-----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, QmYbpimQgzJKslumZkrBH8DlX7M6aLBGA7NHOc+11B9q7IKh5ExS7xncWtCNvGHh imp522yaRtW4X2mRPYM6Cw== 0000950116-96-000713.txt : 19960805 0000950116-96-000713.hdr.sgml : 19960805 ACCESSION NUMBER: 0000950116-96-000713 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19960802 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAM CORP CENTRAL INDEX KEY: 0000925741 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 232753988 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-09493 FILM NUMBER: 96603287 BUSINESS ADDRESS: STREET 1: 44 SOUTH BAYLES AVE CITY: PORT WASHINGTON STATE: NY ZIP: 11050 MAIL ADDRESS: STREET 1: 1010 NORTHERN BLVD., SUITE 336 CITY: GREAT NECK STATE: NY ZIP: 11021 SB-2 1 SB-2 As filed with the Securities and Exchange Commission on August 2, 1996 Registration No. 333- =============================================================================== 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: Alan I. Annex, Esq. Rubi Finkelstein, Esq. Robert S. Matlin, Esq. Orrick, Herrington & Sutcliffe Camhy Karlinsky & Stein LLP 666 Fifth Avenue, Eighteenth Floor 1740 Broadway, Sixteenth Floor New York, New York 10103 New York, New York 10019-4315 (212) 506-5000 (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
==================================================================================================================================== Proposed Maximum Proposed Maximum Title of Each Class of Securities Amount to be Offering Price Per Aggregate Offering Amount of Registration To Be Registered Registered Unit (1) Price (1) Fee - ------------------------------------------------------------------------------------------------------------------------------------ Units, each consisting of one 1,610,000 $4.00 $6,440,000 $2,220.69 share of Common Stock, $.001 par value, and one Redeemable Warrant to purchase one share of Common Stock (2) - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock underlying the 1,610,000 $6.00 $9,660,000 $3,331.03 Redeemable Warrants (3) - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock (4) 139,447 $4.00 $557,788 $192.34 - ------------------------------------------------------------------------------------------------------------------------------------ Representative's Warrants to 140,000 $.0001 $14.00 (5) purchase Units - ------------------------------------------------------------------------------------------------------------------------------------ Units issuable upon the exercise 140,000 $4.80 $672,000 $231.73 of the Representative's Warrants (6) - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock underlying the 140,000 $6.00 $840,000 $289.66 Redeemable Warrants included in the Representative's Warrants (7) - ------------------------------------------------------------------------------------------------------------------------------------ Total $18,169,802 $6,265.45 ====================================================================================================================================
(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as amended (the "Securities Act"), for purposes of calculating the registration fee. (2) Includes 210,000 Units which the Underwriters have an option to purchase from the Registrant to cover over-allotments, if any, and 150,000 shares of Common Stock to be sold by the Selling Stockholders. (3) Issuable upon the exercise of Redeemable Warrants to be offered to the public. Pursuant to Rule 416 under the Securities Act, this Registration Statement covers any additional shares of Common Stock which may become issuable by virtue of the anti-dilution provisions of such Redeemable Warrants. (4) Offered by certain common stockholders of the Registrant and registered for offer on a delayed basis pursuant to Rule 415 under the Securities Act. (5) No fee is required pursuant to Rule 457(g) under the Securities Act. (6) These Units are identical to the Units offered to the public. Pursuant to Rule 416 under the Securities Act, this Registration Statement also covers any additional Units which may become issuable by virtue of the anti-dilution provision of the Representative's Warrants. (7) Issuable upon the exercise of the Redeemable Warrants included in the Representative's Warrants. Pursuant to Rule 416 under the Securities Act, this Registration Statement also covers any additional shares of Common Stock which may become issuable by virtue of the anti-dilution provision of the Redeemable Warrants. 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. ii Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED AUGUST 2, 1996 PROSPECTUS NAM CORPORATION 1,400,000 Units Each Unit Consisting of One Share of Common Stock and One Redeemable Warrant Of the 1,400,000 Units (the "Units") offered hereby, 1,250,000 Units include common stock, par value $.001 per share (the "Common Stock"), which is offered by NAM Corporation, a Delaware corporation (the "Company"), and 150,000 Units (the "Selling Stockholders Units") include Common Stock which is offered by two executive officers of the Company (the "Selling Stockholders") (collectively, the "Offering"). Each Unit consists of one share of Common Stock and one redeemable warrant (the "Redeemable Warrants," collectively with the Units and the Common Stock hereinafter sometimes referred to as the "Securities"). The shares of Common Stock and Redeemable Warrants comprising the Units will be detachable and separately transferable immediately upon issuance. The Redeemable Warrants included in the Selling Stockholders Units will be issued by the Company. The Company will not receive any of the proceeds from the sale of the Selling Stockholders Units, although the Company will receive proceeds from the exercise, if any, of the Redeemable Warrants included in the Selling Stockholders Units. See "Use of Proceeds," "Selling Stockholders" and "Description of Securities." Each Redeemable Warrant entitles the holder to purchase one share of Common Stock at a price of $____ [150% of the initial public offering per Unit] per share, subject to adjustment, at any time from issuance until , 2001 [60 months from the date of this Prospectus] and is redeemable by the Company, with the prior written consent of Joseph Stevens & Company, L.P., the representative (the "Representative") of the several underwriters (the "Underwriters"), at a redemption price of five cents ($.05) commencing , 1997 [12 months from the date of this Prospectus] on thirty (30) days' prior written notice, provided that the average closing bid price of the Common Stock equals or exceeds $____ [150% of the Redeemable Warrant exercise price] for any twenty trading days within a period of thirty consecutive trading days ending on the fifth trading day immediately prior to the notice of redemption. See "Description of Securities." Prior to this Offering, there has been no public market for the Units, the Common Stock or the Redeemable Warrants and there can be no assurance that any such market will develop after the completion of this Offering or, if developed, that it will be sustained. It is currently anticipated that the initial public offering price will be $4.00 per Unit. See "Underwriting" for a discussion of the factors considered in determining the offering price. Application has been made to include the Units, the Common Stock and the Redeemable Warrants for quotation on the Nasdaq SmallCap Market (the "Nasdaq SmallCap") under the proposed symbols "NAMCU," "NAMC," and "NAMCW," respectively, and on the Boston Stock Exchange (the "BSE") under the proposed symbols "NAMU," "NAM," and "NAMW," respectively. ----------------------------- THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION" BEGINNING AT PAGE 9. ----------------------------- 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.
================================================================================================================================ Proceeds to the Underwriting Proceeds to the Selling Price to public discounts (1) Company (2) Stockholders (3) - -------------------------------------------------------------------------------------------------------------------------------- Per Unit ......................... $ $ $ $ - -------------------------------------------------------------------------------------------------------------------------------- Total (4)......................... $ $ $ $ ================================================================================================================================
(1) Does not include additional compensation payable to the Representative in the form of a 3% non-accountable expense allowance, warrants to purchase 140,000 Units (the "Representative's Warrants"), and a financial consulting fee. The Company has also agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses payable by the Company estimated to be $_______, including the non-accountable expense allowance payable to the Representative. (3) Before the Company pays on behalf of the Selling Stockholders the underwriting discounts and the non-accountable expense allowance related to the Selling Stockholders Units. (4) The Company has granted the Underwriters an option to purchase up to 210,000 additional Units (the "Over-allotment Option"), on the same terms as set forth above, solely for the purpose of covering over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts, and Proceeds to the Company will be $___, $___ and $___, respectively. See "Underwriting." This Prospectus also relates to the registration by the Company, at its expense, for the account of certain security holders (the "Selling Private Placement Stockholders") of 139,447 shares of Common Stock (the "Private Placement Shares"), which were issued in connection with a prior private placement financing. None of the Private Placement Shares are being underwritten in this Offering and the Company will not receive any proceeds from their eventual sale. The Selling Private Placement Stockholders have agreed not to sell their Private Placement Shares without the prior written consent of the Representative for a period of 18 months from the date hereof. The Units are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify the offering and to reject any order in whole or in part. It is expected that delivery of the Units will be made against payment therefor at the offices of Joseph Stevens & Company, L.P., New York, New York, on or about ____ ___, 1996. JOSEPH STEVENS & COMPANY, L.P. __________ ___, 1996 2 The Company intends to furnish its stockholders with annual reports containing audited financial statements and such other periodic reports as the Company deems appropriate or as may be required by law. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, COMMON STOCK AND REDEEMABLE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 3 PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to, and should be read in conjunction with, the more detailed information and financial statements (including the notes thereto) appearing elsewhere in this Prospectus. Each prospective investor is urged to read this Prospectus in its entirety. Unless otherwise indicated, all information in this Prospectus relating to share and per share data gives effect to (i) a one for two reverse stock split which was effected on March 29, 1996 and (ii) a .14436 of a share stock dividend distributed on April 1, 1996 to all holders of Common Stock. Unless otherwise indicated, all information in this Prospectus assumes no exercise of the (i) Redeemable Warrants; (ii) Over-allotment Option; or (iii) Representative's Warrants. The Company NAM Corporation (the "Company") provides alternative dispute resolution ("ADR") services principally to insurance companies, law firms, large self-insured corporations and municipalities. An ADR proceeding is designed to replace the public court system as a forum for resolving civil disputes. The Company offers its clients personalized attention and access to qualified hearing officers (generally retired judges) to either mediate or arbitrate their disputes. The cases currently handled by the Company are primarily disputes involving claims for injury to persons or property allegedly arising out of acts of negligence and are usually covered by insurance. The Company believes it is one of the leading providers of ADR services in New York State based upon the number of cases processed since 1993. The Company has offices currently located in New York, Massachusetts, Pennsylvania, South Carolina and Tennessee, through which it has the ability to provide ADR services on a nationwide basis with a roster of over 600 qualified hearing officers. The ADR business is a growing service industry based upon the continuing inability of the public court system to manage effectively its docket of civil cases. An ADR proceeding is intended to streamline the traditional cumbersome public litigation process. As compared to the public court system, an ADR proceeding generally offers litigants: a faster resolution, confidentiality, reduced expense, flexibility in procedures and solutions, and control over the process. The ADR proceeding also has the potential to preserve business relations among the parties because of its less adversarial nature and potential for a prompt resolution. The Company provides services to more than 50 major insurance companies, law firms, large self-insured corporations and municipalities, including Liberty Mutual Insurance Group, Royal Insurance Group, The Travelers Insurance Company, American International Group, Conrail and the City of Philadelphia. To date, the Company has focused the majority of its marketing efforts on developing relationships, and expanding existing relationships, with insurance companies which the Company believes are some of the largest consumers of ADR services. The Company derives its revenues from fees charged to the parties in an ADR proceeding, which are charged on an hourly basis for hearings, conferences and deliberations by hearing officers, and set amounts for administrative services. As compared to the majority of its competitors, the Company believes it has certain advantages which enable it to better serve its clients. These advantages include (1) qualified hearing officers, who are generally former judges, (2) software that provides detailed case management reporting ability which enables clients to review the history of cases submitted and the status of pending matters, (3) case reporting that can be customized to meet a client's needs, (4) account executives dedicated to specified clients, (5) the ability to monitor and control the scheduling of matters, and (6) videoconferencing capability which allows clients to participate or observe a proceeding without leaving their office. In addition, in early 1997 the Company expects to offer clients "on-line" case submission and reporting which will further improve the Company's ability to serve the needs of its clients. The Company's objective is to become one of the leading providers of ADR services on a national basis. The Company intends to achieve this goal through the opening of new offices in states where none presently exist, which will enable the Company to serve more fully its current clients and attract new clients. This proposed expansion may include the acquisition of existing ADR companies. Presently, the Company does not have any agreements to acquire any such companies. The Company intends to open approximately four to six new 4 offices in the United States over the next two years. It is currently anticipated that the Company will open new offices in: Illinois, Arizona, Washington D.C., Wisconsin, Florida and Connecticut. The Company believes that the domestic ADR industry is, other than a few national entities, generally fragmented into small ADR service providers. The Company further believes that the trend in the ADR industry is towards consolidation of providers who are capable of offering quality national and regional ADR programs. The Company's planned expansion will enable it to exploit this trend. In addition, the Company intends to increase its marketing of its ADR services to litigants in other types of disputes, including complex commercial issues, construction, employment and worker's compensation cases. 5 The Offering
Units to be Offered.................................... Each Unit consisting of one share of Common Stock and one Redeemable Warrant. The Common Stock and Redeemable Warrants will be detachable and separately transferable immediately upon issuance. Each Redeemable Warrant entitles the holder to purchase one share of Common Stock for 150% of the initial public offering price per Unit, subject to adjustment. Commencing 12 months from the date of this Prospectus, the Redeemable Warrants will be subject to redemption, subject to the prior written consent of the Representative, at a price of $.05 per Redeemable Warrant on 30 days' written notice provided the average closing bid price of the Common Stock equals or exceeds 150% of the exercise price of the Redeemable Warrant 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. See "Description of Securities." Units Offered by the Company .......................... 1,250,000 Units. Units Offered by the Selling Stockholders ............. 150,000 Units. The Redeemable Warrants included in such Units will be issued by the Company. Although the Company will not receive any of the proceeds from the sale of such Units, it will receive the proceeds from the exercise, if any, of the Redeemable Warrants included therein. See "Selling Stockholders." Shares Offered by Selling Private Placement Stockholders .................................... 139,447 shares of Common Stock. These Private Placement Shares are not being underwritten in this Offering and the Company will not receive any proceeds from their sale. For a period of 18 months from the date of the Prospectus, the Selling Private Placement Stockholders have agreed not to sell such shares without the prior written consent of the Representative. See "Selling Private Placement Stockholders and Plan of Distribution." Common Stock Outstanding Before this Offering(1) ......................... 1,874,978 shares. Common Stock to be Outstanding After this Offering(1) .......................... 3,124,978 shares. Redeemable Warrants to be Outstanding After this Offering ............................. 1,400,000 Redeemable Warrants.
- --------------------- 1 Includes 69,055 shares of Common Stock that vested in June and July 1996 pursuant to certain employment agreements and excludes: (i) 750,000 shares of Common Stock reserved for issuance upon exercise of options available for future grant under the Company's 1996 Stock Option Plan (the "Stock Option Plan") of which options to purchase 25,000 shares have been conditionally granted; and (ii) 79,007 shares of Common Stock which have been conditionally granted to certain employees and a hearing officer pursuant to their contracts and which vest over time beginning in March 1997. See "Management--Stock Option Plan," "Description of Securities" and "Underwriting." 6
Proposed Nasdaq SmallCap Symbols: Units............................................ NAMCU Common Stock .................................... NAMC Redeemable Warrants.............................. NAMCW Proposed BSE Symbols: Units............................................ NAMU Common Stock .................................... NAM Redeemable Warrants.............................. NAMW Use of Proceeds........................................ For expansion of operations (including the opening and acquisition of new offices); marketing and sales; repayment of debt; working capital; and general corporate purposes. See "Use of Proceeds." Risk Factors and Dilution ............................. The purchase of the Units offered hereby involves a high degree of risk and immediate and substantial dilution. Prospective investors should review carefully and consider the information set forth under "Risk Factors" and "Dilution."
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. In October 1994, the Company acquired all the outstanding shares of National Arbitration & Mediation, Inc., a New York corporation ("National"). The financial information presented below includes the results of operations of National as if the Company and National had been combined as of January 1, 1993. Results of operations prior to January 1994, the inception of the Company, include only those of National.
Six Months Year Ended Ended Year Ended Nine Months Ended March 31, December 31, June 30, June 30, ----------------------------- 1993 1994 1995 1995 1996 ------------ --------- ----------- ---------- ---------- Statements of Operations Data Revenue.......................... $1,043,326 $787,667 $2,235,030 $1,494,005 $2,204,178 Operating income................. 182,814 146,457 215,219 113,257 119,495 Net income ...................... 198,098 160,579 185,023 92,807 112,050 Pro forma net income(1).......... 136,964 106,916 106,622 72,846 --- Net income per common share...... -(2) $0.17 $0.11 $0.06 $0.06 ---------- ----- ----- ----- ----- Pro forma net income per common share(1)............ -(2) $0.11 $0.06 $0.05 $ --- ---------- ----- ----- ----- ----- Weighted average common stock and common stock equivalents outstanding........ -(2) 948,018 1,688,358 1,602,292 1,947,504 March 31, 1996 ------------------------------- Actual As Adjusted(3) --------- ----------- Balance Sheets Data Working capital (deficit)........ $(477,494) $3,446,506 Total assets..................... 889,862 4,389,862 Total liabilities................ 983,313 559,313 Notes payable.................... 400,000 --- Stockholders' equity (deficit)..................... $(93,451) $3,830,549
7 - ----------------------- 1 From inception through October 1994 National elected to be taxed as an S-corporation under the applicable provisions of the Internal Revenue Code of 1986. Effective October 1994 National's S-corporation election was voluntarily revoked, subjecting National to corporate income taxes subsequent to that date. Pro forma net income and pro forma net income per common share represent the Company's position as if National had been a C-corporation for all relevant periods. 2 The net income per common share and pro forma net income per common share for this period is based solely on the capital structure of National and therefore is not meaningful. 3 As adjusted to give effect to the issuance of 1,250,000 Units offered by the Company at an assumed initial public offering price of $4.00 per Unit and the receipt and initial application of the net proceeds therefrom, to $37,500 resulting from the contribution of 150,000 Redeemable Warrants underlying the Selling Stockholder Units, $78,000 resulting from the payment by the Company on behalf of the Selling Stockholders of the underwriting discounts and non-accountable expense allowance relating to the Selling Stockholders Units, and a $48,000 consulting fee payable to the Representative. See "Use of Proceeds." 8 RISK FACTORS The Units offered hereby are speculative and involve a high degree of risk, including, but not necessarily limited to, the risk factors described below. An investment should only be made by persons who can afford a loss of their entire investment. Each prospective investor should carefully consider the following risk factors and the other information included in this Prospectus before making any investment decision. No Assurance of Continued Profitability. Although the Company has been profitable for the last three fiscal years, there can be no assurance that the Company will be able to continue to operate on a profitable basis in the future. In fact, the Company anticipates a substantial increase in its expenses associated with the implementation of its expansion plans. These increases may result in a short-term net loss as new offices are opened and the Company supports such new offices until they fully develop, if ever. Lack of Written Contracts with Clients. The Company currently relies on its relationships with, and marketing efforts to, insurance companies, law firms, large self-insured corporations and municipalities to obtain cases. The Company does not have written agreements with the majority of its clients, but the Company has recently instituted the process of obtaining written agreements with its existing clients and with new clients. There can be no assurance that in the future the Company will continue to receive its current level of, or an adequate level of, referrals of cases. If the Company does not maintain such levels, there could be a material adverse effect on the Company's business. Dependence Upon Qualified Hearing Officers. The market for the Company's services depends on a perception by clients that the Company's hearing officers are impartial, qualified and experienced. The Company's ability to retain qualified hearing officers in the face of increasing competition is uncertain. Approximately 97% of the Company's hearing officers are retained on a case-by-case basis. Accordingly, at any time, these hearing officers can refuse to continue to provide their services to the Company 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 the Company for any reason, including possible agreements to provide their services to the Company's competitors on an exclusive basis, the Company's business and operations could be materially and adversely effected. Dependence on Insurance-Related Disputes. The majority of the Company's ADR business involves claims for damages to persons and/or property arising from alleged acts of negligence and are usually covered by insurance. In many instances, these disputes are resolved in a matter of hours. Since the Company's revenues are derived primarily from certain administrative and hourly fees, a high volume of these cases is required in order for the Company to generate sufficient revenues. There can be no assurance that the Company will be able to expand its business outside of the insurance-related dispute segment, or maintain its current level of cases. Possible Improvements in the Public Court System, Including Use of ADR Services. The ADR industry in general furnishes an alternative to public dispute mechanisms, principally the public courts. The Company's marketing efforts have been based on its 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 the Company is currently serving or seeks to serve, reduce case backlogs and provide effective settlement mechanisms at no, or substantially reduced, cost to litigants, the Company's 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 and 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 the Company's business by diminishing the demand for private ADR services. Competition. The 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 9 two types of competitors, not-for-profit and for-profit entities. The Company believes the largest not-for-profit competitor is the American Arbitration Association ("AAA") which has significant market share in complex commercial cases. The Company believes that the largest for-profit ADR provider in the country is Judicial Arbitration Mediation Services, Inc./Endispute ("JAMS"). At this time, management believes that numerous other private ADR firms are competing with the Company in the regions it currently serves and in other areas of the United States where the Company may open new offices. Increased competition could decrease the fees the Company is able to charge for its services and limit the Company's ability to obtain qualified hearing officers. This could have a material adverse effect on the Company's ability to be profitable in the future. Certain competitors may have greater financial, and other, capabilities than the Company. Accordingly, there is no assurance that the Company can successfully compete in the present or future marketplace for ADR services. Establishment of New Offices. Significant start-up costs will be incurred in connection with opening and operating new offices, including expenses such as leases, office equipment, furnishings, and salaries for management, sales and clerical personnel. In these new areas, organizations similar to and in competition with the Company may have been doing business for some time, and therefore, will have competitive advantages over the Company. These advantages include contacts with potential consumers of the Company's services, such as law firms and insurance companies, and with retired judges and lawyers who act as hearing officers. In addition, the account representatives who establish the new offices are very important to the success of such offices. While management of the Company believes that in the future, the Company may be competitive in some or all of the planned new markets, there is no assurance that any of the Company's new offices will ever be profitable. For example, the Company opened up an office in the Minneapolis, Minnesota area in August, 1994 and closed it in April, 1995 due to disappointing performance. Dependence on Key Personnel. The success of the Company will be largely dependent on the personal efforts of Roy Israel, the Chief Executive Officer, President and Chairman of the Board of Directors of the Company. Although the Company has entered into an employment agreement with Mr. Israel, which expires in 1997, the loss of his services could have a material adverse effect on the Company's business and prospects. The Company has obtained "key-man" life insurance on the life of Mr. Israel, of which the Company is sole beneficiary in the amount of $1 million. The success of the Company is also dependent upon its ability to hire and retain qualified marketing and other personnel in its existing and new offices. There can be no assurance that the Company will be able to hire or retain such necessary personnel. See "Management." Absence of Dividends. The Company has not paid any cash dividends on its Common Stock, except with respect to certain distributions relating to when National was an S-corporation, and does not expect to do so in the foreseeable future. See "Certain Transactions" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Possible Adverse Effects of Authorization of Preferred Stock. The Company's Certificate of Incorporation provides that up to 5,000,000 shares of Preferred Stock may be issued by the Company from time to time in one or more series. The Board of Directors is authorized to determine the rights, preferences, privileges and restrictions granted to and imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series, without any vote or action by the Company's stockholders. The 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 have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for the Common Stock at a premium over the market price of the Common Stock and may adversely affect the market price of the Common Stock. See "Description of Securities--Preferred Stock." Forward-Looking Information May Prove Inaccurate. This Prospectus contains various forward-looking statements and information that are based on management's beliefs, as well as assumptions based upon information currently available to management. When using this document, the words "expect," "anticipate," "estimate," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, 10 uncertainties and assumptions including those identified above. Should one or more of these risks or circumstances materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Immediate Substantial Dilution. The purchasers of the Units will incur immediate and substantial dilution in the net tangible book value of each share of Common Stock from the initial public offering price of $2.82 or 71% per Unit. See "Dilution." Arbitrary Offering Price of the Units and Exercise Price of the Redeemable Warrants. The offering price of the Units and the exercise price of the Redeemable Warrants are completely arbitrary and are not based upon the Company's assets, book value, cash flow, potential earnings or any other established criteria of value. The initial public offering price for the Units and the exercise price of the Redeemable Warrants were determined by negotiations between the Company and the Representative, and should not be regarded as indicative of any future market price of the Units, Common Stock or Redeemable Warrants. See "Underwriting." Control by Current Stockholders. When this Offering is completed, current shareholders will beneficially own 1,724,978 shares or 55% of the Common Stock outstanding. Of that number, Mr. Israel will beneficially own 1,197,139 shares or 38% of the Common Stock. As a result, these stockholders acting in concert will have the ability to elect or remove any or all of the Company's directors and to control substantially all corporate activities involving the Company, including tender offers, mergers, proxy contests or other purchases of Common Stock that could give stockholders of the Company the opportunity to realize a premium over the then prevailing market price for their shares of Common Stock. See "Principal and Selling Stockholders." See "Management--Directors, Executive Officers and Significant Employees" and "Certain Transactions." Benefit of the Offering to Certain Affiliates. Roy Israel and Cynthia Sanders, the Company's Executive Vice President, are selling in the aggregate 150,000 shares of Common Stock (of their 1,460,194 shares of Common Stock beneficially owned) in this Offering which were purchased at prices well below the initial public offering price per Unit. The Selling Stockholders will realize substantial gains as a result of their sale of such shares. In addition, the Company is providing the Redeemable Warrants that are part of the Selling Stockholders' Units and the Company will derive no benefit from the sale of such Redeemable Warrants. The Company is also paying on behalf of the Selling Stockholders the underwriting discounts and non-accountable expense related to the sale of the Selling Stockholders Units. The registration statement, of which this Prospectus is a part, also includes the registration of the Private Placement Shares. The Private Placement Shares (139,447) were purchased at prices substantially less than the initial public offering price per Unit in this Offering and the Selling Private Placement Stockholders, at the time they sell, may realize substantial gain. A portion of the proceeds of this Offering will be used to satisfy a certain private placement financing, of which Mr. Israel, Ms. Sanders and Mr. Charles Merola, the Chief Financial Officer of the Company, shall receive $10,000 in the aggregate plus interest. See "Use of Proceeds" and "Offer by the Selling Private Placement Stockholders and Plan of Distribution." Broad Discretion in Application of Proceeds. Approximately $1,155,000 or approximately 29% of the estimated net proceeds of this offering has been allocated to working capital and general corporate purposes. Accordingly, the Company's management will have broad discretion as to the application of such proceeds. Redeemable Warrants; Future Financings. The holders of the Redeemable Warrants and the Representative's Warrants will have the opportunity to profit from a rise in the price of the Common Stock. The existence of these warrants may adversely affect the terms on which the Company can obtain additional equity financing in the future and the holders can be expected to exercise them when the Company would, in all likelihood, be able to obtain additional capital by offering additional shares of its unissued Common Stock on terms more favorable to the Company than the terms provided by these warrants. Potential Adverse Effect of Redemption of the Redeemable Warrants. The Redeemable Warrants are redeemable by the Company, with the prior written consent of the Representative, at a price of $.05 per Redeemable Warrant commencing 12 months from the date of this Prospectus, provided that (i) 30 days' prior written notice is given to the holders of the Redeemable Warrants, 11 and (ii) the closing bid price per share of the Common Stock as reported on the Nasdaq SmallCap (or the last sale price, if quoted on a national securities exchange) for any 20 trading days within a period of 30 consecutive trading days, ending on the fifth day prior to the date of the notice of redemption, has been at least 150% of the exercise price per share, subject to adjustment in certain events. The holders of the Redeemable Warrants will automatically forfeit their rights to purchase the shares of Common Stock issuable upon exercise of such Redeemable Warrants unless the Redeemable Warrants are exercised before they are redeemed. Notice of redemption of the Redeemable Warrants could force the holders to exercise the Redeemable Warrants and pay the respective exercise prices at a time when it may be disadvantageous for them to do so, to sell the Redeemable Warrants at the market price when they might otherwise wish to hold the Redeemable Warrants, or to accept the redemption price which is likely to be substantially less than the market value of the Redeemable Warrants at the time of redemption. See "Description of Securities-- Redeemable Warrants." Current Prospectus and State Blue Sky Registration Required to Exercise Redeemable Warrants. Holders will have the right to exercise the Redeemable Warrants and purchase shares of Common Stock only if a current prospectus relating to such shares is then in effect and only if the shares are qualified for sale under the securities laws of the applicable state or states, or there is an exemption from the applicable qualification requirements. The Company has undertaken and intends to file and keep effective and current a prospectus which will permit the purchase and sale of the Common Stock underlying the Redeemable Warrants, but there can be no assurance that the Company will be able to do so. Although the Company intends to qualify for sale the shares of Common Stock underlying the Redeemable Warrants in those states in which the securities are to be offered, no assurance can be given that such qualification will occur. Holders of the Redeemable Warrants may be deprived of any value if a prospectus covering the shares issuable upon the exercise thereof is not kept effective and current or if such underlying shares are not, or cannot be, registered in the applicable states. Although the Company does not presently intend to do so, the Company reserves the right to call the Redeemable Warrants for redemption whether or not a current prospectus is in effect or such underlying shares are not, or cannot be, registered in the applicable states. See "Description of Securities--Redeemable Warrants." Shares Eligible for Future Sales. Sales of shares of Common Stock by existing shareholders, or by holders of options, under Rule 144 of the Securities Act could have an adverse effect on the trading price of the Units, the Common Stock or the Redeemable Warrants. The Company has agreed with the Representative to cause holders of not less than 95% of the shares of Common Stock outstanding prior to this offering to execute lock-up agreements with the Representative that restrict the sale or disposition of shares of Common Stock for 18 months from the date of this Prospectus without the prior written consent of the Representative. In addition, for 24 months from the date of this Prospectus, these shares will be sold only through the Representative. The Representative may consent to a waiver of this lock-up period without prior public notice. Subject to this lock-up restriction, of the 3,124,978 shares of Common Stock that will be outstanding after this Offering, 139,447 shares owned by the Selling Private Placement Stockholders are eligible for immediate sale and 889,947 shares are eligible for immediate sale pursuant to Rule 144. Beginning in October, 1996, 626,529 shares will be eligible for sale pursuant to Rule 144 subject to the lock-up agreement described above. See "Description of Securities" and "Shares Eligible for Future Sale." No Prior Public Trading Market; Possible Delisting from Nasdaq SmallCap; Disclosure Relating to Low Priced Stocks. Prior to the Offering there has been no public trading market for the Units, the Common Stock or the Redeemable Warrants. Although the Units, the Common Stock and the Redeemable Warrants have been approved for quotation on the Nasdaq SmallCap, there can be no assurance that a trading market will develop or, if developed, that it will be maintained. In addition, there can be no assurance that the Company will in the future meet the maintenance criteria for continued quotation of the securities on the Nasdaq SmallCap. The maintenance criteria for the Nasdaq SmallCap include, among other things, $2,000,000 in total assets, $1,000,000 in capital and surplus, a public float of 100,000 shares with a market value equal to $200,000, two market makers and a minimum bid price of $1.00 per share of common stock. If an issuer does not meet the $1.00 minimum bid price standard, it may, however, remain on the Nasdaq SmallCap if the market value of its public float is at least $1,000,000 and the issuer has at least $2,000,000 in equity. If the Company were 12 removed from the Nasdaq SmallCap, trading, if any, in the Units, the Common Stock or the Redeemable Warrants 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 dispose of, and to obtain accurate quotations as to the value of such securities. In addition, if the Common Stock is delisted from trading on the Nasdaq SmallCap 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 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under such 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 a requirement that they make an individualized written suitability determination for the purchaser and 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, according to recent regulations adopted by the Securities and Exchange Commission (the "Commission"), 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, subject to certain exceptions), 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 the Units, the Common Stock and the Redeemable Warrants and the ability of purchasers in this Offering to sell their Securities in the secondary market. There can be no assurance that the Units, the Common Stock and the Redeemable Warrants will not be delisted or treated as a penny stock. Lack of Experience of Representative. Although the Representative commenced operations in May 1994, it does not have extensive experience as an underwriter of public offerings of securities. The firm is relatively small and no assurance can be given that it will be able to participate as a market maker in the Securities, and no assurance can be given that any broker-dealer will make a market in the Units, the Common Stock or the Redeemable Warrants. See "Underwriting." Representative's Potential Influence on the Market. It is anticipated that a significant amount of the Units will be sold to customers of the Representative. Although the Representative has advised the Company that it intends to make a market in the Securities, it will have no legal obligation to do so. Such market making activity may be discontinued at any time. Moreover, if the Representative sells the securities issuable upon exercise of the Representative's Warrants, it may be required under the Exchange Act to suspend temporarily its market-making activities. The prices and the liquidity of the Units, the Common Stock and the Redeemable Warrants may be significantly affected by the degree, if any, of the Representative's participation in the market. No assurance can be given that any market activities of the Representative, if commenced, will be continued. See "Underwriting." THE COMPANY The Company was formed on January 12, 1994 under the laws of the State of Delaware. On October 31, 1994, the Company acquired all of the outstanding common stock of National, a New York corporation, formed on February 6, 1992, which was owned by Roy Israel, the Company's Chief Executive Officer and President, and Cynthia Sanders, the Company's Executive Vice President. National began operations in March, 1992. The Company has three wholly-owned subsidiaries: National, National Video Conferencing, Inc., a Delaware corporation ("NV"), formed in April 1995, and Michael Marketing, Inc., a Delaware corporation ("MM"), formed on November 15, 1991. NV was formed to be a reseller of video conferencing equipment. MM provides in-house advertising services to the Company and enables the Company to obtain advertising at discounted rates. 13 The Company's executive offices are currently located at 1010 Northern Boulevard, Suite 336, Great Neck, New York 11021 and its telephone number is (516) 829-4343. USE OF PROCEEDS By the Company. The net proceeds to be received by the Company from the sale of the Units offered hereby by the Company, at an assumed initial public offering price of $4.00 per Unit, after deducting the Underwriters' discount and all applicable expenses, are estimated to be $4,050,000 ($4,780,800, if the Over-allotment Option is exercised in full). The Company currently anticipates applying the proceeds approximately as follows: Approximate Approximate Percentage of Application of Proceeds Dollar Amount Net Proceeds - ----------------------- ------------- ------------- Repayment of Notes and interest(1)................ $445,000 11% Opening new offices, including acquisitions(2).... $1,650,000 41% Marketing and sales(3)............................ $700,000 17% Capital expenditures(4)........................... $100,000 2% Working capital and general corporate purposes(5). $1,155,000 29% ---------- ---- Total.......................................... $4,050,000 100% - ------------------------ 1 The Company intends to use this amount to repay notes (the "Private Placement Notes") with interest held by the Selling Private Placement Stockholders and certain executive officers and founders of the Company. From July through October 1994, the Company received gross proceeds of $402,000 from the private placement of eighty (80) units at a price of $5,025 per unit, each of which consisted of a $5,000 8% promissory note originally due June 30, 1996 and 1,787 shares of Common Stock. These proceeds were used to open new offices, repay a loan from National and for working capital. The repayment of the Notes has been extended until the earlier of the completion of this Offering or December 31, 1996. 2 The Company intends to use this amount to open approximately four to six new offices over the next two years, which may include the acquisition of other ADR companies. This amount will be used to equip these new offices and enable the Company to operate them for approximately one year. The Company does not currently have any agreements, commitments or arrangements with respect to any proposed acquisitions, and no assurance can be given that any acquisition opportunities will be identified or consummated in the future. 3 The Company intends to use this amount to increase its marketing efforts and to create an increased national presence through advertising in a variety of media. 4 The Company intends to use this amount to upgrade its existing computer system. 5 The Company intends to use $78,000 to pay on behalf of the Selling Stockholders the underwriting discounts and non-accountable expense related to the sale of the Selling Stockholders Units (assuming an initial public offering price of $4.00 per Unit) and $48,000 as a consulting fee to the Representative. See "Underwriting." The above represents the Company's best estimate based upon its present plans and certain assumptions regarding general economic conditions and the Company's future revenues and expenditures. The Company, therefore, reserves the right to reallocate the net proceeds of this Offering among the various categories set forth above as it, in its sole discretion, deems necessary or advisable. 14 Any additional net proceeds realized from the exercise of the Over-allotment Option or the Redeemable Warrants underlying the Units will be added to the Company's working capital. The Company believes that the estimated net proceeds to be received by the Company from this Offering, together with funds from operations, will be sufficient to meet the Company's working capital requirements for a period of at least 12 months following the date of this Prospectus. Thereafter, if the Company has insufficient funds for its needs, there can be no assurance that additional funds can be obtained on acceptable terms, if at all. If necessary funds are not available, the Company's business would be materially and adversely affected. Prior to expenditure, the net proceeds will be invested in short-term interest bearing securities or money market funds. By the Selling Stockholders. The proceeds from the sale of the shares of Common Stock offered hereby by the Selling Stockholders will not be received by the Company. The Company, however, will receive the proceeds from the exercise, if any, of the Redeemable Warrants included in the Selling Stockholders Units. The Selling Stockholders will pay all applicable stock transfer taxes and transfer fees. The Company has agreed to bear the cost of preparing the Registration Statement of which the Prospectus is a part, the underwriting discounts and non-accountable expense allowance, and all filing fees and legal and accounting expenses in connection with the registration of the Selling Stockholders Units offered hereby under federal and state securities laws. By the Selling Private Placement Stockholders. The Private Placement Shares are not being underwritten in this Offering and the Company will not receive any proceeds from their sale. The Company has agreed to bear the cost of preparing the Registration Statement of which the Prospectus is a part and all filing fees and legal and accounting expenses in connection with the registration of the Selling Stockholders Units offered hereby under federal and state securities laws. OFFER BY THE SELLING PRIVATE PLACEMENT STOCKHOLDERS AND PLAN OF DISTRIBUTION The registration statement, of which this Prospectus is a part, also includes an offering of 139,447 shares of Common Stock, owned by the Selling Private Placement Stockholders. The Private Placement Shares were sold by the Company in July through October 1994 in connection with the sale of notes by the Company in a private placement. The Private Placement Shares may be sold in the open market, in privately negotiated transactions or otherwise, directly by the Selling Private Placement Stockholders. The Company will not receive any proceeds from the sale of such shares. Expenses of this Offering, other than fees and expenses of counsel to the Selling Private Placement Stockholders and selling commissions, will be paid by the Company. Sales of such shares of Common Stock or the potential of such sales may have an adverse effect on the market price of the Securities offered hereby. See "Risk Factors--Shares Eligible for Future Sale." Holders of all of the Private Placement Shares being registered in this Offering have agreed not to, directly or indirectly, issue, offer to sell, sell, grant an option for the sale of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any securities issued by the Company, including Common Stock or securities convertible into or exchangeable for or evidencing any right to purchase or subscribe for any shares of Common Stock for a period of eighteen months from the effective date of the registration statement, without the prior written consent of the Representative. 15 DIVIDEND POLICY The Company has never paid any cash dividends, except with respect to certain distributions relating to when National was an S-corporation, and currently anticipates that it will continue to retain all available funds for use in its business. See "Certain Transactions" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's future dividend policy will depend upon the Company's earnings, capital requirements, financial condition and other relevant factors. DILUTION The Company had a net tangible book value of $(240,945) or $(.13) per share, as of March 31, 1996, based upon 1,874,978 shares of Common Stock outstanding (as adjusted for 69,055 shares that vested in June and July 1996). Net tangible book value per share is equal to the Company's total tangible assets less its total liabilities, divided by the total number of shares of its Common Stock outstanding. After giving effect to the sale of the 1,250,000 Units offered hereby at an initial public offering price of $4.00 per Unit (assuming no value is attributed to the Redeemable Warrants included in the Units) and the application of the net proceeds therefrom (after deducting estimated underwriting discounts and other expenses of the offering), the net tangible book value of the Common Stock as of March 31, 1996 would have been $3,683,055 or $1.18 per share. This would represent an immediate increase in net tangible book value of $1.31 per share to existing stockholders and an immediate dilution of $2.82 per share or 71% to new investors. Dilution is determined by subtracting net tangible book value per share after this Offering from the amount paid by new investors per share of Common Stock. The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per Unit........................................$4.00 Net tangible book value per share prior to this Offering...................$(.13) Increase attributable to new investors.....................................$1.31 Net tangible book value per share after this Offering.................................$1.18 Dilution per share to new investors...................................................$2.82 =====
The following table summarizes the number of shares of Common Stock purchased, the percentage of total consideration paid, and the average price per share paid by the existing stockholders and new investors in this Offering. The calculation below is based on an initial public offering price of $4.00 per Unit (before deducting the underwriting discounts and commissions and other estimated expenses of the offering payable by the Company).
