares without restrictive legends to the DTC DWAC account specified by Investor. 21 Section 9.2 No Legend or Stock Transfer Restrictions. No legend shall be placed on the share certificates representing the Put Shares and no instructions or "stop transfer orders," so called, "stock transfer restrictions," or other restrictions have been or shall be given to the Company's transfer agent with respect thereto. Section 9.3 Investor's Compliance. Nothing in this Article shall affect in any way the Investor's obligations under any agreement to comply with all applicable securities laws upon resale of the Put Shares. ARTICLE X Indemnification Section 10.1 Survival. The representations, warranties and covenants made by each of the Company and the Investor in this Agreement, the schedules and exhibits hereto and in each instrument, agreement and certificate entered into and delivered by them pursuant to this Agreement, shall survive each Closing and the consummation of the transactions contemplated hereby until the expiration of one year from the date of the Put to which such claim applies. In the event of a breach or violation of any of such representations, warranties or covenants, the party to whom such representations, warranties or covenants have been made shall have all rights and remedies for such breach or violation available to it under the provisions of this Agreement, irrespective of any investigation made by or on behalf of such party on or prior to the Closing Date. Section 10.2 General Indemnity. The Company agrees to indemnify and hold harmless the Investor (and its directors, officers, affiliates, agents, successors and assigns) from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorney's fees, charges and disbursements) incurred by the Investor to any third party as a result of any inaccuracy in or breach of the representations, warranties or covenants made by the Company herein. The Investor agrees to indemnify and hold harmless the Company and its directors, officers, affiliates, agents, successors and assigns from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorneys fees, charges and disbursements) incurred by the Company to any third party as result of any inaccuracy in or breach of the representations, warranties or covenants made by the Investor herein. The indemnification against such third-party claims shall survive any expiration of this Agreement. Section 10.3 Securities Law Indemnity. (a) The Company agrees to indemnify and hold harmless the Investor and each person, if any, who controls the Investor within the meaning of the Securities Act ("Distributing Investor") against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees), to which the Distributing Investor may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, final prospectus or amendment or supplement thereto, or 22 arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by the Distributing Investor, specifically for use in the preparation thereof. This Section 10.3(a) shall not inure to the benefit of any Distributing Investor with respect to any person asserting such loss, claim, damage or liability who purchased the Registrable Securities which are the subject thereof if the Distributing Investor failed to send or give (in violation of the Securities Act or the rules and regulations promulgated thereunder) a copy of the prospectus contained in such Registration Statement to such person at or prior to the written confirmation to such person of the sale of such Registrable Securities, where the Distributing Investor was obligated to do so under the Securities Act or the rules and regulations promulgated thereunder. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Distributing Investor agrees that it will indemnify and hold harmless the Company, and each officer, director of the Company or person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages or liabilities (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees) to which the Company or any such officer, director or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, final prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by such Distributing Investor, specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Distributing Investor may otherwise have. Section 10.4 Indemnification Procedure. Any party entitled to indemnification under this Article X (an "indemnified party") will give written notice to the indemnifying party of any matters giving rise to a claim for indemnification; provided, that the failure of any party entitled to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Article X except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any action, proceeding or claim is brought against an indemnified party in respect of which indemnification is sought hereunder, the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment of counsel to the indemnified party a conflict of interest between it and the indemnifying party may exist with respect of such action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. In the event that the indemnifying party 23 advises an indemnified party that it will contest such a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any indemnification notice to notify, in writing, such person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the indemnified party may, at its option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the indemnified party's costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder. The indemnified party shall cooperate fully with the indemnifying party in connection with any settlement negotiations or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the indemnified party which relates to such action or claim. The indemnifying party shall keep the indemnified party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party elects to defend any such action or claim, then the indemnified party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense. The indemnifying party shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent. Notwithstanding anything in this Article X to the contrary, the indemnifying party shall not, without the indemnified party's prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the indemnified party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the indemnified party of a release from all liability in respect of such claim. The indemnification required by this Article X shall be made by periodic payments of the amount thereof during the course of investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred, so long as the indemnified party irrevocably agrees to refund