Shares Purchased Total Consideration Average Price ---------------- ------------------- ------------- Number % Number % Per Share ------ ------- ------ ------- --------- Existing Stockholders 1,874,978 60 $1,875 0 $.001 New Stockholders 1,250,000(1) 40 $5,000,000 100 $4.00 --------- -- ---------- --- Total 3,124,978 100% $5,001,875 100%
- ------------------------ 1 Does not include the Selling Stockholders Units. 16 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1996 and the capitalization on such date as adjusted to give effect to the issuance and sale of the 1,250,000 Units offered hereby by the Company and the anticipated application of the estimated net proceeds therefrom assuming an initial public offering price of $4.00 per Unit:
March 31, 1996 -------------- Actual As Adjusted(1) ------ -------------- Short-term debt ................................................... $400,000 $ 0 Preferred Stock, par value $.001 per share; 5,000,000 authorized, no shares outstanding ............................... 0 0 Common Stock, par value $.001 per share; 15,000,000 shares authorized; 1,874,978 shares issued and outstanding actual; 3,124,978 shares outstanding, as adjusted(2)..................... 1,875 3,125 Additional paid-in capital(2)(3)................................... 28,677 4,114,927 Accumulated deficit(3)............................................. (123,540) (287,040) Unearned Common Stock in retention stock plan...................... (463) (463) -------- --------- Total stockholders' equity (deficit)............................... (93,451) 3,830,549 -------- --------- Total capitalization .............................................. $(93,451) $3,830,549 ========= ==========
- -------------------------- 1 As adjusted to give effect to the issuance of 1,250,000 Units offered by the Company at an assumed initial public offering price of $4.00 per Unit and the receipt and initial application of the net proceeds therefrom. See "Use of Proceeds." 2 Gives effect to the issuance of 7,152 shares of Common Stock vested in June 1996 and 61,903 shares of Common Stock vested in July 1996 pursuant to contractual rights of certain employees. 3 As adjusted to reflect $37,500 resulting from the contribution of 150,000 Redeemable Warrants underlying the Selling Stockholder Units, $78,000 resulting from the payment by the Company on behalf of the Selling Stockholders of the underwriting discounts and non-accountable expense allowance relating to the Selling Stockholders Units, and a $48,000 consulting fee payable to the Representative. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below for the Company's statements of operations for the year ended December 31, 1993, the six months ended June 30, 1994 and the fiscal year ended June 30, 1995 and the balance sheet data of June 30, 1995 are derived from the Company's consolidated financial statements audited by KPMG Peat Marwick LLP which appear elsewhere in this Prospectus. The statement of operations data for the nine months ended March 31, 1995 and 1996 and the balance sheet data at March 31, 1996 are derived from unaudited financial statements which appear elsewhere in this Prospectus. The financial information presented below includes the results of operations of National as if the Company and National had been combined as of January 1, 1993. Results of operations prior to January 1994, the inception of the Company, include only those of National. Management believes that all adjustments necessary for a fair presentation have been made in such interim periods. The information set forth below should be read in conjunction with the Company's financial statements and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein. The results of operations for the most recent interim period, however, are not necessarily indicative of the Company's financial results for the entire current fiscal year. 17
Nine Months Ended March 31 Year Ended Six Months Ended Year Ended ----------------------------- December 31, 1993 June 30, 1994 June 30, 1995 1995 1996 --------------------- ------------- ------------- ---- ---- Statements of Operations Data - ----------------------------- Revenues.......................... $1,043,326 $787,667 $2,235,030 $1,494,005 $2,204,178 Expenses: Cost of services................ 239,875 154,388 458,661 296,062 505,123 Sales and marketing............. 443,244 332,850 976,230 755,700 961,228 General and administrative...... 177,393 153,972 584,920 328,986 618,332 ----------- --------- --------- --------- ----------- Total operating expenses...... 860,512 641,210 2,019,811 1,380,748 2,084,683 ----------- --------- ----------- ----------- ----------- Income from operations............ 182,814 146,457 215,219 113,257 119,495 Other income (expense)............ 15,934 20,360 (19,817) (11,385) 2,205 ------------ -------- ---------- ---------- ------------ Income before income taxes........ 198,748 166,817 195,402 101,872 121,700 Provision for income taxes........ 650 6,238 10,379 9,065 9,650 ------------ ------- -------- ------- ------------ Net income........................ $198,098 $160,579 $185,023 $92,807 $112,050 =========== ========== ========== ========= =========== Pro forma net income(1)........... 136,964 106,916 106,622 72,846 ---- Net income per common share....... -(2) $0.17 $0.11 $0.06 $0.06 ============ ========== ========= ===== ============ Pro forma net income per common share(1)................. -(2) $0.11 $0.06 $0.05 ---- ============ ===== ===== ===== ==== Weighted average common stock and common stock equivalents outstanding..................... -(2) 948,018 1,688,358 1,602,292 1,947,504 ============ ======= ========= ========= =========
June 30, 1995 March 31, 1996 ------------- -------------- Balance Sheets Data Cash.............................. $ 56,070 $ 70,669 Working capital deficit........... (377,290) (477,494) Total assets...................... 745,688 889,862 Total liabilities................. 820,861 983,313 Stockholders' equity deficit......................... $(75,173) $(93,451)
- ----------------- 1 From inception through October 1994 National elected to be taxed as an S-corporation under the applicable provisions of the Internal Revenue Code of 1986. Effective October 1994 National's S-corporation election was voluntarily revoked, subjecting National to corporate income taxes subsequent to that date. Pro forma net income and pro forma net income per common share represent the Company's position as if National had been a C-corporation for all relevant periods. 2 The net income per common share and pro forma net income per common share for this period is based solely on the capital structure of National and therefore is not meaningful. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company provides ADR services to insurance companies, law firms, large self-insured corporations and municipalities. The Company's services are marketed by an internal sales force within each office. The Company has offices in New York, Massachusetts, Pennsylvania, South Carolina and Tennessee, through which it has the ability to provide ADR services on a nationwide basis with a roster of over 600 qualified hearing officers. The Company derives its revenues from fees charged to the parties in a proceeding. The fees are charged on an hourly basis for hearings, conferences and deliberations by hearing officers, and set amounts for administrative services. The Company recognizes revenue when the arbitration or mediation occurs. Fees received prior to the arbitration or mediation are reflected as deferred income. Fees billed for cases not yet heard and not yet collected for the period ended June 30, 1995 and March 31, 1996 were $292,795 and $326,173, respectively. In October 1994, the Company issued a total of 657,112 shares of Common Stock to Mr. Israel and Ms. Sanders in exchange for all of the outstanding stock of National. Prior to October, 1994, National was an S-corporation and, effective October 1994, the S-corporation status was terminated, when National was acquired by and became a wholly-owned subsidiary of the Company. Accordingly, a pro forma tax provision for federal and state income taxes, as if the Company was a C-corporation, has been presented in the accompanying consolidated statements of operations for the periods ended December 31, 1993, June 30, 1994, March 31, 1995 and June 30, 1995. Future Trends Management believes that the ADR industry is, and will be, undergoing a consolidation of ADR service providers so as to better serve clients requiring quality national and regional ADR programs. The Company seeks to use a portion of the proceeds of this Offering to exploit this trend. In addition, ADR clients are beginning to seek volume discounts on the charges applied by the Company for services rendered. The Company believes that this trend may have a positive impact on the Company overall because the discounts are usually applied only when an ADR client makes a commitment to refer a minimum number of cases to the Company. As a result of the proposed expansion through the opening of new offices, the Company may incur net losses in the short-term future as a result of the investment of resources over the time it takes for these new offices to mature and become profitable, if ever. Significant start-up costs will be incurred in connection with opening and operating these new offices, including expenses such as leases, office equipment, furnishings, and salaries for management, sales and clerical personnel. In these new areas, organizations similar to and in competition with the Company may have been doing business for some time, and therefore will have competitive advantages over the Company. These advantages include contacts with potential consumers of the Company's services, such as law firms and insurance companies, and with qualified retired judges and lawyers who act as hearing officers. In addition, the account representatives who establish the new offices are very important to the success of such offices. While management of the Company believes that in the future, the Company may be competitive in some or all of the planned new markets, there is no assurance that any of the Company's new offices will ever be profitable. For example, the Company opened up an office in the Minneapolis, Minnesota area in August, 1994 and closed it in April, 1995 due to its disappointing performance. 19 Results of Operations The following table sets forth the results of operations for the year ended December 31, 1993, six months ended June 30, 1994, the fiscal year ended June 30, 1995, and the comparative nine months ended March 31, 1995 and 1996, together with such data as a percentage of revenues:
Year Ended Six Months Ended Year Ended Nine Months Ended December 31 June 30 June 30 March 31 ------------------ ----------------- ----------------- -------------------------------------------- 1993 % 1994 % 1995 % 1995 % 1996 % ---------- ------- -------- ------- ---------- ------ ---------- ------- ------------- ---- Revenues.................. $1,043,326 100% $787,667 100% $2,235,030 100% $1,494,005 100% $2,204,178 100% ---------- -------- ---------- ---------- ---------- Expenses: Cost of services........ 239,875 23 154,388 20 458,661 21 296,062 20 505,123 23 Sales and marketing..... 443,244 42 332,850 42 976,230 44 755,700 51 961,228 44 General and admin....... 177,393 17 153,972 19 584,920 26 328,986 22 618,332 28 ---------- -- -------- -- ---------- -- ---------- --- ---------- -- Income from operations.... 182,814 18 146,457 19 215,219 9 113,257 7 119,495 5 Other income (expense).... 15,934 1 20,360 2 (19,817) (1) (11,385) 0 2,205 0 ---------- -- -------- -- ---------- --- ---------- -- ---------- -- Income before income taxes 198,748 19 166,817 21 195,402 8 101,872 7 121,700 5 Provision for income taxes 650 0 6,238 1 10,379 0 9,065 1 9,650 0 ---------- -- -------- -- ---------- - ---------- - ---------- -- Net income................ $ 198,098 19% $160,579 20% $ 185,023 8% $ 92,807 6% $ 112,050 5% ========== === ======== === ========== == ========== == ========== ==
Revenues. Total revenues were $1,043,326 during the year ended December 31, 1993, $787,667 during the six months ended June 30, 1994 and $2,235,030 during fiscal 1995. Total revenues increased from $1,494,005 during the nine months ended March 31, 1995 to $2,204,178 during the nine months ended March 31, 1996, an increase of $710,173 or 48%, due to expansion into new markets, increased business with existing clients and the overall increased consumer acceptance of ADR services. Cost of Services. Cost of services were $239,875 during the year ended December 31, 1993, $154,388 during the six months ended June 30, 1994 and $458,661 during fiscal 1995. Cost of services increased from $296,062 during the nine months ended March 31, 1995 to $505,123 during the nine months ended March 31, 1996, an increase of $209,061 or 71%. This increase was attributable to the Company's increased business from expansion into new offices which resulted in additional hearing officers' fees. It is expected that these costs as a percentage of revenue will decline as these new offices increase the volume of cases heard. Sales and Marketing. Sales and marketing expenses were $443,244 during the year ended December 31, 1993, $332,850 during the six months ended June 30, 1994 and $976,230 during fiscal 1995. Sales and marketing increased from $755,700 during the nine months ended March 31, 1995 to $961,228 during the nine months ended March 31, 1996, an increase of $205,528 or 27%. Much of this increase was related to the Company's expansion into new offices, which included an increase in sales commissions and salaries of new hires. General and Administrative. General and administrative costs were $177,393 during the year ended December 31, 1993, $153,972 during the six months ended June 30, 1994 and $584,920 during fiscal 1995. General and administrative costs increased from $328,986 during the nine months ended March 31, 1995, to $618,332 during the nine months ended March 31, 1996, an increase of $289,346 or 88%. This increase was related to increased overhead costs associated with the Company's opening of new offices. Other Income (Expense). Other income (expense) was $15,934 during the year ended December 31, 1993, $20,360 during the six months ended June 30, 1994 and ($19,817) during fiscal 1995. The other expense in fiscal 1995 was related to interest expense on the notes issued in the Private Placement Financing. Other income (expense) increased from ($11,385) during the nine months ended March 31, 1995 to $2,205 during the nine months ended March 31, 1996, an increase of $13,590 or 119%, primarily due to sales of equipment and miscellaneous income offset by the Private Placement Financing interest expense. 20 Provision for Income Taxes. The Company did not have taxable income for the nine months ended March 31, 1995 and the utilization of net operating loss carryforwards eliminated the Company's liability for federal taxes during the nine months ended March 31, 1996. As of March 31, 1996, the Company had net operating loss carryforwards for federal tax purposes of approximately $246,423. Liquidity and Capital Resources The Company has experienced net income and positive cash flow from operations each year since January, 1993. For the year ended December 31, 1993, six months ended June 30, 1994, fiscal year ended June 30, 1995 and the comparative nine months ended March 31, 1995 and 1996, the Company has had net income of $198,098, $160,579, $185,023, $92,807 and $112,050, respectively, and was provided with cash from operations of $184,830, $104,583, $191,847, $91,643 and $276,043, respectively. As of December 31, 1993, six months ended June 30, 1994, fiscal year ended June 30, 1995 and the comparative nine months ended March 31, 1995 and 1996, the Company had cash and cash equivalents of $30,483, $32,831, $56,070, $92,307 and $70,669, respectively. The Company had working capital (deficit) of ($377,290) and ($346,552) as of June 30, 1995 and March 31, 1996, respectively. The Company has funded its operations to date primarily through the cash provided by its operating activities and the private placement financing described below. Operating cash flow in fiscal 1995 consisted of net income plus increases in accounts payable and accrued liabilities, offset by increases in accounts receivable. Operating cash flow during the nine months ended March 31, 1996 consisted of net income plus increases in accounts payable and accrued liabilities, offset by increases in prepaid expenses and accounts receivable. The Company's investing activities used cash of $45,101 and $98,002 in the year ended June 30, 1995 and the nine months ended March 31, 1996, respectively, primarily to purchase equipment and furniture of $56,830 and $98,002, respectively. The Company currently anticipates making approximately $100,000 of capital equipment purchases during fiscal 1997, consisting primarily of computer equipment and software upgrades for all offices. During the year ended June 30, 1995, $123,507 was used by financing activities, primarily from the proceeds of notes payable (described below), amounting to $400,000, offset by distributions made to certain stockholders (Mr. Israel and Ms. Sanders) of $459,744 to partially fund their tax liabilities. During the nine months ended March 31, 1996, $163,442 was used in financing activities due to the declaration of dividends payable associated with the balance of the subchapter S distributions still to be distributed to National's former shareholders and costs associated with the public offering. As of March 31, 1996 and June 30, 1996, distributions still owed to these stockholders amount to $88,942 and $8,942, respectively. Management believes that these distributions will be paid with cash flow from operations before August 31, 1996. In June 1994, the Company, in a private placement, issued promissory notes in the aggregate amount of $400,000 in connection with a private placement financing ("Private Placement Financing"). The notes bear interest at the rate of 8% per annum, and were originally due June 30, 1996. These notes have been extended until the earlier of December 31, 1996 or the closing of this offering. As part of the Private Placement Financing, the Company also issued a total of 143,023 shares of its restricted Common Stock for an aggregate amount of $2,000. The repayment of these notes is intended to be provided by a portion of the net proceeds of this Offering. In the event that the Offering is not completed prior to December 31, 1996, the Company will seek a further extension of the payment terms of the notes, attempt to refinance or repay the notes from operating cash flow and funds made available by management and its affiliates. In March 1996, the Company entered into an agreement providing for a line of credit with Citibank, N.A., expiring March 13, 1997, in the amount of $25,000. The line of credit bears interest at the rate of 16%. No amounts are outstanding under this line of credit. 21 The Company believes that the net proceeds of this offering, together with existing cash balances and cash generated from operations, will be sufficient to meet the Company's liquidity needs for at least the 12 months following the date of this Prospectus. Impact of New Accounting Standard In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 established a fair value based method of accounting for stock-based compensation arrangements with employees, rather then the intrinsic value based method that is contained in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). SFAS No. 123 does not require an entity to adopt the new fair value based method for purposes of preparing its basic financial statements. While the SFAS No. 123 fair value based method is considered by the FASB to be preferable to the APB No. 25 method, entities are allowed to continue to use the APB No. 25 method for preparing their basic financial statements. Entities not adopting the fair value based method under SFAS No. 123 are required to present pro forma net income and earnings per share information, in the notes to the financial statements, as if the fair value based method had been adopted. The accounting requirements of SFAS No. 123 are effective for transactions entered into during fiscal years that begin after December 15, 1995, but may also be adopted upon the issuance of SFAS No. 123. The Company currently does not intend to adopt the provisions of this statement early. BUSINESS General The Company provides ADR services principally to insurance companies, law firms, large self-insured corporations and municipalities. An ADR proceeding is designed to replace the public court system as a forum for resolving civil disputes. The Company offers its clients personalized attention and access to qualified hearing officers (generally retired judges) to either mediate or arbitrate their disputes. The cases currently handled by the Company are primarily disputes involving claims for injury to persons or property allegedly arising out of acts of negligence and are usually covered primarily by insurance. The Company believes it is one of the leading providers of ADR services in New York State based upon the number of cases processed since 1993. The Company has offices currently located in New York, Massachusetts, Pennsylvania, South Carolina and Tennessee, through which it has the ability to provide ADR services on a nationwide basis with a roster of over 600 qualified hearing officers. The ADR business is a growing service industry based upon the continuing inability of the public court system to manage effectively its docket of civil cases. An ADR proceeding is intended to streamline the traditional cumbersome public litigation process. As compared to the public court system, an ADR proceeding generally offers litigants: a faster resolution, confidentiality, reduced expense, flexibility in procedures and solutions, and control over the process. The ADR proceeding also has the potential to preserve business relations among the parties because of its less adversarial nature and potential for a prompt resolution. The Company provides services to more than 50 major insurance companies, law firms, large self-insured corporations and municipalities, including Liberty Mutual Insurance Group, Royal Insurance Group, The Travelers Insurance Company, American International Group, Conrail and the City of Philadelphia. To date, the Company has focused the majority of its marketing efforts on developing relationships, and expanding existing relationships, with insurance companies which the Company believes are some of the largest consumers of ADR services. The Company derives its revenues from fees charged to the parties in an ADR proceeding, which are charged on an hourly basis for hearings, conferences and deliberations by hearing officers, and set amounts for administrative services. 22 As compared to the majority of its competitors, the Company believes it has certain advantages which enable it to better serve its clients. These advantages include (1) qualified hearing officers, who are generally former judges, (2) software that provides detailed case management reporting ability which enables clients to review the history of cases submitted and the status of pending matters, (3) case reporting that can be customized to meet a client's needs, (4) account executives dedicated to specified clients, (5) the ability to monitor and control the scheduling of matters, and (6) videoconferencing capability which allows clients to participate or observe a proceeding without leaving their office. In addition, in early 1997 the Company expects to offer clients "on-line" case submission and reporting which will further improve the Company's ability to serve the needs of its clients. The Company's objective is to become one of the leading providers of ADR services on a national basis. The Company intends to achieve this goal through the opening of new offices in states where none presently exist, which will enable the Company to serve more fully its clients and attract new clients. This proposed expansion may include the acquisition of existing ADR companies. Presently, the Company does not have any agreements to acquire any such companies. The Company intends to open approximately four to six new offices in the United States over the next two years. It is currently anticipated that the Company will open new offices in: Illinois, Arizona, Washington D.C., Wisconsin, Florida and Connecticut. This should enable the Company to more fully serve its current clients and attract new clients. The Company believes that the domestic ADR industry is, other than a few national entities, generally fragmented into small ADR service providers. The Company further believes that the trend in the ADR industry is towards consolidation of providers who are capable of offering quality national and regional ADR programs. The Company's planned expansion will enable it to exploit this trend. In addition, the Company intends to increase its marketing of its ADR services to litigants in other types of disputes, including complex commercial issues, construction, employment and worker's compensation cases. Services Offered Arbitration. The Company's arbitration procedure follows a format which is essentially similar to a non-jury trial in the public court system. This procedure is designed to grant the parties a forum in which to present their cases, while at the same time sparing the litigants the time delays and some of the cumbersome procedures commonly associated with public court trials. The Company's hearings are generally governed by its rules of procedure. The parties, however, may depart from these rules and proceed in the fashion they deem desirable for the resolution of the case. The parties select a panel member from the Company's list of hearing officers. The hearings are non-public, thereby providing a level of confidentiality not readily available in the public court system. Subject to the parties' agreement, the proceedings may include discovery, examination of non-party witnesses, the filing of post-hearing briefs and other matters that may arise in the conduct of non-jury trials. The arbitrations are usually one of the following: (i) a regular arbitration, in which the hearing officer has authority to issue a ruling and/or award a remedy without limitations; (ii) a "high/low" arbitration, where the parties may choose to set the parameters of the award by pre-selecting the high and low dollar limits that can be awarded by the hearing officer; and (iii) the so-called "baseball" arbitration, which typically involves the submission by each party of their last best figure and the reason why it should be accepted; the hearing officer's binding recommendation is restricted to either one figure or the other. These types of arbitration are not exclusive, and the hearing officers may fashion remedies in accordance with whatever parameters are agreed to by the parties. Generally arbitration decisions are binding in nature and, unless otherwise stipulated by the parties, are appealable in only limited circumstances in the public court system. The Company does not currently offer any type of appeal procedure. The Company's arbitration decisions are generally enforceable in the public court system by following prescribed filing procedures in the applicable local jurisdiction. 23 Mediation (Settlement Conferencing). The mediation method used by the Company is settlement conferencing, in essence a non-binding process. The principal advantage of settlement conferencing is that it provides an opportunity for parties to reach an early, amicable resolution without undue expense and time-consuming litigation. The voluntary process of settlement conference mediation can be an effective tool for a wide variety of disputes, including tort claims and commercial conflicts. Settlement conferences are attended by each party to the dispute and/or a representative of each party and a panel member selected by the parties from a list available in the applicable region. Each party may choose to submit a settlement conference memorandum setting forth a brief summary of facts, indicating, for example, why each party has or does not have liability and, if applicable, a statement of the party's damage. At the settlement conference, each party is given an opportunity to describe the facts of the case and explain its position. Thereafter, the hearing officer meets privately with each side on an alternating basis to evaluate their respective cases, and receives proposed concessions that each party might make, and potential settlement figures that each party may offer, with a view toward guiding the parties to the settlement of their dispute. Discussion concerning settlement figures and possible concessions and potential settlement figures are typically not discussed between a party and the hearing officer without the other party's express consent to disclosing its position. In many instances, the settlement conference procedure results in the resolution of all issues. Other ADR Services. In addition to mediations and arbitrations, the Company offers, among other services, advisory opinions and specialized dispute resolution programs depending on the parties' particular needs. The Company also offers Case Resolution Days which are events usually scheduled at an insurance company client's office in which the Company arranges for parties to hold high volume direct settlement meetings without the participation of a hearing officer. In the event that the individual meetings do not resolve the dispute, the Company provides a hearing officer to mediate the dispute if the parties wish to pursue settlement. On-Line Case Management Software Service. It is currently expected that by early 1997 the Company will be able to offer its clients the ability to be "on-line" with the Company to submit cases electronically and to review the status of their cases from their offices quickly and efficiently. This service will also allow them to integrate their arbitration calendar into their offices' case-management system. Video Conferencing. The Company has the ability to offer video conferencing capabilities to its clients which allow them to participate and observe hearings without leaving their offices and thereby reducing certain costs to the client associated with the ADR process. This capability allows the Company to provide services to a wider range of clients on a geographical basis. In addition, the video conferencing equipment, which can currently be purchased or leased directly from the Company, has applications beyond the ADR area for clients. Marketing and Sales As of June 30, 1996, the Company employed 18 account representatives to market its ADR services. Account representatives solicit prospective clients through telemarketing efforts and in-person meetings. They also provide presentations, educational seminars relating to ADR services and periodic monitoring of a client's ADR activity. Account representatives are typically compensated based upon a draw against commissions earned which are based on total collected revenue from a representative's clients. The majority of clients of the Company are insurance carriers and law firms. The Company, when appropriate, seeks membership contracts with its clients. For an annual fee, an exclusivity arrangement or a commitment to refer a minimum volume of cases, members will receive a discount on each case referred to the Company. As of June 1, 1996, the Company had 31 written membership contracts. Further, the Company is devoting its efforts to obtaining volume commitments from existing and new clients. The Company has also been engaged in marketing efforts to increase prospective ADR clients' awareness, acceptance and use of the Company's services. The Company advertises in regional and national publications 24 of interest to prospective clients, participates in seminars and makes presentations before bar associations and insurance and business groups. Expansion Plans New Offices. The Company intends to continue to expand its client base and increase case loads in its current markets and to expand into new markets. Over the next two years, management of the Company anticipates that its expansion will include the opening of approximately four to six new offices. This expansion will consist of new offices in the following locations: Illinois, Arizona, Washington D.C., Wisconsin, Florida and Connecticut. The expansion may include the acquisition of other ADR companies. Currently, the Company has not entered into any agreements to acquire such companies. There can be no assurance that the Company's new offices, if any, will be successful. Expansion Beyond Insurance-Related Disputes. While the Company currently provides ADR services beyond insurance-related disputes, it intends to increase its marketing efforts to capture a larger share of the market in such other areas. These areas include, but are not limited to, complex commercial disputes, construction, employment and worker's compensation cases. There can be no assurance that the Company will be successful in these marketing efforts or if successful, that such new areas will be profitable. Competition The 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. The Company believes the largest not-for profit competitor is AAA which has significant market share in complex commercial cases. The insurance industry has also continued its support for Arbitration Forums, a not-for-profit organization created to service primarily the insurance subrogation market. The Company believes that JAMS is the largest for-profit ADR provider in the country. Several public court systems, including the federal and certain state courts in New York, the Company's major market, have recently instituted court coordinated ADR programs. To the extent that the public courts reduce case backlogs and provide effective dispute resolution mechanisms, the Company's business opportunities in such markets may be significantly reduced. The Company believes that the domestic ADR industry is, other than a few national entities, generally fragmented into small ADR service providers. The Company also believes that the trend in the ADR industry is towards consolidation of providers who are capable of offering quality national and regional ADR programs. The Company's planned expansion intends to exploit this trend. In addition, the Company intends to increase its marketing of its ADR services to litigants in other types of disputes, including complex commercial issues, construction, employment and worker's compensation cases. Increased competition could decrease the fees the Company is able to charge for its services, and limit the Company's ability to obtain experienced hearing officers, and thus could have a materially adverse effect on the Company's ability to be profitable in the future. In addition, the Company competes with other ADR providers to retain the services of qualified hearing officers. Certain competitors may have greater financial, and other, capabilities than the Company. Accordingly, there is no assurance that the Company can successfully compete in the present or future marketplace for ADR services. Employees/Hearing Officers As of June 30, 1996, the Company employed 36 persons; of these, 4 were in executive positions, 18 were engaged in sales and marketing activities, and 14 were engaged in administrative and clerical activities. Management of the Company believes that its relationship with its employees is satisfactory. As of June 30, 1996, the Company maintained relationships with over 600 hearing officers and has exclusive agreements with 25 of them. These 25 hearing officers accounted for approximately 51% of the number of cases currently handled by the Company for the nine month period ended March 31, 1996. The 25 balance of non-exclusive hearing officers are independent contractors who make their services available to the Company on a case-by-case basis. With the exception of the exclusive hearing officers, the remainder of the Company's roster of hearing officers can provide their services to competing ADR providers. Compensation to the hearing officers is based on the number of proceedings conducted and the length of time of such proceedings. All active hearing officers are requested to execute confidentiality agreements regarding the Company and its clients. Legal Proceedings There is no material litigation currently pending against the Company. Properties The Company leases 4,800 square feet of space at 1010 Northern Boulevard, Great Neck, New York which is used as its corporate headquarters and to provide ADR services in the metropolitan New York area. The lease expires October, 2000. The Company believes this space is adequate for its reasonably anticipated future needs. The Company also leases: (i) 2,168 square feet of space, which lease expires February, 2000, for its Philadelphia, Pennsylvania office; (ii) 174 square feet of space, which lease expires December, 1996, for its Easton, Massachusetts office; (iii) 1630 square feet of space, which lease expires January, 1998, for its Greenwood, South Carolina office; and (iv) 601 square feet of space, which lease expires March, 1997, for its Hendersonville, Tennessee office. The Company believes this space is adequate for its reasonably anticipated future needs. The annual aggregate rental payment for all of the Company's offices is $172,844. MANAGEMENT Directors, Director Nominee, Executive Officers and Significant Employees The directors, director nominee, executive officers and significant employees of the Company, are as follows:
Name and Address Age Position(s) - ---------------- --- ----------- Roy Israel 36 Chief Executive Officer, President and Chairman of the Board of Directors Cynthia Sanders 36 Executive Vice President and Director Charles A. Merola 40 Vice President, Chief Financial Officer, Treasurer and Director Daniel Jansen 33 Director of Regional Offices and Director Stephen H. Acunto 47 Director Michael I. Thaler 43 Director Anthony J. Mercorella 69 Director Nominee
ROY ISRAEL has been the Chairman of the Board of Directors, Chief Executive Officer and President of the Company since February 1994. Immediately prior to holding such positions, Mr. Israel was President and a Director and founder of National since February 1992. From March 1989 to October 1991, he was 26 employed at the Renaissance Communications television station WTXX-TV in Hartford, Connecticut in the capacity of General Sales Manager, overseeing the local and national sales efforts, research, traffic and marketing departments. CYNTHIA SANDERS has been the Executive Vice President and a Director of the Company since February 1994. Immediately prior to holding such positions, Ms. Sanders was the Executive Vice President of National since May 1993. From August 1992 until May 1993, she was an account executive with Katz Communications and from January 1989 until August 1992, she was an account executive with Telerep, Inc., an entertainment company. CHARLES A. MEROLA has been Vice President, Chief Financial Officer and Treasurer of the Company since February 1996 and a Director since July 1996. Immediately prior to holding such positions, Mr. Merola was the Chief Financial Officer of MBS/Multimode, Inc., a computer services company, since March 1993. From April 1988 to February 1993, he was an assistant controller with Weight Watchers International, Inc. Mr. Merola is a certified public accountant. DANIEL JANSEN has been Director of Regional Offices and a Director of the Company since February 1994. Immediately prior to holding such positions he was Senior Account Executive with National since September 1992. Prior to joining National, Mr. Jansen was an account executive with Summit Office Supply from October 1991 to August 1992, and an Account Executive with TNT Skypak, Inc., a consulting firm, from September 1989 to October 1991. STEPHEN H. ACUNTO has been a Director of the Company since May 1996. Since 1978, Mr. Acunto has been the president of Chase Communications, a company involved in the insurance publishing and communications fields. Mr. Acunto also serves as an officer of the Insurance Federation of New York; the International Insurance Law Society, U.S. Chapter; the AIDA Reinsurance and Insurance Arbitration Society; and the American Risk and Insurance Society. MICHAEL I. THALER has been a Director of the Company since April 1994. Since October 1993, he has been a partner in Bond Beebe, a professional corporation of certified public accountants. From September 1988 through October 1993, Mr. Thaler was a tax partner at Buchbinder Tunick & Co., a certified public accounting firm. ANTHONY J. MERCORELLA, Esq. will be appointed to the Board of Directors effective upon the closing of this Offering. Judge 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. Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and have qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until their successors have been elected and have qualified. The Company has agreed to use its best efforts to elect, if requested, a designee of the Representative to the Board of Directors for a period of five years. Director Compensation Non-employee directors will receive a fee of $250 for each meeting of the Board attended and $150 for each meeting of any committee of the Board attended, and reimbursement of their actual expenses. In addition, pursuant to the Plan, each non-employee director shall receive an annual grant of options to purchase 1,000 shares of Common Stock on the last trading day in June at the closing bid price of the Common Stock as reported on Nasdaq SmallCap for such date in June. This grant of options will begin on June 30, 1997. 27 Executive Compensation Summary Compensation Table. The following table sets forth the total compensation paid or accrued by the Company for services rendered during the calendar year ended December 31, 1993, the six months ended June 30, 1994 and the year ended June 30, 1995 to Mr. Israel, the Company's CEO, President and Chairman of the Board. No other executive officer received a salary and bonus in excess of $100,000. Mr. Israel currently has no stock options or other equity based compensation. See "Certain Transactions." Annual Compensation ------------------- Name and Principal Position Year Salary Bonus - --------------------------- ---- ------ ----- Roy Israel, CEO/President 1995 $110,400(1) $9,420 1994 $23,077 -0- 1993 $41,722 -0- - -------------------------- 1 Includes car allowance payments. Employment Agreements Mr. Israel has an employment agreement with the Company that expires June 30, 1997. The agreement provides that he shall receive an annual base salary of $85,000, an annual five percent (5%) cost of living increase and a bonus of four percent (4%) of the Company's quarterly pretax profit. If Mr. Israel is terminated without cause, he is entitled to receive a lump sum payment consisting of his base salary for a six month period and two bonus payments equal to the average bonus payment over the four preceding quarters. If the Company breaches the agreement, Mr. Israel is entitled to resign and to receive as a lump sum all monies payable under the remaining term of the Agreement. The agreement also contains a one-year non-compete if the agreement is terminated for any reason or expires. Ms. Sanders has an employment agreement with the Company that expires June 15, 1998. The agreement provides for an annual base salary of $90,000 and an annual five percent (5%) cost of living increase. The agreement also contains a one year non-compete if the agreement is terminated for any reason or expires. Indemnification of Officers and Directors The Company, pursuant to its By-laws, has agreed to indemnify its officers and directors to the fullest extent allowed by law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission 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 Company of expenses incurred or paid by a director, officer or controlling person of the Company 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 Company 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. Stock Option Plan A total of 750,000 shares of Common Stock are reserved for issuance under the Stock Option Plan, of which options to purchase 25,000 shares have been conditionally granted to one employee and two hearing officers. The plan provides for the award of options, which may either be incentive stock options ("ISOs") within the meaning 28 of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code") or non-qualified options ("NQOs") which are not subject to special tax treatment under the Code. The Plan is administered by the Board or a committee appointed by the Board (the "Administrator"). Officers, directors, and employees of, and consultants to, the Company or any parent or subsidiary corporation selected by the Administrator are eligible to receive options under the plan. Subject to certain restrictions, the Administrator is authorized to designate the number of shares to be covered by each award, the terms of the award, the dates on which and the rates at which options or other awards may be exercised, the method of payment and other terms. The exercise price for ISOs cannot be less than the fair market value of the stock subject to the option on the grant date (110% of such fair market value in the case of ISOs granted to a stockholder who owns more than 10% of the Company's Common Stock). The exercise price of a NQO shall be fixed by the Administrator at whatever price the Administrator may determine in good faith. Unless the Administrator determines otherwise, options generally have a 10-year term (or five years in the case of ISOs granted to a participant owning more than 10% of the total voting power of the Company's capital stock). Unless the Administrator provides otherwise, options terminate upon the termination of a participant's employment, except that the participant may exercise an option to the extent it was exercisable on the date of termination for a period of time after termination. Generally, awards must be exercised by cash payment to the Company of the exercise price. However, the Administrator may allow a participant to pay all or a portion of the exercise price by means of a promissory note, stock or other lawful consideration. The Plan also allows the Administrator to provide for withholding and employment taxes payable by a participant to the Company upon exercise of the award. Additionally, the Company may make cash grants or loans to participants relating to the participant's withholding and employment tax obligations and the income tax liability incurred by a participant upon exercise of an award. In the event of any change in the outstanding shares of Common Stock by reason of any reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend or similar change in the corporate structure, the aggregate number of shares of Common Stock underlying any outstanding options may be equitably adjusted by the Administrator in its sole discretion. The Administrator may, at any time, modify, amend or terminate the plan as is necessary to maintain compliance with applicable statutes, rules or regulations; provided, however, that the Administrator may condition the effectiveness of any such amendment on the receipt of stockholder approval as may be required by applicable statute, rule or regulation. In addition, this Plan may be terminated by the Board of Directors as it shall determine in its sole discretion, in the absence of stockholder approval; provided, however, that any such termination will not adversely alter or impair any option awarded under the Plan prior to such termination without the consent of the holder thereof. The Company has agreed that for a 24 month period commencing on the effective date of this prospectus that it will not, without the consent of the Representative, adopt or propose to adopt any plan or arrangement permitting the grant, issue or sale of any shares of its securities or issue, sell or offer for sale any of its securities, or grant any options for its securities, except for (i) an aggregate of 250,000 options, at an exercise price equal to or greater than the fair market value on the date of grant, which may be granted to management personnel on or after June 30, 1997, if the Company has at least $2,000,000 in the pre-tax earnings for the year ended June 30, 1997, (ii) an aggregate of 250,000 options, at an exercise price equal to or greater than the fair market value on the date of grant, which may be granted to management personnel on or after June 30, 1998, if the Company has at least $5,600,000 in pre-tax earnings for the year ended June 30, 1998 as reported to the public in the Company's Form 10-K for the year ended June 30, 1998, (iii) options to purchase up to an aggregate of 500,000 shares of Common Stock which shall (x) have an exercise price per share no less than the greater of (a) the initial public offering price of the Units set forth herein and (b) the fair market value of the Common Stock on the date of grant and (y) not be granted to any existing officers, directors, employees or consultants of the Company (other than certain non-affiliated individuals) or to any direct or indirect beneficial holder on the date hereof of more than 5% of the issued and outstanding shares of Common Stock. No option or other right to acquire Common Stock granted, issued or sold during this period shall permit (a) the payment with any form of consideration other than cash, (b) payment of less than 29 the full purchase or exercise price for such shares of Common Stock or other securities of the Company on or before the date of issuance, or (c) the existence of stock appreciation rights, phantom options or similar arrangements. PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth, as of June 30, 1996, the number and percentage (before and after giving effect to the sale of the Units offered hereby) of the shares of Common Stock beneficially owned by each director, direct nominee and named executive officer of the Company, by each entity which owns more than 5% of the outstanding Common Stock and by all officers and directors, as a group. No Preferred Stock of the Company is issued or outstanding.
Number of Shares Percentage Owned Percentage to be Name and Address(1) Beneficially Owned(2) Before Offering(3) Owned After Offering(4) - ----------------- --------------------- ----------------- ----------------------- Roy Israel(5) 1,333,639 71% 38% Cynthia Sanders(6) 126,555 7% 4% Charles A. Merola 1,192 * * Daniel Jansen 0 0% 0% Stephen H. Acunto 0 0% 0% Michael J. Thaler 0 0% 0% Anthony J. Mercorella 0 0% 0% Dr. Eugene Stricker(7) 134,104 7% 4% 42 Barrett Road Lawrence, NY 11559 Mark Schindler(8) 134,104 7% 4% 200 East 69th Street Apt. 4M New York, NY 10021 All officers, directors and 1,461,386 78% 42% director nominee as a group (7 persons)(5,6)
- -------------------------------------- * Less than one percent (1%). 1 Unless otherwise indicated, all addresses are c/o NAM Corporation, 1010 Northern Boulevard, Great Neck, New York 11021. 2 Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act and unless otherwise indicated, represents shares for which the beneficial owner has sole voting and investment power. The percentage of class is calculated in accordance with Rule 13d-3. 3 Based upon a total number of shares of Common Stock outstanding of 1,874,978. 4 Based upon a total number of shares of Common Stock outstanding of 3,124,978. 5 Includes 61,903 shares owned by his wife, Carla Israel, the Corporate Secretary of the Company, and 114,436 shares owned by the Roy Israel Irrevocable Trust. Mr. Israel disclaims beneficial ownership as to such shares. As part of this Offering, Mr. Israel will sell 136,500 shares of Common Stock resulting in beneficial ownership of 1,197,139 shares of Common Stock after the Offering. 6 As part of this Offering, Ms. Sanders will sell 13,500 shares of Common Stock resulting in beneficial ownership of 113,055 shares of Common Stock after the Offering. 7 Includes 5,364 shares owned by Osprey Partners of which Dr. Stricker is a general partner. 8 Includes 32,185 shares owned by the Mark Schindler Irrevocable Trust and 32,185 shares owned by Ms. Barbara Serota, his fiance. Mr. Schindler disclaims beneficial ownership of such shares. Includes 5,364 shares owned by Osprey Partners of which Mr. Schindler is a general partner. 30 SELLING PRIVATE PLACEMENT STOCKHOLDERS The following table sets forth the number of Private Placement Shares and percentage (before and after giving effect to the sale of the Units offered hereby) of the shares of Common Stock owned of record by the Selling Private Placement Stockholders.
Number of Private Placement Percentage Percentage to be Name of Selling Shares Owned Before Owned After Private Placement Stockholders Presently Owned the Offering(1) the Offering(2) - ------------------------------ ----------------- -------------- --------------- Ackerman, Milton 3,576 * * Adler, Frederic Lee 1,787 * * Blech, Benjamin & Elaine 3,576 * * Bolder, Solomon J. 1,787 * * Brown, Arthur 10,728 * * Cantor, Michael 14,304 1% * Deutscher, Madeline 1,787 * * Epstein, Joan & Howard 3,576 * * Feinstein, Robert P. & Diane 5,364 * * Felton, Susan 1,787 * * First, Lee B. 3,576 * * Gambino, Anthony & Castiglia, & Luisa 5,364 * * Gelb, Harry 1,787 * * Gentile, Jr. John A. & Geraldine 5,364 * * Goodman, Mark A. & Leona M. 5,364 * * Gordon, Gertrude J. 1,787 * * Gross, Robert E. 1,787 * * Harnick, Paul E. 5,364 * * Hirschman, Sherry 3,576 * * Israel, Milton 3,576 * * Kaplan, Barry H. & Rosalind P. 1,787 * * Katz, Stanley 1,787 * * Kurk, Mitchell 1,787 * * Loewenstein, David A. & Robin 1,787 * * Lynch, James T. 1,787 * * Maidenbaum, Shalom 1,787 * * Novick, Shelly 1,787 * * Oppenheim, Darrin 3,576 * * Osprey Partners 5,364 * * Quackenbush, John 5,364 * * Romankin, L.T. 3,576 * * Schneider, Aaron 3,576 * * Schneider, Earl 1,787 * * Schreiber, David 3,576 * * Schwartzberg, Sheila M. 1,787 * * Tartaglia, John 3,576 * * Weinstein, Jeremy S. & Elaine 3,576 * * Zinberg, Elaine 3,576 * * Zisook, Seymour H. 1,787 * * TOTAL 139,447 12% 4%
- ---------------------- * 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 1,184,978. (2) Based upon a total number of shares of Common Stock outstanding of 3,124,978. 31 There are no material relationships between any of the Selling Private Placement Stockholders and the Company or any of its predecessors or affiliates, except that (i) Milton Israel is the father of Roy Israel, and (ii) Mr. Schindler and Dr. Stricker are partners in Osprey Partners. The Securities offered by the Selling Private Placement Stockholders are not being underwritten by the Underwriters. The Selling Private Placement Stockholders may sell the Private Placement Shares at any time on or after the date hereof, provided prior consent is given by the Representative during 18 months commencing on the date of this Prospectus. In addition, the Selling Private Placement Stockholders have agreed with the Company that, during the period ending on the second anniversary of the date of this Prospectus, the Selling Private Placement Stockholders will not sell such securities other than through the Representative, and that the Selling Private Placement Stockholders shall compensate the Representative in accordance with its customary compensation practices. Subject to these restrictions, the Company anticipates that sales of the Private Placement Shares may be effected from time to time in transactions (which may include block transactions) in the over-the-counter market, in negotiated transactions, or a combination of such methods of sale, at fixed prices that may be changed, at market prices prevailing at the time of sale, or at negotiated prices. The Selling Private Placement Stockholders may effect such transactions by selling the Private Placement Shares directly to purchasers or through broker-dealers that may act as agents or principals. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling Private Placement Stockholders for whom such broker-dealers may act as agents or to whom they sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Selling Private Placement Stockholders and any broker-dealers that act in connection with the sale of the Private Placement Shares as principals may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act and any commission received by them and any profit on the resale of such securities as principals might be deemed to be underwriting discounts and commissions under the Securities Act. The Selling Private Placement Stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of such securities against certain liabilities, including liabilities arising under the Securities Act. The Company will not receive any proceeds from the sales of the Private Placement Shares by the Selling Private Placement Stockholders. Sales of the Private Placement Shares by the Selling Private Placement Stockholders, or even the potential of such sales, would likely have an adverse effect on the market price of the Units, the Redeemable Warrants and Common Stock. At the time a particular offer of Private Placement Shares is made, except as herein contemplated, by or on behalf of a Selling Private Placement Stockholder, to the extent required, a Prospectus will be distributed which will set forth the number of Private Placement Shares being offered and the terms of the offering, including the name or names of any underwriters, dealers or agents, if any, the purchase price paid by any underwriter for shares purchased from the Selling Private Placement Stockholder and any discounts, commissions or concessions allowed or reallowed or paid to dealers. Under the Exchange Act, and the regulations thereunder, any person engaged in a distribution of the securities of the Company offered by this Prospectus may not simultaneously engage in market-making activities with respect to such securities of the Company during the applicable "cooling-off" period (two or nine days) prior to the commencement of such distribution. In addition, and without limiting the foregoing, the Selling Private Placement Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7, in connection with transactions in such securities, which provisions may limit the timing of purchases and sales of such securities by the Selling Private Placement Stockholders. CERTAIN TRANSACTIONS Since the Company's inception there have not been any material transactions between it and any of its officers and directors, except as set forth herein and no additional transactions are currently contemplated. 32 On October 31, 1994, the Company acquired all of the outstanding stock of National from Mr. Israel and Ms. Sanders in exchange for a total of 657,112 shares of Common Stock. In addition, as of June 30, 1996, $689,529 and $41,681 were distributed by the Company to Mr. Israel and Ms. Sanders, respectively, as retained earnings of National as an S-corporation. Pursuant to their contracts, four employees and one hearing officer were conditionally granted a total of 148,060 shares of Common Stock, of which Carla Israel received 61,903 shares which vested in July 1996, Daniel Jansen received 17,165 shares which do not vest until July 1999 and an employee received 7,152 shares which vested in June 1996. The remaining shares vest only if the person is still providing services to the Company at a date certain which differs for each person ranging from 1997 to 1999. The Company has entered into a financial public relations consulting agreement with Dr. Eugene Stricker and Mark Schindler, each of whom are founders of the Company, current stockholders and former directors of the Company. The agreement has a four year term and provides for annual payments of $48,000 payable in equal monthly payments of $4,000. The agreements shall commence on the consummation of this Offering. On-going and future transactions between the Company and its officers, directors, principal stockholders or other affiliates will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties on an arm's-length basis, and will be approved by a majority of the Company's independent and disinterested directors. DESCRIPTION OF SECURITIES Units Upon consummation of this Offering, the Company will have outstanding 1,400,000 Units, each Unit consisting of one share of Common Stock, $.001 par value, and one Redeemable Warrant. The Common Stock and Redeemable Warrants may only be purchased as Units in the Offering, but are immediately detachable and separately tradeable. Common Stock The Company is authorized to issue 15,000,000 shares of Common Stock, par value $.001 per share. As of the date of this Prospectus, 1,874,978 shares of Common Stock are outstanding and are held of record by fifty (50) persons. Holders of Common Stock are entitled to receive, subject to the prior rights of holders of outstanding stock having prior rights as to dividends, such dividends as are declared by the Board of Directors, to one vote for each share at all meetings of stockholders, and, subject to the prior rights of holders of outstanding stock having prior rights as to asset distributions, to the remaining assets of the Company upon liquidation, dissolution or winding up of the Company. The holders of Common Stock have no preemptive or other subscription or conversion rights. There are no redemption or sinking fund provisions applicable to the Common Stock. All shares of Common Stock now outstanding are fully paid and nonassessable and all shares of Common Stock which are the subject of this offering, when issued, will be fully paid and nonassessable. Preferred Stock The Company is authorized to issued up to 5,000,000 shares of Preferred Stock, par value $.001 per share, without further stockholder approval (except as may be required by applicable law or stock exchange regulations). The Board of Directors is authorized to determine, without any further action by the holders of the Common Stock, the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption, liquidation preferences and sinking fund terms of any series of Preferred Stock, as well as the 33 number of shares constituting such series and the designation thereof. Should the Board of Directors elect to exercise its authority, the rights and privileges of holders of the Common Stock could be made subject to the rights and privileges of any such series of Preferred Stock. No shares of Preferred Stock are outstanding. These provisions give the Board of Directors the power to approve the issuance of a series of Preferred Stock of the Company that could, depending on its terms, either impede or facilitate the completion of a merger, tender offer or other takeover attempt. For example, the issuance of new shares might impede a business transaction if the terms of those shares include series voting rights which would enable a holder to block business transactions or the issuance of new shares might facilitate a business transaction if those shares have general voting rights sufficient to cause an applicable percentage vote requirement to be satisfied. Dividends The payment by the Company of dividends, if any, in the future rests within the discretion of its Board of Directors and will depend, among other things, upon the Company's earnings, its capital requirements and its financial condition, as well as other relevant factors. The Company paid a cash dividend to certain executives, former shareholders of National, in connection with certain distributions relating to when National was an S-corporation. See "Certain Transactions" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company also declared a 25% stock dividend on February 1, 1995. In connection with the Offering, the Company effected a one for two reverse stock split on March 29, 1996 and a stock dividend of .14436 per share. By reason of its present financial status and its contemplated financial requirements, the Company does not contemplate or anticipate paying any dividends upon its Common Stock in the foreseeable future. Redeemable Warrants Each Redeemable Warrant entitles the registered holder thereof to purchase one share of Common Stock at a price of $______ [150% of the initial public offering per Unit] per share, subject to adjustment, commencing immediately. The Redeemable Warrants expire on ______________ __, 2001 [60 months from the date of this Prospectus]. The Redeemable Warrants will be subject to redemption, subject to the prior written consent of the Representative, at a price of $.05 per Redeemable Warrant commencing ____________, 1997 [12 months from the date of this Prospectus] on 30 days' written notice provided the average closing bid price of the Common Stock as reported by Nasdaq (or the last sale price if listed 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 holder of a Redeemable Warrant will lose his right to purchase if such right is not exercised prior to redemption by the Company on the date for redemption specified in the Company's notice of redemption or any later date specified in a subsequent notice. Notice of redemption by the Company shall be given by first class mail to the holders of the Redeemable Warrants at their addresses set forth in the Company's records. The exercise price of the Redeemable Warrants and the number and kind of shares of Common Stock or other securities and property to be obtained upon exercise of the Redeemable Warrants are subject to adjustment in certain circumstances including a stock split of, or stock dividend on, or a subdivision, combination or recapitalization of, the Common Stock. Additionally, an adjustment would be made upon the sale of all or substantially all of the assets of the Company so as to enable Redeemable Warrant holders to purchase the kind and number of shares of stock or other securities or property (including cash) receivable in such event by a holder of the number of shares of Common Stock that might otherwise have been purchased upon exercise of such Redeemable Warrant. No adjustment for previously paid cash dividends, if any, will be made upon exercise of the Redeemable Warrants. The Redeemable Warrants do not confer upon the holder any voting or any other rights of a stockholder of the Company. Upon notice to the Redeemable Warrant holders, the Company has the right to reduce the exercise price or extend the expiration date of the Redeemable Warrants. 34 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 Redeemable Warrants at the office of Continental Stock Transfer & Trust Company (the "Redeemable Warrant Agent"), with the form of "Election to Purchase" on the reverse side of the Redeemable Warrant certificate completed and executed as indicated, accompanied by payment of the full exercise price (by certified check payable to the order of the Redeemable Warrant Agent) for the number of Redeemable Warrants being exercised. Transfer Agent, Warrant Agent and Registrar The Company's Transfer Agent, Warrant Agent and Registrar is Continental Stock Transfer & Trust Company, 2 Broadway, New York, NY 10004. SHARES ELIGIBLE FOR FUTURE SALE Prior to this Offering, there has been no public market for the Units, the Common Stock or the Redeemable Warrants. No prediction can be made of the effect, if any, that future market sales of Common Stock or the availability of such shares for sale will have on the prevailing market price of the Securities following this Offering. Nevertheless, sales of substantial amounts of such shares in the open market following this offering could adversely affect the prevailing market price of the Units, Common Stock or Redeemable Warrants. Upon completion of this Offering, the Company will have 3,124,978 shares of Common Stock outstanding. All of the 1,400,000 shares of Common Stock sold in this offering will be freely tradeable without restriction or further registration under the Securities Act unless held by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. In addition, 139,447 shares of Common Stock held by the Selling Private Placement Stockholders are being registered on this Offering, but cannot be sold without the consent of the Representative as described below. The remaining 1,585,531 shares may be deemed "restricted securities," and may not be sold except in compliance with Rule 144 under the Securities Act. Rule 144, in essence, provides that a person holding restricted securities for a period of two years may publicly sell in brokerage transactions at an amount equal to one percent of the Company's outstanding Common Stock every three months or, if greater, a percentage of the shares publicly traded during a designated period. Of such 1,585,531 shares, 889,947 shares will be eligible for sale immediately under Rule 144; 626,529 shares will be eligible for sale under Rule 144 beginning in October, 1996; 7,152 shares will be eligible for sale under Rule 144 beginning in June, 1998; and 61,903 shares will be eligible for sale under Rule 144 beginning in July, 1998. Each of the Company's officers and directors and holders of not less than 95% of the shares of the Common Stock have agreed that for a period of 18 months from the date of this Prospectus they will not sell any of the Company's securities without the prior written consent of the Representative. They have further agreed that any sales of the Company's securities owned by them will be executed through the Representative for a 24 month period from the date hereof. UNDERWRITING The Underwriters named below (the "Underwriters"), for whom Joseph Stevens & Company, L.P. is acting as the Representative, have severally agreed, subject to the terms and conditions contained in the Underwriting Agreement (the "Underwriting Agreement") to purchase from the Company, and the Company has agreed to sell to the Underwriters on a firm commitment basis, the respective number of Units set forth opposite their names, including the purchase and sale of the Selling Stockholders Units: 35 Underwriter Number of Units ----------- --------------- Joseph Stevens & Company, L.P. --------- Total 1,400,000 The Underwriters are committed to purchase 1,400,000 Units offered hereby, if any of the Units are purchased. The Underwriting Agreement provides that the obligations of the several Underwriters are subject to the conditions precedent specified therein. The Company has been advised by the Representative that the Underwriters propose to offer the Units to the public at the public offering price set forth on the cover page of this Prospectus and that the Underwriters may allow to certain dealers who are members of the National Association of Securities Dealers, Inc. (the "NASD") concessions not in excess of $______ per Unit, of which amount a sum not in excess of $_______ per Unit may in turn be reallowed by such dealers to other dealers. After the commencement of this Offering, the public offering price, the concessions and the reallowances may be changed. The Representative has informed the Company that it does not expect sales to discretionary accounts by the Underwriters to exceed five percent of the securities offered by the Company hereby. The Company has granted to the Underwriters an option, exercisable within 45 days of the date of this Prospectus to purchase from the Company at the offering price less underwriting discounts and the non-accountable expense allowance, up to an aggregate of 210,000 additional Units for the sole purpose of covering over-allotments, if any. To the extent such option is exercised in whole or in part, each Underwriter will have a firm commitment, subject to certain conditions, to purchase the number of additional Units proportionate to its initial commitment. The Company has agreed to pay to the Representative a non-accountable expense allowance equal to three percent (3%) of the gross proceeds derived from the sale of the Units underwritten, $25,000 of which has been paid to date. The Company has further agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. Upon the exercise of any Redeemable Warrants more than one year after the date of this Prospectus, which exercise was solicited by the Representative, and to the extent not inconsistent with the guidelines of the NASD and the Rules and Regulations of the Commission, the Company has agreed to pay the Representative a commission which shall not exceed five percent (5%) of the aggregate exercise price of such Redeemable Warrants in connection with bona fide services provided by the Representative relating to any warrant solicitation. In addition, the individual must designate the firm entitled to payment of such warrant solicitation fee. No compensation, however, will be paid to the Representative in connection with the exercise of the Redeemable Warrants if (a) the market price of the Common Stock is lower than the exercise price, (b) the Redeemable Warrants were held in a discretionary account, or (c) the Redeemable Warrants are exercised in an unsolicited transaction. Unless granted an exemption by the Commission from its Rule 10b-6 under the Exchange Act, the Representative will be prohibited from engaging in any market-making activities with regard to the Company's securities for the period from nine business days (or other such applicable periods as Rule 10b-6 may provide) prior to any solicitation of the exercise of the Redeemable Warrants until the later of the termination of such solicitation activity or the termination (by waiver or otherwise) of any right the Representative may have to receive a fee. As a result, the Representative may be unable to continue to provide a market for the Company's Securities during certain periods while the Redeemable Warrants are exercisable. If the Representative has engaged in any of the activities prohibited by Rule 10b-6 during the periods described above, the Representative undertakes to waive unconditionally its right to receive a commission on the exercise of such Redeemable Warrants. Each director and officer of the Company, as well as holders of not less than 95% of the Common Stock, have agreed not to, directly or indirectly, offer, sell, transfer, pledge, assign, hypothecate or otherwise encumber any shares of Common Stock or convertible securities, or otherwise dispose of any interest therein, for a period of 18 months from the date of this Prospectus without the 36 prior written consent of the Representative. An appropriate legend shall be marked on the face of certificates representing all such securities. They have further agreed that any sales of the Company's securities owned by them will be executed through the Representative for 24 months from the date of this Prospectus. In connection with this Offering, the Company has agreed to sell to the Representative, for nominal consideration, warrants to purchase from the Company 140,000 Units (the "Representative's Warrants"). The Representative's Warrants are initially exercisable at $____ [120% of the initial public offering price per Unit]. The shares of Common Stock and Redeemable Warrants issuable upon exercise of the Representative's Warrants are identical to those offered to the public. The Representative's Warrants contain provisions providing for adjustment of the number of warrants and exercise price under certain circumstances. The Representative's Warrants grant to the holders thereof certain rights of registration of the securities issuable upon exercise of the Representative's Warrants. The Company has also agreed to retain the Representative as the Company's financial consultant for a period of 24 months from the date hereof and to pay the Representative $2,000 per month, all payable in advance on the closing date set forth in the Underwriting Agreement. The Underwriting Agreement also provides that the Representative has a right of first refusal for a period of three years from the date of this Prospectus with respect to any sale of securities by the Company or any of its present or future subsidiaries. The Company has agreed that, for a period of five years from the date of the Prospectus, the Representative shall have the right to nominate one member of the Company's Board of Directors and the Company shall use its best efforts to have such nominee appointed or elected to the Company's Board of Directors. Prior to this Offering there has been no public market for the Units, the Common Stock or the Redeemable Warrants. Accordingly, the initial public offering price of the Units and the terms of the Redeemable Warrants were determined in negotiation between the Company and the Representative. Other factors considered in determining such price and terms, in addition to prevailing market conditions, included the history of and the prospects for the industry in which the Company competes, an assessment of the Company's management, the prospects of the Company, its capital structure and such other factors that were deemed relevant. The Representative commenced operations in March 1994. Therefore, it does not have extensive experience as an underwriter of public offerings of securities. The firm is relatively small and no assurance can be given that the firm will be able to participate as a market maker in the Units, the Common Stock or the Redeemable Warrants and no assurance can be given that another broker-dealer will make a market in the Units, the Common Stock or the Redeemable Warrants. The Representative has acted as managing underwriter of only four initial public offerings. The foregoing is a summary of the principal terms of the agreements described above and does not purport to be complete. Reference is made to a copy of each such agreement which are filed as exhibits to the Registration Statement. See "Additional Information." LEGAL MATTERS The validity of the Securities offered hereby will be passed upon for the Company by Camhy Karlinsky & Stein LLP, New York, New York. Orrick Herrington & Sutcliffe, New York, New York has acted as counsel for the Underwriters in connection with this Offering. 37 EXPERTS The consolidated financial statements as of June 30, 1995 and for the year ended June 30, 1995, the six months ended June 30, 1994 and the year ended December 31, 1993, included in this Prospectus and in the Registration Statement have been included herein in reliance upon the report of KPMG Peat Marwick LLP independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. ADDITIONAL INFORMATION As of the date of this Prospectus, the Company will become subject to the reporting requirements of the Exchange Act and in accordance therewith will file reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the Commission's principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549; at its New York Regional Office, 7 World Trade Center, New York, New York 10048; and at its Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies of such material can be obtained from the Commission's Public Reference Section at prescribed rates. The Company has filed with the Commission a Registration Statement (the "Registration Statement") under the Securities Act with respect to the Units offered by this Prospectus. This Prospectus, filed as part of such Registration Statement, does not contain all of the information set forth in, or annexed as exhibits to, the Registration Statement, certain portions of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and this offering, reference is made to the Registration Statement including the exhibits filed therewith. The Registration Statement may be inspected and copies may be obtained from the Public Reference Section at the Commission's principal office, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and the New York Regional Office, 7 World Trade Center, New York, New York 10048, upon payment of the fees prescribed by the Commission. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and where the contact or other document has been filed as an exhibit to the Registration Statement, each such statement is qualified in all respects by such reference to the applicable document filed with the Commission. 38 INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report............................................ F-2 Consolidated Balance Sheets............................................. F-3 Consolidated Statements of Operations................................... F-4 Consolidated Statements of Changes in Stockholders' Equity............................................... F-5 Consolidated Statements of Cash Flows................................... F-6 Notes to Consolidated Financial Statements.............................. F-7 F-1 [LETTERHEAD FOR KPMG PEAT MARWICK LLP] Independent Auditors' Report - ---------------------------- The Board of Directors and Stockholders NAM Corporation: We have audited the accompanying consolidated balance sheets of NAM Corporation as of June 30, 1995 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year ended June 30, 1995, the six months ended June 30, 1994 and the year ended December 31, 1993. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of NAM Corporation as of June 30, 1995 and the results of its operations and its cash flows for the year ended June 30, 1995, the six months ended June 30, 1994 and the year ended December 31, 1993, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP - -------------------------------------------------------------------------------- KPMG Peat Marwick LLP Jericho, New York October 23, 1995 F-2 NAM CORPORATION CONSOLIDATED BALANCE SHEETS JUNE 30, 1995 AND MARCH 31, 1996
1995 1996 (unaudited) -------- ------------- ASSETS: Current Assets: Cash 56,070 70,669 Accounts Receivable (net of allowance for doubtful accounts of $24,378 and $40,000 respectively) 361,150 371,314 Other Receivables 17,503 15,965 Prepaid Expenses 8,848 47,871 ------- ------- Total Current Assets 443,571 505,819 ------- ------- Furniture and Equipment, net 134,818 202,840 Organizational Costs (net of accumulated amortization of $6,395 and $10,717 respectively) 33,153 29,911 Deferred Offering Costs 75,963 108,463 Other Assets 58,183 42,829 ------- ------- Total Noncurrent Assets 302,117 384,043 ------- ------- Total Assets 745,688 889,862 ======= ======= LIABILITIES AND STOCKHOLDERS' DEFICIT: Current Liabilities: Accounts Payable 138,304 184,803 Accrued Liabilities and Dividends Payable 119,998 249,654 Accrued Payroll and Employee Benefits 35,548 15,231 Deferred Revenues 127,011 133,625 Notes Payable -- Private Placement 400,000 400,000 ------- ------- Total Current Liabilities 820,861 983,313 ------- ------- Stockholders' Deficit: Preferred Stock ($.001 par value, 5,000,000 shares authorized; none issued) -- -- Common Stock ($.001 par value, 15,000,000 shares authorized; 1,805,919 (1) and 1,805,919 shares issued, respectively) 3,156 1,806 Paid-in Capital 27,396 28,746 Accumulated Deficit (104,648) (123,540) Unearned Common Stock in Retention Stock Plan (1,077) (463) -------- ------- Total Stockholders' Deficit (75,173) (93,451) -------- ------- Total Liabilities and Stockholders' Deficit 745,688 889,862 ======= =======
(1) Restated to reflect the 1 for 2 reverse stock split and 14.436% stock dividend in March 1996. See accompanying notes to consolidated financial statements. F-3 NAM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
Six Month Year Ended Ended Year Ended Nine Months Ended December 31, June 30, June 30, March 31, 1993 1994 1995 1995 1996 (unaudited) (unaudited) ------------ -------- ---------- ----------- ----------- HISTORICAL: Revenues 1,043,326 787,667 2,235,030 1,494,005 2,204,178 ---------- ------- --------- --------- --------- Operating Costs and Expenses: Cost of Services 239,875 154,388 458,661 296,062 505,123 Sales and Marketing Expenses 443,244 332,850 976,230 755,700 961,228 General and Administrative Expenses 177,393 153,972 584,920 328,986 618,332 ---------- ------- --------- --------- --------- Total Operating Costs and Expensees 860,512 641,210 2,019,811 1,380,748 2,084,683 ---------- ------- --------- --------- --------- Income from Operations 182,814 146,457 215,219 113,257 119,495 ---------- ------- --------- --------- --------- Other Income (Expenses): Other Income 15,934 20,360 5,712 8,224 26,205 Interest Expense -- -- (25,529) (19,609) (24,000) ---------- ------- --------- --------- --------- Income before Income Taxes 198,748 166,817 195,402 101,872 121,700 Provision for Income Taxes 650 6,238 10,379 9,065 9,650 ---------- ------- --------- --------- --------- Net Income 198,098 160,579 185,023 92,807 112,050 ========== ======= ========= ========= ========= Net Income per Common Share (1) --(2) 0.17 0.11 0.06 0.06 ========== ======= ========= ========= ========= Weighted Average Common Stock and Common Stock Equivalents (1) --(2) 948,018 1,688,358 1,602,292 1,947,504 ========== ======= ========= ========= ========= PRO FORMA (UNAUDITED): Historical Income before Income Taxes 198,748 166,817 195,402 101,872 Pro Forma Provision for Income Taxes 61,784 59,901 88,780 29,026 ---------- ------- --------- ---------- Pro Forma Net Income 136,964 106,916 106,622 72,846 ========== ======= ========= ========= Pro Forma Net Income per Common Share --(2) 0.11 0.06 0.05 ========== ======= ========= =========
(1) Share and per share amounts have been restated to reflect the 25% stock dividend in February 1995 and the 1 for 2 reverse stock split and 14.436% stock dividend in March 1996. (2) The net income per common share and pro forma net income per common share for this period is based solely on the capital structure of NA&M, and therefore, is not meaningful. See accompanying notes to consolidated financial statements. F-4 NAM CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1993, THE SIX MONTHS ENDED JUNE 30, 1994, THE YEAR ENDED JUNE 30, 1995 AND (UNAUDITED) THE NINE MONTHS ENDED MARCH 31, 1996
Unrealized Unearned Gain on Common Total Additional Retained Securities Stock in Stockholders' Common Stock Paid-in (Deficit) Available Retention (Deficit) Shares(1) Amount Capital Earnings for Sale Stock Plan Equity -------- ------ -------- -------- ---------- ----------- ----------- Balance at December 31, 1992 143 200 9,600 (39,138) -- -- (29,338) Net Income -- -- -- 198,098 -- -- 198,098 Distributions to Shareholders -- -- -- (6,547) -- -- (6,547) Dividend Declared -- -- -- (70,000) -- -- (70,000) Unrealized Gains on Securities Available for Sale -- -- -- -- 14,525 -- 14,525 --------- ------ ------ -------- ------ ----- -------- Balance at December 31, 1993 143 200 9,600 82,413 14,525 -- 106,738 --------- ------ ------ -------- ------ ----- -------- Net Income -- -- -- 160,579 -- -- 160,579 Distributions to Shareholders -- -- -- (72,919) -- -- (72,919) Cash Proceeds from Issuance of Stock in NAM Corporation 1,005,784 1,406 5,625 -- -- -- 7,031 Change in Unrealized Gains on Securities Available for Sale -- -- -- -- (14,525) -- (14,525) Common Stock Awarded Under Retention Stock Plan -- -- 814 -- -- (814) -- --------- ------ ------ -------- ------ ----- -------- Balance at June 30, 1994 1,005,927 1,606 16,039 170,073 -- (814) 186,904 --------- ------ ------ -------- ------ ----- -------- Net Income -- -- -- 185,023 -- -- 185,023 Distributions to Shareholders -- -- -- (459,744) -- -- (459,744) Cash Proceeds from Issuance of Stock in NAM Corporation's Private Placement 143,023 200 1,800 -- -- -- 2,000 Payment for Restricted Stock Award -- -- 10,200 -- -- -- 10,200 Issuance of Common Stock of NAM in Exchange for NA&M, net 656,969 719 (719) -- -- -- -- Shares Issued Pursuant to Stock Dividend -- 631 (631) -- -- -- -- Common Stock Awarded Under Retention Stock Plan -- -- 707 -- -- (707) -- Earned Portion of Retention Stock Plan -- -- -- -- -- 444 444 --------- ------ ------ -------- ------ ----- -------- Balance at June 30, 1995 1,805,919 3,156 27,396 (104,648) -- (1,077) (75,173) --------- ------ ------ -------- ------ ----- -------- (UNAUDITED) Net Income -- -- -- 112,050 -- -- 112,050 Distributions to Shareholders -- -- -- (42,000) -- -- (42,000) Earned Portion of Retention Stock Plan -- -- -- -- -- 614 614 Reverse Stock Split 1:2 -- (1,578) 1,578 -- -- -- -- Shares Issued Pursuant to Stock Dividend -- 228 (228) -- -- -- -- Dividends Declared -- -- -- (88,942) -- -- (88,942) --------- ------ ------ -------- ------ ----- -------- Balance at March 31, 1996 1,805,919 1,806 28,746 (123,540) -- (463) (93,451) --------- ------ ------ -------- ------ ----- --------
(1) Share amounts have been restated to reflect the 25% stock dividend in February 1995 and the 1 for 2 stock split and 14.436% stock dividend in March 1996. See accompanying notes to consolidated financial statements. F-5 NAM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Six Months Year Nine Months Nine Months Ended Ended Ended Ended Ended December 31, June 30, June 30, March 31, March 31, 1993 1994 1995 1995 1996 (unaudited)(unaudited) ------- ------- ------- ---------- ----------- Cash Flows from Operating Activities: Net Income 198,098 160,579 185,023 92,807 112,050 ------- ------- ------- ------- ------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 11,295 11,152 30,282 17,986 34,302 Provision for Bad Debts 1,900 5,000 16,778 16,778 15,622 Gains on Sale of Securities Available for Sale (10,435) (20,463) (1,711) (1,711) - Earned Portion of Retention Stock Plan - - 444 253 614 Increase in Accounts Receivable (83,015) (82,137) (194,351) (84,866) (25,786) (Increase) Decrease in Other Receivables (22,584) (1,979) 11,802 5,816 1,538 (Increase) Decrease in Prepaid Expenses (5,686) 9,697 (8,848) - (39,023) Increase in Organization Costs - (21,314) (16,482) (9,128) (1,080) (Increase) Decrease in Other Assets (4,266) (877) (47,490) (56,762) 15,354 Increase (Decrease) in Accounts Payable and Accrued Liabilities and Dividends 59,456 (15,198) 173,342 90,767 176,155 Increase (Decrease) in Accrued Payroll and Employee Benefits 19,772 (14,247) 26,712 3,153 (20,317) Increase in Deferred Revenues 20,295 74,370 16,346 16,550 6,614 ------- ------- ------- ------- ------- Net Cash Provided by Operating Activities 184,830 104,583 191,847 91,643 276,043 ------- ------- ------- ------- ------- Cash Flows from Investing Activities: Purchases of Securities Available for Sale (225,430) (6,698) (129,937) (129,937) - Proceeds from Sales of Securties Available for Sale 129,206 123,802 141,666 141,666 - Purchases of Furniture and Equipment (57,786) (29,346) (56,830) (35,522) (98,002) ------- ------- ------- ------- ------- Net Cash (Used In) Provided by Investment Activities (154,010) 87,758 (45,101) (23,793) (98,002) ------- ------- ------- ------- ------- Cash Flows from Financing Activites: Distributions Made to Shareholders (6,547) (142,919) (459,744) (366,947) (42,000) Advances from Related Parties 50,605 - - - - Repayment of Advances from Related Parties (52,862) (54,105) - - - Increase in Deferred Offering Costs - - (75,963) (53,627) (32,500) Dividends Payable - - - - (88,942) Proceeds from Notes Payable - - 400,000 400,000 - Proceeds from Restricted Stock Award - - 10,200 10,200 - Proceeds from Issuance of Common Stock - 7,031 2,000 2,000 - ------- ------- ------- ------- ------- Net Cash Used In Financing Activities (8,804) (189,993) (123,507) (8,374) (163,442) ------- ------- ------- ------- ------- Net Increase in Cash 22,016 2,348 23,239 59,476 14,599 Cash at Beginning of Period 8,467 30,483 32,831 32,831 56,070 ------- ------- ------- ------- ------- Cash at End of Period 30,483 32,831 56,070 92,307 70,669 ======= ======= ======= ======= ======= Supplemental Disclosures - ------------------------ Non-Cash Financing Activities: Dividend Distribution Declared but Unpaid 70,000 - - - 88,942 ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements. F-6 NAM CORPORATION Notes to Consolidated Financial Statements For the year ended December 31, 1993, the six months ended June 30, 1994, the year ended June 30, 1995, and (unaudited) the comparative nine months ended March 31, 1995 and 1996. F-7 NAM CORPORATION Notes to Consolidated Financial Statements (1) Nature of Business NAM Corporation (NAM) provides a broad range of Alternative Dispute Resolution (ADR) services, including arbitration and mediation. 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 President, Roy Israel, and Executive Vice President, Cynthia Sanders, was acquired by and became a wholly-owned subsidiary of NAM (collectively referred to herein as the Company), in an exchange of 143 shares of NA&M for 657,112 shares in NAM. NA&M also provided a broad range of ADR services, including arbitrations and mediations. NA&M began operations in March 1992. (2) Summary of Significant Accounting Policies The following are the significant accounting and reporting policies applied by the Company which conform with generally accepted accounting principles. (a) Basis of Presentation The accompanying consolidated financial statements of NAM include the accounts of its wholly owned subsidiaries, NA&M, National Video Conferencing, Inc., a Delaware corporation formed in April 1995, and Michael Marketing, Inc., a Delaware corporation formed in November 1991. All significant intercompany transactions and balances were eliminated in consolidation. As more fully described in Note 1, NA&M was acquired by and became a wholly-owned subsidiary of NAM on October 31, 1994. 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. NAM's financial statements include the accounts and results of operations of NA&M as though they had been combined as of the beginning of the earliest period presented. All significant inter-company accounts and transactions between NAM and NA&M have been eliminated. The financial statements prior to June 30, 1994 reflect NA&M and Michael Marketing, Inc. only, as NAM and National Video Conferencing, Inc. were not in existence. 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 reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. When necessary, certain reclassifications of prior year amounts were made to conform to the current year presentation. All share amounts have been restated to reflect the 25% stock dividend in February 1995 and the 1 for 2 reverse stock split and 14.436% stock dividend in March 1996. (b) Statement of Cash Flows For purposes of the consolidated statements of cash flows, the Company considers all short-term instruments with a maturity at date of purchase of three months or less to be cash equivalents. (Continued) F-8 NAM CORPORATION Notes to Consolidated Financial Statements, Continued (c) Revenue Recognition The Company principally derives it revenues from fees charged for arbitration and mediation services. Each party to a proceeding is charged an administrative fee, a portion of which is non-refundable, 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 income. Fees billed for cases not yet heard and not yet collected at June 30, 1995 and March 31, 1996 are approximately $292,795 and $326,173, respectively. (d) Deferred Offering Costs Deferred offering costs consist primarily of legal and investment banking fees incurred as of June 30, 1995 and March 31, 1996 in connection with the proposed initial public offering (IPO) which is anticipated to be completed by December 31, 1996. These costs will be reflected as a reduction from the proceeds of the IPO. In the event there is no such offering, these costs will be charged to operations. (e) Furniture & Equipment Furniture and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets ranging from five to seven years. (f) Organizational Costs Organizational costs arose from NAM's organization in 1994. Organizational costs are currently being amortized over five years. (g) Income Taxes NA&M elected by unanimous consent of its shareholders to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, NA&M did not pay Federal corporate income taxes on its taxable income and is not allowed a net operating loss carryover or carryback as a deduction. Instead, the stockholders were liable for individual Federal income taxes on their respective shares of the NA&M's taxable income and include their respective shares of the NA&M's net income in their individual income tax returns. NA&M also elected to be taxed as a New York State Subchapter S Corporation. The shareholders were liable for individual state income taxes on their respective shares of the NA&M's taxable income and included their respective shares of the NA&M's net income in their individual income tax returns. Additionally, NA&M was subject to a New York State corporate tax on its allocated entire net income. The tax rate is the difference between the regular corporation tax, including a temporary surcharge, and the maximum individual tax rate. NA&M's New York State corporate level tax was $650, $5,142, $9,142, $8,711 and $6,472 for the periods ended December 31, 1993, June 30 1994, June 30, 1995, March 31, 1995, and March 31, 1996, which is included in the accompanying consolidated statements of operations. NA&M's Subchapter S Corporation status was terminated effective October 31, 1994 when NA&M was acquired by and became a wholly-owned subsidiary of NAM, a C Corporation. Accordingly, a pro forma tax provision for Federal and state income taxes as if the Company was a Corporation has been presented in the accompanying consolidated statements of operations for the periods ended December 31, 1993, June 30, 1994, March 31, 1995 and June 30, 1995. (Continued) F-9 NAM CORPORATION Notes to Consolidated Financial Statements, Continued In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes". SFAS 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company has applied SFAS 109 beginning January 1, 1993. Tax benefits from net operating loss carryforwards related to NAM are uncertain, and accordingly no deferred tax benefits have been recorded for the related operating losses. NAM has approximately $360,195 and $246,423 in net operating loss carryforwards as of June 30, 1995 and March 31, 1996, respectively. The deferred tax assets relating to these carryforwards are $122,466 at June 30, 1995 and $83,784 at March 31, 1996, which are being recognized as realized. The Company's pro forma effective income tax rate in the 1993, 1994 and 1995 periods and effective tax rate in subsequent periods differs from the Federal statutory rate, as a result of the following items (unaudited):
12/31/93 06/30/94 06/30/95 03/31/95 03/31/96 -------- -------- -------- -------- -------- Provision at Federal statutory rate $ 68,680 49,035 72,574 27,263 30,713 Increase in taxes resulting from State income taxes, net of Federal income tax benefit 11,768 10,866 16,206 1,763 6,369 Benefit of operating loss carryforwards (18,664) - - - - Other - - - - 189 ------- ------- ------- -------- ------- 61,784 59,901 88,780 29,026 37,271 Decrease in the valuation allowance for the deferred tax asset - - - - (27,621) ------- ------- ------- -------- ------- $ 61,784 59,901 88,780 29,026 9,650 ====== ====== ====== ====== ======
(h) Earnings Per Share Earnings per share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the periods presented, which were retroactively adjusted to give recognition to the change in the capital structure as a result of contingently issuable shares, stock dividends and the reverse stock split. (i) Unaudited Interim Financial Statements In the opinion of the Company's management, the March 31, 1995 and 1996 unaudited interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for fair presentation. (3) Securities Available for Sale The Company adopted Statement of Financial Accounting Standards No. 115 (SFAS 115) "Accounting for Certain Investments in Debt and Equity Securities" effective January 1, 1993. SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and all investments in debt securities. (Continued) F-10 NAM CORPORATION Notes to Consolidated Financial Statements, Continued In accordance with the SFAS 115, the Company reflected securities available for sale at fair value, with unrealized gains and losses reflected as a separate component of stockholders equity. The portfolio consisted principally of investments in mutual funds. The Company had no securities available for sale as of June 30, 1995 and March 31, 1996, as all securities were sold during the period ended March 31, 1995. Netgains of $10,435 and $20,463 were realized during the year ended December 31, 1993 and the six months ended June 30, 1994, respectively. Net gains of $1,711 were realized during the nine months ended March 31, 1995 and the year ended June 30, 1995, respectively. (4) Furniture and Equipment Furniture and equipment consist of the following: 06/30/95 03/31/96 -------- -------- Furniture $ 78,900 136,821 Equipment 105,989 146,070 ------- -------- 184,889 282,891 Less accumulated depreciation (50,071) (77,834) --------- --------- $ 134,818 205,057 ======= ======= Depreciation expense for the periods ended December 31, 1993, June 30, 1994, June 30, 1995, March 31, 1995 and March 31, 1996 was $10,541, $9,555, $26,056, $16,650 and $27,763, respectively. (5) Notes Payable - Private Placement The Company offered in the second half of 1994, in a private placement, Units consisting of a total of $400,000 in 8% promissory notes, and 143,023 shares of restricted common stock for total proceeds of $402,000. The promissory notes were recorded at par value, were payable on June 30, 1996 and required annual payments of accrued interest. This financing was offered in minimum Units of $5,025 denominations and multiples thereof with each person and/or firm participating therein purchasing a $5,000 8% promissory note and 1,787 restricted shares of NAM's common stock with a par value of $0.001 per share. The Company has sought an extension of these notes until the earlier of December 31, 1996 or the closing of the proposed IPO and received an extension from all noteholders except one. The two non-consenting Units totaling $10,050 were purchased by Company's management who also executed the extension agreement. The repayment of the notes is intended to be provided by the proceeds of an IPO of the Company's common stock. In the event the offering is not successful, the Company will seek a further extension of the payment terms, attempt to refinance the notes or repay the notes from operating cash flow and funds available by management and its affiliates. (6) Employment Agreements The Company's Chief Executive Officer and President entered into a three year employment contract with the Company commencing June 1994, whereby he shall receive a base annual salary of $85,000 during each of the three years thereof. Additionally, the employment agreement shall provide for a 5 percent annual cost of living increase (based upon prior years salary) and a bonus of 4 percent of company pretax profits. The Company's Executive Vice President entered into a two-year employment contract with the Company commencing June 1996, whereby she shall receive a base salary of $90,000 during each of the two years. Additionally, the employment agreement shall provide for a 5 percent annual cost of living increase (based on prior years salary). (Continued) F-11 NAM CORPORATION Notes to Consolidated Financial Statements, Continued (7) Dividends The Company authorized a 25% stock dividend (631,250 shares issued), effected in a form of a stock split, to all stockholders of record on February 1, 1995. Effective March 29, 1996, the Company authorized a 1 for 2 reverse stock split, net of 14.436% stock dividend. TheCompany intends to pay the balance of its Subchapter S distributions to its shareholders prior to the initial public offering of its common stock, accordingly the balance of this distribution of $88,942 has been reflected as dividends payable in the accompanying consolidated financial statements as of March 31, 1996. (8) Stock Plan The Company adopted an Executive Stock Bonus Plan in June of 1994. Under the plan, NAM has granted 58,201 shares to selected employees and officers, all of which vest after providing two to five years of service to NAM from the grant date. An additional 40,445 shares were granted in February 1995, which vest on July 1, 1996. The estimate market value per share at date of grant was $.01. No shares have been vested as of March 31, 1996. The Company recognized compensation expense of $444, $253 and $614 during the periods ended June 30, 1995, March 31, 1995 and March 31, 1996, respectively. The Company granted Leonard Pudt, Regional Manager, pursuant to his employment agreement, 42,913 shares of restricted common stock of NAM for the purchase price of $0.17 a share. Mr. Pudt will vest in the first 7,152 shares of common stock on June 1, 1996 and in the rest on June 1, 1999. In addition, the Company entered into an agreement with Leon Katz, a consultant to the Company, whereby Mr. Katz has a contractual right to receive 6,500 shares of restricted common stock or $26,000 on March 1, 1997. The $26,000 is reflected as deferred compensation and is currently being amortized over the term of the agreement. The Company recognized compensation expense of $6,741, $3,852 and $8,667 during the periods ended June 30, 1995, March 31, 1995 and March 31, 1996, respectively. (9) Commitments and Contingencies The Company has lease agreements for office space in New York, Pennsylvania, Massachusetts, Tennessee and South Carolina. Rent expense for the office space amounted to $27,863, $33,898, $82,143, $60,155 and $104,457 for the periods ended December 31, 1993, June 30, 1994, June 30, 1995, and the comparative nine months ended March 31, 1995 and 1996, respectively. The minimum lease payments under the non-cancelable office leases for the respective fiscal years are as follows: 06/30/95 03/31/96 -------- -------- 1996 $ 135,592 43,586 1997 175,040 175,040 1998 170,287 170,287 1999 169,646 169,646 2000 162,273 162,273 ------- ------- $ 812,838 720,832 ======= ======= (Continued) F-12 NAM CORPORATION Notes to Consolidated Financial Statements, Continued Rental expense for equipment amounted to $2,837, $2,506, $8,417, $6,704 and $9,164 for the periods ended December 31, 1993, June 30, 1994, June 30, 1995 and the comparative nine months ended March 31, 1995 and 1996, respectively. The minimum lease payments under the non-cancelable machinery leases for the respective fiscal years are as follows: 06/30/95 03/31/96 -------- -------- 1996 $ 9,213 2,303 1997 8,469 8,469 1998 5,537 5,537 ------- ------ $23,219 16,309 ======= ====== (10) Subsequent Events (a) Initial Public Offering Subsequent to March 31, 1996, the Company intends to complete an IPO of its common stock. The offering proceeds for the issuance of 1,250,000 Units including one share of common stock and one redeemable warrant exercisable at 150% of the IPO price. The redeemable warrant redemption price and period will be based on the price of the Company's common stock one year after the offering. Additionally, the Company intends to issue to the underwriter additional warrants which enable the underwriter to acquire 140,000 Units for 120% of the IPO price. (b) 1996 Incentive and Nonqualified Stock Option Plan Effective May 26, 1996, the Company adopted a 1996 Incentive and Nonqualified Stock Option 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 subsequent to the completion of the proposed IPO. The Company has not issued any options under this plan, however, an employee of the Company and two hearing officers have been granted a contractual right under their agreements to receive a total of options to purchase 25,000 shares of common stock, respectively, if they are still providing services to the Company on a certain anniversary date subsequent to the proposed IPO. F-13 ================================================================================ No underwriter, dealer, salesperson or any 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 by the Company or the Underwriters. 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 such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such an offer or solicitation. Neither the delivery of this Prospectus nor any offer or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained in this Prospectus is correct as of any date subsequent to the date hereof. ------------------------- TABLE OF CONTENTS Page ---- Prospectus Summary....................................................... 1 Risk Factors............................................................. 9 The Company ............................................................. 13 Use of Proceeds.......................................................... 14 Offer by the Selling Private Placement Stockholders and Plan of Distribution............................................ 15 Dividend Policy.......................................................... 16 Dilution................................................................. 16 Capitalization........................................................... 17 Selected Consolidated Financial Data..................................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 19 Business................................................................. 22 Management............................................................... 26 Principal and Selling Stockholders....................................... 30 Selling Private Placement Stockholders................................... 31 Certain Transactions..................................................... 32 Description of Securities................................................ 33 Shares Eligible for Future Sale.......................................... 35 Underwriting............................................................. 35 Legal Matters ........................................................... 37 Experts.................................................................. 38 Additional Information................................................... 38 Index to Financial Statements............................................ F-1 Until , 1996 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ================================================================================ =============================================================================== NAM CORPORATION 1,400,000 Units Each Unit Consisting of One Share of Common Stock and One Redeemable Warrant ---------- PROSPECTUS ---------- JOSEPH STEVENS & COMPANY, L.P. , 1996 =============================================================================== PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers. Section 102(b) of the Delaware General Corporations Law (the "DGCL") permits a provision in the certificate of incorporation of each corporation organized thereunder eliminating or limiting, with certain exceptions, the personal liability of a director to the corporation or its stockholders for monetary damages for certain breaches of fiduciary duty as a director. The Certificate of Incorporation of the Registrant eliminates the personal liability of directors to the fullest extent permitted by the DGCL. Section 145 of the DGCL ("Section 145"), in summary, empowers a Delaware corporation, within certain limitations, to indemnify its officers, directors, employees and agents against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by them in connection with any nonderivative suit or proceeding, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to a criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. With respect to derivative actions, Section 145 permits a corporation to indemnify its officers, directors, employees and agents against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit, provided such person meets the standard of conduct described in the preceding paragraph, except that no indemnification is permitted in respect of any claim where such person has been found liable to the corporation, unless the Court of Chancery or the court in which such action or suit was brought approves such indemnification and determines that such person is fairly and reasonably entitled to be indemnified. Reference is made to Article Seven of the Certificate of Incorporation of the Registrant for the provisions which the Registrant has adopted relating to indemnification of officers, directors, employees and agents. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. Reference is also made to Section 7 of the Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement. Prior to the close of this Offering, the Registrant will have purchased directors' and officers' liability insurance. Item 25. Other Expenses of Issuance and Distribution. The estimated expenses to be incurred in connection with the offering are as follows: SEC registration fee.......................................... $6,265 NASD filing fee............................................... $2,319 NASDAQ listing fee........................................... $9,525 Boston Stock Exchange listing fee............................. $15,000 Blue Sky expenses and legal fees.............................. $45,000 Printing and engraving expenses............................... $75,000 Registrar and transfer agent fees and expenses................ $5,000 Accounting fees and expenses.................................. $45,000 Legal fees and expenses....................................... $78,500 Miscellaneous fees and expenses............................... $18,391 -------- TOTAL.........................................................$300,000 ======== II-1 Item 26. Recent Sales of Unregistered Securities. On October 31, 1994 the Company acquired all of the outstanding stock of National from Mr. Israel and Ms. Sanders in exchange for 657,112 shares of Common Stock. Pursuant to a private placement of units, each unit consisting of a $5,000 8% promissory note and 1,787 shares of Common Stock, at a purchase price of $.01 per share, the following persons purchased from the Company the number of shares of Common Stock set forth next to each of their names and paid the corresponding consideration during the period from June through October 1994: NAME SHARES OF COMMON STOCK PURCHASE PRICE - ---- ---------------------- -------------- Ackerman, Milton 3,576 $50.00 Adler, Frederic Lee 1,787 25.00 Blech, Benjamin & Elaine 3,576 50.00 Bolder, Solomon J. 1,787 25.00 Brown, Arthur 10,728 150.00 Cantor, Michael 14,304 200.00 Deutscher, Madeline 1,787 25.00 Epstein, Joan & Howard 3,576 50.00 Feinstein, Robert P. & Diane 5,364 75.00 Felton, Susan 1,787 25.00 First, Lee B. 3,576 50.00 Gambino, Anthony & Castiglia, & Luisa 5,364 75.00 Gelb, Harry 1,787 25.00 Gentile, Jr. John A. & Geraldine 5,364 75.00 Goodman, Mark A. & Leona M. 5,364 75.00 Gordon, Gertrude J. 1,787 25.00 Gottesman, Steven & Judith 3,576 50.00 Gross, Robert E. 1,787 25.00 Harnick, Paul E. 5,364 75.00 Hirschman, Sherry 3,576 50.00 Israel, Milton 3,576 50.00 Kaplan, Barry H. & Rosalind P. 1,787 25.00 Katz, Stanley 1,787 25.00 Kurk, Mitchell 1,787 25.00 Loewenstein, David A. & Robin 1,787 25.00 Lynch, James T. 1,787 25.00 Maidenbaum, Shalom 1,787 25.00 Novick, Shelly 1,787 25.00 Oppenheim, Darrin 3,576 50.00 Osprey Partners 5,364 75.00 Quackenbush, John 5,364 75.00 Romankin, L.T. 3,576 50.00 Schneider, Aaron 3,576 50.00 Schneider, Earl 1,787 25.00 Schreiber, David 3,576 50.00 Schwartzberg, Sheila M. 1,787 25.00 Tartaglia, John 3,576 50.00 Weinstein, Jeremy S. & Elaine 3,576 50.00 Zinberg, Elaine 3,576 50.00 Zisook, Seymour H. 1,787 25.00 II-2 The sales of the aforementioned securities were made in reliance upon the exemption from the registration provisions of the Act afforded by section 4(2) thereof and/or Regulation D promulgated thereunder, as transactions by an insurer not involving a public offering. To the best of the Registrant's knowledge, the purchasers of the securities described above acquired them for their own account and not with the view to any distribution thereof to the public. The placement agent on this offering was Seaboard Securities. Item 27. Exhibits. The following exhibits are filed as part of this Registration Statement: EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation, as amended. 3.2 By-Laws of the Registrant. 4.1 Form of Redeemable Warrant Agreement to be entered into between Registrant and Continental Stock Transfer & Trust Co., including form of Redeemable Warrant Certificate. 4.2 Form of Representative's Warrant Agreement including Form of Representative's Warrant. 4.3 Specimens of Registrant's Common Stock, Redeemable Warrant Certificate and Unit Certificate.* 4.4 Form of Private Placement Promissory Note. 4.5 Form of Private Placement Registration Rights Agreement. 4.6 Form of Private Placement Promissory Note Extension Agreement. 5 Opinion and Consent of Camhy Karlinsky & Stein LLP. 10.1 1996 Stock Option Plan. 10.2 Employment Agreement between Registrant and Roy Israel, as amended. 10.3 Employment Agreement between Registrant and Cynthia Sanders. 10.4 Employment Agreement between Registrant and Daniel Jansen. 10.5 Employment Agreement between Registrant and Charles Merola. 10.6 Consulting Agreement between Registrant and Dr. Eugene Stricker and Mark Schindler. 10.7 Lease Agreement for Great Neck, New York facility. 10.8 Reseller Agreement with PictureTel. II-3 EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 10.9 Form of Financial Advisory and Consulting Agreement with Representative. 11 Statement re: Computation of Earnings per Share.* 21.1 List of Subsidiaries. 23.1 Consent of Camhy Karlinsky & Stein LLP - included in Exhibit 5. 23.2 Consent of KPMG Peat Marwick LLP. 23.3 Consent of Anthony J. Mercorella to be named as a director nominee. 24.1 Power of Attorney (contained on page II-6 of this Registration Statement). - ----------------- * To be filed by Amendment. Item 28. Undertakings. The Registrant hereby undertakes to provide to the Underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. The Registrant has agreed to indemnify the Underwriter and its officers, directors, partners, employees, agents and controlling persons as to any losses, claims, damages, expenses or liabilities arising out of any untrue statement or omission of a material fact contained in the registration statement. The Underwriter has agreed to indemnify the Registrant and its directors, officers and controlling persons as to any losses, claims, damages, expenses or liabilities arising out of any untrue statement or omission in the registration statement based on information relating to the Underwriter furnished by it for use in connection with the registration statement. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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-4 The Registrant hereby also undertakes to: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (4) For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective. (5) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities. 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 of filing on Form SB-2 and has authorized this Registration Statement to be signed on its behalf by the undersigned in the City of New York, State of New York on August 1, 1996. NAM CORPORATION By: /s/ Roy Israel -------------------------------------- Roy Israel Chief Executive Officer, President and Chairman of the Board II-5 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Roy Israel and Charles A. Merola, separately, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do separately and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act of 1933, this Registration Statement on Form SB-2 has been signed below by the following persons in the capacities and on the dates stated:
Signature Title Date - --------- ----- ---- /s/ Roy Israel Chairman of the Board, Chief August 1, 1996 - ----------------------------- Executive Officer and President Roy Israel (Principal Executive Officer) /s/ Charles A. Merola Vice President, Chief Financial August 1, 1996 - ----------------------------- Officer, Treasurer and Director Charles A. Merola (Principal Financial and Accounting Officer) /s/ Cynthia Sanders Executive Vice President and August 1, 1996 - ----------------------------- Director Cynthia Sanders /s/ Daniel Jansen Director August 1, 1996 - ----------------------------- Daniel Jansen /s/ Stephen H. Acunto Director August 1, 1996 - ----------------------------- Stephen H. Acunto /s/ Michael I. Thaler Director August 1, 1996 - ----------------------------- Michael I. Thaler
II-6 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation, as amended. 3.2 By-Laws of the Registrant. 4.1 Form of Redeemable Warrant Agreement to be entered into between Registrant and Continental Stock Transfer & Trust Co., including form of Redeemable Warrant Certificate. 4.2 Form of Representative's Warrant Agreement including Form of Representative's Warrant. 4.3 Specimens of Registrant's Common Stock, Redeemable Warrant Certificate and Unit Certificate.* 4.4 Form of Private Placement Promissory Note. 4.5 Form of Private Placement Registration Rights Agreement. 4.6 Form of Private Placement Promissory Note Extension Agreement. 5 Opinion and Consent of Camhy Karlinsky & Stein LLP. 10.1 1996 Stock Option Plan. 10.2 Employment Agreement between Registrant and Roy Israel, as amended. 10.3 Employment Agreement between Registrant and Cynthia Sanders. 10.4 Employment Agreement between Registrant and Daniel Jansen. 10.5 Employment Agreement between Registrant and Charles Merola. 10.6 Consulting Agreement between Registrant and Dr. Eugene Stricker and Mark Schindler. 10.7 Lease Agreement for Great Neck, New York facility. 10.8 Reseller Agreement with PictureTel. 10.9 Form of Financial Advisory and Consulting Agreement with Representative. 11 Statement re: Computation of Earnings per Share.* 21.1 List of Subsidiaries. 23.1 Consent of Camhy Karlinsky & Stein LLP - included in Exhibit 5. 23.2 Consent of KPMG Peat Marwick LLP. 23.3 Consent of Anthony J. Mercorella to be named as a director nominee. 24.1 Power of Attorney (contained on page II-6 of this Registration Statement). - ----------------- * To be filed by Amendment. EX-1 2 EXHIBIT 1 EXHIBIT 1 1,400,000 Units, Each Unit Consisting of One Share of Common Stock and One Redeemable Warrant NAM CORPORATION UNDERWRITING AGREEMENT ---------------------- New York, New York _______ , 1996 JOSEPH STEVENS & COMPANY, L.P. As Representative of the Several Underwriters listed on Schedule A hereto 33 Maiden Lane, 8th Floor New York, New York 10038 Ladies and Gentlemen: NAM Corporation, a Delaware corporation (the "Company"), and certain selling shareholders of the Company named in Schedule B hereto (the "Selling Shareholders") confirm their agreement with Joseph Stevens & Company, L.P. ("JSLP") and each of the several underwriters named in Schedule A hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 11) for whom JSLP is acting as representative (in such capacity, JSLP shall hereinafter be referred to as "you" or the "Representative"), with respect to the sale by the Company and the Selling Shareholders and the purchase by the Representative of 1,400,000 units (the "Units"), each Unit consisting of one (1) share of common stock, $0.001 par value (the "Common Stock") and one (1) redeemable warrant (the "Redeemable Warrants"). Each Redeemable Warrant is exercisable for one share of Common Stock. The Redeemable Warrants are exercisable commencing ________________, 1996 [the effective date of the Registration Statement] until _____________, 2001 [60 months from the effective date of the Registration Statement], unless previously redeemed by the Company, at an initial exercise price equal to $_____ per share [150% of the initial public offering price per share of Common Stock], subject to adjustment. The Redeemable Warrants may be redeemed by the Company, in whole, and not in part, at a redemption price of $.05 per Redeemable Warrant at any time commencing ______________, 1997 [12 months after the effective date of the Registration Statement] on 30 days' prior written notice provided that the average closing bid price (or sale price) of the Common Stock equals or exceeds 150% of the then exercise price per share of Common Stock (subject to adjustment) for any twenty (20) trading days within a period of thirty (30) consecutive trading days ending on the fifth (5th) trading day prior to the date of the notice of redemption and provided, that the Company shall have obtained the prior written consent of JSLP. The Common Stock and Redeemable Warrants will be separately tradeable upon issuance and are hereinafter referred to as the "Firm Units." The Firm Units include 1,250,000 Units offered by the Company and 150,000 shares of Common Stock offered by the Selling Shareholders (the "Selling Shareholders' Units"). The Selling Shareholders' Units are being registered for the account of the Selling Shareholders in connection with this offering and are being underwritten by the Underwriters. Upon the Representative's request, as provided in Section 2(b) of this Agreement, the Company shall also issue and sell to the Underwriters up to an additional 210,000 Units for the purpose of covering over-allotments, if any. Such 210,000 Units are hereinafter collectively referred to as the "Option Units." The Company also proposes to issue and sell to the Representative or its designees warrants (the "Representative's Warrants"), pursuant to the Representative's Warrant Agreement (the "Representative's Warrant Agreement"), for the purchase of an additional 140,000 Units (the "Representative's Units"). The Representative's Units, the shares of Common Stock and the Redeemable Warrants underlying the Representative's Units and the shares of Common Stock underlying the Redeemable Warrants underlying the Representative's Units are hereinafter collectively referred to as the "Representative's Securities." The shares of Common Stock issuable upon exercise of the Redeemable Warrants, including the Redeemable Warrants underlying the Representative's Units, are hereinafter referred to as the "Warrant Shares." Further, an additional 139,447 shares of Common Stock (the "Selling Bridge Stockholder Shares") are being registered for the account of certain selling bridge stockholders in connection with this offering which are not being underwritten by the Underwriters. The Firm Units, the Option Units, the Representative's Warrants, the Representative's Units, the Warrant Shares, the Selling Shareholders' Units, and the Selling Bridge Stockholder Shares are hereinafter collectively referred to as the "Securities" and are more fully described in the Registration Statement and the Prospectus referred to below. 1. Representations and Warranties. (a) The Company represents and warrants to, and covenants and agrees with, the Representative as of the date hereof, and as of the Closing Date (hereinafter defined) and the Option Closing Date (hereinafter defined), if any, as follows: i) The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement, and amendments thereto, on Form SB-2 (Registration No. __________), including any related preliminary prospectus or prospectuses (each a "Preliminary Prospectus"), for the registration of the Securities, under the Securities Act of 1933, as amended (the "Act"), which registration statement and amendment or amendments have been prepared by the Company in conformity with the requirements of the Act, and the rules and regulations of the Commission under the Act. The Company will not file any other amendment to such registration statement which the Representative shall have objected to in writing after having been furnished with a copy thereof. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time it becomes effective (including the prospectus, financial statements, schedules, exhibits and 2 all other documents filed as a part thereof or incorporated therein (including, but not limited to, those documents or that information incorporated by reference therein) and all information deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule 430A of the rules and regulations under the Act), is hereinafter called the "Registration Statement," and the form of prospectus in the form first filed with the Commission pursuant to Rule 424(b) of the rules and regulations under the Act is hereinafter called the "Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and regulations adopted by the Commission under either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable. ii) Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of any Preliminary Prospectus, the Registration Statement or the Prospectus or any part of any thereof and no proceedings for a stop order suspending the effectiveness of the Registration Statement or any of the Company's securities have been instituted or are pending or threatened. Each of the Preliminary Prospectus and the Registration Statement and the Prospectus, at the time of filing thereof, conformed with the requirements of the Act and the Rules and Regulations, and none of the Preliminary Prospectus, the Registration Statement nor the Prospectus, at the time of filing thereof, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that this representation and warranty does not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by or on behalf of the Underwriters expressly for use in such Preliminary Prospectus, the Registration Statement or the Prospectus. The Company has filed all reports, forms or other documents required to be filed under the Act and the Exchange Act and the respective Rules and Regulations thereunder, and all such reports, forms or other documents, when so filed or as subsequently amended, complied in all material respects with the Act and the Exchange Act and the respective Rules and Regulations thereunder. iii) When the Registration Statement becomes effective and at all times subsequent thereto up to the Closing Date and each Option Closing Date, if any, and during such longer period as the Prospectus may be required to be delivered in connection with sales by the Representative or a dealer, the Registration Statement and the Prospectus will contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations, and will conform to the requirements of the Act and the Rules and Regulations; and, at and through such dates, neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, will 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 light of the circumstances in which they were made, not misleading; provided, however, that this representation and warranty does not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by or on behalf of the Underwriters expressly for use in the Registration Statement or the Prospectus or any amendment thereof or supplement thereto. iv) The Company owns one hundred percent (100%) of the issued and outstanding capital stock of National Arbitration & Mediation, Inc., a New York corporation, 3 and National Videoconferencing, Inc., a Delaware corporation. Additionally, National Arbitration & Mediation, Inc. owns one hundred percent (100%) of the issued and outstanding capital stock of Michael Marketing, Inc. National Arbitration & Mediation, Inc., National Videoconferencing, Inc. and Michael Marketing, Inc. are hereinafter collectively referred to as the "Subsidiaries". Each of the Company and the Subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation. Each of the Company and the Subsidiaries is duly qualified and licensed and in good standing as a foreign corporation in each jurisdiction in which their respective ownership or leasing of any properties or the character of their respective operations require such qualification or licensing. None of the Company nor any of the Subsidiaries owns, directly or indirectly, an interest in any other corporation, partnership, trust, joint venture or other business entity except as set forth in this Section 1(d). Each of the Company and the Subsidiaries has all requisite power and authority (corporate and other), and has obtained any and all necessary authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, those having jurisdiction over environmental or similar matters), to own or lease their respective properties and conduct their respective business as conducted on the date hereof and as described in the Prospectus; each of the Company and the Subsidiaries is and has been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits and with all federal, state, local and foreign laws, rules and regulations to which each of them is subject; and none of the Company nor any of the Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially and adversely affect the condition, financial or otherwise, or the earnings, prospects, stockholders' equity, value, operations, properties, business or results of operations of the Company or the Subsidiaries. The disclosure in the Registration Statement concerning the effects of federal, state, local and foreign laws, rules and regulations on the Company's and the Subsidiaries' business as currently conducted and as contemplated are correct in all respects and do not omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. v) The Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus under "Capitalization" and "Description of Securities" and will have the adjusted capitalization set forth therein on the Closing Date and the Option Closing Date, if any, based upon the assumptions set forth therein, and none of the Company nor any of the Subsidiaries is a party to or bound by any instrument, agreement or other arrangement providing for any of them to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the Representative's Warrant Agreement and the Warrant Agreement (as defined in Section 1(a)(xxxii) hereof of this Agreement) and as described in the Prospectus. The Securities and all other securities issued or issuable by the Company on or prior to the Closing Date and each Option Closing Date, if any, conform or, when issued and paid for, will conform, in all respects to the descriptions thereof contained in the Registration Statement and the Prospectus. All issued and outstanding securities of each of the Company and the Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto and are not 4 subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holder of any security of the Company or the Subsidiaries or any similar contractual right granted by the Company or the Subsidiaries. The Securities to be sold by the Company hereunder and pursuant to the Representative's Warrant Agreement and the Warrant Agreement are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof and thereof, will be validly issued, fully paid and non-assessable and conform to the descriptions thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely as such holders; all corporate action required to be taken for the authorization, issue and sale of the Securities has been duly and validly taken; and the certificates representing the Securities, when delivered by the Company, will be in due and proper form. Upon the issuance and delivery pursuant to the terms hereof, the Warrant Agreement and the Representative's Warrant Agreement of the Securities to be sold by the Company hereunder and thereunder to the Underwriters, the Underwriters will acquire good and marketable title to such Securities, free and clear of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever asserted against the Company or any affiliate (within the meaning of the Rules and Regulations) of the Company. vi) The audited consolidated financial statements of the Company and the notes thereto included in the Registration Statement, each Preliminary Prospectus and the Prospectus fairly present the financial position, income, changes in stockholders' equity and the results of operations of the Company at the respective dates and for the respective periods to which they apply. Such financial statements have been prepared in conformity with generally accepted accounting principles and the Rules and Regulations, consistently applied throughout the periods involved. There has been no adverse change or development involving a material prospective change in the condition, financial or otherwise, or in the earnings, prospects, stockholders' equity, value, operations, properties, business or results of operations of the Company or the Subsidiaries, whether or not arising in the ordinary course of business, since the date of the financial statements included in the Registration Statement and the Prospectus; and the outstanding debt, the property, both tangible and intangible, and the business of the Company and the Subsidiaries conform in all respects to the descriptions thereof contained in the Registration Statement and the Prospectus. The financial information set forth in the Prospectus under the headings "The Company," "Capitalization," "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" fairly presents, on the basis stated in the Prospectus, the information set forth therein and such financial information has been derived from or compiled on a basis consistent with that of the audited consolidated financial statements included in the Prospectus. vii) The Company (i) has paid all federal, state, local and foreign taxes for which it is liable, including, but not limited to, withholding taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has furnished all information returns it is required to furnish pursuant to the Code, (ii) has established adequate reserves for such taxes which are not due and payable, and (iii) does not have any tax deficiency or claims outstanding, proposed or assessed against it. 5 viii) No transfer tax, stamp duty or other similar tax is payable by or on behalf of the Underwriters in connection with (i) the issuance by the Company of the Securities, (ii) the purchase by the Underwriters of the Securities from the Company, (iii) the consummation by the Company of any of its obligations under this Agreement, the Warrant Agreement, or the Representative's Warrant Agreement, or (iv) resales of the Securities in connection with the distribution contemplated hereby. ix) Each of the Company and the Subsidiaries maintains insurance policies, including, but not limited to, general liability, property, personal and product liability insurance, and surety bonds which insure the Company and the Subsidiaries and their respective employees against such losses and risks generally insured against by comparable businesses. None of the Company nor any of the Subsidiaries (i) has failed to give notice or present any insurance claim with respect to any insurable matter under the appropriate insurance policy or surety bond in a due and timely manner, (ii) has any disputes or claims against any underwriter of such insurance policies or surety bonds, nor has the Company or any Subsidiary failed to pay any premiums due and payable thereunder, or (iii) has failed to comply with all conditions contained in such insurance policies and surety bonds. There are no facts or circumstances under any such insurance policy or surety bond which would relieve any insurer of its obligation to satisfy in full any valid claim of the Company or any of the Subsidiaries. x) There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding (including, without limitation, those pertaining to environmental or similar matters), domestic or foreign, pending or threatened against (or circumstances that may give rise to the same), or involving the properties or business of, the Company or any of the Subsidiaries which (i) questions the validity of the capital stock of the Company or any of the Subsidiaries, this Agreement, the Representative's Warrant Agreement, the Warrant Agreement or the Consulting Agreement (as defined in Section 1(a)(xxxiii) hereof) or of any action taken or to be taken by the Company pursuant to or in connection with this Agreement, the Representative's Warrant Agreement, the Warrant Agreement or the Consulting Agreement, (ii) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all respects), or (iii) might materially and adversely affect the condition, financial or otherwise, or the earnings, prospects, stockholders' equity, value, operations, properties, business or results of operations of the Company or any of the Subsidiaries. xi) The Company has full legal right, power and authority to authorize, issue, deliver and sell the Securities, to enter into this Agreement, the Representative's Warrant Agreement, the Warrant Agreement and the Consulting Agreement and to consummate the transactions provided for in such agreements; and each of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement and the Consulting Agreement have been duly and properly authorized, executed and delivered by the Company. Each of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement and the Consulting Agreement constitutes a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general 6 application relating to or affecting the enforcement of creditors' rights and the application of equitable principles in any motion, legal or equitable, and except as obligations to indemnify or contribute to losses may be limited by applicable law). None of the Company's issue and sale of the Securities, execution or delivery of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement or the Consulting Agreement, its performance hereunder and thereunder, its consummation of the transactions contemplated herein and therein, or the conduct of its business as described in the Registration Statement and the Prospectus and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company or any of the Subsidiaries pursuant to the terms of (i) the respective certificates of incorporation or by-laws of the Company or any of the Subsidiaries, (ii) any license, contract, indenture, mortgage, lease, deed of trust, voting trust agreement, stockholders' agreement, note, loan or credit agreement or other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is or may be bound or to which their respective properties or assets (tangible or intangible) are or may be subject, or (iii) any statute, judgment, decree, order, rule or regulation applicable to any of the Company or the Subsidiaries of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over any of the Company or the Subsidiaries or any of their respective activities or properties. xii) No consent, approval, authorization or order of, and no filing with, any arbitrator, court, regulatory body, administrative agency, government agency or other body, domestic or foreign, is required for the issuance of the Securities pursuant to the Prospectus and the Registration Statement, this Agreement, the Representative's Warrant Agreement and the Warrant Agreement, the performance of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement and the Consulting Agreement and the transactions contemplated hereby and thereby, except such as have been obtained under the Act, state securities laws and the rules of the National Association of Securities Dealers, Inc. (the "NASD") in connection with the Underwriter's purchase and distribution of the Securities. xiii) All executed agreements, contracts or other documents or copies of executed agreements, contracts or other documents filed as exhibits to the Registration Statement to which the Company is a party or by which the Company or any of the Subsidiaries may be bound or to which their respective assets, properties or business may be subject have been duly and validly authorized, executed and delivered by the Company or the applicable Subsidiary, as the case may be, and constitute legal, valid and binding agreements of the Company or such Subsidiary, as the case may be, enforceable against the Company or such Subsidiary, as the case may be, in accordance with their respective terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights and the application of equitable principles in any motion, legal or equitable, and except as 7 obligations to indemnify or contribute to losses may be limited by applicable law). The descriptions in the Registration Statement of agreements, contracts and other documents are accurate and fairly present the information required to be shown with respect thereto by Form SB-2; and there are no agreements, contracts or other documents which are required by the Act to be described in the Registration Statement or filed as exhibits to the Registration Statement which are not described or filed as required; and the exhibits which have been filed are complete and correct copies of the documents of which they purport to be copies. xiv) Subsequent to the respective dates as of which information is set forth in the Registration Statement and the Prospectus, and except as may otherwise be indicated or contemplated herein or therein, none of the Company nor any of the Subsidiaries has (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, (ii) entered into any transaction other than in the ordinary course of business, or (iii) declared or paid any dividend or made any other distribution on or in respect of any class of its capital stock; and, subsequent to such dates, and except as may otherwise be disclosed in the Prospectus, there has not been any change in the capital stock, debt (long or short term) or liabilities of the Company or any of the Subsidiaries or any material change in the condition, financial or otherwise, or the earnings, prospects, stockholders' equity, value, operations, properties, business or results of operations of the Company or any of the Subsidiaries. xv) No default exists in the due performance and observance of any term, covenant or condition of any license, contract, indenture, mortgage, lease, deed of trust, voting trust agreement, stockholders' agreement, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the subsidiaries is or may be bound or to which the property or assets (tangible or intangible) of the Company or any of the Subsidiaries is or may be subject. xvi) Each of the Company and the Subsidiaries has generally enjoyed a satisfactory employer-employee relationship with their respective employees and each of the Company and the Subsidiaries is in compliance with all federal, state, local and foreign laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours. There are no pending investigations involving any of the Company or the Subsidiaries by the United States Department of Labor or any other governmental agency responsible for the enforcement of any federal, state, local or foreign laws, rules and regulations relating to employment. There is no unfair labor practice charge or complaint against the any of Company or the Subsidiaries pending before the National Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened against or involving any of the Company or the Subsidiaries, or any predecessor entity, and none has ever occurred. No representation question exists respecting the employees of any of the Company or the Subsidiaries, and no collective bargaining agreement or modification thereof is currently being negotiated by any of the Company or the Subsidiaries. No grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company or the Subsidiaries. No labor dispute with the employees of any of the Company or the Subsidiaries exists or is imminent. 