such moneys if it is ultimately determined by a court of competent jurisdiction that such party was not entitled to indemnification. The indemnity agreements contained herein shall be in addition to (a) any cause of action or similar rights of the indemnified party against the indemnifying party or others, and (b) any liabilities the indemnifying party may be subject to. Section 10.5 Contribution. In order to provide for just and equitable contribution under the Securities Act in any case in which (i) the indemnified party makes a claim for indemnification pursuant to Section 10.4 hereof but is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of Section 10.4 hereof provide for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified party, then the Company and the applicable Distributing Investor shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees), in either such case (after contribution from others) on the basis of relative fault as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the applicable Distributing Investor on the other hand, and the parties' relative intent, knowledge, access to 24 information and opportunity to correct or prevent such statement or omission. The Company and the Distributing Investor agree that it would not be just and equitable if contribution pursuant to this Section 10.5 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 10.5. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 10.5 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding any other provision of this Section 10.5, in no event shall any (i) Investor be required to undertake liability to any person under this Section 10.5 for any amounts in excess of the dollar amount of the net proceeds to be received by such Investor from the sale of such Investor's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are to be registered under the Securities Act and (ii) underwriter be required to undertake liability to any person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement. ARTICLE XI Choice of Law Section 11.1 Governing Law; Jurisdiction and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made in New York by persons domiciled in New York City and without regard to its principles of conflicts of laws. Each party submits to the exclusive jurisdiction of the State and Federal courts sitting in New York County, New York as the sole forum for hearing disputes under this Agreement or any of the Agreements attached as Exhibits hereto. The non-prevailing party to any proceeding (as determined by the Court) shall pay the expenses of the prevailing party, including reasonable attorneys' fees, in connection with such proceeding. Any party shall have the right to seek injunctive relief from any court of competent jurisdiction in any case where such relief is available, and the prevailing party shall be entitled to reasonable attorneys' fees incurred in connection with any such injunctive proceeding. ARTICLE XII Assignment Section 12.1 Assignment. Neither this Agreement nor any rights of the Investor or the Company hereunder may be assigned by either party to any other person. Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure to the benefit of, and be enforceable by, any transferee of any of the Common Stock purchased or acquired by the Investor hereunder with respect to the Common Stock held by such person, and (b) upon the prior written consent of 25 the Company, which consent shall not unreasonably be withheld or delayed in the case of an assignment to an affiliate of the Investor, the Investor's interest in this Agreement may be assigned at any time, in whole or in part, to any other person or entity (including any affiliate of the Investor) who agrees to make the representations and warranties contained in Article III and who agrees to be bound hereby, provided, that Investor shall not assign its rights to any person identified by the Company to the Investor as being in a business competitive with that of the Company. ARTICLE XIII Notices Section 13.1 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by reputable courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company: Mr. Roy Israel, Chief Executive Officer NAM Corporation 1010 Northern Boulevard Great Neck, NY 11021 Telephone: (516) 829-4343 Facsimile: (516) 829-4395 with a copy to: Robert Matlin, Esq. Camhy Karlinsky & Stein LLP (shall not constitute notice) 1740 Broadway 16th Floor New York, NY 10019-4315 Telephone: (212) 830-5761 Facsimile: (212) 977-8389
26
if to the Investor: Moldbury Holdings Limited c/o Dr. Dr. Batliner & Partner Aeulestrasse 74, Postfach 86 FL-9490 Vaduz Furstentum Liechtenstein Attention: Hans Gassner Telephone: 011-075-236-0404 Facsimile: 011-075-236-0405 with a copy to: Joseph A. Smith, Esq. (shall not constitute notice) Epstein Becker & Green, P.C. 250 Park Avenue New York, New York Telephone: (212) 351-4500 Facsimile: (212) 661-0989
Either party hereto may from time to time change its address or facsimile number for notices under this Section 13.1 by giving at least ten (10) days' prior written notice of such changed address or facsimile number to the other party hereto. ARTICLE XIV Miscellaneous Section 14.1 Counterparts/ Facsimile/ Amendments. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. Except as otherwise stated herein, in lieu of the original documents, a facsimile transmission or copy of the original documents shall be as effective and enforceable as the original. This Agreement may be amended only by a writing executed by all parties. Section 14.2 Entire Agreement. This Agreement, the Exhibits hereto, which include, but are not limited to the Escrow Agreement, the Warrant and the Registration Rights Agreement, set forth the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, negotiations and understandings between the parties, both oral and written relating to the subject matter hereof. The terms and conditions of all Exhibits to this Agreement are incorporated herein by this reference and shall constitute part of this Agreement as is fully set forth herein. Section 14.3 Survival; Severability. The representations, warranties, covenants and agreements of the parties hereto shall survive each Closing hereunder for a period of three years. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party. 27 Section 14.4 Title and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. Section 14.5 Reporting Entity for the Common Stock. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of the Investor and the Company shall be required to employ any other reporting entity. Section 14.6 Replacement of Certificates. Upon (i) receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of a certificate representing the Put Shares and (ii) in the case of any such loss, theft or destruction of such certificate, upon delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company (which shall not exceed that required by the Company's transfer agent in the ordinary course) or (iii) in the case of any such mutilation, on surrender and cancellation of such certificate, the Company at its expense will execute and deliver, in lieu thereof, a new certificate of like tenor. Section 14.7 Fees and Expenses. Each of the Company and the Investors agrees to pay its own expenses incident to the performance of its obligations hereunder, except that the Company shall pay the fees, expenses and disbursements of Investors' counsel in the amount of $10,000 plus $1,000 per Closing of a Put. Section 14.8 Brokerage. Each of the parties hereto represents that it has had no dealings in connection with this transaction with any finder or broker who will demand payment of any fee or commission from the other party. The Company on the one hand, and the Investors, on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any person claiming brokerage commissions or finder's fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby. Section 14.9 Effectiveness of Agreement. This Agreement shall become effective only upon satisfaction of the conditions precedent to the Initial Closing set forth in Article I of the Escrow Agreement. 28 IN WITNESS WHEREOF, the parties hereto have caused this Private Equity Line of Credit Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above. NAM Corporation By: /s/ Roy Israel ------------------------------ Roy Israel, Chief Executive Officer Moldbury Holdings Limited By: /s/ Hans Gassner ------------------------------ Hans Gassner, Authorized Signatory 29 EX-10.12 9 EXHIBIT 10.12 EXHIBIT C REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 16, 2000, between Moldbury Holdings Limited ("Investor"), and NAM Corporation, a corporation incorporated under the laws of the State of Delaware (the "Company"). WHEREAS, simultaneously with the execution and delivery of this Agreement, pursuant to a Private Equity Line of Credit Agreement dated the date hereof (the "Purchase Agreement") the Investor has committed to purchase up to $7,000,000 worth ($14,000,000 under certain circumstances) of the Company's Common Stock (terms not defined herein shall have the meanings ascribed to them in the Purchase Agreement); and WHEREAS, the Company desires to grant to the Investor the registration rights set forth herein with respect to the Put Shares and the Blackout Shares issuable upon exercise of the Company's Put rights from time to time and the Warrant Shares (hereinafter referred to as the "Stock" or "Securities" of the Company). NOW, THEREFORE, the parties hereto mutually agree as follows: Section 1. Registrable Securities. As used herein the term "Registrable Security" means the Securities until (i) all Put Shares and Warrant Shares have been disposed of pursuant to the Registration Statement, (ii) all Put Shares and Warrant Shares have been sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) all Put Shares and Warrant Shares have been otherwise transferred to persons who may trade such Securities without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such Put Shares and/or Warrant Shares not bearing a restrictive legend or (iv) such time as, in the opinion of counsel to the Company, all Put Shares and Warrant Shares may be sold without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. The term "Registrable Securities" means any and/or all of the securities falling within the foregoing definition of a "Registrable Security." In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be deemed to be made in the definition of "Registrable Security" as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Agreement. Section 2. Restrictions on Transfer. The Investor acknowledges and understands that in the absence of an effective Registration Statement authorizing the resale of the Securities as provided herein, the Securities are "restricted securities" as defined in Rule 144 promulgated under the Act. The Investor understands that no disposition or transfer of the Securities may be made by Investor in the absence of (i) an opinion of counsel to the Investor, in form and substance reasonably satisfactory to the Company, that such transfer may be made without registration under the Securities Act or (ii) such registration. With a view to making available to the Investor the benefits of Rule 144 under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investor to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) comply with the provisions of paragraph (c)(1) of Rule 144; and (b) file with the SEC in a timely manner all reports and other documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Investor, make available other information as required by, and so long as necessary to permit sales of, its Registrable Securities pursuant to Rule 144. Section 3. Registration Rights With Respect to the Securities. (a) The Company agrees that it will prepare and file with the Securities and Exchange SEC ("SEC"), within forty-five days (45) days after the date hereof, a registration statement (on Form S-3, or other appropriate form of registration statement) under the Securities Act (the "Registration Statement"), at the sole expense of the Company (except as provided in Section 3(c) hereof), in respect of all permitted holders of Securities, so as to permit a public offering and resale of the Securities under the Act by Investor. The Company shall use its best efforts to cause the Registration Statement to become effective within one hundred twenty (120) days from the closing date, or, if earlier, within five (5) days of SEC clearance to request acceleration of effectiveness. In the event that the SEC decides to review the Company's Registration Statement, the Company shall have an additional thirty (30) days to amend and cause such registration to become effective. If the Registration Statement is not declared effective by November 1, 2000, this Agreement and the Purchase Agreement shall terminate. The Company will notify Investor of the effectiveness of the Registration Statement within one Trading Day of such event. (b) The Company will maintain the Registration Statement or post-effective amendment filed under this Section 3 hereof effective under the Securities Act until the earlier of (i) the date that none of the Securities are or may become issued and outstanding, (ii) the date that all of the Securities have been sold pursuant to the Registration Statement, (iii) the date the holders thereof receive an opinion of counsel to the Company, which counsel shall be reasonably acceptable to the Investor, that the Securities may be sold under the provisions of Rule 144 without limitation as to volume, (iv) all Securities have been otherwise transferred to persons who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend, or (v) all Securities may be sold without any time, volume or manner limitations pursuant to Rule 144(k) or any similar provision then in effect under the Securities Act in the opinion of counsel to the Company, which counsel shall be reasonably acceptable to the Investor (the "Effectiveness Period"). 