8 xvii) None of the Company nor any of the Subsidiaries maintain, sponsor or contribute to any program or arrangement that is an "employee pension benefit plan," an "employee welfare benefit plan" or a "multiemployer plan," as such terms are defined in Sections 3(2), 3(l) and 3(37), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). None of the Company nor any of the Subsidiaries maintain or contribute, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code which could subject the Company or any of the Subsidiary to any tax penalty on prohibited transactions and which has not adequately been corrected. Each ERISA Plan is in compliance with all material reporting, disclosure and other requirements of the Code and ERISA as they relate to any such ERISA Plan. Determination letters have been received from the Internal Revenue Service with respect to each ERISA Plan which is intended to comply with Code Section 401(a), stating that such ERISA Plan and the attendant trust are qualified thereunder. None of the Company nor any of the Subsidiaries has ever completely or partially withdrawn from a "multiemployer plan." xviii) Neither the Company, any of the Subsidiaries, nor any of their respective employees, directors, stockholders or affiliates (within the meaning of the Rules and Regulations), has taken or will take, directly or indirectly, any action designed to or which has constituted or which might be expected to cause or result in, under the Exchange Act or otherwise, the stabilization or manipulation of the price of any security of the Company, whether to facilitate the sale or resale of the Securities or otherwise. xix) To the best of the Company's knowledge, none of the trademarks, trade names, service marks, service names, copyrights, patents and patent applications, and none of the licenses and rights to the foregoing, presently owned or held by the Company or any of the Subsidiaries are in dispute or are in conflict with the right of any other person or entity. Each of the Company and the Subsidiaries (i) owns or has the right to use, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, all trademarks, trade names, service marks, service names, copyrights, patents and patent applications, and licenses and rights with respect to the foregoing, used in the conduct of its business as now conducted or proposed to be conducted without infringing upon or otherwise acting adversely to the right or claimed right of any person, corporation or other entity under or with respect to any of the foregoing and (ii) is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any trademark, trade name, service mark, service name, copyright, patent or patent application except as set forth in the Registration Statement or the Prospectus. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental or other proceeding, domestic or foreign, pending or threatened (or circumstances that may give rise to the same) against the Company or any of the Subsidiaries which challenges the exclusive rights of the Company or any of the Subsidiaries with respect to any trademarks, trade names, service marks, service names, copyrights, patents, patent applications or licenses or rights to the foregoing used in the conduct of its business. 9 xx) Each of the Company and the Subsidiaries owns and has the unrestricted right to use all trade secrets, know-how (including all unpatented and/or unpatentable proprietary or confidential information, systems or procedures), inventions, technology, designs, processes, works of authorship, computer programs and technical data and information that are material to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company or any of the Subsidiaries, free and clear of and without violating any right, lien, or claim of others, including, without limitation, former employers of its employees. xxi) Each of the Company and the Subsidiaries has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property currently used in the conduct of business or stated in the Prospectus to be owned or leased by it, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, other than liens for taxes not yet due and payable. xxii) KPMG Peat Marwick, whose reports are filed with the Commission as a part of the Registration Statement, are independent certified public accountants as required by the Act and the Rules and Regulations. xxiii) The holders of at least 95% of the shares of Common Stock of the Company, including each director, officer and principal stockholder of the Company's Common Stock, have executed an agreement (collectively, the "Lock-Up Agreements") pursuant to which he, she or it has agreed (i) that, for a period ending eighteen (18) months following the effective date of the Registration Statement, not to, directly or indirectly, offer, offer to sell, sell, grant an option for the purchase or sale of, transfer, assign, pledge, hypothecate or otherwise encumber (whether pursuant to Rule 144 of the Rules and Regulations or otherwise) any securities issued or issuable by the Company, whether or not owned by or registered in the name of such persons, or dispose of any interest therein, without the prior written consent of the Representative; and (ii) that for a period extending twenty-four (24) months following the effective date of the Registration Statement, as long as the Representative or an Affiliated Broker-Dealer is acting as a market maker with respect to the Company's securities, all sales of such securities issued by the Company shall be made through JSLP in accordance with its customary brokerage policies. The Company will cause its transfer agent to mark an appropriate legend on the face of stock certificates representing all of such securities and to place "stop transfer" orders on the Company's stock ledgers. xxiv) There are no claims, payments, issuances, arrangements or understandings, whether oral or written, for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or any other arrangements, agreements, understandings, payments or issuances that may affect the Underwriters' compensation, as determined by the NASD. xxv) The Units, the Common Stock and the Redeemable Warrants have been approved for quotation on The Nasdaq SmallCap Market ("Nasdaq") and for listing on the Boston Stock Exchange. 10 xxvi) Neither the Company nor any of its Subsidiaries, nor any of their respective directors, officers, stockholders, employees, agents or any other person acting on behalf of the Company or any of the Subsidiaries has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or any official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or any other person who was, is or may be in a position to help or hinder the business of the Company or any of the Subsidiaries (or assist the Company or any of the Subsidiaries in connection with any actual or proposed transaction) which (i) might subject the Company or any of the Subsidiaries or any other such person to any damage or penalty in any civil, criminal or governmental litigation or proceeding (domestic or foreign), (ii) if not given in the past, might have had a material and adverse effect on the condition, financial or otherwise, or the earnings, business affairs, prospects, stockholders' equity, value, operations, properties, business or results of operations of the Company or any of the Subsidiaries, or (iii) if not continued in the future, might materially and adversely affect the condition, financial or otherwise, or the earnings, business affairs, prospects, stockholders' equity, value, operations, properties, business or results of operations of the Company or any of the Subsidiaries. Each of the Company's and the Subsidiaries' internal accounting controls are sufficient to cause the Company and the Subsidiaries to comply with the Foreign Corrupt Practices Act of 1977, as amended. xxvii) The Company confirms as of the date hereof that each of the Company and its Subsidiaries is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the Company further agrees that if it or any affiliate commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Prospectus, if any, concerning the Company's, or any affiliate's, business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. xxviii) Except as set forth in the Prospectus, no officer, director or stockholder of the Company, or any of the Subsidiaries and no affiliate or associate (as these terms are defined in the Rules and Regulations) of any of the foregoing persons or entities, has or has had, either directly or indirectly, (i) an interest in any person or entity which (A) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by the Company or any of the Subsidiaries, or (B) purchases from or sells or furnishes to the Company or any of the Subsidiaries any goods or services, or (ii) a beneficial interest in any contract or agreement to which the Company is a party or by which the Company or any of the Subsidiaries may be bound. Except as set forth in the Prospectus under "Certain Transactions," there are no existing agreements, arrangements, understandings or transactions, or proposed agreements, arrangements, understandings or transactions, between or among the Company or any of the Subsidiaries and any officer, director or any person listed in the 11 "Principal and Selling Stockholders" section of the Prospectus or any affiliate or associate of any of the foregoing persons or entities. xxix) The minute books of the Company and the Subsidiaries have been made available to the Representative, contain a complete summary of all meetings and actions of the directors and stockholders of the Company and the Subsidiaries since the time of their respective incorporation, and reflect all transactions referred to in such minutes accurately in all respects. xxx) Except and to the extent described in the Prospectus, no holder of any securities of the Company or of any options, warrants or other convertible or exchangeable securities of the Company has the right to include any securities issued by the Company in the Registration Statement or any registration statement to be filed by the Company or to require the Company to file a registration statement. Except as set forth in the Prospectus, no person or entity holds any anti-dilution rights with respect to any securities of the Company. xxxi) Any certificate signed by any officer of the Company and delivered to the Representative or to Underwriters' Counsel (as defined in Section 4(a)(iv) herein), shall be deemed a representation and warranty by the Company to the Representative as to the matters covered thereby. xxxii) The Company has entered into a warrant agreement, substantially in the form filed as Exhibit ___ to the Registration Statement (the "Warrant Agreement"), with Continental Stock Transfer & Trust Company, in form and substance satisfactory to the Representative, with respect to the Redeemable Warrants and providing for the payment of warrant solicitation fees contemplated by Section 4(a)(xxiv) hereof. The Warrant Agreement has been duly and validly authorized by the Company and, assuming due execution by the parties thereto other than the Company, constitutes a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as obligations to indemnify or contribute to losses may be limited by applicable law). xxxiii) The Company has entered into a financial advisory and consulting agreement substantially in the form filed as Exhibit ____ to the Registration Statement (the "Consulting Agreement") with the Representative, with respect to the rendering of consulting services by the Representative to the Company. The Consulting Agreement provides that the Representative shall be retained by the Company commencing on the consummation of the proposed public offering and ending 24 months thereafter, at a monthly retainer of $2,000, all of which is payable on consummation of the proposed public offering. The Consulting Agreement has been duly and validly authorized by the Company and assuming due execution by the parties thereto other than the Company, constitutes a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and 12 the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law). xxxiv) The Company has filed a Form 8-A with the Commission providing for the registration under the Exchange Act of the Securities and such Form 8-A has been declared effective by the Commission. (b) Each Selling Shareholder severally represents and warrants to, and agrees with, the Underwriters as of the date hereof, and as of the Closing Date and the Option Closing Date, as to himself,herself or itself that: i) Such Selling Shareholder has full legal right, power and authority to enter into this Agreement, the Stock Power in the form heretofore furnished to you (the "Stock Power"), the Power of Attorney with _________________ as attorney-in-fact (the "Attorney-in-Fact") in the form heretofore furnished to you (the "Power of Attorney") the Letter of Transmittal and Custody Agreement with Continental Stock Transfer & Trust Company as custodian (the "Custodian") in the form heretofore furnished to you (the "Custody Agreement") and the Escrow Agreement in the form heretofore furnished to you (the "Custody Agreement") and the Escrow Agreement in the form heretofore furnished to you (the "Escrow Agreement"). Each of this Agreement, the Stock Power, the Power of Attorney, the Escrow Agreement and the Custody Agreement has been duly executed and delivered by such Selling Shareholder, and (assuming this Agreement is a binding agreement of yours) constitutes the valid and binding agreement of such Selling Shareholder, enforceable against such Selling Shareholder in accordance with their respective terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditor's rights and the application of equitable principles relating to the availability of remedies, and except as rights to indemnity or contribution may be limited by applicable law); the Attorney-in-Fact, acting alone, is authorized to execute and deliver this Agreement and the certificates referred to in Section 6(h) hereof on behalf of such Selling Shareholder, to authorize the delivery of those Selling Shareholders' Shares to be sold by such Selling Shareholder under this Agreement and to duly endorse (in blank or otherwise) the certificate or certificates representing such Selling Shareholders' Shares or the Stock Power or Powers with respect thereto, to accept payment therefor, and otherwise to act on behalf on such Selling Shareholder in connection with this Agreement, the Escrow Agreement and the Custody Agreement. ii) None of the execution, delivery or performance of this Agreement, the Stock Power, the Power of Attorney, the Escrow Agreement and the Custody Agreement and the consummation of the transactions herein and therein contemplated, will conflict with or result in a breach of, or default under, any indenture, mortgage, deed of trust, voting trust agreement, stockholders' agreement, note agreement, or other agreement or instrument to which such 13 Selling Shareholder is a party or by which such Selling Shareholder is or may be bound or to which any of his, her or its property is or may be subject, or any statute, judgment, decree, order, rule or regulation applicable to such Selling Shareholder of any government, arbitrator, court, regulatory body or Administrative agency or other governmental agency or body, domestic or foreign, having jurisdiction over such Selling Shareholder or any of his, her or its activities or properties. iii) At the date hereof such Selling Shareholder has, and at the time of the issuance of the Redeemable Warrants included in the Selling Shareholders' Units to be sold by such Selling Shareholder to the Underwriter, such Selling Shareholder will have, full right, Power and authority to sell, assign, transfer and deliver such Units. At the time of delivery of the Selling Shareholder's Shares to be sold by such Selling Shareholder to the Underwriters, such Selling Shareholder will have, full right, power and authority to sell, assign, transfer and deliver the Selling Shareholders' Shares to be sold by such Selling Shareholder hereunder. At the time of delivery of the Selling Shareholders' shares to be sold by such Selling Shareholder, such Selling Shareholder will be, the lawful owner of and has and will have, good and marketable title to such Selling Shareholders' Shares free and clear of any liens, charges, pledges, equities, encumbrances, security interests, claims, community property rights, restrictions on transfer or other defects in title. Upon delivery of and payment for the Selling Shareholders' Shares to be sold by such Selling Shareholder hereunder, good and marketable title to such Selling Shareholders' Shares will pass to the Underwriters, free and clear of any liens, charges, pledges, equities, encumbrances, security interests, claims, community property rights, restrictions on transfer or other defects in title. Except as described in the Registration Statement and the Prospectuses (or, there are no Prospectuses, the most recent Preliminary Prospectuses) or created hereby, or as set forth in the Escrow Agreement and the Custody Agreement there are no outstanding options, warrants, rights, or other agreements or arrangements requiring such Selling Shareholder at any time to transfer any Common Stock to be sold hereunder by such Selling Shareholder. iv) At the time when the Registration Statement becomes or became effective, and at all times subsequent thereto up to and including the Closing Date and each Option Closing Date, if any, the Registration Statement and any amendments thereto will not contain any untrue statement of a material fact regarding such Selling Shareholder or omit to state a material fact regarding such Selling Shareholder required to such Selling Shareholder's knowledge to be stated therein or necessary in order to make the statements therein regarding such Selling Shareholder not misleading, and the Prospectuses (and any supplement thereto) (or, if the Prospectuses are not in existence, the most recent Preliminary Prospectuses) will not contain any untrue statement of a material fact regarding such Selling Shareholder or omit to state a material fact regarding such Selling Shareholder required to such Selling Shareholder's knowledge to be stated therein or necessary in order to make the statements therein regarding such Selling 14 Shareholder, in light of the circumstances under which they were made, not misleading, and such Selling Shareholder is unaware of any material misstatement in or omission from the Registration Statement or the Prospectuses (or, if the Prospectuses are not in existence, the most recent Preliminary Prospectuses) or of any material adverse information regarding such Selling Shareholder and his, her or its security holdings which is not set forth in the Registration Statement and the Prospectuses (or, if the Prospectuses are not then in existence, the most recent Preliminary Prospectuses). v) Such Selling Shareholder has not taken, directly or indirectly, any action designed to stabilize or manipulate the price of any security of the Company, or which has constituted or which might in the future reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of the Selling Shareholders' Shares or the Securities or otherwise. vi) There is not pending or threatened against such Selling Shareholder any action, suit or proceeding which (A) questions the validity of this Agreement, the Stock Power, the Power of Attorney, the Escrow Agreement, the Custody Agreement or of any action taken or to be taken by such Selling Shareholder pursuant to or in connection with this Agreement, the Stock Power, the Power of Attorney, the Escrow Agreement or the Custody Agreement or (B) is required to be disclosed in the Registration Statement which is not so disclosed, and such actions, suits or proceedings as are summarized in the Registration Statement if any, are accurately summarized. vii) Such Selling Shareholder has taken all action required to be taken by such Selling Shareholder so that on the second business day after the date of this Agreement, certificates in negotiable form for the Selling Shareholders' Shares to be sold by such Selling Shareholder under this Agreement on the Closing Date, together with the Stock Power or Powers duly endorsed in blank by such Selling Shareholder, will have been placed in custody with the Custodian for the purpose of effecting delivery hereunder and thereunder pursuant to the terms of the Escrow Agreement. viii) Except as set forth in the Prospectuses or waived in connection with the offering of the Securities, such Selling Shareholder does not have any registration rights or other similar rights with respect to any securities of the Company or the Subsidiary; and such Selling Shareholder does not have any right of first refusal or other similar right to purchase any securities of the Company upon the issuance or sale thereof by the Company or upon the sale thereof by any other shareholder of the Company. ix) Such Selling Shareholder has not since the filing of the initial Registration Statement (i) sold, bid for, purchased, attempted to induce any person to purchase, or paid anyone any compensation for soliciting purchases of, 15 any securities of the Company, or (ii) paid or agreed to pay to any person any compensation for soliciting another to purchase any securities of the Company (except for the sale of the Selling Shareholders' Shares to the Underwriters under this Agreement and except as otherwise permitted by law). x) Any certificate signed by or on behalf of such Selling Shareholder and delivered to the Underwriters shall be deemed a representation and warranty by such Selling Shareholder to the Underwriters as to the matters covered thereby. 2. Purchase, Sale and Delivery of the Securities. (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company and the Selling Shareholders agree to sell to each Underwriter, and each Underwriter agree to purchase from the Company and the Selling Shareholders, at a price equal to $____ per Unit [90% of the initial public offering price per Unit], that number of Firm Units set forth in Schedule A opposite the name of such Underwriter, subject to adjustment as the Representative in its sole discretion shall make to eliminate any sales or purchases of fractional shares, plus any additional number of Firm Units which such Underwriter may become obligated to purchase pursuant to the provisions of Section 12 hereof. The Company agrees to reimburse to each Selling Shareholder $ [10% of the initial public offering price per Unit] per Unit sold by each Selling Shareholder. (b) In addition, on the basis of the representations, warranties, covenants and agreement, herein contained, but subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters to purchase all or any part of the Option Units at a price equal to $________ per Unit [90% of the initial public offering price per Unit]. The option granted hereby will expire forty-five (45) days after (i) the date the Registration Statement becomes effective, if the Company has elected not to rely on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement if the Company has elected to rely upon Rule 430A under the Rules and Regulations, and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Firm Units upon notice by the Representative to the Company setting forth the number of Option Units as to which the Representative is then exercising the option and the time and date of payment and delivery for any such Option Units. Any such time and date of delivery (an "Option Closing Date") shall be determined by the Representative, but shall not be later than seven (7) full business days after the exercise of said option, nor in any event prior to the Closing Date, unless otherwise agreed upon by the Representative and the Company. Nothing herein contained shall obligate the Representative to exercise the option granted hereby. No Option Units shall be delivered unless the Firm Units shall be simultaneously delivered or shall theretofore have been delivered as herein provided. (c) Payment of the purchase price for, and delivery of certificates for, the Firm Units shall be made at the offices of the Representative at 33 Maiden Lane, New York, New York 10038, or at such other place as shall be agreed upon by the Representative, the 16 Selling Shareholders and the Company. Such delivery and payment shall be made at 10:00 a.m. (New York City time) on _________, 1996 or at such other time and date as shall be agreed upon by the Representative, the Selling Shareholders and the Company, but not less than three (3) nor more than seven (7) full business days after the effective date of the Registration Statement (such time and date of payment and delivery being herein called the "Closing Date"). In addition, in the event that any or all of the Option Units are purchased by the Representative, payment of the purchase price for, and delivery of certificates for, such Option Units shall be made at the above mentioned office of the Representative or at such other place as shall be agreed upon by the Representative, the Selling Shareholders and the Company. Delivery of the certificates for the Firm Units and the Option Units, if any, shall be made to the Representative against payment by the Representative of the purchase price for the Firm Units and the Option Units, if any, to the order of the Company by New York Clearing House funds. Certificates for the Firm Units and the Option Units, if any, shall be in definitive, fully registered form, shall bear no restrictive legends and shall be in such denominations and registered in such names as the Representative may request in writing at least two (2) business days prior to the Closing Date or the relevant Option Closing Date, as the case may be. The certificates for the Firm Units and the Option Units, if any, shall be made available to the Representative at such offices or such other place as the Representative may designate for inspection, checking and packaging no later than 9:30 a.m. on the last business day prior to the Closing Date or the relevant Option Closing Date, as the case may be. (d) On the Closing Date, the Company shall issue and sell to the Representative or its designees the Representative's Warrants for an aggregate purchase price of $14.00, which warrants shall entitle the holders thereof to purchase an aggregate of an additional 140,000 Units. The Representative's Warrants shall be exercisable for a period of four (4) years commencing one (1) year from the effective date of the Registration Statement at a price equaling one hundred and twenty percent (120%) of the initial public offering price of the Units. The Representative's Warrant Agreement and the form of the certificates for the Representative's Warrant shall be substantially in the form filed as Exhibit ____ to the Registration Statement. Payment for the Representative's Warrants shall be made on the Closing Date. 3. Public Offering of the Units. As soon after the Registration Statement becomes effective as the Representative deems advisable, the Underwriters shall make a public offering of the Firm Units and such of the Option Units as the Representative may determine (other than to residents of or in any jurisdiction in which qualification of the Units is required and has not become effective) at the price and upon the other terms set forth in the Prospectus. The Representative may from time to time increase or decrease the public offering price after distribution of the Units has been completed to such extent as the Representative, in its sole discretion, deems advisable. The Representative may enter into one or more agreements as the Representative, in its sole discretion, deems advisable with one or more broker-dealers who shall act as dealers in connection with such public offering. 17 4. Covenants and Agreements of the Company and each Selling Shareholder. (a) The Company covenants and agrees with the Underwriters as follows: i) The Company shall use its best efforts to cause the Registration Statement and any amendments thereto to become effective as promptly as practicable and will not at any time, whether before or after the effective date of the Registration Statement, file any amendment to the Registration Statement or supplement to the Prospectus or file any document under the Act or the Exchange Act before termination of the offering of the Securities to the public by the Underwriters of which the Representative shall not previously have been advised and furnished with a copy, or to which the Representative shall have objected or which is not in compliance with the Act, the Exchange Act and the Rules and Regulations. ii) As soon as the Company is advised or obtains knowledge thereof, the Company will advise the Representative and confirm the same in writing, (i) when the Registration Statement, as amended, becomes effective, when any post-effective amendment to the Registration Statement becomes effective and, if the provisions of Rule 430A promulgated under the Act will be relied upon, when the Prospectus has been filed in accordance with said Rule 430A, (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding the outcome of which may result in the suspension of the effectiveness of the Registration Statement or any order preventing or suspending the use of the Preliminary Prospectus or the Prospectus, or any amendment or supplement thereto, or the institution of any proceedings for that purpose, (iii) of the issuance by the Commission or by any state securities commission of any proceedings for the suspension of the qualification of any of the Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose, (iv) of the receipt of any comments from the Commission, and (v) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information. If the Commission or any state securities regulatory authority shall enter a stop order or suspend such qualification at any time, the Company will make every effort to obtain promptly the lifting of such order. iii) The Company shall file the Prospectus (in form and substance satisfactory to the Representative) with the Commission, or transmit the Prospectus by a means reasonably calculated to result in filing the same with the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or, if applicable and if consented to by the Representative, pursuant to Rule 424(b)(4) of the Rules and Regulations) within the time period specified in Rule 424(b)(1) (or, if applicable and if consented to by the Representative, Rule 424(b)(4)). iv) The Company will give the Representative notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use in connection with the offering of any of the Securities which differs from the corresponding prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will furnish the 18 Representative with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement to which the Representative or Orrick, Herrington & Sutcliffe, its counsel ("Underwriters' Counsel"), shall object. v) The Company shall endeavor in good faith, in cooperation with the Representative, at or prior to the time the Registration Statement becomes effective, to qualify the Securities for offering and sale under the securities laws of such jurisdictions as the Representative may reasonably designate to permit the continuance of sales and dealings therein for as long as may be necessary to complete the distribution contemplated hereby, and shall make such applications, file such documents and furnish such information as may be required for such purpose; provided, however, the Company shall not be required to qualify as a foreign corporation or file a general or limited consent to service of process in any such jurisdiction. In each jurisdiction where such qualification shall be effected, the Company will, unless the Representative agrees that such action is not at the time necessary or advisable, use all reasonable efforts to file and make such statements or reports at such times as are or may reasonably be required by the laws of such jurisdiction to continue such qualification. vi) During the time when a prospectus is required to be delivered under the Act, the Company shall use all reasonable efforts to comply with all requirements imposed upon it by the Act, the Exchange Act and the Rules and Regulations so far as necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and the Prospectus, or any amendments or supplements thereto. If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or Underwriters' Counsel, the Prospectus, as then amended or supplemented, 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, in the light of the circumstances in which they were made, not misleading, or if it is necessary at any time to amend or supplement the prospectus to comply with the Act, the Company will notify the Representative promptly and prepare and file with the Commission an appropriate amendment or supplement in accordance with Section 10 of the Act, each such amendment or supplement to be satisfactory to Underwriters' Counsel, and the Company will furnish to the Representative copies of such amendment or supplement as soon as available and in such quantities as the Representative may request. vii) As soon as practicable, but in any event not later than forty five (45) days after the end of the 12-month period beginning on the day after the end of the fiscal quarter of the Company during which the effective date of the Registration Statement occurs (ninety (90) days in the event that the end of such fiscal quarter is the end of the Company's fiscal year), the Company shall make generally available to its security holders, in the manner specified in Rule 158(b) of the Rules and Regulations, and to the Representative, an earnings statement which will be in the detail required by, and will otherwise comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, which statement need not be audited unless required by the Act, covering a period of at least twelve (12) consecutive months after the effective date of the Registration Statement. 19 viii) During a period of seven (7) years after the date hereof, the Company will furnish to its stockholders, as soon as practicable, annual reports (including financial statements audited by independent public accountants) and unaudited quarterly reports of earnings and will deliver to the Representative: a. concurrently with furnishing such quarterly reports to its stockholders statements of income of the Company for such quarter in the form furnished to the Company's stockholders and certified by the Company's principal financial and accounting officer; b. concurrently with furnishing such annual reports to its stockholders, a balance sheet of the Company as at the end of the preceding fiscal year, together with statements of operations, stockholders' equity and cash flows of the Company for such fiscal year, accompanied by a copy of the report thereon of the Company's independent certified public accountants; c. as soon as they are available, copies of all reports (financial or other) mailed to stockholders; d. as soon as they are available, copies of all reports and financial statements furnished to or filed with the Commission, the NASD or any securities exchange; e. every press release and every material news item or article of interest to the financial community in respect of the Company or its affairs which was released or prepared by or on behalf of the Company; and f. any additional information of a public nature concerning the Company (and any future subsidiaries) or its business which the Representative may request. During such seven-year period, if the Company has active subsidiaries, the foregoing financial statements will be on a consolidated basis to the extent that the accounts of the Company and its subsidiaries are consolidated, and will be accompanied by similar financial statements for any significant subsidiary which is not so consolidated. ix) The Company will maintain a transfer and warrant agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar (which may be the same entity as the transfer agent) for the Units, the Common Stock and the Redeemable Warrants. x) The Company will furnish to the Representative, without charge and at such place as the Representative may designate, copies of each Preliminary Prospectus, the Registration Statement and any pre-effective or post-effective amendments thereto (one of 20 which will be signed and will include all financial statements and exhibits), the Prospectus, and all amendments and supplements thereto, including any prospectus prepared after the effective date of the Registration Statement, in each case as soon as available and in such quantities as the Representative may request. xi) On or before the effective date of the Registration Statement, the Company shall provide the Representative with originally-executed copies of duly executed, legally binding and enforceable Lock-Up Agreements which are in form and substance satisfactory to the Representative. On or before the Closing Date, the Company shall deliver instructions to its transfer agent authorizing such transfer agent to place appropriate legends on the certificates representing the securities of the Company subject to the Lock-Up Agreements and to place appropriate stop transfer orders on the Company's ledgers. xii) The Company agrees that, for a period of eighteen (18) months commencing on the effective date of the Registration Statement, and except as contemplated by this Agreement, it and its present and future subsidiaries will not, without the prior written consent of the Representative (i) issue, sell, contract or offer to sell, grant an option for the purchase or sale of, assign, transfer, pledge, distribute or otherwise dispose of, directly or indirectly, any shares of capital stock or any option, right or warrant with respect to any shares of capital stock or any security convertible, exchangeable or exercisable for capital stock, except pursuant to stock options or warrants issued by the Company or any other person or entity on the date hereof, or (ii) file any registration statement for the offer or sale by the Company or any other person or entity, securities issued or to be issued by the Company or any present or future subsidiaries. xiii) Neither the Company nor any of the Subsidiaries nor any of their respective officers, directors, stockholders or affiliates (within the meaning of the Rules and Regulations) will take, directly or indirectly, any action designed to stabilize or manipulate the price of any securities of the Company, or which might in the future reasonably be expected to cause or result in the stabilization or manipulation of the price of any such securities. xiv) The Company shall apply the net proceeds from the sale of the Securities offered to the public in the manner set forth under "Use of Proceeds" in the Prospectus. No portion of the net proceeds will be used, directly or indirectly, to acquire any securities issued by the Company. xv) The Company shall timely file all such reports, forms or other ocuments as may be required (including, but not limited to, any Form SR required by Rule 463 under the Act) from time to time under the Act, the Exchange Act, and the Rules and Regulations, and all such reports, forms and documents will comply as to form and substance with the applicable requirements under the Act, the Exchange Act and the Rules and Regulations. xvi) The Company shall furnish to the Representative as early as practicable prior to each of the date hereof, the Closing Date and each Option Closing Date, if any, but no later than two (2) full business days prior thereto, a copy of the latest available 21 unaudited interim financial statements of the Company (which in no event shall be as of a date more than thirty (30) days prior to the date hereof, the Closing Date or the relevant Option Closing Date, as the case may be) which have been read by the Company's independent public accountants, as stated in their letters to be furnished pursuant to Section 6(j) hereof. xvii) The Company shall cause the Units, the Common Stock and the Redeemable Warrants to be quoted on Nasdaq and listed on the Boston Stock Exchange and, for a period of seven (7) years from the date hereof, use its best efforts to maintain the Nasdaq quotation and the Boston Stock Exchange listing of the Units, the Common Stock and the Redeemable Warrants to the extent outstanding. xviii) For a period of five (5) years from the Closing Date, the Company shall, at the request of the Representative, furnish or cause to be furnished to the Representative and at the Company's sole expense, (i) daily consolidated transfer sheets relating to the Units, the Common Stock and the Redeemable Warrants and (ii) a list of holders of all of the Company's securities. xix) For a period of five (5) years from the Closing Date, the Company shall, at the Company's sole expense, (i) promptly provide the Representative, upon any and all requests of the Representative, with a "blue sky trading survey" for secondary sales of the Company's securities, prepared by counsel to the Company, and (ii) take all necessary and appropriate actions to further qualify the Company's securities in all jurisdictions of the United States in order to permit secondary sales of such securities pursuant to the "blue sky" laws of those jurisdictions, provided that such jurisdictions do not require the Company to qualify as a foreign corporation. xx) As soon as practicable, but in no event more than thirty (30) days after the effective date of the Registration Statement, the Company agrees to take all necessary and appropriate actions to be included in Standard and Poor's Corporation Descriptions and Moody's OTC Manual and to continue such inclusion for a period of not less than seven (7) years. xxi) Without the prior written consent of the Representative, the Company hereby agrees that it will not, for a period of twenty-four (24) months from the effective date of the Registration Statement, (i) adopt, propose to adopt or otherwise permit to exist any employee, officer, director, consultant or compensation plan or arrangement permitting the grant, issue, sale or entry into any agreement to grant, issue or sell any option, warrant or other contract right except for (a) an aggregate of 250,000 options, at an exercise price equal to or greater than the fair market value on the date of grant, which may be granted to management personnel on or after June 30, 1997, if the Company has at least $2,000,000 in pre-tax earnings for the year ended June 30, 1997, as reported to the public in the Company's Form 10-K for the year ended June 30, 1997, (b) an aggregate of 250,000 options, at an exercise price equal to or greater than the fair market value on the date of grant, which may be granted to management personnel on or after June 30, 1998, if the Company has at least $5,600,000 in pre-tax earnings for the year ended June 30, 1998 as reported to the public in the Company's Form 10-K for the year ended June 30, 1998, (c) options to purchase up to an aggregate of 500,000 22 shares of Common Stock which shall (x) have an exercise price per share no less than the greater of (a) the initial public offering price of the Units set forth herein and (b) the fair market value of the Common Stock on the date of grant and (y) not be granted to any existing officers, directors, employees or consultants of the Company (other than those individuals listed on Schedule 4(a)(xxi) hereto) or to any direct or indirect beneficial holder on the date hereof of more than 5% of the issued and outstanding shares of Common Stock, or any holder of five percent (5%) or more of the Common Stock as the result of the exercise or conversion of equivalent securities, including, but not limited to options, warrants or other contract rights and securities convertible, directly or indirectly, into shares of Common Stock or any affiliate of the foregoing; (ii) permit the maximum number of shares of Common Stock or other securities of the Company purchasable at any time pursuant to options, warrants or other contract rights to exceed 750,000 shares of Common Stock, excluding the Representative's Warrants and the Redeemable Warrants; (iii) permit the existence of stock appreciation rights, phantom options or similar arrangements; (iv) permit the payment of less than the full purchase price or exercise price for such securities of the Company; or (v) permit the payment for such securities with any form of consideration other than cash. xxii) Until the completion of the distribution of the Units to the public, and during any period during which a prospectus is required to be delivered, the Company shall not, without the prior written consent of the Representative, issue, directly or indirectly, any press release or other communication or hold any press conference with respect to the Company or its activities or the offering contemplated hereby, other than trade releases issued in the ordinary course of the Company's business consistent with past practices with respect to the Company's operations. xxiii) For a period of five (5) years after the effective date of the Registration Statement, the Company shall cause one (1) individual selected by the Representative, subject to the good faith approval of the Company, to be elected to the Board of Directors of the Company (the "Board"), if requested by the Representative. In the event the Representative shall not have designated such individual at the time of any meeting of the Board or such person has not been elected or is unavailable to serve, the Company shall notify the Representative of each meeting of the Board. An individual selected by the Representative shall be permitted to attend all meetings of the Board and to receive all notices and other correspondence and communications sent by the Company to members of the Board. The Company shall reimburse the Representative's designee for his or her out-of-pocket expenses reasonably incurred in connection with his or her attendance of the Board meetings. xxiv) Commencing one year from the date hereof, to pay the Representative a warrant solicitation fee equal to five percent (5%) of the exercise price of the Redeemable Warrants, payable on the date of the exercise thereof on terms provided in the Warrant Agreement. The Company will not solicit the exercise of the Redeemable Warrants through any solicitation agent other than the Representative. The Representative will not be entitled to any warrant solicitation fee unless the Representative provides bona fide services in connection with any warrant solicitation and the investor designates, in writing, that the Representative is entitled to such fee. 23 xxv) For a period equal to the lesser of (i) seven (7) years from the date hereof, and (ii) the sale to the public of the Representative's Securities, the Company will not take any action or actions which may prevent or disqualify the Company's use of Form SB-2 or S-1 (or other appropriate form) for the registration under the Act of the Representative's Securities. xxvi) For a period of twenty four (24) months after the effective date of the Registration Statement, the Company shall not restate, amend or alter any term of any written employment, consulting or similar agreement entered into between the Company and any officer, director or key employee as of the effective date of the Registration Statement in a manner which is more favorable to such officer, director or key employee, without the prior written consent of the Representative. xxvii) The Company will use its best efforts to maintain the effectiveness of the Registration Statement for a period of five years after the date hereof. xxviii) The Company agrees that, for a period of three (3) years beginning with the effective date of the Registration Statement, JSLP shall have a right of first refusal for all sales of any securities made by the Company or any of its present or future affiliates or subsidiaries. (b) Each Selling Shareholder severally covenants and agrees as to himself, herself or itself with the Underwriters that: i) Such Selling Shareholder will not, directly or indirectly, without the prior written consent of the Representative, offer, sell, grant any option to purchase or otherwise dispose (or announce any offer, sale, grant of any option to purchase or other disposition) of any shares of Common Stock or any securities convertible into, or exchangeable or exercisable for, shares of Common Stock for a period of 18 months after the date hereof except pursuant to this Agreement and the Lock-up Agreements and will not take, directly or indirectly, any action designed to, or which might in the foreseeable future reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities of the Company. ii) Such Selling Shareholder consents to the use of the Prospectus and any amendment or supplement thereto by the Underwriters and all dealers to whom the Selling Shareholders' Units may be sold, both in connection with the offering or sale of the Selling Shareholders' Units and for such period of time thereafter as such Prospectus is required by law to be delivered in connection therewith. iii) Such Selling Shareholder has reviewed the Registration Statement and the Prospectus and will comply with all agreements and satisfy all conditions on his, her or its part to be complied with or satisfied pursuant to this Agreement, the Stock Power, the Escrow Agreement, the Custody Agreement and the Power 24 of Attorney at or prior to the Closing Date, and will advise his, her or its Attorney-in-Fact prior to the Closing Date if any statement to be made on behalf of such Selling Shareholder in the certificates contemplated by Sections 6(f) and 6(h) hereof would be inaccurate if made as of such Closing Date. 5. Payment of Expenses. (a) The Company hereby agrees to pay (such payment to be made, at the discretion of the Representative, on the Closing Date and any Option Closing Date (to the extent not paid on the Closing Date or a previous Option Closing Date)) all expenses and fees (other than fees of Underwriters' Counsel) incident to the performance of the obligations of the Company and the Selling Shareholders under this Agreement, the Representative's Warrant Agreement and the Warrant Agreement (and in the case of the Selling Shareholders, under the Stock Power, the Escrow Agreement, the Custody Agreement and the Power of Attorney), including, without limitation, (i) the fees and expenses of accountants and counsel for the Company, (ii) all costs and expenses incurred in connection with the preparation, duplication, printing, (including mailing and handling charges) filing, delivery and mailing (including the payment of postage, overnight delivery or courier charges with respect thereto) of the Registration Statement and the Prospectus and any amendments and supplements thereto and the printing, mailing (including the payment of postage, overnight delivery or courier charges with respect thereto) and delivery of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement, the Escrow Agreement, the Custody Agreements, the Powers of Attorneys, and agreements with selected dealers, and related documents, including the cost of all copies thereof and of each Preliminary Prospectus and of the Prospectus and any amendments thereof or supplements thereto supplied to the Representative and such dealers as the Representative may request, in such quantities as the Representative may request, (iii) the printing, engraving, issuance and delivery of the Securities, (iv) the qualification of the Securities under state or foreign securities or "blue sky" laws and determination of the status of such securities under legal investment laws, including the costs of printing and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments Survey," if any, and disbursements and fees of counsel in connection therewith, (v) advertising costs and expenses, including, but not limited to costs and expenses in connection with "road shows," information meetings and presentations, bound volumes and prospectus memorabilia and "tombstone" advertisement expenses, (vi) costs and expenses in connection with due diligence investigations, including, but not limited to, the fees of any independent counsel or consultants, (vii) fees and expenses of a transfer and warrant agent and registrar for the Securities, (viii) applications for assignments of a rating of the Securities by qualified rating agencies, (ix) the fees payable to the Commission and the NASD, and (x) the fees and expenses incurred in connection with the quotation of the Securities on Nasdaq and listing on the Boston Stock Exchange and any other exchange. (b) If this Agreement is terminated by the Representative in accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof, the Company shall reimburse and indemnify the Representative for all of its actual out-of-pocket expenses, including the fees and disbursements of Underwriters' Counsel, less any amounts already paid pursuant to Section 5(c) hereof. 25 (c) The Company further agrees that, in addition to the expenses payable pursuant to Section 5(a) hereof, it will pay to the Representative on the Closing Date by certified or bank cashier's check, or, at the election of the Representative, by deduction from the proceeds of the offering of the Firm Units, a non-accountable expense allowance equal to three percent (3%) of the gross proceeds received by the Company and the Selling Shareholders from the sale of the Firm Units, twenty-five thousand dollars ($25,000) of which has been paid to date by the Company. In the event the Representative elects to exercise the overallotment option described in Section 2(b) hereof, the Company further agrees to pay to the Representative on each Option Closing Date, by certified or bank cashier's check, or, at the Representative's election, by deduction from the proceeds of the Option Units purchased on such Option Closing Date, a non-accountable expense allowance equal to three percent (3%) of the gross proceeds received by the Company from the sale of such Option Units. 6. Conditions of the Underwriters' Obligations. The obligations of the Underwriters hereunder shall be subject to the continuing accuracy of the representations and warranties of the Company and the Selling Shareholders herein as of the date hereof and as of the Closing Date and each Option Closing Date, if any, as if they had been made on and as of the Closing Date and each Option Closing Date, as the case may be; the accuracy on and as of the Closing Date and each Option Closing Date, if any, of the statements of officers of the Company and the Selling Shareholders made pursuant to the provisions hereof; the performance by the Company and the Selling Shareholders on and as of the Closing Date and each Option Closing Date, if any, of its covenants and obligations hereunder; and to the following further conditions: (a) The Registration Statement shall have become effective not later than 12:00 p.m., New York time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at the Closing Date and each Option Closing Date, if any, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Underwriters' Counsel. If the Company has elected to rely upon Rule 430A of the Rules and Regulations, the price of the Units and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules and Regulations within the prescribed time period, and prior to the Closing Date the Company shall have provided evidence satisfactory to the Representative of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the Rules and Regulations. (b) The Representative shall not have advised the Company that the Registration Statement, or any amendment thereto, contains an untrue statement of fact which, in the Representative's opinion, is material, or omits to state a fact which, in the Representative's opinion, is material and is required to be stated therein or is necessary to make the statements therein, in light of the circumstances in which they were made not misleading, or that the Prospectus, or any supplement thereto, contains an untrue statement of fact which, 26 in the Representative's opinion, is material, or omits to state a fact which, in the Representative's opinion, is material and is required to be stated therein or is necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. (c) On or prior to the Closing Date, the Representative shall have received from Underwriters' Counsel such opinion or opinions with respect to the organization of the Company, the validity of the Securities, the Registration Statement, the Prospectus and such other related matters as the Representative may request and Underwriters' Counsel shall have received such papers and information as they may request in order to enable them to pass upon such matters. (d) On the Closing Date, the Underwriters shall have received the favorable opinion of Camhy Karlinsky & Stein LLP, counsel to the Company, dated the Closing Date, addressed to the Underwriters, in form and substance satisfactory to Underwriters' Counsel, to the effect that: i) each of the Company and the Subsidiaries (A) has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, (B) is duly qualified and licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing, and (C) has all requisite power and authority (corporate and other) and has obtained any and all necessary authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, those having jurisdiction over environmental or similar matters), to own or lease its properties and conduct its business as described in the Prospectus; each of the Company and the Subsidiaries is and has been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits obtained by it from governmental or regulatory officials and agencies and all federal, state, local and foreign laws, rules and regulations to which it is subject; and, none of the Company nor any of the Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially and adversely affect the condition, financial or otherwise, or the earnings, prospects, stockholders' equity, value, operations, properties, business or results of operations of the Company or the Subsidiaries. The disclosure in the Registration Statement concerning the effects of federal, state, local and foreign laws, rules and regulations on the Company's and the Subsidiaries' business as currently conducted and as contemplated are correct in all respects and do not omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; 27 ii) except as set forth in the Prospectus, none of the Company nor the Subsidiaries own, directly or indirectly, an interest in any corporation, partnership, joint venture, trust or other business entity; iii) the Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus under "Capitalization" and except as set forth in the Prospectus, none of the Company or any of the Subsidiaries is a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the Representative's Warrant Agreement and the Warrant Agreement and as described in the Prospectus. The Securities and all other securities issued or issuable by the Company conform, or when issued and paid for, will conform, in all respects to the descriptions thereof contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company and the Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or any of the Subsidiaries or any similar contractual right granted by the Company or any of the Subsidiaries. The Securities to be sold by the Company hereunder and under the Representative's Warrant Agreement and the Warrant Agreement are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof and thereof, will be validly issued, fully paid and non-assessable and conform to the descriptions thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely as such holders; all corporate action required to be taken for the authorization, issue and sale of the Securities has been duly and validly taken; and the certificates representing the Securities are in due and proper form. The Representative's Warrants constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the number and type of securities of the Company called for thereby. Upon the issuance and delivery pursuant to this Agreement, the Representative's Warrant Agreement and the Warrant Agreement of the Securities to be sold by the Company hereunder and thereunder, the Representative will acquire good and marketable title to such Securities, free and clear of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever asserted against the Company or any affiliate (within the meaning of the Rules and Regulations) of the Company. No transfer tax is payable by or on behalf of the Underwriters in connection with (A) the issuance by the Company of the Securities, (B) the purchase by the Underwriters of the Securities from the Company, (C) the consummation by the Company of any of its obligations under this Agreement, the Representative's Warrant Agreement or the Warrant Agreement, or (D) resales of the Securities in connection with the distribution contemplated hereby; 28 iv) the Registration Statement is effective under the Act, and, if applicable, filing of all pricing information has been timely made in the appropriate form under Rule 430A, and no stop order suspending the use of the Preliminary Prospectus, the Registration Statement or the Prospectus or any part of any thereof or suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending, threatened or contemplated under the Act; v) each of the Preliminary Prospectus, the Registration Statement, and the Prospectus and any amendments or supplements thereto (other than the financial statements and schedules and other financial and statistical data included therein, as to which no opinion need be rendered) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations; vi) to such counsel's knowledge, (A) there are no agreements, contracts or other documents required by the Act to be described in the Registration Statement and the Prospectus or required to be filed as exhibits to the Registration Statement (or required to be filed under the Exchange Act if upon such filing they would be incorporated, in whole or in part, by reference therein) other than those described in the Registration Statement and the Prospectus and filed as exhibits thereto, and the exhibits which have been filed are correct copies of the documents of which they purport to be copies; (B) the descriptions in the Registration Statement and the Prospectus and any supplement or amendment thereto of agreements, contracts and other documents to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound are accurate and fairly represent the information required to be shown by Form SB-2; (C) there is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding (including, without limitation, those pertaining to environmental or similar matters), domestic or foreign, pending or threatened against (or circumstances that may give rise to the same), or involving the properties or business of, the Company or any of the Subsidiaries which (I) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all respects), or (II) questions the validity of the capital stock of the Company or any of the Subsidiaries or of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement or the Consulting Agreement or of any action taken or to be taken by the Company pursuant to or in connection with any of the foregoing; (D) no statute or regulation or legal or governmental proceeding required to be described in the Prospectus is not described as required; and (E) there is no action, suit or proceeding pending or threatened against or affecting the Company or any of the Subsidiaries before any court, arbitrator or governmental body, agency or official (or any basis thereof known to such counsel) in which there is a reasonable possibility of an adverse decision which may result in a material adverse change in the condition, financial or otherwise, or the earnings, prospects, stockholders' equity, value, operation, properties, business or results 29 of operations of the Company or any of the Subsidiaries taken as a whole, which could adversely affect the present or prospective ability of the Company to perform its obligations under this Agreement, the Representative's Warrant Agreement, the Warrant Agreement or the Consulting Agreement or which in any manner draws into question the validity or enforceability of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement or the Consulting Agreement; vii) the Company has full legal right, power and authority to enter into each of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement and the Consulting Agreement and to consummate the transactions provided for herein and therein; and each of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement and the Consulting Agreement has been duly authorized, executed and delivered by the Company. Each of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement and the Consulting Agreement, assuming due authorization, execution and delivery by each other party thereto, constitutes a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as obligations to indemnify or contribute to losses may be limited by applicable law). None of the Company's execution or delivery of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement or the Consulting Agreement, its performance hereunder and thereunder, its consummation of the transactions contemplated herein and therein, or the conduct of the Company's or any of the Subsidiaries' business as described in the Registration Statement and the Prospectus and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company or any of the Subsidiaries pursuant to the terms of (A) the certificate of incorporation or by-laws of the Company or any of the Subsidiaries, (B) any license, contract, indenture, mortgage, lease, deed of trust, voting trust agreement, stockholders' agreement, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is or may be bound or to which their respective properties or assets (tangible or intangible) are or may be subject, (C) any statute applicable to the Company or any of the Subsidiaries or (D) any judgment, decree, order, rule or regulation applicable to the Company or any of the Subsidiaries of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including, without limitation, those having 30 jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over the Company or any of the Subsidiaries or any of their respective activities or properties; viii) no consent, approval, authorization or order of, and no filing with, any arbitrator, court, regulatory body, administrative agency, government agency or other body, domestic or foreign (other than such as may be required under "blue sky" laws, as to which no opinion need be rendered), is required in connection with the issuance of the Securities pursuant to the Prospectus, the Registration Statement, this Agreement, the Representative's Warrant Agreement and the Warrant Agreement, or the performance of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement and the Consulting Agreement and the transactions contemplated hereby and thereby; ix) the properties and business of the Company and the Subsidiaries conform to the description thereof contained in the Registration Statement and the Prospectus; and the Company and the Subsidiaries has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus to be owned or leased by it, in each case free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, other than those referred to in the Prospectus and liens for taxes not yet due and payable; x) none of the Company nor any of the Subsidiaries is in breach of, or in default under, any term or provision of any license, contract, indenture, mortgage, lease, deed of trust, voting trust agreement, stockholders' agreement, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is or may be bound or to which their respective property or assets (tangible or intangible) are or may be subject; and none of the Company or any of the Subsidiaries is in violation of any term or provision of (A) its certificate of incorporation or by-laws, (B) any authorization, approval, order, license, certificate, franchise or permit of any governmental or regulatory official or body, or (C) any judgement, decree, order, statute, rule or regulation to which it is subject; xi) the statements in the Prospectus under "PROSPECTUS SUMMARY," "RISK FACTORS," "THE COMPANY," "OFFER BY SELLING BRIDGE STOCKHOLDERS," "BUSINESS," "MANAGEMENT," "PRINCIPAL AND SELLING STOCKHOLDERS," "SELLING BRIDGE STOCKHOLDERS," "CERTAIN TRANSACTIONS," "SHARES ELIGIBLE FOR FUTURE SALE," and "DESCRIPTION OF SECURITIES" have been reviewed by such counsel, and insofar as they refer to statements of law, descriptions of statutes, licenses, rules or regulations or legal conclusions, are correct in all material respects; 31 xii) the Units, the Common Stock and the Redeemable Warrants have been accepted for quotation on Nasdaq and listing on the Boston Stock Exchange; xiii) each of the Company and the Subsidiaries owns or possesses, free and clear of all liens or encumbrances and right thereto or therein by third parties, the requisite licenses or other rights to use all trademarks, service marks, copyrights, service names, tradenames, patents, patent applications and licenses necessary to conduct their respective business (including without limitation any such licenses or rights described in the Prospectus as being owned or possessed by the Company or any of the Subsidiaries) and there is no claim or action by any person pertaining to, or proceeding, pending or threatened, which challenges the exclusive rights of the Company or any of the Subsidiaries with respect to any trademarks, service marks, copyrights, service names, trade names, patents, patent applications and licenses used in the conduct of the Company's or any of the Subsidiaries' business (including, without limitation, any such licenses or rights described in the Prospectus as being owned or possessed by the Company or any of the Subsidiaries); xiv) the persons listed under the captions "Principal and Selling Stockholders" and "Selling Bridge Stockholders" in the Prospectus are the respective "beneficial owners" (as such phrase is defined in Rule 13d-3 under the Exchange Act) of the securities set forth opposite their respective names thereunder as and to the extent set forth therein; xv) except as disclosed in the Prospectus, no person, corporation, trust, partnership, association or other entity has the right to include and/or register any securities of the Company in the Registration Statement, require the Company to file any registration statement or, if filed, to include any security in such registration statement; xvi) there are no claims, payments, issuances, arrangements or understandings, whether oral or written, for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or financial consulting arrangement or any other arrangements, agreements, understandings, payments or issuances that may affect the Underwriters' compensation, as determined by the NASD; and xvii) assuming due execution by the parties thereto, the Lock-Up Agreements are legal, valid and binding obligations of the parties thereto, enforceable against such parties and any subsequent holder of the securities subject thereto in accordance with their terms. Such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company and representatives of the independent public accountants for the Company, at which conferences such counsel made inquiries of such officers, representatives and accountants and discussed the contents of the Preliminary Prospectus, the 32 Registration Statement, the Prospectus and related matters and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Preliminary Prospectus, the Registration Statement or the Prospectus, on the basis of the foregoing, no facts have come to the attention of such counsel which lead them to believe that either the Registration Statement or any amendment thereto, at the time such Registration Statement or amendment became effective, or the Preliminary Prospectus or the Prospectus, or any amendment or supplement thereto, as of the date of the Preliminary Prospectus and the Prospectus, and as of the date of such opinion, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and schedules and other financial and statistical data included in the Preliminary Prospectus, the Registration Statement or the Prospectus, or any supplements or amendments thereto). In rendering such opinion, such counsel may rely (a) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance satisfactory to Underwriters' Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the applicable laws; and (b) as to matters of fact, to the extent they deem proper, on certificates and written statements of responsible officers of the Company and certificates or other written statements of officers of departments of jurisdictions having custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel, if requested. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and that the Representative and they are justified in relying thereon. Such opinion shall also state that the Underwriters' Counsel is entitled to rely thereon. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991) or any comparable state accord. Reference to the Registration Statement and the Prospectuses in this subsection (d) shall include any amendment or supplement thereto at the date of such opinion. (e) On the Closing Date, the Underwriters shall have received the favorable opinion of Camhy Karlinsky & Stein LLP, in its capacity as counsel for the Selling Shareholders, dated the Closing Date, addressed to the Underwriters, in form and substance satisfactory to Underwriters' Counsel, to the effect that: i) Each Selling Shareholder has full legal right, power and authority to enter into this Agreement and to sell, assign, transfer and deliver in the manner provided herein the Selling Shareholders' Shares sold by such Selling Shareholder; this Agreement has been duly authorized, executed and delivered by such Selling Shareholder; and this Agreement, assuming due authorization, 33 execution and delivery by each other party hereto and further assuming it is a valid and binding agreement of the Underwriters, is a valid and legally binding agreement of such Selling Shareholder, enforceable against such Selling Shareholder in accordance with its terms (except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally and by general principles of equity relating to the availability of remedies and except its rights to indemnity and contribution may be limited by applicable law); ii) None of the execution, delivery or performance of this Agreement, the Stock Power, the Power of Attorney, the Escrow Agreement and the Custody Agreement by such Selling Shareholder and the consummation by such Selling Shareholder of the transactions herein and therein contemplated, to the best of such counsel's knowledge, conflict with or result in a breach of, or default under, any indenture, mortgage, deed of trust, voting trust agreement, stockholders agreement, note agreement or other agreement or other instrument to which such Selling Shareholder is a party or by which such Selling Shareholder is bound or to which any of the property of any of the Selling Shareholders is subject, or the charter or by-laws of any of the Selling Shareholders that are corporations, and nothing has come to such counsel's attention which causes such counsel to believe that such actions will result in any violation of any law, rule, administrative regulation or court decree applicable to such Selling Shareholder (other than state securities or blue sky laws or regulations, as to which counsel need not express any opinion); iii) A Stock Power, Power of Attorney, Escrow Agreement and the Custody Agreement have been duly authorized, executed and delivered by each Selling Shareholder and, assuming the due authorization, execution and delivery of the Custody Agreement by the other parties thereto, each constitutes the valid and binding agreement of each Selling Shareholder enforceable in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally and by general principles of equity relating to availability of remedies and except as rights to indemnity or contribution may be limited by applicable law); and iv) Upon the delivery of the Selling Shareholders' Shares to be included in the Selling Shareholders' Units and sold hereunder by the Selling Shareholders and payment therefor in accordance with the terms of this Agreement, the Underwriters will have acquired all rights of such Selling Shareholder to the Selling Shareholders' Shares sold by such Selling Shareholder hereunder, and in addition will have acquired good and marketable title to such Selling Shareholders' Shares free and clear of any adverse claim. Reference to the Registration Statement and the Prospectuses in this subsection (e) shall include any amendment or supplement thereto at the date of such opinion. 34 (f) On the Closing Date, the Underwriters shall have received a certificate, dated the Closing Date, from each Selling Shareholder (which may be signed by the Attorney-in-Fact) to the effect that each such Selling Shareholder has carefully examined the Registration Statement and the Prospectus and this Agreement, and that: i) The representations and warranties of such Selling Shareholder in this Agreement are true and correct, as if made at and as of the Closing Date, and such Selling Shareholder has complied with all the agreements and satisfied all the conditions to be performed or satisfied by such Selling Shareholder at or prior to the Closing Date; and ii) The Registration Statement and Prospectuses and, if any, each amendment and each supplement thereto, contain all statements required to be included therein regarding such Selling Shareholder, and none of the Registration Statement nor any amendment thereto includes any untrue statement of material fact regarding such Selling Shareholder or omits to state any material fact regarding such Selling Shareholder required to such Selling Shareholder's knowledge to be stated therein necessary to make the statements therein regarding such Selling Shareholder not misleading, and no Prospectus (and any supplements thereto) or any Preliminary Prospectus includes or included any untrue statement of a material fact regarding such Selling Shareholder or omits or omitted to state a material fact regarding such Selling Shareholder to be stated therein or necessary in order to make the statements therein regarding such Selling Shareholder, in light of the circumstances under which they were made, not misleading. (g) At each Option Closing Date, if any, the Underwriters shall have received the favorable opinion of Camhy Karlinsky & Stein LLP, counsel to the Company, dated the relevant Option Closing Date, addressed to the Underwriters, and in form and substance satisfactory to Underwriters' Counsel confirming as of the Option Closing Date, the statements made by Camhy Karlinsky & Stein LLP in its opinion delivered on the Closing Date. (h) On or prior to each of the Closing Date and each Option Closing Date, if any, Underwriters' Counsel shall have been furnished with such documents, certificates and opinions as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in Section 6(c) hereof, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions of the Company and the Selling Shareholders herein contained. (i) Prior to the Closing Date and each Option Closing Date, if any, (i) there shall have been no material adverse change or development involving a prospective adverse change in the condition, financial or otherwise, or the earnings, stockholders' equity, value, operations, properties, business or results of operations of the Company or any of the Subsidiaries, whether or not in the ordinary course of business, from the latest dates as of which such matters are set forth in the Registration Statement and the Prospectus; (ii) there shall have been no transaction, not in the ordinary course of business, entered into by the Company or any 35 of the Subsidiaries from the latest date as of which the financial condition of the Company is set forth in the Registration Statement and the Prospectus; (iii) none of the Company nor any of the Subsidiaries shall be in default under any provision of any instrument relating to any outstanding indebtedness; (iv) none of the Company nor any of the Subsidiaries shall have issued any securities (other than the Securities) or declared or paid any dividend or made any distribution in respect of its capital stock of any class and there shall not have been any change in the capital stock, debt (long or short term) or liabilities or obligations of the Company (contingent or otherwise) from the latest dates as of which such matters are set forth in the Registration Statement and the Prospectus; (v) no material amount of the assets of the Company or any of the Subsidiaries shall have been pledged or mortgaged, except as set forth in the Registration Statement and the Prospectus; (vi) no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental or other proceeding, domestic or foreign, shall be pending or threatened (or circumstances giving rise to same) against the Company or any of the Subsidiaries or affecting any of their respective properties or business before or by any court or federal, state or foreign commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may materially and adversely affect the condition, financial or otherwise, or the earnings, stockholders' equity, value, operations, properties, business or results of operations of the Company or the Subsidiaries taken as a whole, except as set forth in the Registration Statement and Prospectus; and (vii) no stop order shall have been issued under the Act with respect to the Registration Statement and no proceedings therefor shall have been initiated, threatened or contemplated by the Commission. (j) At the Closing Date and each Option Closing Date, if any, the Underwriters shall have received a certificate of the Company signed by the principal executive officer and by the chief financial or chief accounting officer of the Company, dated the Closing Date or the relevant Option Closing Date, as the case may be, to the effect that each of such persons has carefully examined the Registration Statement, the Prospectus and this Agreement, and that: i) The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the Closing Date or the Option Closing Date, as the case may be, and the Company has complied with all agreements and covenants and satisfied all conditions contained in this Agreement on its part to be performed or satisfied at or prior to such Closing Date or Option Closing Date, as the case may be; ii) No stop order suspending the effectiveness of the Registration Statement or any part thereof has been issued, and no proceedings for that purpose have been instituted or are pending or, to the best of each of such person's knowledge, are contemplated or threatened under the Act; iii) The Registration Statement and the Prospectus and, if any, each amendment and each supplement thereto contain all statements and information required to be included therein, and none of the Registration Statement, the Prospectus or any amendment or supplement thereto includes any untrue statement of a material fact or omits to state any material fact required to be stated therein 36 or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading and neither the Preliminary Prospectus nor any supplement thereto included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; and iv) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (A) none of the Company nor any of the Subsidiaries has incurred any material liabilities or obligations, direct or contingent; (B) none of the Company nor any of the Subsidiaries has paid or declared any dividends or other distributions on its capital stock; (C) none of the Company nor any of the Subsidiaries has entered into any transactions not in the ordinary course of business; (D) there has not been any change in the capital stock or long-term debt or any increase in the short-term borrowings (other than any increase in short-term borrowings in the ordinary course of business) of the Company or any of the Subsidiaries; (E) none of the Company nor any of the Subsidiaries has sustained any material loss or damage to their respective property or assets, whether or not insured; (F) there is no litigation which is pending or threatened (or circumstances giving rise to same) against the Company or any of the Subsidiaries or any affiliate (within the meaning of the Rules and Regulations) of the foregoing which is required to be set forth in an amended or supplemented Prospectus which has not been set forth; and (G) there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been set forth. References to the Registration Statement and the Prospectus in this Section 6(h) are to such documents as amended and supplemented at the date of such certificate. (k) By the Closing Date, the Underwriters will have received clearance from the NASD as to the amount of compensation allowable or payable to the Underwriters, as described in the Registration Statement. (l) At the time this Agreement is executed, the Underwriters shall have received a letter, dated such date, addressed to the Underwriters and in form and substance satisfactory in all respects (including the non-material nature of the changes or decreases, if any, referred to in clause (iii) below) to the Underwriters and Underwriters' Counsel, from KPMG Peat Marwick i) confirming that they are independent certified public accountants with respect to the Company within the meaning of the Act and the Rules and Regulations; ii) stating that it is their opinion that the consolidated financial statements of the Company included in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the 37 Act and the Rules and Regulations and that the Underwriters may rely upon the opinion of KPMG Peat Marwick with respect to such financial statements and supporting schedules included in the Registration Statement; iii) stating that, on the basis of a limited review which included a reading of the latest unaudited interim consolidated financial statements of the Company, a reading of the latest available minutes of the stockholders and board of directors and the various committees of the board of directors of the Company, consultations with officers and other employees of the Company responsible for financial and accounting matters and other specified procedures and inquiries, nothing has come to their attention which would lead them to believe that (A) the unaudited consolidated financial statements and supporting schedules of the Company included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations or are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited consolidated financial statements of the Company included in the Registration Statement, or (B) at a specified date not more than five (5) days prior to the effective date of the Registration Statement, there has been any change in the capital stock or long-term debt of the Company, or any decrease in the stockholders' equity or net current assets or net assets of the Company as compared with amounts shown in the March 31, 1996 balance sheet included in the Registration Statement, other than as set forth in or contemplated by the Registration Statement, or, if there was any change or decrease, setting forth the amount of such change or decrease, and (C) during the period from March 31, 1996 to a specified date not more than five (5) days prior to the effective date of the Registration Statement, there was any decrease in net revenues, net earnings or net earnings per share of Common Stock, in each case as compared with the corresponding period beginning March 31, 1995, other than as set forth in or contemplated by the Registration Statement, or, if there was any such decrease, setting forth the amount of such decrease; iv) setting forth, at a date not later than five (5) days prior to the effective date of the Registration Statement, the amount of liabilities of the Company (including a break-down of commercial paper and notes payable to banks); v) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, statements and other financial information pertaining to the Company set forth in the Prospectus, in each case to the extent that such amounts, numbers, percentages, statements and information may be derived from the general accounting records, including work sheets, of the Company and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an 38 audit in accordance with generally accepted auditing standards) set forth in the letter and found them to be in agreement; and vi) statements as to such other matters incident to the transaction contemplated hereby as the Underwriters may request. (m) At the Closing Date and each Option Closing Date, if any, the Underwriters shall have received from KPMG Peat Marwick a letter, dated as of the Closing Date or the relevant Option Closing Date, as the case may be, to the effect that (i) it reaffirms the statements made in the letter furnished pursuant to Section 6(k), (ii) if the Company has elected to rely on Rule 430A of the Rules and Regulations, to the further effect that KPMG Peat Marwick has carried out procedures as specified in clause (v) of Section 6(j) hereof with respect to certain amounts, percentages and financial information as specified by the Underwriters and deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and have found such amounts, percentages and financial information to be in agreement with the records specified in such clause (v). (n) The Company shall have received a letter, dated such date, addressed to the Company, in form and substance satisfactory in all respects to the Representative, from KPMG Peat Marwick stating that they have not during the immediately preceding five (5) year period brought to the attention of the Company's management any "weakness," as defined in Statement of Auditing Standard No. 60 "Communication of Internal Control Structure Related Matters Noted in an Audit," in any of the Company's internal controls. (o) On each Closing Date and Option Closing Date, if any, there shall have been duly tendered to the Underwriters the appropriate number of Securities. (p) No order suspending the sale of the Securities in any jurisdiction designated by the Underwriters pursuant to Section 4(a)(v) hereof shall have been issued on either the Closing Date or the Option Closing Date, if any, and no proceedings for that purpose shall have been instituted or shall be contemplated. (q) On or before the effective date of the Registration Statement, the Company shall have executed and delivered to the Representative, the Representative's Warrant Agreement, substantially in the form filed as Exhibit to the Registration Statement. On or before the Closing Date, the Company shall have executed and delivered to the Representative the Representative's Warrants in such denominations and to such designees as shall have been provided to the Company. (r) On or before Closing Date, the Units, the Common Stock and the Redeemable Warrants shall have been duly approved for quotation on Nasdaq, subject to official notice of issuance and listing on the Boston Stock Exchange. (s) On or before Closing Date, there shall have been delivered to the Representative all of the Lock-Up Agreements, in form and substance satisfactory to Underwriters' Counsel. 39 (t) On or before the Closing Date, the Company shall have (i) executed and delivered to the Representative the Consulting Agreement, substantially in the form filed as Exhibit ____ to the Registration Statement and (ii) paid the Representative $48,000 representing the retainer fee pursuant to the Consulting Agreement. (u) On or before the effective date of the Registration Statement, the Company and Continental Stock Transfer & Trust Company shall have executed and delivered to the Representative the Warrant Agreement, substantially in the form filed as Exhibit to the Registration Statement. (v) At least two (2) full business days prior to the date hereof, the Closing Date and each Option Closing Date, if any, the Company shall have delivered to the Representative the unaudited interim consolidated financial statements required to be so delivered pursuant to Section 4(a)(xvi) of this Agreement. If any condition to the Representative's or the Underwriters' obligations hereunder to be fulfilled prior to or at the Closing Date or at any Option Closing Date, as the case may be, is not so fulfilled, the Representative may terminate this Agreement or, if the Representative so elects, it may waive any such conditions which have not been fulfilled or extend the time for their fulfillment. 7. Indemnification (a) The Company and the Selling Shareholders, jointly and severally, agrees to indemnify and hold harmless each of the Underwriters (for purposes of this Section 7, "Underwriters" shall include the officers, directors, partners, employees, agents and counsel of the Underwriters including specifically each person who may be substituted for an Underwriter as provided in Section 11 hereof), and each person, if any, who controls the Underwriter ("controlling person") within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several (and actions, proceedings, investigations, inquiries and suits in respect thereof), whatsoever (including but not limited to any and all costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against such action, proceeding, investigation, inquiry or suit commenced or threatened, or any claim whatsoever), as such are incurred, to which the Underwriter or such controlling person may become subject under the Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon (A) any untrue statement or alleged untrue statement of a material fact contained (i) in any Preliminary Prospectus, the Registration Statement or the Prospectus (as from time to time amended and supplemented); (ii) in any post-effective amendment or amendments or any new registration statement and prospectus in which is included securities of the Company issued or issuable upon exercise of the Securities; or (iii) in any application or other document or written communication (in this Section 7, collectively referred to as "applications") executed by the Company or based upon written information furnished by the Company or the Selling Shareholders filed, delivered or used in any jurisdiction in order to qualify the Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, the NASD, Nasdaq or any securities exchange; 40 (B) the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of the Prospectus, in light of the circumstances in which they were made); or (C) any breach of any representation, warranty, covenant or agreement of the Company or the Selling Shareholders contained herein or in any certificate by or on behalf of the Company, or any of its officers or the Selling Shareholders delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such statement or omission was made in reliance upon and in conformity with written information furnished to the Company with respect to any Underwriter by or on behalf of such Underwriter expressly for use in any Preliminary Prospectus, the Registration Statement or any Prospectus, or any amendment thereof or supplement thereto, or in any application, as the case may be. The liability of each Selling Shareholder under this paragraph shall be limited to the proportion thereof which the number of Units sold by such Selling Shareholder bears to all Units purchased by the Underwriters, but in no event shall such Selling Shareholder be liable under this paragraph for an amount exceeding the aggregate purchase price received by such Selling Shareholder from the Underwriters for the Units sold by such Selling Shareholder hereunder. The indemnity agreement in this Section 7(a) shall be in addition to any lability which the Company or the Selling Shareholders may have at common law or otherwise. (b) Each of the Underwriters agrees severally, but not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of the Act, and each Selling Shareholder, to the same extent as the foregoing indemnity from the Company and the Selling Shareholders to the Underwriters but only with respect to statements or omissions, if any, made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any amendment thereof or supplement thereto or in any application made in reliance upon, and in strict conformity with, written information furnished to the Company or the Selling Shareholders with respect to any Underwriter by such Underwriter expressly for use in such Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto or in any such application, provided that such written information or omissions only pertain to disclosures in the Preliminary Prospectus, the Registration Statement or the Prospectus directly relating to the transactions effected by the Underwriters in connection with the offering contemplated hereby. The Company acknowledges that the statements with respect to the public offering of the Securities set forth under the heading "Underwriting" and the stabilization legend in the Prospectus have been furnished by the Underwriters expressly for use therein and constitute the only information furnished in writing by or on behalf of the Underwriters for inclusion in any Preliminary Prospectus, the Registration Statement or the Prospectus. The indemnity agreement in this Section 7(b) shall be in addition to any liability which the Underwriters may have at common law or otherwise. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against one or more indemnifying parties under this Section 7, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure to so notify an indemnifying party shall not relieve it from any liability which it may have under this Section 7 (except to the extent that it has been prejudiced in any material respect by such failure) or from any liability which it may have otherwise). In case any such action, 41 investigation, inquiry, suit or proceeding is brought against any indemnified party, and it notifies an indemnifying party or parties of the commencement thereof, the indemnifying party or parties will be entitled to participate therein, and to the extent it or they may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party. Notwithstanding the foregoing, an indemnified party shall have the right to employ its own counsel in any such case but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying parties in connection with the defense of such action at the expense of the indemnifying party, (ii) the indemnifying parties shall not have employed counsel reasonably satisfactory to such indemnified party to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party shall have reasonably concluded that there may be defenses available to it which are different from or additional to those available to one or all of the indemnifying parties (in which event the indemnifying parties shall not have the right to direct the defense of such action, investigation, inquiry, suit or proceeding on behalf of the indemnified party or parties), in any of which events such fees and expenses of one additional counsel shall be borne by the indemnifying parties. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action, investigation, inquiry, suit or proceeding or separate but similar or related actions, investigations, inquiries, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances. An indemnifying party will not, without the prior written consent of the indemnified parties, settle, compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. Anything in this Section 7 to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent; provided, however, that such consent may not be unreasonably withheld. (d) In order to provide for just and equitable contribution in any case in which (i) an indemnified party makes a claim for indemnification pursuant to this Section 7, but it 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 this Section 7 provide for indemnification in such case, or (ii) contribution under the Act may be required on the part of any indemnified party, then each indemnifying party shall contribute to the amount paid as a result of such losses, claims, damages, expenses or liabilities (or actions, investigations, inquiries, suits or proceedings in respect thereof) (A) in such proportion as is appropriate to reflect the relative benefits received by each of the contributing parties, on the one hand, and the party to be indemnified, on the other hand, from the offering of the Securities or (B) if the allocation provided by clause (A) above is not permitted by 42 applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (A) above but also the relative fault of each of the contributing parties, on the one hand, and the party to be indemnified, on the other hand, in connection with the statements or omissions that resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In any case where the Company and/or any Selling Shareholder is a contributing party and the Underwriters are the indemnified party, the relative benefits received by the Company and/or the Selling Shareholders on the one hand, and the Underwriters on the other, shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) bear to the total underwriting discounts received by the Underwriters hereunder, in each case as set forth in the table on the cover page of the Prospectus. 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 or by the Selling Shareholders or by the Underwriters, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages, expenses or liabilities (or actions, investigations, inquiries, suits or proceedings in respect thereof) referred to in the first (1st) sentence of this Section 7(d) 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, claim, investigation, inquiry suit or proceeding. Notwithstanding the provisions of this Section 7(d), the Underwriters shall not be required to contribute any amount in excess of the underwriting discount applicable to the Securities purchased by the Underwriters hereunder. No person guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7(d), each person, if any, who controls the Company or the Underwriter within the meaning of the Act, each officer of the Company who has signed the Registration Statement and each director of the Company, and each of the Selling Shareholders, shall have the same rights to contribution as the Company or the Underwriter, as the case may be, subject in each case to this Section 7(d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit, inquiry, investigation or proceeding, against such party in respect to which a claim for contribution may be made against another party or parties under this Section 7(d), notify such party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have hereunder or otherwise than under this Section 7(d), or to the extent that such party or parties were not adversely affected by such omission. Notwithstanding anything in this Section 7 to the contrary, no party will be liable for contribution with respect to the settlement of any action or claim effected without its written consent. The contribution agreement set forth above shall be in addition to any liabilities which any indemnifying party may have at common law or otherwise. 8. Representations, Warranties, Covenants and Agreements to Survive Delivery. All representations, warranties, covenants and agreements of the Company and the Selling Shareholders contained in this Agreement, or contained in certificates of officers of the Company or of the Selling Shareholders submitted pursuant hereto, shall be deemed to be representations, warranties, covenants and agreements at the Closing Date and each Option 43 Closing Date, if any, and such representations, warranties, covenants and agreements of the Company and the Selling Shareholders, as the case may be, and the respective indemnity and contribution agreements contained in Section 7 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter, the Company, any Selling Shareholder or any controlling person of any Underwriter or the Company, and shall survive the termination of this Agreement or the issuance and delivery of the Securities to the Underwriters. 9. Effective Date. This Agreement shall become effective at 10:00 a.m., New York City time, on the next full business day following the date hereof, or at such earlier time after the Registration Statement becomes effective as the Representative, in its discretion, shall release the Securities for sale to the public; provided, however, that the provisions of Sections 5, 7 and 10 of this Agreement shall at all times be effective. For purposes of this Section 9, the Securities to be purchased hereunder shall be deemed to have been so released upon the earlier of dispatch by the Representative of telegrams to securities dealers releasing such shares for offering or the release by the Representative for publication of the first newspaper advertisement which is subsequently published relating to the Securities. 10. Termination. (a) Subject to Section 10(b) hereof, the Representative shall have the right to terminate this Agreement: (i) if any domestic or international event or act or occurrence has materially adversely disrupted, or in the Representative's opinion will in the immediate future materially adversely disrupt, the financial markets; or (ii) if any material adverse change in the financial markets shall have occurred; or (iii) if trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange, the Commission or any governmental authority having jurisdiction over such matters; or (iv) if trading of any of the securities of the Company shall have been suspended, or if any of the securities of the Company shall have been delisted, on any exchange or in any over-the-counter market; or (v) if the United States shall have become involved in a war or major hostilities, or if there shall have been an escalation in an existing war or major hostilities, or a national emergency shall have been declared in the United States; or (vi) if a banking moratorium shall have been declared by any state or federal authority; or (vii) if a moratorium in foreign exchange trading shall have been declared; or (viii) if the Company or any of the Subsidiaries shall have sustained a material or substantial loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in the Representative's opinion, make it inadvisable to proceed with the delivery of the Securities; or (ix) if there shall have occurred any outbreak or escalation of hostilities or any calamity or crisis or there shall have been such a material adverse change in the conditions or prospects of the Company or any of the Subsidiaries, or if there shall have been such a material adverse change in the general market, political or economic conditions, in the United States or elsewhere, as in the Representative's judgment would make it inadvisable to proceed with the offering, sale and/or delivery of the Securities; or (x) if Roy Israel shall no longer serve the Company in his present capacity. 44 (b) If this Agreement is terminated by the Representative in accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof the Company shall promptly reimburse and indemnify the Representative for all its actual out-of-pocket expenses, including the fees and disbursements of Underwriters' Counsel, less amounts previously paid pursuant to Section 5(c) hereof. In addition, the Company shall remain liable for all "blue sky" counsel fees and expenses and "blue sky" filing fees. In addition, the Company shall remain liable for all "blue sky" counsel fees and expenses and "blue sky" filing fees. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement (including, without limitation, pursuant to Sections 6, 10(a) and 11 hereof), and whether or not this Agreement is otherwise carried out, the provisions of Section 5 and Section 7 shall not be in any way be affected by such election or termination or failure to carry out the terms of this Agreement or any part hereof. 11. Substitution of the Underwriters. If one or more of the Underwriters shall fail otherwise than for a reason sufficient to justify the termination of this Agreement (under the provisions of Section 6, Section 10 or Section 12 hereof) to purchase the Securities which it or they are obligated to purchase on such date under this Agreement (the "Defaulted Securities"), the Representative shall have the right, within 24 hours thereafter, to make arrangement for one or more of the non-defaulting Underwriters, or any other Underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representative shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the total number of Firm Units to be purchased on such date, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the total number of Firm Units, this Agreement shall terminate without liability on the part of any non-defaulting Underwriters. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of any default by such Underwriter under this Agreement. In the event of any such default which does not result in a termination of this Agreement, the Representative shall have the right to postpone the Closing Date for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. 12. Default by the Company or Selling Shareholders. If either the Company or any Selling Shareholder shall fail at the Closing Date or any Option Closing Date, as applicable, to sell and deliver the number of Securities which it is obligated to sell hereunder on such date, then this Agreement shall terminate (or, if such default shall occur with respect to any Option Units to be purchased on an Option Closing Date, the Representative may, at its 45 option, by notice from the Representative to the Company, terminate the Representative's obligation to purchase Option Units from the Company on such date) without any liability on the part of any non-defaulting party other than pursuant to Section 5, Section 7 and Section 10 hereof. No action taken pursuant to this Section 12 shall relieve the Company and/or any Selling Shareholder, from liability, if any, in respect of such default. 13. Notices. All notices and communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representative at Joseph Stevens & Company, L.P., 33 Maiden Lane, 8th Floor, New York, NY 10038, Attention: Mr. Joseph Sorbara, with a copy to Orrick, Herrington & Sutcliffe, 666 Fifth Avenue, New York, New York 10103, Attention: Rubi Finkelstein, Esq. Notices to the Company shall be directed to the Company at NAM Corporation, 1010 Northern Boulevard, Suite 336, New York, New York 11021, Attention: Roy Israel, President and Chief Executive Officer, with a copy to Camhy Karlinsky & Stein LLP, 1740 Broadway, Sixteenth Floor, New York, New York 10019-4315, Attention: Robert S. Matlin, Esq. Notices to the Selling Shareholders shall be directed to the Attorney-in-Fact at [____________], with a copy to Camhy Karlinsky & Stein LLP, 1740 Broadway, Sixteenth Floor, New York, New York 10019-4315, Attention: Robert S. Matlin, Esq. 14. Parties. This Agreement shall inure solely to the benefit of, and shall be binding upon, the Underwriters, the Company, the Selling Shareholders and the controlling persons, directors and officers referred to in Section 7 hereof, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. No purchaser of Units from the Underwriters shall be deemed to be a successor by reason merely of such purchase. 15. Construction. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to choice of law or conflict of laws principles. 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which taken together shall be deemed to be one and the same instrument. 17. Entire Agreement; Amendments. This Agreement, the Representative's Warrant Agreement and the Consulting Agreement constitute the entire agreement of the parties hereto and supersede all prior written or oral agreements, understandings and negotiations with respect to the subject matter hereof and thereof. This Agreement may not be amended except in a writing signed by the Representative and the Company and the Selling Shareholders. 46 If the foregoing correctly sets forth the understanding between the Underwriters, the Company and the Selling Shareholders, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us. Very truly yours, NAM CORPORATION By:_______________________________________ Name: Roy Israel Title: President and Chief Executive Officer Confirmed and accepted as of the date first above written. JOSEPH STEVENS & COMPANY, L.P. As Representative of the Several Underwriters By:________________________________________ Name: Title: SELLING SHAREHOLDERS By:_______________________________________ As Attorney-in-Fact for the Selling Shareholders named in Schedule B hereto 47 SCHEDULE A Underwriter Firm Units - ----------- ---------- Joseph Stevens & Company, L.P................................. --------- Total................................................ 1,400,000 ========= 48 SCHEDULE B Name of Selling Shareholders Number of Shares to Be Offered - ---------------------------- ------------------------------ Roy Israel................................. 136,500 Cynthia Sanders............................ 13,500 ------ Total............................. 150,000 ======= 49 EX-3 3 EXHIBIT 3.1 EXHIBIT 3.1 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 A.M. 01/12/1994 704012046 - 2367783 CERTIFICATE OF INCORPORATION OF NAM Corporation FIRST: The name of the Corporation is NAM Corporation. SECOND: Its registered office and place of business in the State of Delaware is to be located at 15 East North Street in the City of Dover, County of Kent. The Registered Agent in charge thereof is: XL CORPORATE SERVICES, INC. THIRD: The nature of the business and the objects and purposes proposed to be transacted, promoted and carried on are to do any or all things herein mentioned, as fully and to the same extent as natural persons might or could do, and in any part of the world, viz: The purpose of the corporation is to engage in any lawful act or activity for which corporation may be organized under the General Corporation Law of Delaware. FOURTH: The corporation shall be authorized to issue Fifteen Million (15,000,000) Shares of Common stock at $.001 and Five Million (5,000,000) Shares of Prefered stock at $.001. FIFTH: The name and address of the incorporator is as follows: XL CORPORATE SERVICES, INC. 15 East North Street Dover, Delaware 19901 SIXTH: The Directors shall have power to make and to alter or amend the By-Laws; to fix the amount to be reserved as working capital, and to authorize and cause to be executed, mortgages and liens without limit as to the amount, upon the property and franchise of this Corporation. With the consent in writing, and pursuant to a vote of the holders of a majority of the capital stock issued and outstanding, the Directors shall have authority to dispose, in any manner, of the whole property of this corporation. The By-Laws shall determine whether and to what extent the account and books of this corporation, or any of them, shall be open to the inspection of the stockholders; no stockholder shall have any right of inspecting any account, or book, or document of this Corporation, except as conferred by the law or the By-Laws, or by resolution of the stockholders. The stockholders and directors shall have power to hold their meetings and keep the books, documents and papers of the corporation outside of the State of Delaware, at such places as may be, from time to time, designated by the By-Laws or by resolution of the stockholders or directors, except as otherwise required by the laws of Delaware. It is the intention that the objects, purposes and powers specified in the THIRD paragraph hereof shall, except where otherwise specified in said paragraph, be nowise limited or restricted by reference to or inference from the terms of any other clause or paragraph in this certificate of incorporation, but that the objects, purposes and powers specified in the THIRD paragraph and in each of the clauses or paragraphs of this charter shall be regarded as independent objects, purposes and powers. SEVENTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day of January, A.D. 1994. XL CORPORATE SERVICES, INC. By: /s/ BARBARA O. FREBERT ---------------------------------- BARBARA O. FREBERT Assistant Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION NAM Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation, by the unanimous written consent of its members, filed with the minutes of the Board, adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of the Corporation. RESOLVED, that the Board of Directors believes it advisable to amend the Certificate of Incorporation of the Corporation by deleting Articles Second and Seventh thereof and replacing them with the Articles Second and Seventh set forth in Exhibit A hereto, and directs that the proposed amendment be considered by the stockholders of the Corporation. Exhibit A thereto is attached as Exhibit A hereto. SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given unanimous written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, NAM Corporation has caused this certificate to be signed by Roy Israel, its President and attested by Carla Israel, its Secretary, this 15th day of April, 1994. NAM CORPORATION /s/ Roy Israel ----------------------------- By: Roy Israel Title: President ATTEST: /s/ Carla Israel - ---------------------------- By: Carla Israel Title: Secretary EXHIBIT A SECOND: The address of its registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent at such address is The Corporation Trust Company. SEVENTH : No person shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided, however, that the foregoing shall not eliminate or limit the liability of a director (1) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the General Corporation Law of the State of Delaware or (4) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended hereafter to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. Any amendment, repeal or modification of this Article Seventh shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to such amendment, repeal or modification. Each person who is or was a director or officer of the Corporation, and each such person who is or was serving at the request of the Corporation as a director or officer of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the Corporation (including the heirs, executors, administrators and estate of such person) shall be indemnified and advanced expenses by the Corporation to the fullest extent permitted from time to time by the General Corporation Law of the State of Delaware or any other applicable laws as presently or hereafter in effect. The Corporation may, to the extent authorized in the By-Laws of the Corporation or from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation or any other person to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. Without limiting the generality or the effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article Seventh. Any amendment, repeal or modification of this Article Seventh shall not adversely affect any right or protection existing hereunder or pursuant hereto immediately prior to such amendment, repeal or modification. -3- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF NAM CORPORATION (Under Section 242 of the General Corporation Law) NAM CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that: FIRST: The name of the Corporation is NAM Corporation. SECOND: The Board of Directors of the Corporation adopted the following preamble and resolution on July 10, 1995, setting forth, proposing and declaring advisable the following amendment to the Certificate of Incorporation of the Corporation: WHEREAS, the Board of Directors deems it advisable in connection with the Corporation's initial public offering of equity securities to reduce the number of outstanding shares of the Corporation; be it RESOLVED, that each share of issued and outstanding common stock, par value $0.001 per share, of the Corporation be reclassified into 0.5 of a share of issued and outstanding common stock, par value $0.001 per share, of the Corporation, and that to effect such stock reclassification, and subject to the approval of a majority of the stockholders of the Corporation, Article Fourth of the Certificate of Incorporation of the Corporation be amended to add the following after the last line of the paragraph: "Upon the filing in the office of the Secretary of State of Delaware of a Certificate of Amendment whereby this Article Fourth is being amended to add this paragraph, each previously outstanding share of common stock, par value $0.001 per share, of the Corporation shall thereby and thereupon be reclassified into 0.5 of a validly issued, fully paid, and nonassessable share of common stock, par value $0.001 per share, of the corporation." THIRD: That thereafter the above amendment to the Certificate of Incorporation of the Corporation was duly approved upon written consent of the stockholders owning a majority of the issued and outstanding shares of the common stock of the Corporation entitled to vote thereon. IN WITNESS WHEREOF, NAM Corporation has caused this certificate to be signed this 12th day of July, 1995. NAM CORPORATION By: /s/ Roy Israel --------------------------- Roy Israel, President ATTEST: /s/ Carla Israel - --------------------------- Carla Israel, Secretary EX-3.2 4 BY LAWS OF NAM CORPORATION EXHIBIT 3.2 BY-LAWS OF NAM Corporation ARTICLE I --------- Stockholders ------------ SECTION 1. Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held on such date, at such time and at such place within or without the State of Delaware as may be designated by the Board of Directors, for the purpose of electing Directors and for the transaction of such other business as may be properly brought before the meeting. SECTION 2. Special Meetings. Any special meeting of the stockholders shall be held on such date, at such time and at such place within or without the State of Delaware as the Board of Directors may designate. SECTION 3. Notice of Meetings. Except as otherwise provided in these By-Laws or by law, a written notice of each meeting of the stockholders shall be given not less than ten (10) nor more than sixty (60) calendar days before the date of the meeting to each stockholder of the Corporation entitled to vote at such meeting at such stockholder's address as it appears on the records of the Corporation. The notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. SECTION 4. Adjourned Meetings. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the stockholders, or the holders of any class of stock entitled to vote separately as a class, as the case may be, may transact any business which might have been transacted by them at the original meeting. If the adjournment is for more than thirty (30) calendar days, or if after the adjournment of a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. SECTION 5. Organization. The President shall act as chairman of all meetings of the stockholders. In the absence of the President, any Vice President designated by the Board or, in the absence of any such officer, any person designated by the holders of a majority in number of the shares of stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting shall act as chairman of the meeting. The Secretary of the Corporation shall act as secretary of all meetings of the stockholders, but, in the absence of the Secretary, the chairman of the meeting may appoint any person to act as secretary of the meeting. It shall be the duty of the Secretary to prepare and make, at least ten (10) calendar days before ever meeting of stockholders, a complete list of stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each -2- stockholder. Such list shall be open, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, for the ten (10) calendar days next preceding the meeting, to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, and shall be produced and kept at the time and place of the meeting during the whole time thereof and subject to the inspection of any stockholder who may be present. SECTION 6. Voting. Except as otherwise provided in the Certificate of Incorporation or by law, each stockholder shall be entitled to one vote for each share of the capital stock of the Corporation registered in the name of such stockholder upon the books of the Corporation. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. When directed by the presiding officer -3- or upon the demand of any stockholder, the vote upon any matter before a meeting of stockholders shall be by ballot. Except as otherwise provided by law or by the Certificate of Incorporation, (a) Directors shall be elected by a plurality of the votes cast at a meeting of stockholders by the stockholders entitled to vote in the election, and (b) whenever any corporate action other than the election of Directors is to be taken, it shall be authorized by a majority of the votes cast at a meeting of stockholders by the stockholders entitled to vote thereon. Shares of the capital stock of the Corporation belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. SECTION 7. Procedure. At each meeting of stockholders, the chairman of the meeting shall fix and announce the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at the meeting and shall determine the order of business and all other matters of procedure. Except to the extent inconsistent with any such rules and regulations as adopted by the Board of Directors, the chairman of the meeting may establish rules, which need not be in writing, to maintain order and safety and for the conduct of the meeting. Without limiting the foregoing, he or she may: -4- (a) restrict attendance at any time to bona fide stockholders of record and their proxies and other persons in attendance at the invitation of the chairman; (b) restrict dissemination of solicitation materials and use of audio or visual recording devices at the meeting; (c) establish seating arrangements; (d) adjourn the meeting without a vote of the stockholders, whether or not there is a quorum present; and (e) make rules governing speeches and debate including time limits and access to microphones. The chairman of the meeting acts in his or her absolute discretion and his or her rulings are not subject to appeal. SECTION 8. Inspectors. The Board of Directors by resolution shall, in advance of any meeting of stockholders, appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives of the Corporation, to act at the meeting and make a written report thereof. One or more persons may be designated by the Board as alternate inspectors to replace any inspector who fails to act. If no inspector or -5- alternate is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by the General Corporation Law of the State of Delaware. ARTICLE II ---------- Board of Directors ------------------ SECTION 1. Place of Meeting. The Board of Directors may hold its meetings in such place or places in the State of Delaware or outside the State of Delaware as the Board from time to time shall determine. SECTION 2. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as the Board from time to time by resolution shall determine. No notice shall be required for any regular meeting of the Board of Directors, but a copy of every resolution fixing or changing the time or place of regular meetings shall be mailed to every Director at least five (5) calendar days before the first meeting held in pursuance thereof. SECTION 3. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by direction of the President or by any three (3) of the Directors then in office. -6- Notice of the day, hour and place of holding of each special meeting shall be given (i) by mailing the same at least four (4) calendar days before the meeting or (ii) by causing the same to be transmitted by telecopier, telegraph or cable (A) at least twenty-four (24) hours before the meeting or (B) in the case of a meeting held in accordance with Section 7 of this Article II, at least six (6) hours before the meeting, in each case to each Director. Unless otherwise indicated in the notice thereof, any and all business other than an amendment of these By-Laws may be transacted at any special meeting, and an amendment of these By-Laws may be acted upon if the notice of the meeting shall have stated that the amendment of these By-Laws is one of the purposes of the meeting. At any meeting at which every Director shall be present, even though without any notice, any business may be transacted, including the amendment of these By-Laws. SECTION 4. Quorum. A majority of the members of the Board of Directors in office (but in no case less than two (2) Directors) shall constitute a quorum for the transaction of business, and, except as otherwise provided in the Certificate of Incorporation, the vote of the majority of the Directors at any meeting of the Board of Directors at which a quorum is present shall be the act of the Board of Directors. If at any meeting of the Board there is less than a quorum present, a majority of those present may adjourn the meeting from time to time. -7- SECTION 5. Organization. The President shall act as chairman and preside at all meetings of the Board of Directors. In the absence of the President, the Vice President shall act as chairman of the meeting. The Secretary of the Corporation shall act as secretary of all meetings of the Directors, but, in the absence of the Secretary, the chairman of the meeting may appoint any person to act as secretary of the meeting. SECTION 6. Committees. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. SECTION 7. Conference Telephone Meetings. Unless otherwise restricted by the Certificate of Incorporation or by these By-Laws, the members of the Board of Directors or any committee designated by the Board may participate in a meeting of the Board or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. -8- SECTION 8. Consent of Directors or Committee in Lieu of Meeting. Unless otherwise restricted by the Certificate of incorporation or by these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or committee, as the case may be. SECTION 9. Compensation. For their services as Directors or as members of committees, every Director shall receive such compensation, attendance fees and other allowances as determined by resolution of the Board. ARTICLE III ----------- Officers -------- Section 1. Officers. The officers of the Corporation shall be a President, one or more Vice Presidents, a Secretary, and a Treasurer, and such additional officers, if any, as shall be elected by the Board of Directors pursuant to the provisions of Section 2 of this Article III. A chief executive officer shall be designated by the Board from among the officers. The President, one or more Vice Presidents, the Secretary and the Treasurer shall be elected by the Board of -9- Directors at its first meeting after each annual meeting of the stockholders. The failure to hold such election shall not of itself terminate the term of office of any officer. All officers shall hold office at the pleasure of the Board of Directors. Any officer may resign at any time upon written notice to the Corporation. Officers may, but need not, be Directors. Any number of offices may be held by the same person. All officers shall be subject to removal, with or without cause, at any time by the Board of Directors. The removal of an officer without cause shall be without prejudice to his or her contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. Any vacancy caused by the death of any officer, his or her resignation, his or her removal, or otherwise, may be filled by the Board of Directors, and any officer so elected shall hold office at the pleasure of the Board of Directors. The officers shall have such authority and shall perform such duties as from time to time may be determined by the Board of Directors or the President or as shall be confirmed or required by law or these By-Laws or as shall be incidental to the office. SECTION 2. Additional Officers. The Board of Directors may from time to time elect such other officers (who may but need not be Directors), including Assistant Treasurers and Assistant Secretaries, as the Board may deem advisable, -10- and such officers shall have such authority and shall perform such duties as may from time to time be assigned to them by the Board of Directors or the President or as shall be conferred or required by law or these By-Laws or as shall be incidental to the office. ARTICLE IV ---------- Stock, Seal and Fiscal Year --------------------------- SECTION 1. Transfer of Shares. Shares of stock, of the Corporation shall be transferred on the books of the Corporation by the record holder thereof, in person or by such holder's attorney duly authorized in writing, upon surrender and cancellation of certificates for the number of shares of stock to be transferred, except as otherwise required by law. SECTION 2. Regulations. The Board of Directors, the President or the Secretary shall have power and authority to make such rules and regulations as it or such officer may deem expedient concerning the issue, transfer, registration or replacement of certificates for shares of stock of the Corporation. SECTION 3. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any -11- other lawful action, as the case may be, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) calendar days nor less than ten (10) calendar days before the date of such meeting, nor more than sixty (60) calendar days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 4. Dividends. Subject to the provisions of the Certificate of Incorporation, the Board of Directors shall have power to declare and pay dividends upon shares of stock of the Corporation, but only out of funds available for the payment of dividends as provided by law. -12- Subject to the provisions of the Certificate of Incorporation, any dividends declared upon the stock of the Corporation shall be payable on such date or dates as the Board of Directors shall determine. If the date fixed for the payment of any dividend shall in any year fall upon a legal holiday, then the dividend payable on such date shall be paid on the next day not a legal holiday. SECTION S. Corporate Seal. The Corporation shall have a suitable seal, containing the name of the Corporation. The Secretary shall have custody of the seal, but he or she may authorize others to keep and use a duplicate seal. SECTION 6. Fiscal Year. The fiscal year of the Corporation shall be such fiscal year as the Board of Directors from time to time by resolution shall determine. ARTICLE V --------- Miscellaneous Provisions ------------------------ SECTION 1. Waivers of Notice. Whenever any notice whatever is required to be given by law, by the Certificate of Incorporation or by these By-Laws to any person or persons, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. -13- EX-4 5 EXHIBIT 4.1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NAM CORPORATION AND CONTINENTAL STOCK TRANSFER & TRUST COMPANY ----------------- WARRANT AGREEMENT Dated as of ______________, 1996 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- WARRANT AGREEMENT, dated this ___ day of ________ 1996 [the effective date of the Registration Statement], by and between NAM CORPORATION, a Delaware corporation (the "Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY. WITNESSETH: WHEREAS, in connection with (i) the offering (the "Offering") to the public of 1,400,000 units (the "Units"), each Unit consisting of one share of the Company's common stock, $.001 par value per share (the "Common Stock"), and one redeemable warrant (the "Warrants"), each redeemable warrant entitling the holder thereof to purchase one share of Common Stock, (ii) the over-allotment option granted to Joseph Stevens & Company, L.P., the representative (the "Representative") of the several underwriters (the "Underwriters") in the public offering referred to above, to purchase up to an additional 210,000 Units (the "Over- Allotment Option"), and (iii) the sale to the Representative of warrants (the "Representative's Warrants") to purchase up to 140,000 Units, the Company will issue up to 1,750,000 Warrants (subject to increase as provided herein); WHEREAS, the Company desires to provide for the issuance of certificates representing the Warrants; and WHEREAS, the Company desires the Warrant Agent (as defined in Section 1(u) hereof) to act on behalf of the Company, and the Warrant Agent is willing to so act, in connection with the issuance, registration, transfer and exchange of certificates representing the Warrants and the exercise of the Warrants. NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth and for the purpose of defining the terms and provisions of the Warrants and the certificates representing the Warrants and the respective rights and obligations thereunder of the Company, the Representative, the holders of certificates representing the Warrants and the Warrant Agent, the parties hereto agree as follows: SECTION 1. Definitions. As used herein, the following terms shall have the following meanings, unless the context shall otherwise require: (a) "Act" shall mean the Securities Act of 1933, as amended. (b) "Commission" shall mean the Securities and Exchange Commission. (c) "Common Stock" shall have the meaning set forth in Section 8(d) hereof. (d) "Company" shall have the meaning assigned to such term in the first (1st) paragraph of this Agreement. (e) "Corporate Office" shall mean the office of the Warrant Agent at which at any particular time its principal business in New York, New York shall be administered, which office is located on the date hereof at 2 Broadway, New York, New York 10004. (f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (g) "Exercise Date" shall mean, subject to the provisions of Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent shall have received both (i) the Warrant Certificate representing such Warrant, with the exercise form thereon duly executed by the Registered Holder (as defined in Section 1(m) hereof) thereof or his attorney duly authorized in writing, and (ii) payment in cash or by check made payable to the Warrant Agent for the account of the Company of an amount in lawful money of the United States of America equal to the applicable Purchase Price (as defined in Section 1(k) hereof). (h) "Initial Warrant Exercise Date" shall mean __________, 1996 [the effective date of the Registration Statement]. 2 (i) "Initial Warrant Redemption Date" shall mean __________, 1997 [the date twelve (12) months after the effective date of the Registration Statement]. (j) "NASD" shall mean the National Association of Securities Dealers, Inc. (k) "Purchase Price" shall mean, subject to modification and adjustment as provided in Section 8 hereof, $___________ [150% of the initial public offering price per Unit] per [150% of the initial public offering price per Unit] per Share. (l) "Redemption Date" shall mean the date (which may not occur before the Initial Warrant Redemption Date) fixed for the redemption of the Warrants in accordance with the terms hereof. (m) "Registered Holder" shall mean the person in whose name any certificate representing the Warrants shall be registered on the books maintained by the Warrant Agent pursuant to Section 6(b) hereof. (n) "Representative's Warrant Agreement" shall mean the agreement dated as of __________, 1996 [the effective date of the Registration Statement] between the Company and the Representative relating to and governing the terms and provisions of the Representative's Warrants. (o) "Subsidiary" or "Subsidiaries" shall mean any corporation or corporations, as the case may be, of which stock having ordinary power to elect a majority of the board of directors of such corporation or corporations (regardless of whether or not at the time the stock of any other class or classes of such corporation shall have or may have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned by the Company or by one or more Subsidiaries, or by the Company and one or more Subsidiaries. 3 (p) "Transfer Agent" shall mean Continental Stock Transfer & Trust Company of New York, New York or its authorized successor. (q) "Underwriting Agreement" shall mean the underwriting agreement dated _______________, 1996 [the effective date of the Registration Statement] between the Company and the Representative relating to the purchase for resale to the public of 1,400,000 Units (without giving effect to the Over-Allotment Option). (r) "Warrant Agent" shall mean Continental Stock Transfer & Trust Company of New York, New York or its authorized successor. (s) "Warrant Certificate" shall mean a certificate representing each of the Warrants substantially in the form annexed hereto as Exhibit A. (t) "Warrant Expiration Date" shall mean, unless the Warrants are redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (New York time) on __________, 2001 [the 60 month anniversary of issuance] or, if such date shall in the State of New York be a holiday or a day on which banks are authorized to close, then 5:00 p.m. (New York time) on the next following day which in the State of New York is not a holiday or a day on which banks are authorized to close, subject to the Company's right, prior to the Warrant Expiration Date, with the consent of the Representative, to extend such Warrant Expiration Date on five (5) business days prior written notice to the Registered Holders. SECTION 2. Warrants and Issuance of Warrant Certificates. (a) One Warrant shall initially entitle the Registered Holder of the Warrant Certificate representing such Warrant to purchase at the Purchase Price therefor from the Initial Warrant Exercise Date until the Warrant Expiration Date one (1) share of Common Stock upon the exercise thereof, subject to modification and adjustment as provided in Section 8 hereof. 4 (b) Upon execution of this Agreement, Warrant Certificates representing 1,400,000 Warrants to purchase up to an aggregate of 1,400,000 shares of Common Stock (subject to modification and adjustment as provided in Section 8 hereof), shall be executed by the Company and delivered to the Warrant Agent. (c) Upon exercise of the Over-Allotment Option, in whole or in part, Warrant Certificates representing up to 210,000 Warrants to purchase up to an aggregate of 210,000 shares of Common Stock (subject to modification and adjustment as provided in Section 8 hereof) shall be executed by the Company and delivered to the Warrant Agent. (d) Upon exercise of the Representative's Warrants as provided therein, Warrant Certificates representing 140,000 Warrants to purchase up to an aggregate of 140,000 shares of Common Stock (subject to modification and adjustment as provided in Section 8 hereof and in the Representative's Warrant Agreement), shall be countersigned, issued and delivered by the Warrant Agent upon written order of the Company signed by its Chairman of the Board, President or a Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary. (e) From time to time, up to the Warrant Expiration Date, the Warrant Agent shall countersign and deliver Warrant Certificates in required denominations of one or whole number multiples thereof to the person entitled thereto in connection with any transfer or exchange permitted under this Agreement. No Warrant Certificates shall be issued except (i) Warrant Certificates initially issued hereunder, (ii) Warrant Certificates issued upon any transfer or exchange of Warrants, (iii) Warrant Certificates issued in replacement of lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7 hereof, and (iv) Warrant Certificates issued pursuant to the Representative's Warrant Agreement (including Warrants in 5 excess of the 140,000 Representative's Warrants issued as a result of the antidilution provisions contained in the Representative's Warrant Agreement) and (v) at the option of the Company, Warrant Certificates in such form as may be approved by its Board of Directors, to reflect any adjustment or change in the Purchase Price, the number of shares of Common Stock purchasable upon the exercise of a Warrant or the redemption price therefor. SECTION 3. Form and Execution of Warrant Certificates. (a) The Warrant Certificates shall be substantially in the form annexed hereto as Exhibit A (the provisions of which are hereby incorporated herein) and may have such letters, numbers or other marks of identification or designation and such legends, summaries or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Warrants may be listed, or to conform to usage. The Warrant Certificates shall be dated the date of issuance thereof (whether upon initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen or destroyed Warrant Certificates). (b) Warrant Certificates shall be executed on behalf of the Company by its Chairman of the Board, President or any Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary, by manual signatures or by facsimile signatures printed thereon, and shall have imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer of the Company before 6 the date of issuance of the Warrant Certificates or before countersignature by the Warrant Agent and issue and delivery thereof, such Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent and issued and delivered with the same force and effect as though the officer of the Company who signed such Warrant Certificates had not ceased to hold such office. SECTION 4. Exercise. (a) Warrants in denominations of one or whole number multiples thereof may be exercised commencing at any time on or after the Initial Warrant Exercise Date, but not after the Warrant Expiration Date, upon the terms and subject to the conditions set forth herein (including the provisions set forth in Sections 5 and 9 hereof) and in the applicable Warrant Certificate. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the Exercise Date, provided that the Warrant Certificate representing such Warrant, with the exercise form thereon duly executed by the Registered Holder thereof or his attorney duly authorized in writing, together with payment in cash or by check made payable to the Warrant Agent for the account of the Company of an amount in lawful money of the United States of America equal to the applicable Purchase Price, have been received by the Warrant Agent. The person entitled to receive the securities deliverable upon such exercise shall be treated for all purposes as the holder of such securities as of the close of business on the Exercise Date. As soon as practicable on or after the Exercise Date and in any event within five (5) business days after such date, the Warrant Agent, on behalf of the Company, shall cause to be issued to the person or persons entitled to receive the same a Common Stock certificate or certificates for the shares of Common Stock deliverable upon such exercise, and the Warrant Agent shall deliver the same to the person or persons entitled thereto. Upon the exercise of any Warrants, the Warrant Agent shall promptly notify the Company in writing of such fact and of 7 the number of securities delivered upon such exercise and, subject to Section 4(b) hereof, shall cause all payments in cash or by check made payable to the order of the Company in respect of the Purchase Price to be deposited promptly in the Company's bank account or delivered to the Company. (b) At any time upon the exercise of any Warrants after one year and one day from the date hereof, the Warrant Agent shall, on a daily basis, within two business days after such exercise, notify the Representative, its successors or assigns of the exercise of any such Warrants and shall, on a weekly basis (subject to collection of funds constituting the tendered Purchase Price, but in no event later than five business days after the last day of the calendar week in which such funds were tendered), for services rendered by the Representative to the Registered Holders of the Warrants then being exercised, remit to the Representative an amount equal to five percent (5%) of the Purchase Price of such Warrants then being exercised unless the Representative shall have notified the Warrant Agent that the payment of such amount with respect to such Warrant is violative of the General Rules and Regulations promulgated under the Exchange Act, or the rules and regulations of the NASD or applicable state securities or "blue sky" laws, or the Warrants are those underlying the Representative's Warrants in which event, the Warrant Agent shall have to pay such amount to the Company; provided, that, the Warrant Agent shall not be obligated to pay any amounts pursuant to this Section 4(b) during any week that such amounts payable are less than $1,000 and the Warrant Agent's obligation to make such payments shall be suspended until the amount payable aggregates $1,000, and provided further, that, in any event, any such payment (regardless of amount) shall be made not less frequently than monthly. 