2 (c) All fees, disbursements and out-of-pocket expenses and costs incurred by the Company in connection with the preparation and filing of the Registration Statement under subparagraph 3(a) and in complying with applicable securities and Blue Sky laws (including, without limitation, all attorneys' fees of the Company) shall be borne by the Company. The Investor shall bear the cost of underwriting and/or brokerage discounts, fees and commissions, if any, applicable to the Securities being registered and the fees and expenses of its counsel. The Investor and its counsel shall have a reasonable period, not to exceed ten (10) Trading Days, to review the proposed Registration Statement or any amendment thereto, prior to filing with the SEC, and the Company shall provide each Investor with copies of any comment letters received from the SEC with respect thereto within two (2) Trading Days of receipt thereof. The Company shall qualify any of the securities for sale in such states as such Investor reasonably designates and shall furnish indemnification in the manner provided in Section 6 hereof. However, the Company shall not be required to qualify in any state which will require an escrow or other restriction relating to the Company and/or the sellers, or which will require the Company to qualify to do business in such state or require the Company to file therein any general consent to service of process. The Company at its expense will supply the Investor with copies of the Registration Statement and the prospectus included therein and other related documents in such quantities as may be reasonably requested by the Investor. (d) The Company shall not be required by this Section 3 to include a Investor's Securities in any Registration Statement which is to be filed if, in the opinion of counsel for both the Investor and the Company (or, should they not agree, in the opinion of another counsel experienced in securities law matters acceptable to counsel for the Investor and the Company) the proposed offering or other transfer as to which such registration is requested is exempt from applicable federal and state securities laws and would result in all purchasers or transferees obtaining securities which are not "restricted securities", as defined in Rule 144 under the Securities Act. (e) If at any time or from time to time after the effective date of the Registration Statement, the Company notifies the Investor in writing of the existence of a Potential Material Event (as defined in Section 3(f) below), the Investor shall not offer or sell any Securities or engage in any other transaction involving or relating to Securities, from the time of the giving of notice with respect to a Potential Material Event until such Investor receives written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event; provided, however, that if the Company so suspends the right to such holders of Securities for more than thirty (30) days in the aggregate during any twelve month period, during the periods the Registration Statement is required to be in effect such excess periods shall be a Registration Default, and shall entitle the Investor to receive Blackout Shares as provided in the Purchase Agreement. If a Potential Material Event shall occur prior to the date the Registration Statement is filed, then the Company's obligation to file the Registration Statement shall be delayed without penalty for not more than thirty (30) days. The Company must give Investor notice in writing at least two (2) Trading Days prior to the first day of the blackout period, if lawful to do so. (f) "Potential Material Event" means any of the following: (a) the possession by the Company of material information that is not ripe for disclosure in a registration statement, as determined in good faith by the Chief Executive Officer or the Board of Directors of the Company or that disclosure of 3 such information in the Registration Statement would be detrimental to the business and affairs of the Company; or (b) any material engagement or activity by the Company which would, in the good faith determination of the Chief Executive Officer or the Board of Directors of the Company, be adversely affected by disclosure in a registration statement at such time, which determination shall be accompanied by a good faith determination by the Chief Executive Officer or the Board of Directors of the Company that the Registration Statement would be materially misleading absent the inclusion of such information. Section 4. Cooperation with Company. Investor will cooperate with the Company in all respects in connection with this Agreement, including timely supplying all information reasonably requested by the Company (which shall include all information regarding the Investor and proposed manner of sale of the Registrable Securities required to be disclosed in the Registration Statement) and executing and returning all documents reasonably requested in connection with the registration and sale of the Registrable Securities. The Investor shall consent to be named as an underwriter in the Registration Statement. Section 5. Registration Procedures. If and whenever the Company is required by any of the provisions of this Agreement to effect the registration of any of the Registrable Securities under the Act, the Company shall (except as otherwise provided in this Agreement), as expeditiously as possible, subject to the Investor's assistance and cooperation as reasonably required: (a) (i) prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the Investor of such Registrable Securities shall desire to sell or otherwise dispose of the same (including prospectus supplements with respect to the sales of securities from time to time in connection with a registration statement pursuant to Rule 415 promulgated under the Act) and (ii) take all lawful action such that each of (A) the Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading and (B) the Prospectus forming part of the Registration Statement, and any amendment or supplement thereto, does not at any time during the Registration Period include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) (i) prior to the filing with the SEC of any Registration Statement (including any amendments thereto) and the distribution or delivery of any prospectus (including any supplements thereto), provide draft copies thereof to the Investors and reflect in such documents all such comments as the Investors (and their counsel) reasonably may propose and (ii) furnish to each Investor such numbers of copies of a prospectus including a preliminary prospectus or any amendment or supplement to any prospectus, as applicable, in conformity with the requirements of the Act, and such other documents, as such Investor may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such Investor; 4 (c) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Investor shall reasonably request (subject to the limitations set forth in Section 3(d) above), and do any and all other acts and things which may be necessary or advisable to enable each Investor to consummate the public sale or other disposition in such jurisdiction of the securities owned by such Investor, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or to file therein any general consent to service of process; (d) list such Registrable Securities on the Principal Market, and any other exchange on which the Common Stock of the Company is then listed, if the listing of such Registrable Securities is then permitted under the rules of such Principal Market; (e) notify each Investor at any time when a prospectus relating thereto covered by the Registration Statement is required to be delivered under the Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and the Company shall prepare and file a curative amendment under Section 5(a) as quickly as commercially possible; (f) as promptly as practicable after becoming aware of such event, notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the SEC or any state authority of any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time and take all lawful action to effect the withdrawal, recession or removal of such stop order or other suspension; (g) cooperate with the Investors to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Investors reasonably may request and registered in such names as the Investor may request; and, within three Trading Days after a Registration Statement which includes Registrable Securities is declared effective by the SEC, deliver and cause legal counsel selected by the Company to deliver to the transfer agent for the Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) an appropriate instruction and, to the extent necessary, an opinion of such counsel; (h) take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Investors of their Registrable Securities in accordance with the intended methods therefor provided in the prospectus which are customary for issuers to perform under the circumstances; (i) in the event of an underwritten offering, promptly include or incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the managers reasonably agree should be included therein and to which the Company does not reasonably object and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment; and (j) maintain a transfer agent and registrar for its Common Stock. 5 Section 6. Indemnification. (a) The Company agrees to indemnify and hold harmless the Investor and each person, if any, who controls the Investor within the meaning of the Securities Act ("Distributing Investor") against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees), to which the Distributing Investor may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, final prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by the Distributing Investor, specifically for use in the preparation thereof. This Section 6(a) shall not inure to the benefit of any Distributing Investor with respect to any person asserting such loss, claim, damage or liability who purchased the Registrable Securities which are the subject thereof if the Distributing Investor failed to send or give (in violation of the Securities Act or the rules and regulations promulgated thereunder) a copy of the prospectus contained in such Registration Statement to such person at or prior to the written confirmation to such person of the sale of such Registrable Securities, where the Distributing Investor was obligated to do so under the Securities Act or the rules and regulations promulgated thereunder. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Distributing Investor agrees that it will indemnify and hold harmless the Company, and each officer, director of the Company or person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages or liabilities (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees) to which the Company or any such officer, director or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, final prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, preliminary prospectus, final prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by such Distributing Investor, specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Distributing Investor may otherwise have. 6 (c) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability which it may have to any indemnified party except to the extent of actual prejudice demonstrated by the indemnifying party. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, assume the defense thereof, subject to the provisions herein stated and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless the indemnifying party shall not pursue the action to its final conclusion. The indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the indemnified party; provided that if the indemnified party is the Distributing Investor, the fees and expenses of such counsel shall be at the expense of the indemnifying party if (i) the employment of such counsel has been specifically authorized in writing by the indemnifying party, or (ii) the named parties to any such action (including any impleaded parties) include both the Distributing Investor and the indemnifying party and the Distributing Investor shall have been advised by such counsel that there may be one or more legal defenses available to the indemnifying party in conflict with any legal defenses which may be available to the Distributing Investor (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the Distributing Investor, it being