8 (c) The Company shall not be obligated to issue any fractional share interests or fractional warrant interests upon the exercise of any Warrant or Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of fractional interests. Any fractional interest shall be eliminated by rounding any fraction up to the next full share or Warrant, as the case may be, or other securities, properties or rights. SECTION 5. Reservation of Shares, Listing, Payment of Taxes, etc. (a) The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the exercise of Warrants, such number of shares of Common Stock as shall then be issuable upon the exercise of all outstanding Warrants. The Company covenants that, upon exercise of the Warrants and payment of the Purchase Price for the shares of Common Stock underlying the Warrants, all shares of Common Stock which shall be issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable, free from all preemptive or similar rights, and free from all taxes, liens and charges with respect to the issuance thereof, and that upon issuance such shares shall be listed or quoted on each securities exchange, if any, on which the other shares of outstanding Common Stock are then listed or quoted, or if not then so listed or quoted on each place (whether the Nasdaq Stock Market, Inc., the NASD OTC Electronic Bulletin Board, the National Quotation Bureau "pink sheets" or otherwise) on which the other shares of outstanding Common Stock are listed or quoted. (b) The Company covenants that if any securities reserved for the purpose of exercise of Warrants hereunder require registration with, or approval of, any governmental authority under any federal securities law before such securities may be validly issued or delivered upon such exercise, then the Company will file a registration statement under the 9 federal securities laws or a post-effective amendment to a registration statement, use its best efforts to cause the same to become effective, keep such registration statement current while any of the Warrants are outstanding and deliver a prospectus which complies with Section 10(a)(3) of the Act, to the Registered Holder exercising the Warrant (except, if in the opinion of counsel to the Company, such registration is not required under the federal securities law or if the Company receives a letter from the staff of the Commission stating that it would not take any enforcement action if such registration is not effected). The Company will use its best efforts to obtain appropriate approvals or registrations under the state "blue sky" securities laws of all states in which Registered Holders reside. Warrants may not be exercised by, nor may shares of Common Stock be issued to, any Registered Holder in any state in which such exercise would be unlawful. (c) The Company shall pay all documentary, stamp or similar taxes and other governmental charges that may be imposed with respect to the issuance of Warrants, or the issuance or delivery of any shares of Common Stock upon exercise of the Warrants; provided, however, that if shares of Common Stock are to be delivered in a name other than the name of the Registered Holder of the Warrant Certificate representing any Warrant being exercised, then no such delivery shall be made unless the person requesting the same has paid to the Warrant Agent the amount of transfer taxes or charges incident thereto, if any. (d) The Warrant Agent is hereby irrevocably authorized as the Transfer Agent to requisition from time to time certificates representing shares of Common Stock or other securities required upon exercise of the Warrants, and the Company will comply with all such requisitions. 10 SECTION 6. Exchange and Registration of Transfer. (a) Warrant Certificates may be exchanged for other Warrant Certificates representing an equal aggregate number of Warrants or may be transferred in whole or in part. Warrant Certificates to be so exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and the Company shall execute and the Warrant Agent shall countersign, issue and deliver in exchange therefor the Warrant Certificate or Certificates which the Registered Holder making the exchange shall be entitled to receive. (b) The Warrant Agent shall keep, at such office, books in which, subject to such reasonable regulations as it may prescribe, it shall register Warrant Certificates and the transfer thereof. Upon due presentment for registration of transfer of any Warrant Certificate at such office, the Company shall execute and the Warrant Agent shall issue and deliver to the transferee or transferees a new Warrant Certificate or Certificates representing an equal aggregate number of Warrants. (c) With respect to any Warrant Certificates presented for registration of transfer, or for exchange or exercise, the subscription or assignment form, as the case may be, on the reverse thereof shall be duly endorsed or be accompanied by a written instrument or instruments of subscription or assignment, in form satisfactory to the Company and the Warrant Agent, duly executed by the Registered Holder thereof or his attorney duly authorized in writing. (d) No service charge shall be made for any exchange or registration of transfer of Warrant Certificates. However, the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. 11 (e) All Warrant Certificates surrendered for exercise or for exchange shall be promptly cancelled by the Warrant Agent. (f) Prior to due presentment for registration or transfer thereof, the Company and the Warrant Agent may deem and treat the Registered Holder of any Warrant Certificate as the absolute owner thereof of each Warrant represented thereby (notwithstanding any notations of ownership or writing thereon made by anyone other than the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary. SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent of evidence satisfactory to them of the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate and (in the case of loss, theft or destruction) of indemnity satisfactory to them, and (in case of mutilation) upon surrender and cancellation thereof, the Company shall execute and the Warrant Agent shall countersign and deliver in lieu thereof a new Warrant Certificate representing an equal number of Warrants. Applicants for a substitute Warrant Certificate shall also comply with such other reasonable regulations and pay such other reasonable charges as the Warrant Agent may prescribe. SECTION 8. Adjustments to Purchase Price and Number of Securities. (a) Subdivision and Combination. In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Purchase Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. (b) Stock Dividends and Distributions. In case the Company shall pay dividend in, or make a distribution of, shares of Common Stock or of the Company's capital stock convertible into Common Stock, the Purchase Price shall forthwith be proportionately 12 decreased. An adjustment made pursuant to this Section 8(b) shall be made as of the record date for the subject stock dividend or distribution. (c) Adjustment in Number of Securities. Upon each adjustment of the Purchase Price pursuant to the provisions of this Section 8, the number of Warrant Securities issuable upon the exercise at the adjusted Purchase Price of each Warrant shall be adjusted to the nearest whole number by multiplying a number equal to the Purchase Price in effect immediately prior to such adjustment by the number of Warrant Securities issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Purchase Price. (d) Definition of Common Stock. For the purpose of this Agreement, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Certificate of Incorporation of the Company as may be amended or restated as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event the Company shall after the date hereof issue Common Stock with greater or superior voting rights than the shares of Common Stock outstanding as of the date hereof, each Holder, at its option, may receive upon exercise of any Warrant either shares of Common Stock or a like number of such securities with greater or superior voting rights. (e) Merger or Consolidation or Sale. (i) In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common 13 Stock), the corporation formed by such consolidation or surviving such merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation, merger, sale or transfer by a Holder of the number of shares of Common Stock of the Company for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in this Section 8. The above provision of this subsection shall similarly apply to successive consolidations or mergers. (ii) In the event of (A) the sale by the Company of all or substantially all of its assets, or (B) the engagement by the Company or any of its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of Rule 13e-3 of the General Rules and Regulations under the Exchange Act or (C) a distribution to the Company's stockholders of any cash, assets, property, rights, evidences of indebtedness, securities or any other thing of value, or any combination thereof, the Holders of the unexercised Warrants shall receive notice of such sale, transaction or distribution twenty (20) days prior to the date of such sale or the record date for such transaction or distribution, as applicable, and, if they exercise such Warrants prior to the date of such transaction or distribution, they shall be entitled, in addition to the shares of Common Stock issuable upon the exercise thereof, to receive such property, cash, assets, rights, evidence of indebtedness, securities or any other thing of value, or any combination thereof, on the payment date of such sale, transaction or distribution. 14 (f) No Adjustment of Exercise Price in Certain Cases. No adjustment of the Exercise Price shall be made if the amount of said adjustment shall be less than ten cents (10(cent)) per share of Common Stock, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least ten cents (10(cent)) per share of Common Stock. SECTION 9. Redemption. (a) Commencing on the Initial Warrant Redemption Date, the Company may (but only with the prior written consent of the Representative), on thirty (30) days' prior written notice, redeem all of the Warrants, in whole and not in part, at a redemption price of five cents ($.05) per Warrant; provided, however, that before any such call for redemption of Warrants can take place, the (i) average closing bid price for the Common Stock, as reported by the National Association of Securities Dealers Automated Quotation System, or (ii) if not so quoted, as reported by any other recognized quotation system on which the Common Stock is quoted, shall have for any twenty (20) trading days within a period of thirty (30) consecutive trading days ending on the fifth (5th) trading day prior to the date on which the notice contemplated by Sections 9(b) and 9(c) hereof is given, equalled or exceeded 150% of the then exercise price per share of Common Stock (subject to adjustment in the event of any stock splits or other similar events as provided in Section 8 hereof). (b) In case the Company shall exercise its right to redeem all of the Warrants, it shall give or cause to be given notice to the Registered Holders of the Warrants, by mailing to such Registered Holders a notice of redemption, first class, postage prepaid, at their last address as shall appear on the records of the Warrant Agent. Any notice mailed in the 15 manner provided herein shall be conclusively presumed to have been duly given whether or not the Registered Holder receives such notice. Not less than five (5) business days prior to the mailing to the Registered Holders of the Warrants of the notice of redemption, the Company shall deliver or cause to be delivered to the Representative or its successors or assigns a similar notice telephonically and confirmed in writing, together with a list of the Registered Holders (including their respective addresses and number of Warrants beneficially owned by them) to whom such notice of redemption has been or will be given. (c) The notice of redemption shall specify (i) the redemption price, (ii) the date fixed for redemption, which shall in no event be less than thirty (30) days after the date of mailing of such notice, (iii) the place where the Warrant Certificates shall be delivered and the redemption price shall be paid, and (iv) that the Representative is the Company's exclusive warrant solicitation agent and shall receive the commission contemplated by Section 4(b) hereof and (v) that the right to exercise the Warrant shall terminate at 5:00 p.m. (New York time) on the business day immediately preceding the date fixed for redemption. The date fixed for the redemption of the Warrants shall be the "Redemption Date" for purposes of this Agreement. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the proceedings for such redemption except as to a holder (A) to whom notice was not mailed or (B) whose notice was defective. An affidavit of the Warrant Agent or the Secretary or Assistant Secretary of the Company that notice of redemption has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. (d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New York time) on the business day immediately preceding the Redemption Date. The redemption price payable to the Registered Holders shall be mailed to such persons at their addresses of record. 16 (e) The Company shall indemnify the Representative and each person, if any, who controls the Representative within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from the registration statement or prospectus referred to in Section 5(b) hereof to the same extent and with the same effect (including the provisions regarding contribution) as the provisions pursuant to which the company has agreed to indemnify the Representative contained in Section 7 of the Underwriting Agreement. (f) Five business days prior to the Redemption Date, the Company shall furnish to the Representative (i) opinions of counsel to the Company, dated such date and addressed to the Representative, and (ii) a "cold comfort" letter dated such date addressed to the Representative, signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities, including, without limitation, those matters covered in Sections 6(d), 6(e) and 6(j) of the Underwriting Agreement. (g) The Company shall as soon as practicable after the Redemption Date, and in any event within 15 months thereafter, make "generally available to its security holders" (within the meaning of Rule 158 under the Act) an earnings statement (which need not be 17 audited) complying with Section 11(a) of the Act and covering a period of at least 12 consecutive months beginning after the Redemption Date. (h) The Company shall deliver within five business days prior to the Redemption Date copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to such registration statement and permit the Representative to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of the NASD. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as the Representative shall reasonably request. SECTION 10. Concerning the Warrant Agent. (a) The Warrant Agent acts hereunder as agent and in a ministerial capacity for the Company and the Representative, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not, by issuing and delivering Warrant Certificates or by any other act hereunder, be deemed to make any representations as to the validity or value or authorization of the Warrant Certificates or the Warrants represented thereby or of any securities or other property delivered upon exercise of any Warrant or whether any stock issued upon exercise of any Warrant is fully paid and non-assessable. (b) The Warrant Agent shall not at any time be under any duty or responsibility to any holder of Warrant Certificates to make or cause to be made any adjustment of the Purchase Price provided in this Agreement, or to determine whether any fact exists which 18 may require any such adjustment, or with respect to the nature or extent of any such adjustment, when made, or with respect to the method employed in making the same. It shall not (i) be liable for any recital or statement of fact contained herein or for any action taken, suffered or omitted by it in reliance on any Warrant Certificate or other document or instrument believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties, (ii) be responsible for any failure on the part of the Company to comply with any of its covenants and obligations contained in this Agreement or in any Warrant Certificate, or (iii) be liable for any act or omission in connection with this Agreement except for its own gross negligence or willful misconduct. (c) The Warrant Agent may at any time consult with counsel satisfactory to it (who may be counsel for the Company or the Representative) and shall incur no liability or responsibility for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel. (d) Any notice, statement, instruction, request, direction, order or demand of the Company shall be sufficiently evidenced by an instrument signed by the Chairman of the Board of Directors, President or any Vice President (unless other evidence in respect thereof is herein specifically prescribed). The Warrant Agent shall not be liable for any action taken, suffered or omitted by it in accordance with such notice, statement, instruction, request, direction, order or demand. (e) The Company agrees to pay the Warrant Agent reasonable compensation for its services hereunder and to reimburse it for its reasonable expenses hereunder; the Company further agrees to indemnify the Warrant Agent and hold it harmless against any and all losses, expenses and liabilities, including judgments, costs and counsel fees, for anything 19 done or omitted by the Warrant Agent in the execution of its duties and powers hereunder except losses, expenses and liabilities arising as a result of the Warrant Agent's gross negligence or willful misconduct. (f) The Warrant Agent may resign its duties and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's own gross negligence or willful misconduct), after giving thirty (30) days' prior written notice to the Company. At least fifteen (15) days prior to the date such resignation is to become effective, the Warrant Agent shall cause a copy of such notice of resignation to be mailed to the Registered Holder of each Warrant Certificate at the Company's expense. Upon such resignation the Company shall appoint in writing a new warrant agent. If the Company shall fail to make such appointment within a period of thirty (30) days after it has been notified in writing of such resignation by the resigning Warrant Agent, then the Registered Holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new warrant agent. Any new warrant agent, whether appointed by the Company or by such a court, shall be a bank or trust company having a capital and surplus, as shown by its last published report to its stockholders, of not less than ten million dollars ($10,000,000) or a stock transfer company doing business in New York, New York. After acceptance in writing of such appointment by the new warrant agent is received by the Company, such new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the warrant agent, without any further assurance, conveyance, act or deed; but if for any reason it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed and delivered by the resigning Warrant Agent. Not later than the 20 effective date of any such appointment, the Company shall file notice thereof with the resigning Warrant Agent and shall forthwith cause a copy of such notice to be mailed to the Registered Holder of each Warrant Certificate. (g) Any corporation into which the Warrant Agent or any new warrant agent may be converted or merged, any corporation resulting from any consolidation to which the Warrant Agent or any new warrant agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent or any new warrant agent shall be a successor warrant agent under this Agreement without any further act, provided that such corporation is eligible for appointment as successor to the Warrant Agent under the provisions of the preceding paragraph. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed to the Company and to the Registered Holders of each Warrant Certificate. (h) The Warrant Agent, its subsidiaries and affiliates, and any of its or their officers or directors, may buy and hold or sell Warrants or other securities of the Company and otherwise deal with the Company in the same manner and to the same extent and with like effect as though it were not Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Warrant Agent shall retain for a period of two (2) years from the date of exercise any Warrant Certificate received by it upon such exercise. SECTION 11. Modification of Agreement. The Warrant Agent and the Company may by supplemental agreement make any changes or corrections in this Agreement (a) that they shall deem appropriate to cure any ambiguity or to correct any defective or inconsistent provision or manifest mistake or error herein contained, 21 or (b) that they may deem necessary or desirable and which shall not adversely affect the interests of the holders of Warrant Certificates; provided, however, that this Agreement shall not otherwise be modified, supplemented or altered in any respect except with the consent in writing of the Registered Holders holding not less than sixty-six and two-thirds percent (66- 2/3%) of the Warrants then outstanding; provided, further, that no change in the number or nature of the securities purchasable upon the exercise of any Warrant, and no change that increases the Purchase Price of any Warrant, other than such changes as are specifically set forth in this Agreement as originally executed, shall be made without the consent in writing of each Registered Holders affected by such change. In addition, this Agreement may not be modified, amended or supplemented without the prior written consent of the Representative or its successors or assigns, other than to cure any ambiguity or to correct any defective or inconsistent provision or manifest mistake or error herein contained or to make any such change that the Warrant Agent and the Company deem necessary or desirable and which shall not adversely affect the interests of the Representative or its successors or assigns. SECTION 12. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed first-class postage prepaid or delivered to a telegraph office for transmission, if to the Registered Holder of a Warrant Certificate, at the address of such holder as shown on the registry books maintained by the Warrant Agent; if to the Company at NAM Corporation, 1010 Northern Boulevard, Suite 336, Great Neck, New York 11021, Attention: Roy Israel, President and Chief Executive Officer, or at such other address as may have been furnished to the Warrant Agent in writing by the Company; and if to the Warrant Agent, at its Corporate Office. Copies of any notice delivered 22 pursuant to this Agreement shall be delivered to Joseph Stevens & Company, L.P., 33 Maiden Lane, 8th Floor, New York, NY 10038, Attention: Joseph Sorbara, Chief Executive Officer or at such other address as may have been furnished to the Company and the Warrant Agent in writing. SECTION 13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to conflicts of laws rules or principals. SECTION 14. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company, the Warrant Agent and their respective successors and assigns and the holders from time to time of Warrant Certificates or any of them. Except as hereinafter stated, nothing in this Agreement is intended or shall be construed to confer upon any other person any right, remedy or claim or to impose upon any other person any duty, liability or obligation. The Representative is, and shall at all times irrevocably be deemed to be, a third-party beneficiary of this Agreement, with full power, authority and standing to enforce the rights granted to it hereunder. SECTION 15. Counterparts. This Agreement may be executed in several counterparts, which taken together shall constitute a single document. 23 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. NAM CORPORATION CONTINENTAL STOCK TRANSFER & TRUST COMPANY As Warrant Agent By: By: -------------------------------- ----------------------------- Name: Roy Israel Name: Title: President and Title: Chief Executive Officer 24 EXHIBIT A No. W ___________ VOID AFTER ____________________, 2001 _________ WARRANTS REDEEMABLE WARRANT CERTIFICATE TO PURCHASE SHARES OF COMMON STOCK NAM CORPORATION CUSIP _________ THIS CERTIFIES THAT, FOR VALUE RECEIVED __________________________________ or registered assigns (the "Registered Holder") is the owner of the number of Redeemable Warrants (the "Warrants") specified above. One Warrant initially entitles the Registered Holder to purchase, subject to the terms and conditions set forth in this Certificate and the Warrant Agreement (as hereinafter defined), one fully paid and non-assessable share of Common Stock, $.001 par value per share, of NAM Corporation, a Delaware corporation (the "Company"), at any time from _____________, 1996 [the effective date of the Registration Statement] and prior to the Expiration Date (as hereinafter defined) upon the presentation and surrender of this Warrant Certificate with the Subscription Form on the reverse hereof duly executed, at the corporate office of Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004 as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of $_____ [150% of the initial public offering price per Unit] subject to adjustment (the "Purchase Price"), in lawful money of the United States of America in cash or by check made payable to the Warrant Agent for the account of the Company. This Warrant Certificate is, and each Warrant represented hereby are, issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated __________, 1996 [the effective date of the Registration Statement], by and between the Company and the Warrant Agent. In the event of certain contingencies provided for in the Warrant Agreement, the Purchase Price and the number of shares of Common Stock subject to purchase upon the exercise of each Warrant represented hereby are subject to modification or adjustment. Each Warrant represented hereby is exercisable at the option of the Registered Holder, but no fractional interests will be issued. In the case of the exercise of less than all of the Warrants represented hereby, the Company shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver a new Warrant Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall countersign, for the balance of such Warrants. A-1 The term "Expiration Date" shall mean 5:00 p.m. (New York time) on __________, 2001 [the 60 month anniversary of the issuance of the Warrant]. If such date shall in the State of New York be a holiday or a day on which banks are authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York time) on the next day which in the State of New York is not a holiday or a day on which banks are authorized to close. The Company shall not be obligated to deliver any securities pursuant to the exercise of this Warrant unless a registration statement under the Securities Act of 1933, as amended (the "Act"), with respect to such securities is effective or an exemption thereunder is available. The Company has covenanted and agreed that it will file a registration statement under the Federal securities laws, use its best efforts to cause the same to become effective, to keep such registration statement current, if required under the Act, while any of the Warrants are outstanding, and deliver a prospectus which complies with Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant. This Warrant shall not be exercisable by a Registered Holder in any state where such exercise would be unlawful. This Warrant Certificate is exchangeable, upon the surrender hereof by the Registered Holder at the corporate office of the Warrant Agent, for a new Warrant Certificate or Warrant Certificates of like tenor representing an equal aggregate number of Warrants, each of such new Warrant Certificates to represent such number of Warrants as shall be designated by such Registered Holder at the time of such surrender. Upon due presentment and payment of any tax or other charge imposed in connection therewith or incident thereto, for registration of transfer of this Warrant Certificate at such office, a new Warrant Certificate or Warrant Certificates representing an equal aggregate number of Warrants will be issued to the transferee in exchange therefor, subject to the limitations provided in the Warrant Agreement. Prior to the exercise of any Warrant represented hereby, the Registered Holder shall not be entitled to any rights of a stockholder of the Company, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided in the Warrant Agreement. Subject to the provisions of the Warrant Agreement, this Warrant may be redeemed at the option of the Company, in whole and not in part, at a redemption price of $.05 per Warrant, at any time commencing __________, 1997 [twelve (12) months from issuance] provided that the average closing bid price for the Company's Common Stock, as reported by the National Association of Securities Dealers Automated Quotation System (or, if not so quoted, as reported by any other recognized quotation system on which the price of the Common Stock is quoted), shall have, for any twenty (20) trading days within a period of thirty (30) consecutive trading days ending on the fifth (5th) trading day prior to the date on which the Notice of Redemption (as defined below) is given, equalled or exceeded 150% of the then exercise price per share (subject to adjustment in the event of any stock splits or other similar events). Notice of redemption (the "Notice of Redemption") shall be given not later than the thirtieth (30th) day before the date fixed for redemption, all as provided in the Warrant Agreement. On and after the date fixed for redemption, the Registered Holder shall have no rights with respect to this Warrant except to receive the $.05 per Warrant upon surrender of this Certificate. A-2 Prior to due presentment for registration of transfer hereof, the Company and the Warrant Agent may deem and treat the Registered Holder as the absolute owner hereof and of each Warrant represented hereby (notwithstanding any notations of ownership or writing hereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary, except as provided in the Warrant Agreement. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New York without giving effect to conflicts of laws. This Warrant Certificate is not valid unless countersigned by the Warrant Agent. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, manually or in facsimile by two of its officers thereunto duly authorized and a facsimile of its corporate seal to be imprinted hereon. Dated: ___________, 1996 NAM CORPORATION [SEAL] By: -------------------------------- Name: Roy Israel Title: President and Chief Executive Officer ATTEST: By: -------------------------------- Name: Title: COUNTERSIGNED: CONTINENTAL STOCK TRANSFER & TRUST COMPANY, as Warrant Agent By: ----------------------------- Authorized Officer A-3 SUBSCRIPTION FORM To Be Executed by the Registered Holder in Order to Exercise Warrant The undersigned Registered Holder hereby irrevocably elects to exercise _____ Warrants represented by this Warrant Certificate, and to purchase the securities issuable upon the exercise of such Warrants, and requests that certificates for such securities shall be issued in name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- (please print or type name and address) and be delivered to --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- (please print or type name and address) and if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below. A-4 IMPORTANT: PLEASE COMPLETE THE FOLLOWING: 1. If the exercise of this Warrant was solicited by Joseph Stevens & Company, L.P. please check the following box [ ] 2. The exercise of this Warrant was solicited by [ ] -------------------------- 3. If the exercise of this Warrant was not solicited, please check the [ ] following box Dated: X ---------------------- --------------------------------- --------------------------------- --------------------------------- Address -------------------------------- Social Security or Taxpayer Identification Number -------------------------------- Signature Guaranteed -------------------------------- A-5 ASSIGNMENT To Be Executed by the Registered Holder in Order to Assign Warrants FOR VALUE RECEIVED, __________________________, hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ---------------------------------- ---------------------------------- ---------------------------------- (please print or type name and address) ________________________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints ____________________ Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated: X ----------------------- --------------------------- --------------------------- Signature Guaranteed THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE. A-6 EX-4.2 6 EXHIBIT 4.2 Exhibit 4.2 ============================================================================= NAM CORPORATION AND JOSEPH STEVENS & COMPANY L.P. ----------------- REPRESENTATIVE'S WARRANT AGREEMENT ________, 1996 ============================================================================= REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______ ____, 1996 by and between NAM CORPORATION, a Delaware corporation (the "Company"), and JOSEPH STEVENS & COMPANY, L.P. ("Joseph Stevens") (Joseph Stevens is hereinafter referred to variously as the "Holder" or the "Representative"). W I T N E S S E T H: WHEREAS, the Company proposes to issue to the Representative or its designee(s) warrants ("Warrants") to purchase up to 140,000 Units (as defined in Section 1 hereof, each Unit consisting of one (1) share of common stock, $.001 par value per share, of the Company ("Common Stock") and one (1) redeemable Common Stock purchase warrant, each to purchase one additional share of Common Stock ("Redeemable Warrants")); and WHEREAS, the Representative has agreed pursuant to the underwriting agreement (the "Underwriting Agreement") dated as of the date hereof by and among the several Underwriters listed therein and the Company to act as the representative of the several underwriters in connection with the proposed public offering of 1,400,000 Units at a public offering price of $4.00 per Unit; and WHEREAS, the Warrants to be issued pursuant to this Agreement will be issued on the Closing Date (as such term is defined in the Underwriting Agreement) by the Company to the Representative in consideration for, and as part of the Representative's compensation in connection with, Joseph Stevens acting as the Representative pursuant to the Underwriting Agreement; NOW, THEREFORE, in consideration of the premises, the payment by the Representative to the Company of fourteen dollars ($14.00), the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant. The Representative (or its designee(s)) is hereby granted the right to purchase, at any time from __________, 1997 [one year from the date hereof] until 5:00 p.m., New York time, on __________, 2001, [5 years from the date hereof] up to 140,000 Units at an initial exercise price (subject to adjustment as provided in Section 8 hereof) of $__________ [120% of the initial public offering price per Unit] per Unit subject to the terms and conditions of this Agreement. A "Unit" consists of one (1) share of Common Stock and one (1) Redeemable Warrant. Each Redeemable Warrant is exercisable to purchase one additional share of Common Stock at an initial exercise price of $____ [150% of the initial public offering price per Unit] per share, commencing on the date of issuance (the "Initial Exercise Date") and ending, at 5:00 p.m. New York time on __________, 2001 [60 months from the date hereof] (the "Redeemable Warrant Expiration Date") at which time the Redeemable Warrants shall expire. Except as set forth herein, the Units issuable upon exercise of the Warrants are in all respects identical to the Units being purchased by the Underwriters for resale to the public pursuant to the terms and provisions of the Underwriting Agreement. 2. Warrant Certificates. The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in Exhibit A attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions and other variations as required or permitted by this Agreement. 3. Exercise of Warrant. 3.1 Method of Exercise. The Warrants are initially exercisable at an initial exercise price per Unit set forth in Section 6 hereof payable by certified or official bank check 2 in New York Clearing House funds, subject to adjustment as provided in Section 8 hereof. Upon surrender of a Warrant Certificate, together with the annexed Form of Election to Purchase duly executed and payment of the Exercise Price (as hereinafter defined) for the Units purchased at the Company's principal offices in Great Neck, New York (presently located at 1010 Northern Boulevard, Suite 336, Great Neck, New York 11021) the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased and a certificate or certificates for the Redeemable Warrants so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder thereof, in whole or in part (but not as to fractional shares of the Common Stock and Redeemable Warrants underlying the Warrants). In the event the Company redeems all of the outstanding Redeemable Warrants, the Redeemable Warrants underlying the Warrants may only be exercised if such exercise is simultaneous with the exercise of the Warrants. Warrants may be exercised to purchase all or part of the Units represented thereby. In the case of the purchase of less than all the Units purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Units purchasable thereunder. 3.2 Exercise by Surrender of Warrant. In addition to the method of payment set forth in Section 3.1 and in lieu of any cash payment required thereunder, the Holder(s) of the Warrants shall have the right at any time and from time to time to exercise the Warrants in full or in part by surrendering the Warrant Certificate in the manner specified in Section 3.1 in exchange for the number of Units equal to the product of (x) the number of Units as to which the Warrants are being exercised, multiplied by (y) a fraction, the numerator of which is the 3 Market Price (as defined in Section 3.3 hereof) of the Units minus the Exercise Price of the Units and the denominator of which is the Market Price per Unit. Solely for the purposes of this Section 3.2, Market Price shall be calculated either (i) on the date on which the form of election attached hereto is deemed to have been sent to the Company pursuant to Section 14 hereof ("Notice Date") or (ii) as the average of the Market Price for each of the five trading days immediately preceding the Notice Date, whichever of (i) or (ii) results in a greater Market Price. 3.3 Definition of Market Price. (a) As used herein, the phrase "Market Price" of the Units, the Common Stock or the Redeemable Warrants, respectively, at any date shall be deemed to be the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Units, the Common Stock or the Redeemable Warrants, as the case may be, are listed or admitted to trading or by the Nasdaq National Market ("Nasdaq/NM") or the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the Units, the Common Stock or the Redeemable Warrants, as the case may be, are not listed or admitted to trading on any national securities exchange or quoted by the National Association of Securities Dealers Automated Quotation System ("Nasdaq"), the average closing bid price as furnished by the National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no longer reporting such information (collectively, the "Appropriate Market Price"). 4 (b) If the Market Price of Units cannot be determined pursuant to Section 3.3(a), the Market Price of the Units at any date shall be deemed to be the sum of the Market Price of the Common Stock and the Market Price of the Redeemable Warrants. (c) If the Market Price of the Common Stock cannot be determined pursuant to Section 3.3(a) above, the Market Price of the Common Stock shall be determined in good faith (using customary valuation methods) by resolution of the members of the Board of Directors of the Company, based on the best information available to it. (d) If the Market Price of the Redeemable Warrants cannot be determined pursuant to Section 3.3(a) above, the Market Price of a Redeemable Warrant shall equal the difference between the Market Price of the Common Stock and the Exercise Price of the Redeemable Warrant. 4. Issuance of Certificates. Upon the exercise of the Warrants, the issuance of certificates for shares of Common Stock and Redeemable Warrants or other securities, properties or rights underlying such Warrants, and upon the exercise of the Redeemable Warrants, the issuance of certificates for shares of Common Stock or other securities, properties or rights underlying such Redeemable Warrants shall be made forthwith (and in any event such issuance shall be made within five (5) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof. The Warrant Certificates and the certificates representing the shares of Common Stock and the Redeemable Warrants underlying the Warrants and the shares of Common Stock underlying each Redeemable Warrant or other securities, property or rights shall be executed 5 on behalf of the Company by the manual or facsimile signature of the then present Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of the then present Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of the Company. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. 5. Restriction On Transfer of Warrants. The Holder of a Warrant Certificate, by its acceptance thereof, covenants and agrees that the Warrants are being acquired as an investment and not with a view to the distribution thereof; that the Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of one (1) year from the date hereof, except to officers or partners of the Representative. 6. Exercise Price. 6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in Section 8 hereof, the initial exercise price of each Warrant shall be $____ per Unit [120% of the initial public offering price per Unit]. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 8 hereof. 6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. Registration Rights. 7.1 Registration Under the Securities Act of 1933. The Warrants, the shares of Common Stock and the Redeemable Warrants underlying the Warrants and the shares of Common Stock issuable upon exercise of the Redeemable Warrants underlying the Warrants and 6 the other securities issuable upon exercise of the Warrants (collectively, the "Warrant Securities") have been registered under the Securities Act of 1933, as amended (the "Act") pursuant to the Company's Registration Statement on Form SB-2 (Registration No. __________) (the "Registration Statement"). All the representations and warranties of the Company contained in the Underwriting Agreement relating to the Registration Statement, the Preliminary Prospectus and Prospectus (as such terms are defined in the Underwriting Agreement) and made as of the dates provided therein, are hereby incorporated by reference. The Company agrees and covenants promptly to file post effective amendments to such Registration Statement as may be necessary to maintain the effectiveness of the Registration Statement as long as any Warrants are outstanding. In the event that, for any reason, whatsoever, the Company shall fail to maintain the effectiveness of the Registration Statement, upon exercise, in part or in whole, of the Warrants, certificates representing the shares of Common Stock and the Redeemable Warrants underlying the Warrants, and upon exercise, in whole or in part of the Redeemable Warrants, certificates representing the shares of Common Stock underlying the Redeemable Warrants and the other securities issuable upon exercise of the Warrants shall bear the following legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended ("Act"), and may not be offered, sold, pledged, hypothecated, assigned or transferred except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act is available. 7.2 Piggyback Registration. If, at any time commencing after the date hereof and expiring seven (7) years thereafter, the Company proposes to register any of its securities under the Act (other than pursuant to Form S-8, S-4 or a comparable registration statement) the 7 Company will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Representative and to all other Holders of the Warrants and/or the Warrant Securities of its intention to do so. If the Representative or other Holders of the Warrants and/or Warrant Securities notifies the Company within twenty (20) days after receipt of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford the Representative and such Holders of the Warrants and/or Warrant Securities the opportunity to have any such Warrant Securities registered under such registration statement. Notwithstanding the provisions of this Section 7.2, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. 7.3 Demand Registration. (a) At any time commencing after the date hereof and expiring five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities representing a "Majority" (as hereinafter defined) of such securities (assuming the exercise of all of the Warrants and the Redeemable Warrants underlying the Warrants) shall have the right (which right is in addition to the registration rights under Section 7.2 hereof), exercisable by written notice to the Company, to have the Company prepare and file with the Securities and Exchange Commission (the "Commission"), on one occasion, a registration statement and such other documents, including a prospectus, as may be necessary in the opinion of both counsel for the Company and counsel for the Representative and Holders, in order to comply with the provisions of the Act, 8 so as to permit a public offering and sale of their respective Warrant Securities for nine (9) consecutive months by such Holders and any other Holders of the Warrants and/or Warrant Securities who notify the Company within ten (10) days after receiving notice from the Company of such request. (b) The Company covenants and agrees to give written notice of any registration request under this Section 7.3 by any Holder or Holders to all other registered Holders of the Warrants and the Warrant Securities within ten (10) days from the date of the receipt of any such registration request. (c) Notwithstanding anything to the contrary contained herein, if the Company shall not have filed a registration statement for the Warrant Securities within the time period specified in Section 7.4(a) hereof pursuant to the written notice specified in Section 7.3(a) of a Majority of the Holders of the Warrants and/or Warrant Securities, the Company shall have the option, upon the written notice of election of a Majority of the Holders of the Warrants and/or Warrant Securities to repurchase (i) any and all Warrant Securities at the higher of the Market Price per share of Common Stock on (x) the date of the notice sent pursuant to Section 7.3(a) or (y) the expiration of the period specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price less the Exercise Price of such Warrant. Such repurchase shall be in immediately available funds and shall close within two (2) days after the later of (i) the expiration of the period specified in Section 7.4(a) or (ii) the delivery of the written notice of election specified in this Section 7.3(c). (d) In addition to the registration rights under Section 7.2 and subsection (a) of this Section 7.3, at any time commencing after the date hereof and expiring five (5) years thereafter, any Holder of Warrants and/or Warrant Securities shall have the right, exercisable 9 by written request to the Company, to have the Company prepare and file, on one occasion, with the Commission a registration statement so as to permit a public offering and sale for nine (9) consecutive months by any such Holder of its Warrant Securities provided, however, that the provisions of Section 7.4(b) hereof shall not apply to any such registration request and registration and all costs incident thereto shall be at the expense of the Holder or Holders making such request. 7.4 Covenants of the Company With Respect to Registration. In connection with any registration under Section 7.2 or 7.3 hereof, the Company covenants and agrees as follows: (a) The Company shall use its best efforts to file a registration statement within forty-five (45) days of receipt of any demand therefor, shall use its best efforts to have any registration statement declared effective at the earliest possible time, and shall furnish each Holder desiring to sell Warrant Securities such number of prospectuses as shall reasonably be requested. (b) The Company shall pay all costs (excluding fees and expenses of Holder(s)' counsel and any underwriting or selling commissions), fees and expenses in connection with all registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and expenses in connection with any registration statement filed pursuant to Section 7.3(d). If the Company shall fail to comply with the provisions of Section 7.4(a), the Company shall be liable for any equitable or other relief available at law to the Holder(s) requesting registration of their Warrant Securities, excluding consequential damages. 10 (c) The Company will take all necessary action which may be required in qualifying or registering the Warrant Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Holder(s), provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction. (d) The Company shall indemnify the Holder(s) of the Warrant Securities to be sold pursuant to any registration statement and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 7 of the Underwriting Agreement. The Company further agree(s) that upon demand by an indemnified person, at any time or from time to time, it will promptly reimburse such indemnified person for any loss, claim, damage, liability, cost or expense actually and reasonably paid by the indemnified person as to which the Company has indemnified such person pursuant hereto. Notwithstanding the foregoing provisions of this Section 7.4(d) any such payment or reimbursement by the Company of fees, expenses or disbursements incurred by an indemnified person in any proceeding in which a final judgment by a court of competent jurisdiction (after all appeals or the expiration of time 11 to appeal) is entered against the Company or such indemnified person as a direct result of the Holder(s) or such person's gross negligence or willful misfeasance will be promptly repaid to the Company. (e) The Holder(s) of the Warrant Securities to be sold pursuant to a registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 7 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company. The Holder(s) further agree(s) that upon demand by an indemnified person, at any time or from time to time, they will promptly reimburse such indemnified person for any loss, claim, damage, liability, cost or expense actually and reasonably paid by the indemnified person as to which the Holder(s) have indemnified such person pursuant hereto. Notwithstanding the foregoing provisions of this Section 7.4(e) any such payment or reimbursement by the Holder(s) of fees, expenses or disbursements incurred by an indemnified person in any proceeding in which a final judgment by a court of competent jurisdiction (after all appeals or the expiration of time to appeal) is entered against the Company or such indemnified person as a direct result of the 12 Company or such person's gross negligence or willful misfeasance will be promptly repaid to the Holder(s). (f) Nothing contained in this Agreement shall be construed as requiring the Holder(s) to exercise their Warrants prior to the initial filing of any registration statement or the effectiveness thereof. (g) The Company shall not permit the inclusion of any securities other than the Warrant Securities to be included in any registration statement filed pursuant to Section 7.3 hereof without the prior written consent of the Holders of the Warrants and Warrant Securities representing a Majority of such securities (assuming the exercise of all of the Warrants and the Redeemable Warrants underlying the Warrants). (h) The Company shall furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial 13 statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. (i) The Company shall as soon as practicable after the effective date of the registration statement, and in any event within 15 months thereafter, make "generally available to its security holders" (within the meaning of Rule 158 under the Act) an earnings statement (which need not be audited) complying with Section 11(a) of the Act and covering a period of at least 12 consecutive months beginning after the effective date of the registration statement. (j) The Company shall deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of the NASD. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as any such Holder or underwriter shall reasonably request. (k) The Company shall enter into an underwriting agreement with the managing underwriter selected for such underwriting by Holders holding a Majority of the Warrant Securities requested to be included in such underwriting, which may be the 14 Representative. Such agreement shall be satisfactory in form and substance to the Company, each Holder and such managing underwriter, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Warrant Securities and may, at their option, require that any or all of the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders and their intended methods of distribution. (l) In addition to the Warrant Securities, upon the written request therefor by any Holder(s), the Company shall include in the registration statement any other securities of the Company held by such Holder(s) as of the date of filing of such registration statement, including without limitation, restricted shares of Common Stock, options, warrants or any other securities convertible into shares of Common Stock. (m) For purposes of this Agreement, the term "Majority" in reference to the Holders of Warrants or Warrant Securities shall mean in excess of fifty percent (50%) of the then outstanding Warrants or Warrant Securities that (i) are not held by the Company, an affiliate, officer, creditor, employee or agent thereof or any of their respective affiliates, members of their family, persons acting as nominees or in conjunction therewith and (ii) have not been resold to the public pursuant to a registration statement filed with the Commission under the Act. 15 8. Adjustments to Exercise Price and Number of Securities. 8.1 Subdivision and Combination. In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 8.2 Stock Dividends and Distributions. In case the Company shall pay dividend in, or make a distribution of, shares of Common Stock or of the Company's capital stock convertible into Common Stock, the Exercise Price shall forthwith be proportionately decreased. An adjustment made pursuant to this Section 8.2 shall be made as of the record date for the subject stock dividend or distribution. 8.3 Adjustment in Number of Securities. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 8, the number of Warrant Securities issuable upon the exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the nearest whole number by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Securities issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 8.4 Definition of Common Stock. For the purpose of this Agreement, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Certificate of Incorporation of the Company as may be amended or restated as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. 16 8.5 Merger or Consolidation or Sale. (a) In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock of the Company for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in this Section 8. The above provision of this subsection shall similarly apply to successive consolidations or mergers. (b) In the event of (i) the sale by the Company of all or substantially all of its assets, or (ii) the engagement by the Company or any of its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of Rule 13e-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, or (iii) a distribution to the Company's stockholders of any cash, assets, property, rights, evidences of indebtedness, securities or any other thing of value, or any combination thereof, the Holders of the unexercised Warrants shall receive notice of such sale, transaction or distribution twenty (20) days prior to the date of such sale or the record date for such transaction or distribution, as applicable, and, if they exercise such Warrants prior to such date, they shall be entitled, in addition to the shares of Common 17 Stock issuable upon the exercise thereof, to receive such property, cash, assets, rights, evidence of indebtedness, securities or any other thing of value, or any combination thereof, on the payment date of such sale, transaction or distribution. 8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of the Exercise Price shall be made if the amount of said adjustment shall be less than ten cents (10(cent)) per Warrant Security, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least ten cents (10(cent)) per Warrant Security. 8.7 Adjustment of Redeemable Warrants' Exercise Price. With respect to any of the Redeemable Warrants whether or not the Redeemable Warrants have been exercised (or are exercisable) and whether or not the Redeemable Warrants are issued and outstanding, the Redeemable Warrant exercise price and the number of shares of Common Stock underlying such Redeemable Warrants shall be automatically adjusted in accordance with Section 8 of the Warrant Agreement between the Company and Continental Stock Transfer & Trust Company dated __________, 1996 (the "Redeemable Warrant Agreement"), upon the occurrence of any of the events described therein. Thereafter, the underlying Redeemable Warrants shall be exercisable at such adjusted Redeemable Warrant exercise price for such adjusted number of underlying shares of Common Stock or other securities, properties or rights. 9. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and 18 date representing in the aggregate the right to purchase the same number of Units in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of shares of Common Stock or Redeemable Warrants upon the exercise of the Warrants, or fractions of shares of Common Stock upon the exercise of the Redeemable Warrants underlying the Warrants, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock or Redeemable Warrants, as the case may be, or other securities, properties or rights. 11. Reservation and Listing of Securities. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants and the Redeemable Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. The Company further covenants and agrees that 19 upon exercise of the Redeemable Warrants underlying the Warrants and payment of the respective Redeemable Warrant exercise price therefor, all shares of Common Stock and other securities issuable upon such exercises shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants and the Redeemable Warrants and all Redeemable Warrants underlying the Warrants to be listed (subject to official notice of issuance) on all securities exchanges on which the Common Stock or the Redeemable Warrants issued to the public in connection herewith may then be listed and/or quoted on Nasdaq National Market or Nasdaq Small Cap Market. 12. Notices to Warrant Holders. Nothing contained in this Agreement shall be construed as conferring upon the Holders the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or 20 exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least twenty (20) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. Redeemable Warrants. The form of the certificate representing Redeemable Warrants (and the form of election to purchase shares of Common Stock upon the exercise of Redeemable Warrants and the form of assignment printed on the reverse thereof) shall be substantially as set forth in Exhibit "A" to the Redeemable Warrant Agreement. Each Redeemable Warrant issuable upon exercise of the Warrants shall evidence the right to initially purchase one fully paid and non-assessable share of Common Stock at an initial purchase price of $____ [150% of the initial public offering price per Unit] per share commencing on the Initial Exercise Date and ending at 5:00 p.m. New York time on the Redeemable Warrant Expiration 21 Date at which time the Redeemable Warrants shall expire. The exercise price of the Redeemable Warrants and the number of shares of Common Stock issuable upon the exercise of the Redeemable Warrants are subject to adjustment, whether or not the Warrants have been exercised and the Redeemable Warrants have been issued, in the manner and upon the occurrence of the events set forth in Section 8 of the Redeemable Warrant Agreement, which is hereby incorporated herein by reference and made a part hereof as if set forth in its entirety herein. Subject to the provisions of this Agreement and upon issuance of the Redeemable Warrants underlying the Warrants, each registered holder of such Redeemable Warrants shall have the right to purchase from the Company (and the Company shall issue to such registered holders) up to the number of fully paid and non-assessable shares of Common Stock (subject to adjustment as provided herein and in the Redeemable Warrant Agreement), free and clear of all preemptive rights of stockholders, provided that such registered holder complies with the terms governing exercise of the Redeemable Warrants set forth in the Redeemable Warrant Agreement, and pays the applicable exercise price, determined in accordance with the terms of the Redeemable Warrant Agreement. Upon exercise of the Redeemable Warrants, the Company shall forthwith issue to the registered holder of any such Redeemable Warrant in his name or in such name as may be directed by him, certificates for the number of shares of Common Stock so purchased. Except as otherwise provided herein, the Redeemable Warrants underlying the Warrants shall be governed in all respects by the terms of the Redeemable Warrant Agreement. The Redeemable Warrants shall be transferable in the manner provided in the Redeemable Warrant Agreement, and upon any such transfer, a new Redeemable Warrant Certificate shall be issued promptly to the transferee. The Company covenants to, and agrees with, the Holder(s) that without the prior written consent of the Holder(s), the Redeemable Warrant Agreement will 22 not be modified, amended, cancelled, altered or superseded, and that the Company will send to each Holder, irrespective of whether or not the Warrants have been exercised, any and all notices required by the Redeemable Warrant Agreement to be sent to holders of Redeemable Warrants. 14. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to the registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth in Section 3 hereof or to such other address as the Company may designate by notice to the Holders. 15. Supplements and Amendments. The Company and the Representative may from time to time supplement or amend this Agreement without the approval of any Holders of Warrant Certificates (other than the Representative) in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Representative may deem necessary or desirable and which the Company and the Representative deem shall not adversely affect the interests of the Holders of Warrant Certificates. 16. Successors. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns hereunder. 23 17. Termination. This Agreement shall terminate at the close of business on __________, 2003 [7 years from the date hereof]. Notwithstanding the foregoing, the indemnification provisions of Section 7 shall survive such termination until the close of business on __________, 2008 [12 years from the date hereof.] 18. Governing Law, Submission to Jurisdiction. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State without giving effect to the rules of said State governing the conflicts of laws. The Company, the Representative and the Holders hereby agree that any action, proceeding or claim against it arising out of, or relating in any way to, this Agreement shall be brought and enforced in the courts of the State of New York or of the United States of America for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company, the Representative and the Holders hereby irrevocably waive any objection to such exclusive jurisdiction or inconvenient forum. Any such process or summons to be served upon any of the Company, the Representative and the Holders (at the option of the party bringing such action, proceeding or claim) may be served by transmitting a copy thereof, by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address as set forth in Section 14 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the party so served in any action, proceeding or claim. The Company, the Representative and the Holders agree that the prevailing party(ies) in any such action or proceeding shall be entitled to recover from the other party(ies) all of its/their reasonable legal costs and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. 24 19. Entire Agreement; Modification. This Agreement (including the Underwriting Agreement to the extent portions thereof are referred to herein) and the Redeemable Warrant Agreement contain the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. 20. Severability. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 21. Captions. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect. 22. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the Representative and any other registered Holder(s) of the Warrant Certificates or Warrant Securities any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and the Representative and any other Holder(s) of the Warrant Certificates or Warrant Securities. 23. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall to either constitute but one and the same instrument. 25 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. NAM CORPORATION By:______________________________________ Roy Israel President and Chief Executive Officer Attest: ____________________________ Secretary JOSEPH STEVENS & COMPANY, L.P. By:_______________________________________ Name: Title: EXHIBIT A [FORM OF WARRANT CERTIFICATE] THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:00 P.M., NEW YORK TIME, ________, 2001 No. W- ____ Warrants WARRANT CERTIFICATE This Warrant Certificate certifies that Joseph Stevens & Company, L.P., or registered assigns, is the registered holder of __________ Warrants to purchase initially, at any time from ____________, 1997 [one year from the effective date of the Registration Statement] until 5:00 p.m. New York time on ____________, 2001 [five years from the effective date of the Registration Statement] ("Expiration Date"), up to ______________ Units, each Unit consisting of one (1) fully-paid and non-assessable share of common stock, $.001 par value ("Common Stock") of NAM CORPORATION, a Delaware corporation (the "Company"), and one (1) redeemable common stock purchase warrant ("Redeemable Warrants") (each Redeemable Warrant entitling the holder to purchase one fully-paid and non-assessable share of Common Stock), at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $_____________ [120% of the public offering price per Unit] per Unit upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, or by surrender of this Warrant Certificate in lieu of cash payment, but subject to the conditions set forth herein and in the warrant agreement dated as of _________________, 1996 between the Company and Joseph Stevens & Company, L.P. (the "Warrant Agreement"). Payment of the Exercise Price shall be made by certified or official bank check in New York Clearing House funds payable to the order of the Company or by surrender of this Warrant Certificate. 1 No Warrant may be exercised after 5:00 p.m., New York time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, hereby shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such Warrant. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. 2 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of______________ , 1996 NAM CORPORATION [SEAL] By:_______________________________________ Roy Israel President and Chief Executive Officer Attest: _______________________________ Secretary 3 [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _____________ Units and herewith tenders in payment for such securities a certified or official bank check payable in New York Clearing House Funds to the order of NAM Corporation in the amount of $__________, all in accordance with the terms of Section 3.1 of the Representative's Warrant Agreement dated as of ___________, 1996 between NAM Corporation and Joseph Stevens & Company, L.P. The undersigned requests that certificates for such securities be registered in the name of _______________ whose address is __________________________ and that such certificates be delivered to ______________________________ whose address is ____________________________. Dated: Signature___________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ____________________________________ (Insert Social Security or Other Identifying Number of Holder) 4 [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase ____________ Units all in accordance with the terms of Section 3.2 of the Representative's Warrant Agreement dated as of ______________, 1996 between NAM Corporation and Joseph Stevens & Company, L.P. The undersigned requests that certificates for such securities be registered in the name of __________________ whose address is ___________________________________________ and that such certificates be delivered to __________________________ whose address is . Dated:___________________________ Signature__________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ____________________________________ (Insert Social Security or Other Identifying Number of Holder) 5 [FORM OF ASSIGNMENT] (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto - ------------------------------------------------------------------------------- (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ________________ Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated:___________________________ Signature___________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ____________________________________ (Insert Social Security or Other Identifying Number of Holder) 6 EX-4.4 7 FORM OF PROMISSORY NOTE EXHIBIT 4.4 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW. NAM CORPORATION FORM OF 8% PROMISSORY NOTE The Transferability of this Note is Restricted as Provided Herein Subject to Prepayment as Indicated Below $ June 30, 1994 ------------ On June 30, 1996, for value received, NAM Corporation (the "Company") promises to pay to the order of the sum of Thousand Dollars and further promises to pay on an annual basis accrued interest at the rate of eight percent (8%) per annum, beginning on June 30, 1995. This promissory note (which, together with Common Stock, is part of a Unit purchased by the registered holder) is subject to prepayment in full in the event of and simultaneously with any closing that may be held with respect to any initial public offering of Company securities pursuant to an effective Registration Statement in the event that such closing is held prior to the promissory note maturity date - all in accordance with the terms and conditions contained in the Private Placement Memorandum of the Company dated June 20, 1994 and a Subscription Agreement and Investment Representation Letter accompanying such Memorandum. Additionally, if the securities of the Company are not publicly traded as of June 30, 1996 (the maturity date), Units purchased (consisting of promissory notes of $5,000 each and 2,500 shares of Common Stock per Unit) shall be redeemed in their entirety by the Company for $5,025 plus accrued interest per Unit. In the event the Company (a) fails to make any payment of interest within thirty (30) days of when due and payable hereunder, or (b) experiences financial difficulties as evidenced by the occurrence of any of the following events under A-1 the laws of the United States or any state territory or possession thereof: (i) the commencement of a voluntary case in bankruptcy or any other action or proceeding for any other relief under any law affecting creditor's rights generally or the seeking of an appointment of a trustee, receiver, liquidator, custodian or other similar official for it or any substantial part of its properties; (ii) the entry against it of an order for relief in an involuntary case in bankruptcy; or (iii) the commencement against it of an involuntary case in bankruptcy or any other such action or proceeding, if such case or other action or proceeding shall not be dismissed or stayed within fifteen days following the commencement thereof or if any such dismissal or stay shall fail to remain in effect; Then, and in each and every case, this Note shall automatically become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding, in which event, the Holder shall be entitled to receive the principal hereof together with the interest accrued hereon. No failure or delay on the part of the Holder in exercising any right, power or privilege under this Note and no course of dealing between the Company and the Holder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise of any right, power or privilege that the Holder would otherwise have. No notice to, or demand on, the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Holder to any other or further action in any circumstances without notice or demand. This Note may be prepaid in full at any time without premium or penalty. This Note has not been registered under the Act, and may not be offered, sold, pledged, hypothecated, assigned or transferred except (i) pursuant to a registration statement under the Act which has become effective and is current with respect to this Note, or (ii) pursuant to a specific exemption from registration under the Act but only upon a Holder hereof first having obtained the written opinion of counsel to the Company or other counsel reasonably acceptable to the Company, that the proposed disposition is consistent with all applicable provisions of the Act as well as any applicable "Blue Sky" or similar securities law. This Note is governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of law principles. A-2 NAM CORPORATION By: -------------------------------- Roy Israel, President Due: June 30, 1996 A-3 EX-4.5 8 EXHIBIT 4.5 Exhibit 4.5 FORM OF REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated ___________, 1994, between NAM Corporation, a Delaware corporation (the "Company"), and _________________ (the "Holder"), a stockholder of the Company. W I T N E S S E T H WHEREAS, the Holder and other investors have purchased from the Company an aggregate of 80 Units, each Unit consisting of (i) a promissory note in the principal amount of $5,000, bearing interest at the rate of 8% per annum, and (ii) 2,500 shares of Common Stock, par value $.00l per share, of the Company (the "Shares"), pursuant to the offering contained in the Private Placement Memorandum of the Company dated June 20, 1994; and WHEREAS, the Company desires to grant to the Holder the registration rights set forth herein with respect to the Shares (hereinafter referred to as the "Registrable Securities"). NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company agrees with the Holder as follows: i. Incidental Registration If, at any time prior to June 30, 1996 (the "Expiration Date"), the Company proposes to register any of its securities under the Securities Act of 1933, as amended (the "Act") (other than in connection with a merger, acquisition, exchange offer or dividend reinvestment plan or pursuant to Form S-8 or successor form), the Company will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Holder of its intention to do so. Upon the written request of the Holder given within ten (10) days after receipt of any such notice of its desire to have any of its Registrable Securities included in such proposed registration statement, the Company shall afford such Holder the opportunity to have such Registrable Securities registered under such registration statement at the Company's cost and expense and at no cost or expense to the Holder except for the fees of any counsel, accountants or other professionals retained by the Holder and any transfer taxes or underwriting discounts or commissions applicable to the Registrable Securities sold by the Holder pursuant to such registration statement. Notwithstanding the provisions of this Section 1, the Company shall have the right at any time after it shall have given written notice pursuant to this section 1 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. B-1 Notwithstanding anything else herein contained, (i) if the managing underwriter of the public offering contemplated by a registration statement pursuant to which the Holder has requested the registration of Registrable Securities shall advise the Company and all the other holders of Registrable Securities who have requested the inclusion of their Registrable Securities in the registration statement that the inclusion of all of the Registrable Securities originally covered by a request for registration creates a substantial risk that the price per security that the Company will derive from such registration will be materially and adversely affected, then the number of Registrable Securities otherwise to be included in the registration statement may be reduced to the minimum extent such managing underwriter so advises the Company is necessary to avoid such effect, pro rata among the Holder and all such other holders, and (ii) the Holder shall not sell Registrable Securities pursuant to a registration statement which includes Registrable Securities for a period of eighteen (18) months after the effective date of such registration statement except with the prior written consent of the managing underwriter of the public offering. In the event that, pursuant to clause (i) of this paragraph, the Holders have not sold all of their Registrable Securities in connection with a registration statement, the Company shall effect the registration of all remaining Registrable Securities as soon as practicable, but not later than 180 days after the effective date of such registration statement; provided, however, that such period may be extended or delayed by the Company for one period of up to 90 days if, upon the advice of counsel at the time such registration is required to be filed, or at the time the Company is required to exercise its best efforts to cause such registration statement to become effective, such delay is advisable and in the best interests of the Company because of the existence of non-public material information, or to allow the Company to complete any pending audit of its financial statements. ii. General Provisions In connection with any registration under Section 1 hereof, the Company covenants and agrees as follows: (a) The Company shall use reasonable efforts to have any registration statement declared effective at the earliest practicable time, and shall furnish each Holder desiring to sell Registrable Securities such number of prospectuses as shall reasonably be requested. (b) The Company shall bear the entire cost and expense of any registration of the Registrable Securities; provided, however, that the Holder shall be solely responsible for the fees of any counsel, accountants or other professionals retained by it and any transfer taxes or underwriting discounts or commissions applicable to the Registrable Securities sold by it pursuant thereto. B-2 (c) The Company will take all necessary action which may be required in qualifying or registering the Registrable Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Holder, provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction or become subject to taxation in such jurisdiction. (d) The Company shall indemnify the Holder of Registrable Securities to be sold pursuant to any registration statement and each person, if any, who controls such Holder within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or any other statute, common law or otherwise, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in such registration statement executed by the Company, any prospectus contained therein or filed by the Company pursuant to Rule 424 of the Securities and Exchange Commission (the "Commission") or based upon written information furnished by the Company filed in any jurisdiction in order to qualify the Registrable Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, NASDAQ or any other securities exchange, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements contained therein not misleading, unless such statement or omission was made in reliance upon and in conformity with written information furnished to the Company by the Holder expressly for use in such registration statement, any amendment or supplement thereto, any prospectus or any application, as the case may be. If any action is brought against the Holder or any controlling person in respect of which indemnity may be sought against the Company pursuant to this Section 2(d), the Holder or such controlling persons shall, within thirty (30) days after the receipt thereby of a summons or complaint, notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment and payment of reasonable fees and expenses of counsel (reasonably satisfactory to the Holder or such controlling persons). The Holder or such controlling persons shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall B-3 be at the expense of the Holder or such controlling persons unless the employment of such counsel shall have been authorized in writing by the Company in connection with the defense of such action, the Company shall not have employed counsel to have charge of the defense of such action, or the Company shall have reasonably concluded that there may be defenses available to the indemnified party or parties which are different from or additional to those available to the Company (in which case the Company shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events the fees and expenses of not more than one additional firm of attorneys for the Holder and/or such controlling persons shall be borne by the Company. The Company agrees promptly to notify the Holder of the commencement of any litigation or proceedings against the Company or any of its officers, directors or controlling persons in connection with the resale of the Registrable Securities or in connection with such registration statement. (e) The Holder of Registrable Securities to be sold pursuant to a registration statement, and its successors and assigns, shall severally, and not jointly with any other holders of Registrable Securities, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from written information furnished by or on behalf of such Holder, or their successors or assigns, for specific inclusion in such registration statement. iii. Notices All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, or three (3) days after having been postmarked, if mailed by registered or certified mail, return receipt requested: (a) If to the Holder, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to 44 South Bayles Avenue, Port Washington, New York 11050, Attention: President, or to such other address as the Company may designate by notice to the Holder. B-4 iv. Successors All the covenants, agreements, representations and warranties contained in this Agreement shall bind the parties hereto and their respective heirs, executors, administrators, distributees, successors and assigns. v. Headings The headings in this Agreement are inserted for purposes of convenience only and shall have no substantive effect. vi. Law Governing This Agreement is delivered in the State of New York and shall be construed and enforced in accordance with, and governed by, the laws of the State of New York, without giving effect to conflicts of law principles. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. NAM CORPORATION By: /s/ Roy Israel --------------------------------- Name: Roy Israel Title: President HOLDER ----------------------------------- ----------------------------------- Signature(s) ----------------------------------- ----------------------------------- [Print Name(s)] Address: ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- B-5 EX-4.6 9 EXHIBIT 4.6 Exhibit 4.6 EXTENSION RESPONSE LETTER TO: NAM Corporation 1010 Northern Boulevard Suite 336 Great Neck, New York 11021 I am a noteholder of NAM Corporation (the "Company") and I hereby: (Please Check the Appropriate Box Below) [ ] CONSENT [ ] OBJECT to the extension of the payment of the promissory note of the Company from June 30, 1996 until the earlier of (i) December 31, 1996 or (ii) the day after the closing of an initial public offering of the common stock of NAM Corporation. (Please Sign and Print Your Name below) (Signature) ----------------------------------------- Print Name: THIS CONSENT MUST BE RETURNED IN THE ENCLOSED ENVELOPE BY JUNE 17, 1996. EX-5 10 EXHIBIT 5 CAMHY KARLINSKY & STEIN LLP 1740 BROADWAY 16TH FL., NEW YORK, NY 10019-4315 TELEPHONE (212) 977-6600 FACSIMILE (212) 977-8389 August 1, 1996 NAM Corporation 1010 Northern Boulevard, Suite 336 Great Neck, New York 11021 Re: Registration Statement on Form SB-2 ----------------------------------- Dear Sirs: You have requested our opinion in connection with the above-captioned Registration Statement on Form SB-2 to be filed by NAM Corporation, a Delaware 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 offering of up to 1,610,500 Units (the "Units"), each unit consisting of one share of common stock, par value $.001 per share (the "Common Stock") and one redeemable common stock purchase warrant (the "Redeemable Warrants"); 1,610,000 shares of Common Stock underlying the Redeemable Warrants; 139,447 shares of Common Stock; 140,000 Representative's Warrants; 140,000 Units issuable upon the exercise of the Representative's Warrants; and 140,000 shares of Common Stock underlying the Redeemable Warrants included in the Representative's Warrants. 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. CAMHY KARLINSKY & STEIN LLP NAM Corporation August 1, 1996 Page 2 Based upon such examination, it is our opinion that when there has been compliance with the Act and applicable state securities laws and when the Underwriting Agreement, a form of which will be filed as an exhibit to the Registration Statement, is duly and validly executed and delivered, the Units, Warrants and Common Stock, when issued, delivered and paid for in the manner described in such Underwriting Agreement, will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Opinions" in the Registration Statement. In so doing, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Act or under the Rules. Very truly yours, /s/ Camhy Karlinsky & Stein LLP CORP16\EXHIBIT.5 EX-10 11 EXHIBIT 10.1 NAM CORPORATION 1996 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN 1. Purpose The purpose of this Stock Option Plan (the "Plan") is to encourage and enable key employees (which term, as used herein, shall include officers), and directors, of NAM Corporation or a parent (if any) or subsidiary thereof (collectively, unless the context otherwise requires, the "Corporation"), consultants, and advisors to the Corporation, and other persons or entities providing goods or services to the Corporation to acquire a proprietary interest in the Corporation through the ownership of common stock of the Corporation. As used herein, the term "parent" or "subsidiary" shall mean any present or future corporation which is or would be a "parent corporation" or "subsidiary corporation" of the Corporation as the term is defined in section 424 of the Internal Revenue Code of 1986, as amended (the "Code") (determined as if the Corporation were the employer corporation). Such directors, consultants, advisors, and other persons or entities providing goods or services to the Corporation and entitled to receive options hereunder are hereinafter collectively referred to as the "Associates," and the relationship of the Associates to the Corporation is hereinafter referred to as "association with" the Corporation. An employee or Associate to whom an option has been granted is referred to as a "Grantee". Such ownership will provide such Grantees with a more direct stake in the future welfare of the Corporation and encourage them to remain employed by or associated with the Corporation. It is also expected that the Plan will encourage qualified persons to seek and accept employment or association with the Corporation. 2. Administration (a) The Plan shall be administered by a Stock Option Committee (the "Committee"), consisting of at least two members of the Board of Directors of the Corporation who are disinterested persons within the meaning of Rule 16(b)-3(c)(2)(i) promulgated under the Securities Exchange Act of 1934, as amended from time to time. (b) A majority of the members of the Committee shall constitute a quorum, and the action of a majority of the members of the Committee present at a meeting at which a quorum is present, as well as actions taken pursuant to the unanimous written consent of all of the members of the Committee without holding a meeting, shall be deemed to be actions of the Committee. All actions of the Committee and all interpretations and decisions made by the Committee with respect to any question arising under the Plan shall be final and conclusive and shall be binding upon the Corporation and all other interested parties. (c) Subject to the terms and conditions of the Plan and such limitations as the Board of Directors may from time to time impose, the Committee shall be responsible for the overall management and administration of the Plan and shall have such authority as shall be necessary or appropriate in order to carry out its responsibilities, including, without limitation, the authority to (i) interpret and construe the Plan and to determine the terms of all options granted pursuant to the Plan, including, but not limited to, the persons to whom, and the time or times at which grants shall be made, the number of options to be included in the grants, the number of options which shall be treated as incentive stock options (in the case of options granted to employees) as described in section 422 of the Code, the number of options which do not qualify as incentive stock options ("nonqualified options"), and the terms and conditions thereof; (ii) to adopt rules and regulations and to prescribe forms for the operation and administration of the Plan; and (iii) to take any other action not inconsistent with the provisions of the Plan that it may deem necessary or appropriate. 3. Eligibility and Participation (a) Key employees and Associates are eligible to receive options. Each option shall be granted, and the number of shares subject thereto shall be determined by the Committee. (b) Directors who are not officers of the Corporation, including, without limitations, Directors who serve as members of the Committee, shall receive as formula grants, on an annual basis on the last trading day of each June starting June, 1997, stock options for 1,000 shares of the Corporation's common stock, at an exercise price equal to the fair market value of the stock on the date of grant. The fair market value shall be determined in accordance with Section 8 hereof. 4. Shares Subject to the Plan (a) Options shall be evidenced by written agreements which shall, among other things (i) designate the option as either an incentive stock option or a nonqualified stock option, (ii) specify the number of shares covered by the option; (iii) specify the exercise price, determined in accordance with paragraph 7 hereof, for the shares subject to the option; (iv) specify the option period determined in accordance with paragraph 6 hereof; (v) set forth specifically or incorporate by reference the applicable provisions of the Plan; and (vi) contain such other terms and conditions consistent with the Plan as the Committee may, in its discretion, prescribe. (b) The stock to be offered and delivered under the Plan, pursuant to the exercise of an option, shall be shares of the Corporation's authorized common stock and may be unissued shares or reacquired shares, as the Committee may from time to time determine. Subject to adjustment as provided in paragraph 13 hereof, the aggregate number of shares to be delivered under the Plan shall not exceed seven hundred and fifty thousand (750,000) shares. If an option expires or terminates for any reason during the term of the Plan prior to the exercise thereof in full, the shares subject to but not delivered under such option shall be available for options thereafter granted. -2- 5. Incentive Stock options (a) An option designated by the Committee as an "incentive stock option" is intended to qualify as an "incentive stock option" within the meaning of section 422 of the Code. An incentive stock option shall be granted only to an employee of the Corporation. (b) No incentive stock option shall provide any person with a right to purchase shares to the extent that such right first becomes exercisable during a prescribed calendar year and the sum of (i) the fair market value (determined as of the date of grant) of the shares subject to such incentive stock option which first become available for purchase during such calendar year, plus (ii) the fair market value (determined as of the date of grant) of all shares subject to incentive stock options previously granted to such person under all plans of the Corporation first become available for purchase during such calendar year exceeds $100,000. (c) Without prior written notice to the Committee, a Grantee may not dispose of shares acquired pursuant to the exercise of an incentive stock option until after the later of (i) the second anniversary of the date on which the incentive stock option was granted, or (ii) the first anniversary of the date on which the shares were acquired; provided, however, that a transfer to a trustee, receiver, or other fiduciary in any insolvency proceeding, as described in section 422(c)(3) of the Code, shall not be deemed to be such a disposition. The optionee shall make appropriate arrangements with the Corporation for any taxes which the Corporation is obligated to collect in connection with any disposition of shares acquired pursuant to the exercise of an incentive stock option, including any Federal, state or local withholding taxes. (d) Should Section 422 of the Code be amended during the term of the Plan, the Committee may modify the Plan consistently with such amendment. 6. Term of Option Period The term during which options may be granted under the Plan shall expire on April 1, 2006 and the option period during which each option may be exercised shall, subject to the provisions of paragraph 12 hereof, be during such period, expiring not later than the tenth anniversary (the fifth anniversary in the case of incentive stock options granted to a person who owns (within the meaning of section 424(d) of the Code) more than 10 percent of the total combined voting power of all classes of stock of the Corporation at the time such option is granted) of the date the option is granted, as may be determined by the Committee. -3- 7. Option Price The price at which shares may be purchased upon exercise of a particular option shall be such price as may be fixed by the Committee but in no event less than the minimum required in order to comply with any applicable law, rule or regulation and, in the case of incentive stock options, shall not be less than 100 percent, or in the case of incentive stock options granted to an optionee who is a 10 percent stockholder (within the meaning of paragraph 6 hereof), shall not be less than 110 percent, of the fair market value (as defined in paragraph 8) of such shares on the date such option is granted. 8. Stock as Form of Exercise Payment At the discretion of the Committee, a Grantee who owns shares of the Corporation's common stock may elect to use such shares, with the value thereof to be determined as the fair market value of such shares on the day prior to the date of exercise of the option, to pay all or part of the option price required under the Plan. As used herein, fair market value shall be deemed to be the closing price on such day of the Corporation's common stock if the Corporation's common stock is then traded on a national securities exchange or the closing bid price on such day of the Corporation's common stock, if such stock is traded on the NASDAQ National Market System or Small-Cap Market System or, if not so traded, the average of the closing bid and asked prices thereof on such day. 9. Exercise of Options (a) Each option granted shall be exercisable in whole or in part at any time, or from time to time, during the option period as the Committee may provide in the terms of such option; provided that the election to exercise an option shall be made in accordance with applicable federal and state laws and regulations. (b) No option may at any time be exercised with respect to a fractional share. -4- (c) No shares shall be delivered pursuant to the exercise of any option, in whole or in part, until qualified for delivery under such securities laws and regulations as may be deemed by the Committee to be applicable thereto, until such shares are listed on each securities exchange on which the Corporation's common stock may then be listed, until, in the case of the exercise of an option, payment in full of the option price is received by the Corporation in cash or stock as provided in paragraph 8 and until payment in cash of any applicable withholding taxes is received by the Corporation. Unless prior to the exercise of the option the shares of the Corporation's common stock issuable upon such exercise have been registered with the Securities and Exchange Commission pursuant to the Securities Act of 1933, the notice of exercise shall be accompanied by a representation or agreement of the individual exercising the option to the Corporation to the effect that such shares are being acquired for investment and not with a view to the resale or distribution thereof or such other documentation as may be required by the Corporation unless in the opinion of counsel to the Corporation such representation, agreement, or documentation is not necessary to comply with said Act. No holder of an option, or such holder's legal representative, legatee, or distributee shall be or be deemed to be a holder of any shares subject to such option unless and until a certificate or certificates therefor is issued in his name. 10. Acceleration of Vesting (a) An option shall automatically be vested and immediately exercisable in full upon the occurrence of any of the following events: (i) Any person within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, other than the Corporation, has become the beneficial owner, within the meaning of Rule 13d-3 under such Act, of 30 percent or more of the combined voting power of the Corporation's then outstanding voting securities, unless such ownership by such person has been approved by the Board of Directors immediately prior to the acquisition of such securities by such person; (ii) The first day on which shares of the Corporation's common stock are purchased pursuant to a tender offer or exchange offer, unless such offer is made by the corporation or unless such officer has been approved or not opposed by the Board of Directors; (iii) The stockholders of the Corporation have approved an agreement to merge or consolidate with or into another corporation (and the Corporation is not the survivor of such merger or consolidation) or an agreement to sell or otherwise dispose of all or substantially all of the Corporation's assets (including a plan of liquidation), unless the Board of Directors has resolved that options shall not automatically vest; or -5- (iv) During any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof, unless the election or the nomination for the election by the Corporation's stockholders of each new director was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of the period. (b) Other than upon the occurrence of any of the events described in paragraph 10(a), the Committee shall have the authority at any time or from time to time to accelerate the vesting of any individual option and to permit any stock option not theretofore exercisable to become immediately exercisable. II. Transfer of Options Options granted under the Plan may not be transferred except by will or the laws of descent and distribution and during the lifetime of the Grantee to whom granted, may be exercised only by such or by such Grantee's guardian or legal representative. 12. Termination of Employment (a) Except as specifically provided in this paragraph 12, an option shall be exercisable only if the Grantee has maintained continuous status as an employee of the Corporation or as an Associate since the date of grant of such option and no option shall be exercisable after termination of a Grantee's employment or association with the Corporation unless such termination occurs by reason of retirement with the consent of the Corporation on or after the age of 62, death, or disability (within the meaning of section 22(e)(3) of the Code). In the event of the retirement, death, or disability of a Grantee, the options held by such Grantee which were otherwise exercisable on the date of his termination of employment or association shall expire unless exercised by such Grantee, or, in the case of the death of a Grantee, by his heirs, legatees, or personal representatives, within a period of eighteen (18) months after the date of termination of employment or association. In no event, however, shall any option be exercisable after ten years from the date it was granted. The Committee shall advise the holder of one or more incentive stock options who terminates his employment with the Corporation by reason of retirement or disability, that in order for such options to be treated as incentive stock options under the Code, he must exercise them within three (3) months from the date of retirement or one (1) year from the date of termination of employment by reason of disability, as the case may be. Nothing in the Plan or in any option shall confer upon any Grantee the right to continue in the employ of or association with the Corporation or interfere in any way with the right of the Corporation to terminate the employment or association of a Grantee at any time. The Committee's determination that a Grantee's employment or association has terminated and the date thereof shall be final and conclusive on all persons affected thereby. -6- (b) The Committee may, if it determines that to do so would be in the Corporation's best interests, provide in a specific case or cases for the exercise of options which would otherwise terminate upon termination of employment or association with the Corporation for any reason, upon such terms and conditions as the Committee determines to be appropriate. (c) In the case of a Grantee on an approved leave of absence, the Committee may, if it determines that to do so would be in the best interests of the Corporation, provide in a specific case for continuation of options during such leave of absence, such continuation to be on such terms and conditions as the Committee determines to be appropriate. Leaves of absence for such period and purposes conforming to the personnel policy of the Corporation as may be approved by the Committee shall not be deemed terminations or interruptions of employment. 13. Adjustments Upon Changes in Capitalization (a) If the Corporation's outstanding common stock is hereafter changed by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination, or exchange of shares or the like, or dividends payable in shares of the Corporation's common stock, an appropriate adjustment shall be made by the Board upon recommendation of the Committee in the aggregate number of shares available under the Plan and in the number of shares and price per share subject to outstanding options. If the Corporation shall be reorganized, consolidated, or merged with another corporation, or if all or substantially all of the assets of the Corporation shall be sold or exchanged, the holder of an option shall, after the occurrence of such a corporate event, be entitled to receive upon the exercise of his option the same number and kind of shares of stock or the same amount of property, cash, or securities as he would have been entitled to receive upon the happening of any such corporate event as if he had exercised such option and had been, immediately prior to such event, the holder of the number of shares covered by such option. All adjustments made pursuant to this paragraph to the terms or conditions of an incentive stock option shall be subject to the requirements of section 424 of the Code. (b) Any adjustment in the number of shares shall apply proportionately to only the unexercised portion of any option granted hereunder. If fractions of a share would result from any such adjustment, the adjustment shall be revised to the next higher whole number of shares. 14. Termination, Modification, and Amendment (a) The Plan shall terminate 10 years from the earlier of the date of its adoption by the Board of Directors or the date on which the Plan is approved by the stockholders of the Corporation and no option shall be granted after termination of the Plan. -7- (b) The Plan may from time to time be terminated, modified, or amended by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation entitled to vote thereon. (c) The Board of Directors may at any time terminate the Plan or from time to time make such modifications or amendments of the Plan as it may deem advisable including, without limitation, modifications to reflect changes in applicable law; provided, however, that the Board of Directors shall not (i) modify or amend the Plan in any way that would disqualify any incentive stock option issued pursuant to the Plan as an incentive stock option as defined in section 422 of the Code or (ii) without approval by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation entitled to vote thereon, increase (except as provided by paragraph 14) the maximum number of shares as to which options may be granted under the Plan. (d) No termination, modification, or amendment of the Plan, may, without the consent of the Grantee, adversely affect the rights conferred by such option. 15. Effective Date The Plan shall become effective upon the adoption by the Board of Directors, subject to the approval by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation. All options granted prior to the date of such stockholder approval shall be subject to such approval. -8- EX-10 12 EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS AGREEMENT (the "Agreement"), dated as of July 30, 1994, by and between Roy Israel (the "Executive") and NAM Corporation, a Delaware corporation (the "Company"). WITNESSETH: WHEREAS, it is important to the Company that it have the benefit of the Executive's services, experience and loyalty, and Executive has indicated his willingness to provide his services on the terms and conditions set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties, subject to the terms and conditions set forth below, intending to be legally bound, hereto agree as follows: 1. Employment. (a) General. The Company hereby employs the Executive and the Executive agrees upon the terms and conditions herein set forth to serve as President and Treasurer of the Company. The Executive shall devote substantially all of his efforts to the Company, but during the term of this Agreement he is allowed to engage in other businesses which do not compete with the Company. (b) Duties. Executive shall be employed by the Company. The duties of the Executive as President and Treasurer shall include primary responsibility for the finances, administration, organizational structure, strategic direction, sales and human resources management of the Company and such other responsibilities as the Board of Directors of the Company may reasonably delegate to the Executive. 2. Term of Employment. The Company hereby employs the Executive and the Executive shall serve in the employ of the Company for a period commencing on July 1, 1994 and extending through and including June 30, 1997 (the "Employment Term"). 3. Compensation and Other Benefits. The Company shall pay and provide the following compensation and other benefits to the Executive during the Employment Term: (a) Base Salary. The Company shall pay to the Executive a minimum annual base salary of $85,000 (the "Base Salary") for the first year of this Agreement. The Base Salary shall increase by five percent (5%) on each July 30 of each succeeding year of this Agreement. Such Base Salary shall be paid every two (2) weeks to the Executive. (b) Fringe Benefits. The Executive shall be entitled to receive twenty (20) days paid vacation for each twelve (12) month period (the "Vacation Time") during the Employment Term. If the Executive does not use his Vacation Time, he may elect to be paid for such unused time or carry it over to the following period. The Executive during the Employment Term shall receive such additional benefits, including, but not limited to, health and dental insurance for he and his family for which the Company shall pay the premium. The Company shall also lease an automobile, to be chosen by the Executive, for his use. The lease payment shall not exceed two thousand dollars ($2,000). If for any year the Company does not lease an automobile, the Executive may elect to receive the lease payments as additional compensation for that year. -2- (c) Business Expenses. During the Employment Term, the Company shall promptly reimburse the Executive for all ordinary and necessary travel expenses, business expenses, and other disbursements incurred by him for or on behalf of the Company, in the performance of his duties hereunder. (d) Life Insurance. The Company shall provide to the Executive a flexible premium adjustable variable life insurance policy or policies in the amount of at least $2,000,000, with a premium of at least $50,000 (the "Insurance"). At the expiration or termination of this Agreement the Executive is entitled to receive any and all equity in such Insurance, except as provided for in the next sentence. In the event of the Executive's death, the Company shall receive a death benefit under such Insurance of not more than $1,000,000 and the Executive's beneficiary, designee or estate ("Beneficiary") shall be entitled to a death benefit under such Insurance of at least $1,000,000 and any and all equity in such Insurance over and above the corporate accumulated premium paid. In the event the Company fails to pay for such premium for any year, then for each year missed the Company shall pay the premium for the Insurance for an additional year following the termination of this Agreement. -3- (e) Bonus. For each quarter, the Executive shall receive a bonus equal to four percent (4%) of the Company's quarterly pretax profit (the "Bonus"). The Bonus shall be paid within twenty (20) days following the end of the quarter. (f) Indemnification. The Company shall indemnify and hold the Executive harmless from and against any claims, causes of action, proceedings, losses, damages, liabilities, judgments, settlements, costs and expenses, pending or threatened, whatsoever to which the Executive may become subject (including, without limitation, penalties, interest, attorneys' fees and costs) (collectively, "Losses") incurred, arising from, pursuant to or connected with any acts or omissions of the Executive in the performance of any of his responsibilities and duties as an officer or director of the Company or the performance or non-performance by the Executive of the services contemplated by this Agreement and shall promptly reimburse the Executive for all expenses (including counsel fees and expenses) as they are incurred by the Executive in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding or defense of any pending or threatened claim or any action or proceeding, whether previously existing, or hereafter commenced, whether or not resulting in liability and whether or not the Executive is a party to any such action or proceeding and whether or not the Executive and the indemnifying party have the same or adverse positions in connection with any such claim, action or proceeding. This indemnification obligation shall exist irrespective of the fault of the Executive. The Executive may select counsel of his own choice to represent him. Furthermore, without the Executive's prior written consent, the Company will not settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification could be sought under this indemnification provision (whether or not the Executive is an actual or potential party to such claim, action or proceeding), unless such settlement, compromise or consent includes an unconditional release of the Executive from all liability arising out of such claim, action or proceeding. The foregoing indemnification shall be in addition to any rights that the Executive may have at common law or otherwise. No investigation or failure to investigate by the Executive shall impair this indemnification provisions or any other rights the Executive may have. -4- 4. Location. Except when traveling, the Executive will work in NAM's New York offices or in any other location with the Executive's approval in writing. 5. Termination of Employment. (a) Termination for Cause. (i) During the Employment Term, the Executive may be terminated only for Cause as that term is defined below. (ii) "Cause" shall mean (i) wilful misconduct by the Executive in the performance of his duties hereunder; or (ii) the Executive is convicted of any felony involving larceny, embezzlement or fraud involving the Company. In no event shall the results of the Company's operations or business decisions made by the Executive constitute Cause. The Company shall immediately notify the Executive if it is considering terminating this Agreement for Cause (the "Cause Notice"). -5- (iii) Any determination that Cause exists shall only be made after the Executive shall have been given a reasonable opportunity to present his view of relevant facts and circumstances to the Board of Directors of the Company and the Company shall have made a reasonable independent and impartial investigation thereof. The Executive shall be given twenty (20) days from receipt of the Cause Notice in which to present to the Board of Directors his view of the relevant facts. (iv) If this Agreement is terminated pursuant to Paragraph 5(a), then the Company shall pay the Executive (i) his Base Salary, as determined for the year he is terminated, for the six (6) month period following the date of termination, and (ii) two (2) Bonus payments equal to the average Bonus paid to the Executive over the four (4) quarters preceding his termination (collectively, the "Severance Payment"). The Severance Payment shall be paid to the Executive in a lump sum on his last day of employment with the Company. In addition, the Company is obligated to maintain all other benefits under this Agreement for any period remaining under this Agreement or for a period of six (6) months from the date of termination, whichever is longer. This section shall not reduce the Company's obligations under Paragraph 3(d) hereof. -6- (b) Resignation After Substantial Breach. (i) If prior to the expiration of the Employment Term, Executive resigns from his employment hereunder following a Substantial Breach by the Company, as defined below, Executive shall be entitled to payment of Resignation Severance Benefits. "Resignation Severance Benefits" shall mean an amount equal to all the compensation including Base Salary and Bonus which the Executive would have been entitled to for each year of the Employment Term remaining at the time of such Substantial Breach. In addition, the Company shall continue to pay the Executive's Insurance premiums for two (2) years after the Substantial Breach plus any other years as required under paragraph 3(d) hereof. This section shall not reduce the Company's obligations under Paragraph 3(d). The Executive shall receive all of the Resignation Severance Benefits for each year remaining in the Employment Term within fifteen (15) days of written notice from the Executive of his resignation for a Substantial Breach. (ii) "Substantial Breach" shall mean (A) the failure by the Company to pay the Executive's Base Salary in accordance with paragraph 3(a) hereof; (B) the failure by the Company to pay to the Executive the Bonus; (C) any act or omission which constitutes a breach by the Company of its obligations, covenants, or agreements under this Agreement or the failure or refusal of the Company to perform any duties required hereunder; and (D) the perpetration by the Company of fraud against the Executive. -7- (iii) If the Executive dies prior to the expiration of the period during which the Resignation Severance Benefits are payable, such Resignation Severance Benefits shall be paid to the Executive's beneficiary or estate. 6. Permanent Disability. If during the Employment Term, the Executive shall become Permanently Disabled (as defined below), the Company, shall continue to pay all Base Salary, Insurance premiums, and the Bonus hereunder for two (2) years after the Executive shall be certified Permanently Disabled, as set forth below. "Permanently Disabled" shall mean the inability of the Executive to perform the services that the Executive is required to perform pursuant to this Agreement due to physical or mental disability which continues for one hundred eighty (180) consecutive days. Evidence of such disability shall be certified by a physician reasonably acceptable to both the Executive and the Company. 7. Death of the Executive. If the Executive dies prior to the expiration of the Employment Term, his beneficiary, designee, or estate ("Beneficiary") shall be entitled to receive (i) for a period of six (6) months following such date of death, the Executive's Base Salary, (ii) the full Bonus for the year of Executive's death, (iii) payment for unused vacation days to which the Executive is entitled, (iv) reimbursement for any business expenses incurred and unpaid prior to the Executive's death, (v) all options granted to Executive shall immediately vest, and (vi) such death benefits and equity in the Insurance policy provided to the Executive pursuant to and in accordance with the provisions of paragraph 3(d) hereof. -8- 8. Trade Secrets and Proprietary Information of the Company. (a) By virtue of his employment, Executive will have access to, will acquire and will become acquainted with various trade secrets and confidential and proprietary information relating to the businesses of the Company, including but not limited to: customer, employee, supplier and distributor lists, contacts, addresses, information about employees and employee relations, employee handbooks, information about customers and suppliers, price lists, costs and expenses, documents, budgets, proposals, financial information, inventions, patterns, processes, computer programs, specification, all records of the accounts of clients, prices, schedules, and other documentation, computer hardware and software, and any other records and books relating in any manner whatsoever to the clients of the Company, whether prepared by the Executive or otherwise, and whether situated inside or outside the offices of the Company which are used in the operation of the businesses of the Company. (b) The Executive shall hold in strictest confidence and shall not disclose or use any trade secret or confidential information of the Company directly or indirectly, or use them in any way, either during the term of the Executive's employment hereunder or for six (6) months thereafter, except as required in the course of Executive's employment with the Company. Executive understands that the term "trade secret" or "confidential information" means all information concerning the Company that is not in the public domain. In the event of a Substantial Breach or termination without Cause, this paragraph shall be deemed void. -9- 9. Amendment; Waiver. This Agreement may not be modified, amended or waived in any manner except by an instrument in writing signed by all the parties hereto. Failure to exercise any rights hereunder shall not constitute a waiver of such rights. 10. No Right of Setoff. The Company shall not withhold, reduce or delay the payment of any amounts payable hereunder as a result of any claim that any person or entity may have against the Executive under this Agreement until there shall have been a final determination by a court of competent jurisdiction. 11. Governing Law. All matters affecting or in connection with this Agreement, the employment of the Executive or the termination or resignation of the Executive, are to be governed by, interpreted and construed in accordance with the laws of the State of New York without giving effect to the state's conflict of law principles. Any state or federal court sitting in New York City shall have exclusive venue and jurisdiction regarding any matter arising hereunder. 12. Notices. Any notice or consent hereunder by either party to the other shall be given in writing and shall be deemed to be delivered the same day if delivered by personal delivery or five (5) days from the date if mailed by certified mail, return receipt requested addresses as follows: -10- If to the Executive: Roy Israel 63 Shelter Lane Roslyn Heights, New York 11577 If to the Company: NAM Corporation 44 South Bayles Avenue Suite 210 Port Washington, New York 11050 Attn.: Board of Directors 13. Severability. Each provision hereof is intended to be severable, and the invalidity of any portion of this Agreement shall not affect the validity or legality of the remainder hereof. 14. Counterparts. This Agreement may be executed by the parties hereto in counterpart, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 15. Headings. The headings of paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 16. Successors and Assigns. This Agreement shall be binding upon any successor or assign of the Company. -11- 17. Arbitration. The parties agree that in the event of any dispute or controversy arising out of or in connection with this Agreement or any alleged breach thereof (a "Dispute"), the parties shall submit the Dispute for arbitration in New York City before three (3) arbitrators; one arbitrator shall be chosen by the Executive, one arbitrator by the Company and the third by the two other arbitrators. If any party fails to choose its arbitrator within thirty (30) days after a request is made to designate an arbitrator, then that party waives its right to choose an arbitrator and the arbitration shall immediately go forward before the one arbitrator chosen by the non-breaching party. The decision of the arbitrators will be final and binding upon the parties, and the judgment of a court of competent jurisdiction may be entered thereon. Fees of the arbitrators and the cost of arbitration shall be borne as determined by the arbitrators. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first written above. NAM CORPORATION By: /s/ Dr. Eugene Striker /s/ Roy Israel ------------------------------------ --------------------------- Name: Dr. Eugene Striker ROY ISRAEL Title: Assistant Secretary and Director -12- AMENDMENT TO EMPLOYMENT AGREEMENT BETWEEN NAM CORPORATION AND ROY ISRAEL THIS AMENDMENT AGREEMENT (the "Amendment"), dated as of July 30, 1995, is between NAM CORPORATION ("NAM") and ROY ISRAEL (the "Executive"). WHEREAS, the parties had entered into an employment agreement dated as of July 30, 1994 (the "Employment Agreement"); and WHEREAS, the parties now desire to amend the Employment Agreement as provided for herein. NOW, THEREFORE, in consideration of the mutual premises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Paragraph 8 is amended to add the following provision: 8(c) Non-Compete. In consideration of the compensation to be received by Executive from the Company, Executive shall not: (a) during the period Executive is employed with the Company, engage in, or otherwise directly or indirectly be employed by, or act as a consultant or lender to, or be a director, officer, employee, owner, or partner of, any business or organization that is or shall then be competing with the Company; and (b) for a period of one (1) year after the termination of this Agreement, directly or indirectly, (i) market or provide any competitive services to, or solicit any business from, any clients of the Company, (ii) solicit, contact, or employ or offer to employ any person who is employed by the Company at the time that Executive ceases being employed by the Company or any person hired by the Company after such time. If any restriction contained in this section shall be deemed invalid, illegal, or unenforceable by reason of the extent, duration, or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope or other provision hereof to the fullest extent allowed by law, and in its reduced form such restriction shall then be enforceable in the manner contemplated hereby. 2. This Amendment is effective as of July 30, 1995. 3. All other terms of the Employment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above. NAM CORPORATION By: s/Charles Merola s/Roy Israel ------------------------------------ --------------------- Name: Charles Merola ROY ISRAEL Title: Vice President, Chief Financial Officer and Treasurer -2- EX-10.3 13 EMPLOYMENT AGREEMENT EXHIBIT 10-3 EMPLOYMENT AGREEMENT THIS AGREEMENT (the "Agreement"), dated as of June 15, 1996, by and between Cynthia Sanders (the "Executive") and NAM Corporation, a Delaware corporation (the "Company"). W I T N E S S E T H : WHEREAS, the Executive has an Employment Agreement with the Company; and WHEREAS, it is important to the Company that it continues to have the benefits of the Executive's services, experience and loyalty, and Executive has indicated her willingness to continue to provide her services on the terms and conditions set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties, subject to the terms and conditions set forth below, intending to be legally bound, hereto agree as follows: 1. Employment. (a) General. The Company hereby employs the Executive and the Executive agrees upon the terms and conditions herein set forth to serve as Executive Vice President of the Company. The Executive shall devote all of her efforts to the Company and will work at the Company's New York office and travel as required. (b) Duties. Executive shall be employed by the Company. The duties of the Executive as Executive Vice President shall include primary responsibility for the administration of the New York office and such other responsibilities as the Chief Executive Officer of the Company may reasonably delegate to the Executive. (c) All prior agreements between the Company and the Executive are terminated and are superceded by this Agreement. 2. Term of Employment. The Company hereby employs the Executive and the Executive shall serve in the employ of the Company for a period commencing on June 15, 1996 and extending through and including June 14, 1998 (the "Employment Term"). This Agreement shall automatically renew for only one additional term of one (1) year unless terminated on sixty (60) days written notice prior to the end of the Employment Term given by either party. 3. Compensation and Other Benefits. The Company shall pay and provide the following compensation and other benefits to the Executive during the Employment Term: (a) Base Salary. The Company shall pay to the Executive a minimum annual base salary of $90,000 (the "Base Salary") for the first year of this Agreement. The Base Salary shall increase by five percent (5%) on each June 15 of each succeeding year of this Agreement. Such Base Salary shall be paid every two (2) weeks to the Executive. (b) Fringe Benefits. The Executive shall be entitled to receive ten (10) days paid vacation for each twelve (12) month period (the "Vacation Time") during the Employment Term. If the Executive does not use her Vacation Time, she may elect to be paid for such unused time or carry it over to the following period. In addition, the Executive during the Employment Term shall participate in all present or future employee benefit plans of the Company that she meet the eligibility requirements therefore. (c) Business Expenses. During the Employment Term, the Company shall promptly reimburse the Executive for all ordinary and necessary travel expenses, business expenses, and other disbursements incurred by her for or on behalf of the Company, in the performance of her duties hereunder subject to the approval of the CEO of the Company. (d) Bonus. The Executive is eligible to receive an annual bonus at the discretion of the Company's Chief Executive Officer. 4. Representations and Warranties of Employee. Executive represents and warrants to the Company that the: (a) Executive is under no contractual or other restriction or obligation which is inconsistent with the execution of this Agreement, the performance of her duties hereunder, or the other rights of the Company hereunder; and (b) Executive is under no physical or mental disability that would hinder her performance of duties under this Agreement. 5. Non-Competition. Executive agrees that she will not (a) during the period she is employed under this Agreement engage in, or otherwise directly or indirectly be employed by, or act as a consultant or lender to, or be a director, officer, employee, owner, member, or partner of, any other business or organization that is or shall then be competing with the Company, and (b) for a period of one year after she ceases to be employed by the Company under this Agreement, directly or indirectly compete with or be engaged in the same business as the Company, or be employed by, or act as consultant or lender to, or be a director, officer, employee, owner, member, or partner of, any business or organization which, at the time of such cessation, competes with or is engaged in the same business as the Company, except that in each case the provisions of this Section 5 will not be deemed breached merely because Executive owns not more than five percent (5.0%) of the outstanding common stock of a corporation, if, at the time of its acquisition by Executive, such stock is listed on a national securities exchange, is reported on NASDAQ, or is regularly traded in the over-the-counter market by a member of a national securities exchange. 6. Patents; Copyrights. Any interest in patents, patent applications, inventions, copyrights, developments, and processes ("Such Inventions") which Executive now or hereafter during the period she is employed by the Company under this Agreement may own or develop relating to the fields in which the Company may then be engaged shall belong to the Company; and forthwith upon request of the Company, Executive shall execute all such assignments and other documents and take all such other action as the Company may reasonably request in order to vest in the Company all her right, title, and interest in and to Such Inventions, free and clear of all liens, charges, and encumbrances. 7. Confidential Information. All confidential information which Executive may now possess, may obtain during the Employment Term, or may create prior to the end of the period she is employed by the Company under this Agreement, relating to the business of the Company or of any customer or supplier of the Company shall not be published, disclosed, or made accessible by her to any other person, firm, or corporation during the Employment Term or any time thereafter without the prior written consent of the Company. Executive shall return all tangible evidence of such confidential information to the Company prior to or at the termination of her employment and will attend an exit interview at such time. 8. Termination. (a) Notwithstanding anything herein contained, if on or after the date hereof and prior to the end of the Employment Term, Executive is terminated "For Cause" (as defined below) then the Company shall have the right to give notice of termination of Employee's services hereunder as of a date to be specified in such notice, and this Agreement shall terminate on the date so specified. Termination "For Cause" shall mean Executive shall (i) be convicted of a felony crime, (ii) commit any act or omit to take any action in bad faith and to the detriment of the Company, (iii) commit an act of moral turpitude, (iv) commit an act of fraud against the Company, or (v) materially breach any term of this Agreement and fail to correct such breach within ten days after commission thereof. (b) In the event that Executive shall be physically or mentally incapacitated or disabled or otherwise unable fully to discharge her duties hereunder for a period of six months, then this Agreement shall terminate upon 90 days' written notice to Executive, and no further compensation shall be payable to Executive, except as may otherwise be provided under any disability insurance policy. (c) In the event that Executive shall die, then this Agreement shall terminate on the date of Executive's death, and no further compensation shall be payable to Executive, except as may otherwise be provided under any insurance policy or similar instrument. (d) In the event that this Agreement is terminated "For Cause" pursuant to Section 8(a), then Executive shall be entitled to receive only her salary at the rate provided in Section 3 to the date on which termination shall take effect. Further, Executive shall immediately resign from the Board of Directors. (e) Nothing contained in this Section 8 shall be deemed to limit any other right the Company may have to terminate Employee's employment hereunder upon any ground permitted by law. 9. Merger, Etc. (a) In the event of a future disposition of the properties and business of the Company, substantially as an entirety, by merger, consolidation, sale of assets, sale of stock, or otherwise, then the Company may elect to assign this Agreement and all of its rights and obligations hereunder to the acquiring or surviving corporation. 10. Survival. The covenants, agreements, representations, and warranties contained in or made pursuant to this Agreement shall survive Executive's termination of employment, irrespective of any investigation made by or on behalf of any party. 11. Amendment; Waiver. This Agreement may not be modified, amended or waived in any manner except by an instrument in writing signed by all the parties hereto. Failure to exercise any rights hereunder shall not constitute a waiver of such rights. 12. Governing Law. All matters affecting or in connection with this Agreement, the employment of the Executive or the termination or resignation of the Executive, are to be governed by, interpreted and construed in accordance with the laws of the State of New York without giving effect to the state's conflict of law principles. Any state or federal court sitting in New York City shall have exclusive venue and jurisdiction regarding any matter arising hereunder. 13. Notices. Any notice or consent hereunder by either party to the other shall be given in writing and shall be deemed to be delivered the same day if delivered by personal delivery or five (5) days from the date if mailed by certified mail, return receipt requested addresses as follows: If to the Executive: Cynthia Sanders 400 East 77th Street, Apt. 2E New York, New York 10021 If to the Company: NAM Corporation 1010 Northern Boulevard Suite 336 Great Neck, New York 11021 Attn.: CEO 14. Severability. Each provision hereof is intended to be severable, and the invalidity of any portion of this Agreement shall not affect the validity or legality of the remainder hereof. 15. Counterparts. This Agreement may be executed by the parties hereto in counterpart, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 16. Headings. The headings of paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 17. Successors and Assigns. This Agreement shall be binding upon any successor or assign of the Company. 18. Arbitration. The parties agree that in the event of any dispute or controversy arising out of or in connection with this Agreement or any alleged breach thereof (a "Dispute"), the parties shall submit the Dispute for arbitration in New York City before three (3) arbitrators; one arbitrator shall be chosen by the Executive, one arbitrator by the Company and the third by the two other arbitrators. If any party fails to choose its arbitrator within thirty (30) days after a request is made to designate an arbitrator, then that party waives its right to choose an arbitrator and the arbitration shall immediately go forward before the one arbitrator chosen by the non-breaching party. The decision of the arbitrators will be final and binding upon the parties, and the judgment of a court of competent jurisdiction may be entered thereon. Fees of the arbitrators and the cost of arbitration shall be borne as determined by the arbitrators. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first written above. NAM CORPORATION By: S/Roy Israel S/Cynthia Sanders -------------------------- --------------------- Name: ROY ISRAEL CYNTHIA SANDERS Title: CEO EX-10.4 14 EXHIBIT 10.4 Exhibit 10.4 NATIONAL ARBITRATION & MEDIATION, INC. EMPLOYMENT AGREEMENT AGREEMENT is hereby made this 8th day of September, between National Arbitration and Mediation, Inc. ("National") and Daniel Jansen ("Employee"), according to the following mutual covenants and conditions: 1. National provides arbitration, mediation and other alternative dispute resolution services. Employee is hereby employed as a full-time National sales representative. Employee will devote his/her full time and attention to National's business. The principal place of National's business shall be in Port Washington, New York provided, however, nothing contained herein shall be construed to prevent National from dispatching employee to other locations in service of its needs. 2. Employee's primary responsibilities as a sales representative are to develop existing business to which he/she is assigned and to develop and secure new business. Other responsibilities will include, but are not limited to, client presentations, the maintenance of on-going client contact and involvement and good client relations. 3. Employee's employment with National is terminable at will. 4. Employee hereby agrees that during the period of his/her employment with National, Employee will not maintain any employment with any individual or entity other than National. 5. Employee is employed as a commission-based, full-time National sales representative. As full compensation for Employee's services, National agrees to pay the Employee Commissions, as set forth, in the then current National Commission Schedule. 6. Employee shall receive commissions only for cases in which both parties have consented to a National Arbitration and Mediation, Inc. arbitration or mediation, and where payment has been received by National for such mediation and arbitration time. 7. All commissions shall be paid to Employee on an alternate-weekly basis. Employee shall receive a commission statement setting forth all billable time for cases that are attributable to employee and that have been paid by clients within the prior two (2) week period. 8. National shall bill its clients at the conclusion of each week, for all mediations and/or arbitrations time. 9. It is Employee's responsibilities to secure payment for such time within sixty (60) days of such billing date. Employee's failure to secure such payment shall result in Employee's waiver of any and all rights to commissions for such billable time. 10. All accounts which have been assigned but have been inactive for a five (5) month period, lose their assignment and may be transferred to another Employee. 11. Resignation or termination of employment, will result in the forfeit by Employee of any future uncollected commissions. 12. Employee acknowledges that National's business is based largely on certain confidential information including, but not limited to, lists of past, current and prospective customers, price lists, lists of employees, and other records that National acquired, collected and classified as a result of substantial outlay of money; that National's trade and goodwill with its customers has been and will be established at a substantial cost to National and by great effort on its part; that irreparable damage will result to National if such lists, records or information are obtained or used by any other person or competitors of National or if said goodwill is diverted from National; and that Employee's employment is being obtained and is based upon the trust and confidence reposed by National in him/her with respect to the proper use of such lists, records and information solely for National's benefit. 13. Thus, in consideration of Employee's employment with National and other good and valuable consideration to be received by Employee from National during the course of such employment, Employee agrees: a. That during Employee's employment with National and for a period of two years after the termination of such employment with National, Employee will not reestablish, re-open, be engaged in, or for any manner whatsoever become interested in directly or indirectly either as an employee, as owner, as partner, as agent or as a stockholder (holding more than 1% of the outstanding stock of a public corp.), director or officer of a corporation or otherwise any business, trade or occupation similar to National's business in a state in which National Arbitration & Mediation, Inc. maintains an office. b. That during Employee's employment with National, and for a period of two years after the termination of such employment with National, Employee will not disclose or appropriate for Employee's own use or the use of others, any confidential information which belongs to National and/or which may be made available to Employee or which Employee may develop during the course of employment with National, except as required in Employee's duties to National, unless such confidential information has become general public knowledge by any means other than through Employee's own actions. c. Confidential information shall include client lists, client names, employee lists, employee names, phone numbers, addresses, proposals, judicial hearing officer lists, sales techniques, meeting notes, compensation plans, cold call scripts, budgets, estimates, etc., and any other information relating to National, not otherwise available to the public. d. Employee will promptly disclose to National any and all potential projects relating to the business activities of National, and which are conceived or made by Employee, either alone or in conjunction with others at any time or place during Employee's employment by National. e. Employee agrees to assign, without additional compensation, all of Employee's interests in the projects and business or marketing concepts referred to in paragraph d. above, to National or its nominee. This obligation shall continue beyond termination of Employee's employment with respect to projects and business or marketing concepts conceived or made by Employee while employed by National. To the extent that National claims rights to any project, business, or marketing concepts which Employee claims to have conceived following the termination of Employee's employment, the burden of proving conception after termination is on Employee. f. Upon termination of employment with National, Employee shall promptly deliver to National all drawings, manuals, letters, contracts, agreements, notes, notebooks, records, reports, memoranda or other materials relating to National's business including all copies thereof, which are in Employee's possession or control. g. For a period of 2 years following termination of employment with National, Employee will not, without first obtaining express written consent from an officer or director of National, render or solicit business from an existing or former client contact of National (whether individual or entity), including any client contact originally solicited by Employee on behalf of National. 14. This agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. AGREED AND ACCEPTED: Date: 9/8/92 By: /s/ Roy Israel --------------- --------------------------------------- National Arbitration & Mediation, Inc. Date: 9/8/92 By: /s/ Daniel Jansen --------------- --------------------------------------- Employee EX-10.5 15 TERMS OF EMPLOYMENT EXHIBIT 10.5 NAM CORPORATION 1010 NORTHERN BOULEVARD, SUITE 336 GREAT NECK, NEW YORK 11021 February 21, 1996 Mr. Charles A. Merola 243-29 72nd Avenue Douglaston, New York Re: Terms of Employment ------------------- Dear Mr. Merola: The following sets forth the agreement between NAM Corporation, a New York company (the "Company"), and you regarding your employment with the Company. 1. The Company agrees to employ you and you agree to serve as Vice President and Chief Financial Officer, on the terms and conditions of this letter. 2. As full compensation for your services you shall receive: (a) a salary payable in equal bi-weekly installments at the annual rate of $85,000 (the "Base Salary"); (b) a bonus on an annual basis at the sole discretion of the Company's Board of Directors; and (c) medical coverage for you and your family. 