understood, however, that the indemnifying party shall, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable only for the reasonable fees and expenses of one separate firm of attorneys for the Distributing Investor, which firm shall be designated in writing by the Distributing Investor). No settlement of any action against an indemnified party shall be made without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld. Section 7. Contribution. In order to provide for just and equitable contribution under the Securities Act in any case in which (i) the indemnified party makes a claim for indemnification pursuant to Section 6 hereof but is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of Section 6 hereof provide for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified party, 7 then the Company and the applicable Distributing Investor shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees), in either such case (after contribution from others) on the basis of relative fault as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the applicable Distributing Investor on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Distributing Investor agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 7. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding any other provision of this Section 7, in no event shall any (i) Investor be required to undertake liability to any person under this Section 7 for any amounts in excess of the dollar amount of the net proceeds to be received by such Investor from the sale of such Investor's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are to be registered under the Securities Act and (ii) underwriter be required to undertake liability to any person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement. Section 8. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be delivered as set forth in the Purchase Agreement. Either party hereto may from time to time change its address or facsimile number for notices under this Section 8 by giving at least ten (10) days' prior written notice of such changed address or facsimile number to the other party hereto. Section 9. Assignment. Neither this Agreement nor any rights of the Investor or the Company hereunder may be assigned by either party to any other person. Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure to the benefit of, and be enforceable by, any transferee of any of the Common Stock purchased by the Investor pursuant to the Purchase Agreement, and (b) upon the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed in the case of an assignment to an affiliate of the Investor, the Investor's interest in this Agreement may be assigned at any time, in whole or in part, to any other person or entity (including any affiliate of the Investor) who agrees to be bound hereby. 8 Section 10. Additional Covenants of the Company. The Company agrees that at such time as it meets all the requirements for the use of Securities Act Registration Statement on Form S-3 it shall file all reports and information required to be filed by it with the SEC in a timely manner and take all such other action so as to maintain such eligibility for the use of such form. Section 11. Counterparts/Facsimile. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when together shall constitute but one and the same instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. In lieu of the original, a facsimile transmission or copy of the original shall be as effective and enforceable as the original. Section 12. Remedies. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. Section 13. Conflicting Agreements. The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise prevents the Company from complying with all of its obligations hereunder. Section 14. Headings. The headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 15. Governing Law, Jurisdiction and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made in New York by persons domiciled in New York City and without regard to its principles of conflicts of laws. Any dispute under this Agreement shall be adjudicated as set forth in the Purchase Agreement. Section 16. Severability. If any provision of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceablity shall not affect any other provision hereof and this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. Terms not otherwise defined herein shall be defined in accordance with the Agreement. 9 IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed, on the day and year first above written. NAM Corporation By: /s/ Roy Israel ---------------------------------- Roy Israel, President Moldbury Holdings Limited By: /s/ Hans Gassner ---------------------------------- Hans Gassner, Authorized Signatory 10 EX-10.13 10 EXHIBIT 10.13 NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT. STOCK PURCHASE WARRANT To Purchase 60,000 Shares of Common Stock of NAM Corporation THIS CERTIFIES that, for value received, Moldbury Holdings Limited (the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after February 17, 2000 (the "Initial Exercise Date") and on or prior to the close of business on February 17, 2003 (the "Termination Date") but not thereafter, to subscribe for and purchase from NAM Corporation, a corporation incorporated in Delaware (the "Company"), up to Sixty Thousand (60,000) shares (the "Warrant Shares") of Common Stock, $.001 par value, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $9.34. The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. In the event of any conflict between the terms of this Warrant and the Private Equity Line of Credit Agreement dated as of February 16, 2000, pursuant to which this Warrant has been issued (the "Purchase Agreement"), the Purchase Agreement shall control. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. 1. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. 2. Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). 3. Exercise of Warrant. Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date as to 45,000 shares, and as to the remaining 15,000 shares, only after Holder has purchased no less than $3,500,000 of Common Stock from the Company pursuant to the Purchase Agreement, and before the close of business on the Termination Date by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank, the holder of this Warrant shall be entitled to receive a certificate for the number of shares of Common Stock so purchased. Certificates for shares purchased hereunder shall be delivered to the holder hereof within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. If no registration statement is effective permitting the resale of the shares of Common Stock issued upon exercise of this Warrant at any time commencing one year after the issuance date hereof, then this Warrant shall also be exercisable by means of a "cashless exercise" in which the holder shall be entitled to receive a certificate for the number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = the closing bid price per share of Common Stock on the Trading Day preceding the date of such election; (B) = the Exercise Price of the Warrants; and 2 (X) = the number of shares issuable upon exercise of the Warrants in accordance with the terms of this Warrant. 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the Exercise Price. 5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 6. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant. 7. Transfer, Division and Combination. (a) Subject to compliance with any applicable securities laws, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of shares of Common Stock without having a new Warrant issued. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. 3 (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. (e) The Company shall have a right of first refusal to purchase this Warrant if the Holder intends to sell this Warrant. The Holder shall give the Company at least five (5) days' prior written notice (as set forth in the Purchase Agreement) of its intention to sell this Warrant or any portion thereof, and the terms and conditions of such sale and the identity of the proposed purchaser. The Company shall have the right within such five day period to advise the Holder of its intention to purchase this Warrant (or portion sought to be sold) and the Company must complete such purchase within five (5) further days, or this right shall be void. 8. No Rights as Shareholder until Exercise. This Warrant does not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so purchased shall be and be deemed to be issued to such holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant certificate or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 11. Adjustments of Exercise Price and Number of Warrant Shares. (a) Stock Splits, etc. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the holder of this Warrant shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such 4 adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then Holder shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 11. For purposes of this Section 11, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 11 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 12. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 13. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the holder of this Warrant notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. 5 14. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 30 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 30 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 16(d). 15. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the 6 exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form reasonably satisfactory to Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. Before taking any action which would cause an adjustment reducing the current Exercise Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Exercise Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 16. Miscellaneous. (a) Jurisdiction. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant shall constitute a contract under the laws of New York without regard to its conflict of law, principles or rules, and be subject to arbitration pursuant to the terms set forth in the Purchase Agreement. (b) Restrictions. The holder hereof acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. 7 (c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company fails to comply with any provision of this Warrant, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. (d) Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. (e) Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. (f) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (g) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. (h) Indemnification. The Company agrees to indemnify and hold harmless Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against Holder in any manner relating to or arising out of any failure by the Company to perform or observe in any material respect any of its covenants, agreements, undertakings or obligations set forth in this Warrant; provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from Holder's negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. (i) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. 8 (j) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. (k) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: February 17, 2000 NAM Corporation By: /s/ Roy Israel ----------------------------------- Roy Israel, Chief Executive Officer 9 ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to _______________________________________________ whose address is _________________________________________________________________. _________________________________________________________________ Dated: ______________, _______ Holder's Signature: _____________________________ Holder's Address: _____________________________ Signature Guaranteed: ___________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in an fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. NOTICE OF EXERCISE To: NAM Corporation (1)______The undersigned hereby elects to purchase ________ shares of Common Stock (the "Common Stock"), of NAM Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2)______Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: ________________________________________ (Name) ________________________________________ (Address) ________________________________________ Dated: _____________________________ Signature EX-21.1 11 EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF NAM CORPORATION Set forth below are the names of all subsidiaries of the Company. Percentage Owned By Jurisdiction Name Company Formed - ---- ------- ------ Michael Marketing, LLC 100% Delaware clickNsettle.com, LLC 100% Delaware NAM Structured Settlement Company, LLC 50% Delaware EX-23.1 12 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated August 30, 1999 accompanying the consolidated financial statements of NAM Corporation and Subsidiaries contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus and to the use of our name as it appears under the caption "Experts". GRANT THORNTON LLP Melville, New York March 24, 2000 -----END PRIVACY-ENHANCED MESSAGE-----