3. You shall be an Employee at will. 4. During the term of your employment, you shall be entitled to participate in all present and future employee benefit plans of the Company offered by the Company to its executives for which you meet the eligibility requirements. 5. You shall be entitled to reimbursement for reasonable travel and other out-of-pocket expenses necessarily incurred in the performance of your duties hereunder, upon submission and approval of written statements and bills in accordance with the then regular procedures of the Company. 6. You shall be entitled to two (2) weeks paid vacation. You shall be entitled to take such vacation only after you have been employed by the Company for six (6) months. 7. You represent and warrant to the Company that (a) you are under no contractual or other restriction or obligation which is inconsistent with the execution of this letter, the performance of your duties hereunder, or the other rights of the Company hereunder and (b) you are under no physical or mental disability that would hinder your performance of duties under this letter. 8. You acknowledge that the Company's business is based largely on certain confidential information including, but not limited to, lists of past, current and prospective customers, price lists, lists of employees, lists of Hearing Officers and other records that the Company acquired, collected and classified as a result of substantial outlay of money; that the Company's trade and goodwill with its customers has been and will be established at a substantial cost to the Company and by great effort on its part; that irreparable damage will result to the Company if such lists, records or information are obtained or used by any other person or competitor of the Company or if said goodwill is diverted from the Company; and that your employment is being obtained and is based upon the trust and confidence reposed by the Company in you with respect to the proper use of such lists, records and information solely for the Company's benefit. 9. You shall not during the period of your employment, engage in, or otherwise directly or indirectly be employed by, or act as a consultant or lender to, or be a director, officer, employee, owner, member, or partner of, any business or organization that is or shall then be competing with the Company. 10. You shall not, for a period of one (1) year after you cease to be employed by the Company, directly or indirectly, within a 100 square mile radius of anywhere the Company maintains an office, (i) market or provide any competitive services to, or solicit any business from, any customers of the Company, (ii) solicit, contact, or employ or offer to employ any person who is employed by the Company at the time that you cease being employed by the Company or any person hired by the Company after such time. You acknowledge that this restriction shall not limit you from engaging in your profession, trade or business and is necessary to protect the Company's trade secrets. If any restriction contained in this section shall be deemed invalid, illegal, or unenforceable by reason of the extent, duration, or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope, or other provisions hereof, and in its reduced form such restriction shall then be enforceable in the manner contemplated hereby. 11. Upon the cessation of your employment with the Company, you shall meet with your supervisor and/or a representative from the Company's human resources department to conduct an exit interview. During the exit interview, you shall, among other things, (a) return to the Company all of the Company's property that was provided to you during the period of employment with the Company or was created during that time, such property shall include, without limitation, drawings, rolodexes, manuals, letters, contracts, agreements, notes, notebooks, records, reports, memoranda and all copies thereof; (b) account for any missing property of the Company that was provided to you during the period of employment or was created during that time; and (c) review your obligations to the Company pursuant to this Agreement and the employment policies of the Company. If you fail to attend the exit interview, and/or cooperate during such interview, you consent to the issuance of a preliminary injunction and/or a temporary restraining order, on an ex-parte basis. The preliminary injunction or temporary restraining order shall require you to turn over immediately to the Company all property, including any copies, that was provided to you during the period of employment with the Company or created during that time, and to answer, immediately and under oath, questions concerning the location of any missing property that was provided to you during the period of employment with the Company or created during that time. No bond or other security shall be required in connection therewith. 12. All confidential information which you may now possess, may obtain during the period of your employment, or may create prior to the end of the period you are employed by the Company, relating to the business of the Company or of any customer or supplier of the Company shall not be published, disclosed, or made accessible by you to any other person, firm, or corporation during the period of your employment or any time thereafter without the prior written consent of the Company. 13. If any action or proceeding is brought in connection with Paragraphs 9-10, you consent to the jurisdiction of the courts of the State of New York and of all federal courts located in such state. Since a breach of the provisions of Paragraphs 9-10 could not adequately be compensated by money damages, the Company shall be entitled, in addition to any other right and remedy available to it, to an injunction restraining such breach or threatened breach, and in either case no bond or other security shall be required in connection therewith. You hereby consent to the issuance of such injunction. 14. In the event of a future disposition of (or including) the properties and business of the Company, substantially as an entirety, by merger, consolidation, sale of assets, or otherwise, the Company shall assign this letter and all of its rights and obligations hereunder to the acquiring or surviving corporation, such corporation shall assume in writing all of the obligations of the Company, and the Company (in the event and so long as it remains in business as an independent going enterprise) shall remain liable for the performance of its obligations hereunder in the event of an unjustified failure of the acquiring corporation to perform its obligations under this letter. 15. This letter sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between us concerning such subject matter, and may be modified only by a written instrument duly executed by each party. 16. Any waiver by either party of a breach of any provision of this letter shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this letter. This letter shall be binding upon and inure to the benefit of you and your heirs and personal representatives, and shall be binding upon and inure to the benefit of the Company and its successors and those who are its assigns under Paragraph 14. 17. This letter may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. It shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflict of laws. IN WITNESS WHEREOF, the parties have duly executed this letter as of the date first above written. NAM CORPORATION By: /s/ Roy Israel ------------------ Name: Roy Israel Title: President AGREED TO AND ACKNOWLEDGED: /s/ Charles A. Merola - ------------------------ Name: Charles A. Merola EX-10.6 16 CONSULTING AGREEMENT Exhibit 10.6 CONSULTING AGREEMENT THIS AGREEMENT (the "Agreement") is being made as of July 15, 1996, between NAM Corporation, a Delaware corporation, with offices at 1010 Northern Boulevard, Suite 336, Great Neck, New York 11021 (the "Company") and Dr. Eugene Stricker and Mark Schindler, individuals with offices at 110 East 59th Street, 5th Floor, New York, New York 10022 (the "Contractor"). W I T N E S S E T H : WHEREAS, the Contractor has experience in providing certain specialized investor relations services sought by the Company; and WHEREAS, the Company desires to utilize the Contractor's services and abilities during the term of this Agreement, and the Contractor is willing to offer such services subject to the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the mutual premises and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows: 1. Engagement and Duties. During the term of this Agreement, the Company shall engage the Contractor and the Contractor agrees to serve the Company, as a consultant on an independent contractor basis. The Contractor shall be available for work at reasonable times and for reasonable periods of time to perform certain specialized investor relations services required by the Company at the location or locations designated by the Company in the Greater Metropolitan New York Area. The Contractors shall work at the sole direction of the Chief Executive Officer of the Company. 2. Term. This Agreement shall commence on the date that the Company closes on an initial public offering of its Common Stock (the "IPO") and shall terminate four (4) years from the IPO (the "Term"). If the IPO does not occur on or before January 2, 1997 then this Agreement shall automatically terminate with none of the parties having any liability to each other. 3. Compensation. For all services rendered by the Contractor under this Agreement, the Company shall pay the Contractor an annual payment of $48,000 which shall be paid in equal monthly installments beginning on the Compensation Date. The Contractor shall not be entitled to reimbursement of expenses, except those expenses that are pre-approved by the CEO of the Company. 4. Independent Contractor. The Contractor's relationship with the Company shall be that of an independent contractor and the Company shall not be responsible or liable for the withholding of taxes, or disability insurance, social security, or any other form of payments from any sum paid to the Contractor under this Agreement. 5. Confidentiality. In order to induce the Company to enter into this Agreement, the Contractor hereby agrees that, except with the written consent of the Company, the Contractor shall keep confidential and not divulge to any person that is not affiliated with the Company, during the term of this Agreement or any time thereafter, any of the Company's confidential information and business secrets, including, without limitation, confidential information and business secrets relating to such matters as the Company's finances and operations, the materials, processes, and procedures used in the Company's operations, the names of the Company's customers and their requirements, and the names of the Company's suppliers. All papers, books, and records of every description, including, without limitation, computer software, programs, modules, or source codes, as well as all reproductions thereof, relating to the business and affairs of the Company, or its clients, whether or not prepared by the Contractor, shall be the sole and exclusive property of the Company. The Contractor shall surrender all tangible evidence of such information to the Company at the termination of this Agreement or at any time during the term of this Agreement upon request. 6. Termination. 6.1 Notwithstanding anything herein contained, if on or after the date hereof and prior to the end of the Term, Contractor is terminated "For Cause" (as defined below) then the Company shall have the right to give notice of termination of Contractor's services hereunder as of a date to be specified in such notice, and this Agreement shall terminate on the date so specified. Termination "For Cause" shall mean that any Contractor shall (i) be accused or convicted of a misdemeanor or felony crime, (ii) commit any act or omit to take any action in bad faith and to the detriment of the Company, (iii) commit an act of moral turpitude, (iv) commit an act of fraud against the Company, or (v) materially breach any term of this Agreement and fail to correct such breach within ten (10) days after commission thereof. 6.2 In the event that any Contractor shall be physically or mentally incapacitated or disabled or otherwise unable fully to discharge their duties hereunder for a period of two (2) months, then this Agreement shall terminate upon ten (10) days' written notice to Contractor, and no further compensation shall be payable to the disabled Contractor, the other Contractor shall continue to receive one-half of the compensation payable under Section 3 of this Agreement. 6.3 In the event that any Contractor shall die, then this Agreement shall terminate on the date of such Contractor's death, and no further compensation shall be payable to the deceased Contractor. The surviving Contractor shall continue to receive one-half of the compensation payable under Section 3 of this Agreement. 6.4 In the event that this Agreement is terminated "For Cause" pursuant to Section 6(a), Contractor shall be entitled to receive only their compensation at the rate provided in Section 3 to the date on which termination shall take effect. 6.5 Nothing contained in this Section 6 shall be deemed to limit any other right the Company may have to terminate Employee's employment hereunder upon any ground permitted by law. 7. Inventions. Any interest in patents, patent applications, inventions, copyrights, developments, and processes (collectively, the "Inventions") which the Contractor, during the period the Contractor is employed with the Company, may develop relating to the fields in which the Company may then be engaged shall belong to the Company; and forthwith upon request of the Company, the Contractor shall execute all such assignments and other documents and take all such other action as the Company may reasonably request in order to vest in the Company all of the Contractor's right, title, and interest in and to the Inventions, free and clear of all liens, charges, and encumbrances. 8. Non-Compete. In consideration of the compensation to be received by the Contractor from the Company, the Contractor shall not: (a) during the term of this Agreement, engage in, or otherwise directly or indirectly be employed by, or act as a consultant or lender to, or be a director, officer, employee, owner, or partner of, any business or organization that is or shall then be competing with the Company; and (b) for a period of one (1) year after the Contractor ceases to work for the Company, directly or indirectly, (i) market or provide any competitive services to, or solicit any business from, any customers of the Company, or (ii) solicit, contact, or employ or offer to employ any person who is employed by the Company at the time that the Contractor ceases being employed by the Company or any person hired by the Company after such time. If any restriction contained in this section shall be deemed invalid, illegal, or unenforceable by reason of the extent, duration, or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope, or other provisions hereof, and in its reduced form such restriction shall then be enforceable in the manner contemplated hereby. 9. Modification. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, and may be modified only by a written instrument duly executed by each party. 10. Notices. All notices, requests, demands, and other communications hereunder must be in writing and shall be deemed to have been duly given if delivered by hand, mailed within the continental United States by first class, certified mail, return receipt requested, postage and registry fees prepaid, or sent by Federal Express or any other nationally recognized overnight courier, or sent by telecopy or facsimile transmission (with receipt confirmed), to the applicable party and addressed to the addresses set forth in the preamble. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof. Any notice or other communication given by overnight courier shall be deemed given one day after delivery to such courier. Any notice or other communication sent by telecopy or facsimile transmission shall be deemed given at the time of confirmation of receipt. 11. Waiver. Any waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing. 12. Binding Effect. The Contractor's rights and obligations under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to encumbrance or the claims of the Contractor's creditors, and any attempt to do any of the foregoing shall be void. The provisions of this Agreement shall be binding upon and inure to the benefit of the Company and its successors and those who are its assigns. 13. Headings. The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 14. Miscellaneous. (a) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (b) It shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the rules governing the conflicts of laws. (c) Contractor irrevocably consents to the jurisdiction of the courts of the State of New York and of all federal court located in such state in connection with any action or proceeding arising out of or relating to this Agreement or the breach thereof. In any such action or proceeding, the Contractor waives personal service of any summons, complaint, or other process and agrees that service thereof may be made in accordance with Section 8 hereof. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above. CONTRACTOR: NAM CORPORATION /s/ Dr. Eugene Stricker By: /s/ Roy Israel - ----------------------- --------------------- Dr. Eugene Stricker Name: Roy Israel Title: CEO /s/ Mark Schindler - ------------------- Mark Schindler EX-10.7 17 LEASE TERMINATION AGREEMENT EXHIBIT 10.7 LEASE TERMINATION AGREEMENT, made this 13th day of September, 1995 by and between SOUTH BAYLES AVENUE ASSOCIATES, a partnership, with offices at 1010 Northern Boulevard, Great Neck, New York, hereinafter referred to as "Owner", and NATIONAL ARBITRATION & MEDIATION, INC., a New York corporation having offices at 44 South Bayles Avenue, Port Washington, New York, hereinafter referred to as "Tenant". WHEREAS, Owner and Tenant are parties to a lease dated February 26, 1992, as amended August 26, 1993, with reference to space on the second floor (the "Premises") of the building known as 44 South Bayles Avenue, Port Washington, New York (the "Lease"); WHEREAS, said Lease expires by its terms on October 31, 1996; WHEREAS, the parties are desirous of accelerating the termination date of the Lease; NOW, THEREFORE, it is mutually agreed as follows: 1. The term of the Lease shall expire on the later of 1) September 30, 1995 or 2) the Commencement Date, as such term is defined in the Lease dated September 13, 1995 between The 1010 Company, as Owner, and National Arbitration & Mediation, Inc., as Tenant, (the "Accelerated Termination Date"). 2. Tenant shall vacate the Premises within five (5) days after the Accelerated Termination Date, as if said date were the last of the term of the Lease and Tenant shall leave the Premises in the condition required as set forth in the Lease. 3. Provided Tenant has complied with the provisions of Paragraph 2 of this Agreement, Owner and Tenant release each other from all liabilities and obligations to the other accruing after the Accelerated Termination Date as it relates to the Lease. Tenant is not responsible to remove Leasehold improvements made by landlord. 4. Tenant represents that it has not sublet any portion of the Premises nor assigned the Lease. IN WITNESS WHEREOF, the parties hereto have executed this agreement the day and year first above written. SOUTH BAYLES AVENUE ASSOCIATES BY: /s/ ------------------------------------ NATIONAL ARBITRATION & MEDIATION, INC. BY: /s/ Roy Israel ------------------------------------ STANDARD FORM OF OFFICE LEASE The Real Estate Board of New York, Inc. AGREEMENT OF LEASE, made as of this 13th day of September 1995, between THE 1010 COMPANY, a Limited Partnership, c/o Schmergel Enterprises Corp., having an address at 1010 Northern Boulevard, Great Neck, New York 11021 party of the first part, hereinafter referred to as OWNER, and NATIONAL ARBITRATION & MEDIATION, INC. a New York Corporation, having an address at 44 South Bayles Avenue, Port Washington, New York 11050 party of the second part, hereinafter referred to as TENANT, WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner 4,800 rentable square feet of space on the third floor known as Suite 336 (the "Premises"), as shown on Exhibit A attached hereto, in the building known as 1010 Northern Boulevard, Great Neck, New York (the "Building") for the term of five (5) years (or until such term shall sooner cease and expire as hereinafter provided) to commence on the 1st day of October nineteen hundred and ninety-five (the "Starting Date") and to end on the 30th day of September two thousand both dates inclusive, at an annual rental rate as set forth in Article 42 *except as expressly set forth in this lease which Tenant agrees to pay in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, in equal monthly installments in advance on the first day of each month during said term, at the office of Owner or such other place as Owner may designate, without any set off or deduction whatsoever*, except that Tenant shall pay the first monthly installment(s) on the execution hereof (unless this lease be a renewal). The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successors and assigns, hereby covenant as follows: Rent Occupancy 1. Tenant shall pay the rent as above and as hereinafter provided. 2. Tenant shall use and occupy demised premises for executive and administrative offices and for arbitrations and mediations and uses incidental thereto and for no other purpose. Tenant Alterations: 3. Tenant shall make no changes in or to the demised premises of any nature without Owner's prior written consent, Subject to the prior written consent of Owner,** and to the provisions of this article, Tenant at Tenant's expense; may make alterations, installations, additions or improvements which are nonstructural and which do not affect utility services or plumbing and electrical lines, in or to the interior of the demised premises. Tenant shall, before making any alterations, additions, installations or improvements, at its expense, obtain all permits, approvals and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such permits, approvals and certificates to Owner and Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workman's compensation, general liability, personal and property damage insurance as Owner may reasonably request on any mechanic's lien is filed against the demised premises, or the building of which the same forms a part, for work claimed to have been done for, or materials furnished to, Tenant, whether or not done pursuant to this article, the same shall be discharged by Tenant within thirty days thereafter, at Tenant's expense, by filing the bond required by law. All fixtures and all paneling, partitions, railings and like installations, installed in the premises at any time by Tenant shall, upon installation, become the property of Owner and shall remain upon and be surrendered with the demised premises unless Owner, by notice to Tenant no later than twenty days prior to the date fixed as the termination of this lease, elects to relinquish Owner's right thereto and to have them removed by Tenant, in which event the same shall be removed from the premises by Tenant prior to the expiration of the lease, at Tenant's expense. Nothing in this Article shall be construed to give Owner title to or to prevent Tenant's removal of trade fixtures, moveable office furniture and equipment, but upon removal of any such from the premises or upon removal of other installations as may be required by Owner, Tenant shall immediately and at its expense, repair and restore the premises to the condition existing prior to installation and repair any damage to the demised premises or the building due to such removal. All property permitted or required to be removed, by Tenant at the end of the term remaining in the premises after Tenant's removal shall be deemed abandoned and may, at the election of Owner, either be retained as Owner's property or may be removed from the premises by Owner, at Tenant's expense. Maintenance and Repairs 4. Tenant shall, throughout the term of this lease, take good care of the demised premises and the fixtures and appurtenances therein. Tenant shall be responsible for all damage or injury to the demised premises or any other part of the building and the systems and equipment thereof, whether requiring structural or nonstructural repairs caused by or resulting from carelessness, omission, neglect or improper conduct of Tenant, Tenant's subtenants, agents, employees, invitees or licensees, or which arise out of any work, labor, service, or equipment done for or supplied to Tenant or any subtenant or arising out of the installation, use or operation of the property or equipment of Tenant or any subtenant. Tenant shall also repair all damage to the building and the demised premises caused by the moving of Tenant's fixtures, furniture and equipment. Tenant shall promptly make, at Tenant's expense, all repairs in and to the demised premises for which Tenant is responsible. Any other repairs in or to the building or the facilities and systems thereof for which Tenant is responsible shall be performed by Owner at the Tenant's expense.*** Owner shall maintain in good working order and repair the exterior and the structural portions of the building, including the structural portions of its demised premises, and the public portions of the building interior and the building plumbing, electrical, heating and ventilating systems (to the extent such systems presently exist) serving the demised premises. Tenant agrees to give prompt notice**** of any defective condition in the premises for which Owner may be responsible hereunder. There shall be no allowance to Tenant for diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner or others making repairs, alterations, additions or improvements in or to any portion of the building or the demised premises or in and to the fixtures, appurtenances or equipment thereof.***** It is specifically agreed that Tenant shall not be entitled to any setoff or reduction of rent by reason of any failure of Owner to comply with the covenants of this or any other article of this Lease. Tenant agrees that Tenant's sole remedy at law in such instance will be by way of an action for damages for breach of contract. The provisions of this Article 4 shall not apply in the case of fire or other casualty which are dealt with in Article 9 hereof. Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or allow any window in the demised premises to be cleaned from the outside in violation of Section 202 of the Labor Law or any other applicable law or of the Rules of the Board of Standards and Appeals, or of any other Board or body having or asserting jurisdiction. Requirements of Law, Fire Insurance, Floor Loads: 6. Prior to the commencement of the lease term of Tenant is then in possession, and at all times thereafter, Tenant, at Tenant's sole cost and expense, shall promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law, and all orders, rules and regulations of the New York Board of Fire Underwriters, Insurance Services Office, or any similar body which shall impose any violation, order or duty upon Owner or Tenant with respect to the demised premises, whether or not arising out of Tenant's use or manner of use thereof, (including Tenant's permitted use) or, with respect to the building if arising out of Tenant's use or manner of use of the premises of the building (including the use permitted under the lease). Owner represents that the Premises will be in compliance with all such legal requirements on the Commencement Date. Nothing herein shall require Tenant to make structural repairs or alterations unless Tenant has, by its specific manner of use of the demised premises or method of operation therein, as opposed to mere office use violated any such laws, ordinances, order, rules, regulations or requirements with respect thereto. Tenant may, after securing Owner to Owner's reasonable satisfaction against all damages, interest, penalties and expenses, including, but not limited to, reasonable attorney's fees, by cash deposit or by surety bond in an amount and in a company reasonably satisfactory to Owner, contest and appeal any such laws, ordinances, orders, rules, regulations or requirements provided same is done with all reasonable promptness and provided such appeal shall not subject Owner to prosecution for a criminal ** which consent shall not be unreasonably withheld or delayed *** after fifteen (15) day's written notice to Tenant **** after Tenant becomes aware ***** Landlord agrees to use reasonable efforts to minimize interference with Tenant's operations in the Building. offense or constitute a default under any lease or mortgage under which Owner may be obligated, or cause the demised premises or any part thereof to be condemned or vacated. Tenant shall not do or permit any act or thing to be done in or to the demised premises which is contrary to law, or which will invalidate or be in conflict with public liability, fire or other policies of insurance at any time carried by or for the benefit of Owner with respect to the demised premises or the building of which the demised premises form a part, or which shall or might subject Owner to any liability or responsibility to any person or for property damage. Tenant shall not keep anything in the demised premises except as now or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization or other authority having jurisdiction, and then only in such manner and such quantity so as not to increase the rate for fire insurance applicable to the building, nor use the premises in a manner which will increase the insurance rate for the building or any property located therein over that in effect prior to the commencement of Tenant's occupancy. Tenant shall pay all costs, expenses, fines, penalties, or damages, which may be imposed upon Owner by reason of Tenant's failure to comply with the provisions of this article and if by reason of such failure the fire insurance rate shall, at the beginning of this lease or at any time thereafter, be higher than it otherwise would be, then Tenant shall reimburse Owner, as additional rent hereunder, for that portion of all fire insurance premiums thereafter paid by Owner which shall have been charged because of such failure by Tenant. In any action or proceeding wherein Owner and Tenant are parties, a schedule or "makeup" of rate for the building or demised premises issued by the New York Fire Insurance Exchange, or other body making fire insurance rates applicable to said premises shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rates than applicable to said premises. Tenant shall not place a load upon any floor of the demised premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Owner reserves the right to prescribe the weight and position of all safes, business machines and mechanical equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient, in Owner's judgement, to absorb and prevent vibration, noise and annoyance. Mere office use will not increase insurance rates. Subordination: 7. This lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which demised premises are a part and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument of subordination shall be required by any ground or underlying lessor or by any mortgagee, affecting any lease or the real property of which the demised premises are a part. In confirmation of such subordination, Tenant shall execute promptly any certificate that Owner may request. Property Loss, Damage, Reimbursement, Indemnity: 8. Owner or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the building, nor for loss of or damages to any property of Tenant by theft or otherwise, nor for any injury or damage to persons or property resulting from any cause of whatsoever nature, unless caused by or due to the negligence of Owner, its agents, servants or employees. Owner or its agents will not be liable for any such damage caused by other tenants or persons in, upon or about said building or caused by operations in construction of any private, public or quasi public work. If at any time any windows of the demised premises are temporarily closed, darkened or bricked up, Owner shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefor nor abatement or diminution of rent nor shall the same release Tenant from its obligations hereunder nor constitute an eviction. Tenant shall indemnify and save harmless Owner against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which Owner shall not be reimbursed by insurance, including reasonable attorneys fees, paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of any covenant or condition of this lease, or the carelessness, negligence or improper conduct of the Tenant, Tenant's agents, contractors, employees, invitees or licensees. Tenant's liability under this lease extends to the acts and omissions of any sub-tenant, and any agent, contractor, employee, invitee or licensee of any sub-tenant. In case any action or proceeding is brought against Owner by reason of any such claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist or defend such action or proceeding by counsel approved by Owner in writing, with approval not to be unreasonably withheld. Destruction, Fire, and Other Casualty: 9. (a) If the demised premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give immediate notice thereof to Owner and this lease shall continue in full force and effect except as hereinafter set forth. (b) If the demised premises are partially damaged or rendered partially unusable by fire or other casualty, the damages thereto shall be repaired by and at the expense of Owner and the rent, until such repair shall be substantially completed, shall be apportioned from the day following the casualty according to the part of the premises which is liable. (c) If the demised premises are totally damaged or rendered wholly unusable by fire or other casualty, then the rent shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the paid up to the time of the casualty and thenceforth shall cease until the date when the premises shall have been repaired and restored by Owner subject to Owner's right to elect not to restore the same as hereinafter provided. (d) If the demised premises are rendered wholly unusable or (whether or not the demised premises are damaged in whole or in part) if the building shall be so damaged that Owner shall decide to demolish it or to rebuild it, then, in any of such events, Owner may elect to terminate this lease by written notice to tenant, given within 90 days after such fire or casualty, specifying a date for the expiration of the lease, which date shall not be more than 60 days after the giving of such notice, and upon the date specified in such notice the term of this lease shall expire as fully and completely as if such date were the date set forth above for the termination of this lease and Tenant shall forthwith quit, surrender and vacate the premises without prejudice however, to Landlord's rights and remedies against Tenant under the lease provisions in effect prior to such termination, and any rent owing shall be paid up to such date and any payments of rent made by Tenant which were on account of any period subsequent to such date shall be returned to Tenant. Unless Owner shall serve a termination notice as provided for herein, Owner shall make the repairs and restorations under the conditions of (b) and (c) hereof, with all reasonable expedition, subject to delays due to adjustment of insurance claims, labor troubles and causes beyond Owner's control. After any such casualty, Tenant shall cooperate with Owner's restoration by removing from the premises as promptly as reasonably possible, all of Tenant's salvageable inventory and movable equipment, furniture, and other property. Tenant's liability for rent shall resume five (5) days after written notice from Owner that the premises are substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Owner and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise. The foregoing release and waiver shall be in force only if both releasers' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance. If, and to the extent, that such waiver can be obtained only by the payment of additional premiums, then the party benefitting from the waiver shall pay such premium within ten days after written demand or shall be deemed to have agreed that the party obtaining insurance coverage shall be free of any further obligation under the provisions hereof with respect to waiver of subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's furniture and/or furnishings or any fixtures or equipment, improvements, or appurtenances removable by Tenant and agrees that Owner will not be obligated to repair any damage thereto or replace the same. (f) Tenant hereby waives the provisions of Section 227 of the Real Property Law and agrees that the provisions of this article shall govern and control in lieu thereof. Eminent Domain: 10. If the whole or any part of the demised premises shall be acquired or condemned by* Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim for the value of any unexpired term of said lease and assigns to Owner Tenant's entire interest in any such award. *See Paragraph 74 Assignment, Mortgage, Etc.: 11. Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that is shall not assign mortgage or encumber this agreement, nor underlet, or suffer or permit the demised premises or any part thereof to be used by others, without the prior written consent of Owner in each instance. Transfer of the majority of the stock of a corporate Tenant shall be deemed an assignment. If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Owner may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Owner to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Owner to any further assignment or underletting. See Paragraph 73 Electric Current: 12. Rates and conditions in respect to submetering or rent inclusion, as the case may be , to be added in RIDER attached hereto. Tenant covenants and agrees that at all times its use of electric current shall not exceed the capacity of existing feeders to the building or the risers or wiring installation and Tenant may not use any electrical equipment which, in Owner's opinion, reasonably exercised, will overload such installations or interfere with the use thereof by other tenants of the building. The change at any time of the character of electric service shall in no wise make Owner liable or responsible to Tenant, for any loss, damages or expenses which Tenant may sustain. Access to Premises: 13. Owner or Owner's agents shall have the right (but shall not be obligated) to enter the demised premises, in any emergency at any time, and, at other reasonable times*,to examine the same and to make such repairs, replacements and improvements as Owner may deem necessary and reasonably desirable to the demised premises or to any other portion of the building or which Owner may elect to perform. Tenant shall permit Owner to use and maintain and replace pipes and conduits in and through the demised premises and to erect new pipes and conduits therein provided they are concealed within the walls, floor, or ceiling. Owner may, during the progress of any work in the demised premises, take all necessary materials and equipment into said premises without the same constituting an eviction nor shall the Tenant be entitled to any abatement of rent while such work is in progress nor to any damages by reason of loss or interruption of business or otherwise. Throughout the term hereof Owner shall have the right to enter the demised premises at reasonable hours for the purpose of showing the same to prospective purchasers or mortgagees of the building, and during the last six months of the term for the purpose of showing the same to prospective tenants. If Tenant is not present to open and permit an entry into the promises, Owner or Owner's agents may enter the same whenever such entry may be necessary by master key or forcibly and provided reasonable care is exercised to safeguard Tenant's property, such entry shall not render Owner or its agents liable therefor, nor in any event shall the obligations of Tenant hereunder be affected. If during the last month of the term Tenant shall have removed all or substantially all of Tenant's property therefrom. Owner may immediately enter, alter, renovate or redecorate the demised premises without limitation or abatement of rent, or incurring liability to Tenant for any compensation and such act shall have no effect on this lease or Tenant's obligations hereunder. * Landlord shall endeavor whenever practical to give Tenant advance notice of repairs, replacement or improvements within the Premises. Occupancy: 15. Tenant will not at any time use or occupy the demised premises in violation of the certificate of occupancy issued for the building of which the demised premises are a part. Tenant has inspected the premises and accepts them as is, subject to the riders annexed hereto with respect to Owner's work, if any. In any event, Owner makes no representation as to the condition of the premises and Tenant agrees to accept the same subject to violations whether or not of record. Landlord represents that it has a Certificate of Occupancy for an office building for the Building which permits offices. Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this lease may be cancelled by Owner by the sending of a written notice to Tenant within a reasonable time after the happening of any one or more of the following events: (1) the commencement of a case in bankruptcy or under the laws of any state naming Tenant as the debtor* and not discharged within 120 days or (2) the making by Tenant of an assignment or any other arrangement for the benefit of creditors under any state statute. Neither Tenant nor any person claiming through or under Tenant, or by reason of any statute or order of court, shall thereafter be entitled to possession of the premises demised but shall forthwith quit and surrender the premises. If this lease shall be assigned in accordance with its terms, the provisions of this Article 16 shall be applicable only to the party then owning Tenant's interest in this lease. *and not discharged within 120 days. (b) It is stipulated and agreed that in the event of the termination of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any other provisions of this lease to the contrary, be entitled to recover from tenant as and for liquidated damages an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the term demised and the fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of four percent (4%) per annum. If such premises or any part thereof be relet by the Owner for the unexpired term of said lease, or any part thereof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall be deemed to be the fair and reasonable rental value for the part or the whole of the premises so re-let during the term of the re-letting. Nothing herein contained shall limit or prejudice the right of the Owner to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. Default: 17. (1) If Tenant defaults in fulfilling any of the covenants of this lease other than the covenants for the payment of rent or additional rent; or if the demised premises becomes vacant or deserted; or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be taken or occupied by someone other than Tenant; or if this lease be rejected under Section 235 of Title 11 of the U.S. Code (bankruptcy code); or if Tenant shall fail to move into or take possession of the premises within fifteen (15) days after the commencement of the term of this lease, then, in any one or more of such events, upon Owner serving a written fifteen (15) days notice upon Tenant specifying the nature of said default and upon the expiration of said fifteen (15) days, if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within said fifteen (15) day period, and if Tenant shall not have diligently commenced during such default within such fifteen (15) day period, and shall not thereafter with reasonable diligence and in good faith, proceed to remedy, or cure such default, then Owner may serve a written three (3) days' notice of cancellation of this lease upon Tenant, and upon the expiration of said three (3) days this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such three (3) day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Tenant shall then quit and surrender the demised premises to Owner but Tenant shall remain liable as hereinafter provided. (2) If the notice provided for in(1) hereof shall have been given, and the term shall expire as aforesaid: or if Tenant shall make default in the payment of the rent reserved herein or any item of additional rent herein mentioned or any part of either or in making xxx other payment herein required and such default continues for ten (10) days after notice to Tenant provided, however, such notice shall not be required more than two (2) times in any calendar year, then and in any of such events Owner may without notice, re-enter the demised premises either by force or otherwise, and disposes Tenant by summary proceedings or otherwise, under the legal representative of Tenant or other occupant of demised premises, and remove their effects and hold the premises as if this lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. See rider paragraph 71. Remedies of Owner and Waiver of Redemption: 18. In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a) the rent shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration (b) Owner may re-let the premises or any part or other parts thereof, either in the name of Owner or otherwise, for a term or terms, which may at Owner's option be less than or exceed the period which would otherwise have constituted the balance of the term of this lease and may grant concessions or free rent or charge a higher rental than that in this lease, and/or (c) Tenant or the legal representatives of Tenant shall also pay Owner as liquidated damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and/or covenanted to be paid and the net amount, if any, of the rents collected on account of the lease or leases of the demised promises for each month of the period which would otherwise have constituted the balance of the term of this lease. The failure of Owner to re-let the premises or any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such liquidated damages there shall be added to the said deficiency such reasonable expenses as Owner may incur in connection with re-letting, such as legal expenses, attorneys' fee, brokerage, advertising and for keeping the demised premises in good order or for preparing the same for re-letting. Any such liquidation damages shall be paid in monthly installments by Tenant on the rent day specified in this lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Owner to collect the deficiency for any month shall not prejudice in any way the rights of Owner to collect the deficiency of any subsequent month by a similar proceeding. Owner, in putting the demised premises in good order or preparing the same for re-rental may, at Owner's option, make such alterations, repairs, replacements, and/or decorations in the demised premises as Owner, in Owner's sole judgement, considers advisable and necessary for the purpose of re-letting the demised and premises, and the making of such alterations, repairs, replacements and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever for failure to re-let the demised premises, or in the event that the demised premises are re-let, for failure to collect the rent thereof under such re-letting, and in no event shall Tenant be entitled to receive any excess, if any, of such net rents collected over the sum payable by Tenant to Owner hereunder. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Owner shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as in re-entry, summary proceedings and other remedies were not herein provided for. Mention in this lease of any particular remedy, shall not preclude Owner from any other remedy, in law or in equity. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Owner obtaining possession of demised premises, by reason of the violation by Tenant of any of the covenants and conditions of this lease, or otherwise. Fees and Expenses 19. If Tenant shall default*** beyond applicable grace period in the observance or performance of any term or covenant on Tenant's art to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, then, unless otherwise provided elsewhere in this lease, Owner may immediately or at any time thereafter and without notice perform the obligation of Tenant thereunder. If Owner, in connection with the foregoing or in connection with any default by Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to reasonable attorney's fees, in instituting, prosecuting or defending any action or proceeding, then Tenant will reimburse Owner for such sums so paid or obligations incurred with interest and costs. The foregoing expenses incurred by reason of Tenant's default shall be deemed to be additional rent hereunder and shall be paid by Tenant to Owner within five (5) days of rendition of any bill or statement to Tenant therefor. If tenant's lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable by Owner as damages. Building Alterations and Management: 20. Owner shall have the right at any time without the same constituting an eviction and without incurring liability to Tenant therefor to change the arrangement and/or location of public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets or other public parts of the building and to change the name, number or designation by which the building may be known. There shall be no allowance to Tenant for diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner or other Tenants making any repairs in the building or any such alterations, additions and improvements. Furthermore, Tenant shall not have any claim against Owner by reason of Owner's imposition of such controls of the manner of access to the building by Tenant's social or business visitors as the Owner may deem necessary for the security of the building and its occupants. No Representations by Owners: 21. Except as otherwise set forth herein, neither Owner nor Owner's agents have made any representations or promises with respect to the physical condition of the building, the land upon ***beyond applicable grace period which it is erected or the demised premises, the rents, leases, expenses of operation or any other matter or thing affecting or related to the premises except as herein expressly set forth and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. Except as provided in this lease, tenant has inspected the building and the demised premises and is thoroughly acquainted with their condition and agrees to take the same "as is" and acknowledges that the taking of possession of the demised premises by Tenant shall be conclusive evidence that the said premises and the building of which the same form a part were in good and satisfactory condition at the time such possession was so taken, except as to latent defects. All understandings and agreements heretofore made between the parties hereto are merged in this contract, which alone fully and completely expressed the agreement between Owner and Tenant and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification discharges or abandonment is sought. *except as provided in this lease End of Term: 22. Upon the expiration or other termination of the term of this lease, Tenant shall quit and surrender to Owner the demised premises, broom clean, in good order and condition, ordinary wear and damages which Tenant is not required to repair as provided elsewhere in this lease excepted, and Tenant shall remove all its property. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this lease. If the last day of the term of this Lease or any renewal thereof, falls on Sunday, this lease shall expire at noon on the preceding Saturday unless it be a legal holiday in which case it shall expire at noon on the preceding business day. Quiet Enjoyment: 23. Owner covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this lease including, but not limited to, Article 30 hereof and to the ground leases, underlying leases and mortgages hereinbefore mentioned. Failure to Give Possession: 24. If Owner is unable to give possession of the demised premises on the date of the commencement of the term hereof, Owner shall not be subject to any liability for failure to give possession on said date and the validity of the lease shall not be impaired under such circumstances, nor shall the same be construed in any wise to extend the term of this lease, but the rent payable hereunder shall be abated (provided Tenant is not responsible for Owner's inability to obtain possession) until after Owner shall have given Tenant written notice that the promises are substantially ready for Tenant's occupancy. If permission is given to Tenant to enter into the possession of the demised premises or to occupy premises other than the demised premises prior to the date specified as the commencement of the term of this lease, Tenant covenants and agrees that such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this lease, except as to the covenant to pay rent. The provisions of this article are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. No Waiver: 25. The failure of Owner* to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this lease or of any of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Owner of rent or the payment by Tenant with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Owner unless such waiver be in writing signed by Owner or Tenant. No payment by Tenant or receipt by Owner of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor, shall any endorsement or statement of any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance of such rent or pursue any other remedy in the lease provided. No act or thing done by Owner or Owner's agents during the term hereby demised shall be deemed an acceptance of a surrender of said premises, and no agreement to accept such surrender shall be valid unless in writing signed by Owner. No employee of Owner or Owner's agent shall have any power to accept the keys of said premises prior to the termination of the lease and the delivery of keys to any such agent or employee shall not operate as a termination of the lease or a surrender of the premises. *or Tenant Waiver of Trial by Jury: 26. It is mutually agreed by and between Owner and Tenant that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other (except for personal injury or property damage) on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Owner and Tenant. Tenant's use of or occupancy of said premises, and any emergency statutory or any other statutory remedy. It is further mutually agreed that in the event Owner commences any summary proceeding for possession of the premises, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding including a counterclaim under Article 4.(except for compulsory or mandatory counterclaims). Inability to Perform: 27. This Lease and the obligation of Tenant or Owner to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no wise be affected, impaired or excused because Owner or Tenantis unable to fulfill any of its obligations under this lease or to supply or is delayed in supplying any service expressly or impiledly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Owner or Tenant is prevented or delayed from so doing by reason of strike or labor troubles or any cause whatsoever beyond a party's reasonable control including, but not limited to, government preemption in connection with a National Emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of the conditions of supply and demand which have been or are affected by war or other emergency. - ---------- Rider to be added if necessary. Services Provided by Owners: 29. As long as Tenant is not in default beyond the applicable grace periods under any of the covenants of this lease, Owners shall provide: (a) necessary elevator facilities on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m. and have one elevator subject to call at all other times; (b) heat to the demises premises when and as required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays fro 8 a.m. to 1 p.m.; (c) water for ordinary lavatory purposes, but if Tenant uses or consumes water for any other purposes or in unusual quantities (of which fact Owner shall be the sole judge), Owner may install a water meter at Tenant's expense which Tenant shall thereafter maintain at Tenant's expense in good working order and repair to register such water consumption and Tenant shall pay for water consumed as shown on said meter as additional rent as and when bills are rendered; (d) cleaning service for the demised premises on business days at Owner's expense provided that the same are kept in order by Tenant. Air conditioning/cooling will be furnished to tenant from May 15th through September 30th on business days (Mondays through Fridays, holidays excepted) from 8:00 a.m. to 6:00 p.m., and ventilation will be furnished on business days during the aforesaid hours except when air conditioning/cooling is being furnished as aforesaid. If Tenant requires air conditioning/cooling or ventilation for more extended hours or on Saturdays, Sundays or on holidays, as defined under Owner's contract with Operating Engineer Local 94-94A. Owner will furnish the same at Tenant's expense. RIDER to be added in respect to rates and conditions for such additional service; (f) Owner reserves the right to stop services of the heating, elevators, plumbing, air-conditioning, power systems or cleaning or other services, if any, when reasonably necessary by reason of accident or for repairs, alterations, replacements or improvement necessary or desirable in the judgment of Owner for as long as may be reasonably required by reason thereof. The same shall be done with a minimum of inconvenience to Tenant and Owner shall pursue the alteration with due diligence. Captions: 30. The Captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this lease nor the intent of any provisions thereof. Definitions: 31. The term "office", or "offices", wherever used in this lease, shall not be construed to mean premises used as a store or stores, for the sale of display, at any time, of goods, wares or merchandise, of any kind, or as a restaurant, shop, booth, bootblack or other stand, barber shop, or for other similar purposes or for manufacturing. The term "Owner" means a landlord or lessor, and as used in this lease means only the owner, or the mortgagee in possession, for the time being of the land and building(or the owner of a lease of the building or of the land and building) of which the demised premises form a part, so that in the event of any sale or sales of said land and building or of said lease, or in the event of a lease of said building, or of the land and building, the said Owner shall be and hereby is entirely freed and relieved of all covenants and obligations of Owner hereunder, from and after such sale, and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, at any such sale, or the said leases of the building, or of the land and building, that the purchaser or the lessee of the building has assumed and agreed to carry out any and all covenants and obligations of Owner, hereunder. The words "re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning. The term "business days" as used in this lease shall exclude Saturdays (except such portion thereof as is covered by specific hours in Article 29 hereof), Sundays and all days observed by the State or Federal Government as legal holidays and those designated as holidays by the applicable building service union employees service contract or by the applicable Operating Engineers contract with respect to HVAC service. Adjacent Excavation Shoring: 32. If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing such work as said person shall deem necessary to preserve the wall or the building which demised premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Owner, or diminution or abatement of rent. Rules and Regulations: 33. Tenant and Tenant's servants, employees, agents, visitors, and licensees shall observe faithfully, and comply strictly with, the Rules and Regulations and such other and further reasonable Rules and Regulations as Owner or Owner's agents may from time to time adopt. Notice of any additional rules or regulations shall be given in such manner as Owner may elect. In case Tenant disputes the reasonableness of any additional Rule and Regulation hereafter made or adopted by Owner or Owner's agents, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the New York office of the American Arbitration Association, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice, in writing upon Owner within 30 days after giving of notice thereof. Nothing in this lease contained shall be construed to impose upon Owner any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other lease, as against any other tenant and Owner shall not be liable to Tenant for violation of the same by any other tenant, it's servants, employees, agents, visitors or licensees. Owner agrees to enforce the Rules and Regulations against all tenants uniformly. Security: 34. Tenant has deposited with Owner the sum of $19,704.00. as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this lease; it is agreed that in the event Tenant defaults beyond all applicable grace period in respect of any of the terms, provisions and conditions of this lease, including, but not limited to, the payment of rent and additional rent, Owner may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which Tenant is in default or for any sum which Owner may expend or may be required to expend by reason of Tenant's default beyond applicable grace period in respect of any of the terms, covenants and conditions of this lease, including but not limited to, any damages or deficiency in the re-letting of the premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Owner. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this lease, the security shall promptly be returned to Tenant after the date fixed as the end of the Lease and after delivery of entire possession of the demised premises to Owner. In the event of a sale of the land and building or leasing of the building, of which the demised premises form a part, Owner shall have the right to transfer the security to the vendee or lessee and Owner shall thereupon be released by Tenant from all liability for the return of such security; and Tenant agrees to look to the new Owner solely for the return of said security, and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new Owner. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Owner nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. The security shall be placed in a Certificate of Deposit with interest payable to Tenant at the end of the lease term less a one time 1% of the principal sum payable to Owner as an administrative fee. Estoppel Certificate: 35. Tenant, at any time, and from time to time, upon at least 10 days' prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any other person, firm or corporation specified by Owner, a statement certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), stating the dates to which the rent and additional rent have been paid, and stating whether or not there exists any default by Owner under this Lease, and, if so, specifying each such default. Successors and Assigns: 36. The covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Owner and Tenant and their respective heirs, distributees, executors, administrators, successors, and except as otherwise provided in this lease, their assigns. In Witness Whereof, Owner and Tenant have respectively signed and sealed this lease as of the day and year first above written. THE 1010 COMPANY Witness for Owner: By: /s/ John P. Schmergel ------------------------------- John P. Schmergel, General Partner .............................. NATIONAL ARBITRATION & MEDIATION, INC. Witness for Tenant: By: /s/ Roy Israel --------------------------------- .............................. Roy Israel, President ACKNOWLEDGMENTS CORPORATE OWNER STATE OF NEW YORK County of Nassau On this 13th day of September, 1995, before me personally came John Schmergel to me known, who being by me duly sworn, did depose and say that he resides in Great Neck that he is the Partner of The 1010 COMPANY the corporation described in and which executed the foregoing instrument, as OWNER: that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. ............................ INDIVIDUAL OWNER STATE OF NEW YORK, County of On this day of ,19 , before me personally came to me known and known to me to be the individual described in, and who, as OWNER, executed the foregoing instrument and acknowledged to me that he executed the same. CORPORATE TENANT STATE OF NEW YORK, County of Nassau On this 13th day of September, 1995, before me personally came Roy Israel to me known, who being by me duly sworn, did depose and say that he resides in Great Neck that he is the President of National Arbitration the corporation described in and which executed the foregoing instrument, as TENANT: that he knows the seal of said corporation: that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. INDIVIDUAL TENANT STATE OF NEW YORK County of On this day of ,19 , before me personally came to me known and known to me to be the individual described in and who, as TENANT, executed the foregoing instrument and acknowledged to me that he executed the same. .......................... FLOOR PLAN GOES HERE GUARANTY FOR VALUE RECEIVED, and in consideration for, and as an inducement to Owner making the within lease with Tenant, the undersigned guarantees to Owner, Owner's successors and assigns, the full performance and observance of all the covenants, conditions and agreements, therein provided to be performed and observed by Tenant, including the "Rules and Regulations" as therein provided, without requiring any notice of non-payment, non-performance, or non- observance, or proof, or notice, or demand, whereby to charge the undersigned therefor, all of which the undersigned hereby expressly waives and expressly agrees that the validity of this agreement and the obligations of the guarantor hereunder shall in no wise be terminated, affected or impaired by reason of the assertion by Owner against Tenant of any of the rights or remedies reserved to Owner pursuant to the provisions of the within lease. The undersigned further covenants and agrees that this guaranty shall remain and continue in full force and effect as to any renewal, modification or extension of this lease and during any period when Tenant is occupying the premises as "statutory tenant." As a further inducement to Owner to make this lease and in consideration thereof, Owner and the undersigned covenant and agree that in any action or proceeding bought by either Owner or the undersigned against the other on any matters whatsoever arising out of, under, or by virtue of the terms of this lease or this guaranty that Owner and the undersigned shall and do hereby waive trial jury. Dated New York City........................ 19........ WITNESS: ...................................................... STATE OF NEW YORK, ) ss.: County of ) On this day of , 19 , before me personally came , to me known and known to me to be the individual described in, and who executed the foregoing Guaranty and acknowledged to me that he executed the same. .............................. Notary ....................................................................... Residence.............................................................. Business Address....................................................... Firm Name.............................................................. IMPORTANT - PLEASE READ RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE IN ACCORDANCE WITH ARTICLE 33. 1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any Tenant or used for any purpose other than for ingress or egress from the demised premises and for delivery of merchandise and equipment in a prompt and efficient manner using elevators and passageways designated for such delivery by Owner. There shall not be used in any space, or in the public hall of the building, either by any Tenant or by jobbers or others in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and sideguards. Tenant thereof shall further, at Tenant's expense, keep the sidewalk and curb in front of said premises clean and free from ice, snow, dirt and rubbish. 2. The water and wash closets and plumbing fixtures shall not be used for any purposes other than those for which they were designed or constructed and no sweepings, rubbish, rags, acids or other substances shall be deposited therein, and the expense of any breakage, stoppage, or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose clerks, agents, employees or visitors, shall have caused it. 3. No carpet, rug or other article shall be hung or shaken out of any window of the building; and no Tenant shall sweep or throw or permit to be swept or thrown from the demised premises any dirt or other substances into any of the corridors or halls, elevators, or out of the doors or windows or stairways of the building and Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the demised premises, or permit or suffer the demised premises to be occupied or used in a manner offensive or objectionable to Owner or other occupants of the buildings by reason of noise, odors, and/or vibrations, or interfere in any way with other Tenants or those having business therein, nor shall any animals or birds be kept in or about the building. Smoking or carrying lighted cigars or cigarettes in the elevators of the building is prohibited. 4. No awnings or other projections shall be attached to the outside walls of the building without the prior written consent of Owner. 5. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any Tenant on any part of the outside of the demised premises or the building or on the inside of the demised premises. If the same is visible from the outside of the premises without the prior written consent of Owner, except that the name of Tenant may appear on the entrance door of the premises. In the event of the violation of the foregoing by any Tenant, Owner may remove same without any liability, and may charge the expense incurred by such removal to Tenant or Tenants violating this rule. Interior signs on doors and directory tablet shall be inscribed, painted or affixed for each Tenant by Owner at the expense of such Tenant, and shall be of a size, color and style acceptable to Owner. 6. No Tenant shall mark, paint, drill into, or in any way deface any part of the demised premises or the building of which they form a part. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Owner and as Owner may direct. No Tenant shall lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of the demised premises, and, if linoleum or other similar floor covering is desired to be used and interlining of builder's deadening felt shall be first affixed to the floor, by paste or other material, soluble in water, the use of cement or other similar adhesive material being expressly prohibited. 7. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any Tenant, nor shall any changes be made in existing locks or mechanism thereof. Each Tenant must, upon the termination of his Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, such Tenant, and in the event of the loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof. 8. Freight, furniture, business equipment, merchandise and bulky matter of a description shall be delivered to and removed from the premises only on the freight elevators and through the service entrances and corridors, and only during hours and in a manner approved by Owner. Owner reserves the right to inspect all freight to be brought into the building and to exclude from the building all freight which violators of any of these Rules and Regulations of the lease or which these Rules and Regulations are a part. 9. Canvassing, soliciting and peddling in the building is prohibited and each Tenant shall cooperate to prevent the same. 10. Owner reserves the right to exclude from the building between hours of P.M. and 8 A.M. and at all hours on Sundays, and legal holidays all persons who do not present a pass to the building signed by Owner. Owner will furnish passes to persons for whom any Tenant requests same in writing. Each Tenant shall be responsible for all persons for whom he requests such pass and shall be liable to Owner for acts of such persons. 11. Owner shall have the right to prohibit any advertising by any Tenant which Owner's opinion, tends to impair the reputation of the building or its desirability as a building for offices, and upon written notice from Owner, Tenant shall refrain from or discontinue such advertising. 12. Tenant shall not bring or permit to be brought or kept in or on the demised premises, any inflammable, combustible or explosive fluid, material, chemical substance, or cause or permit any odors of cooking or other processes, or an unusual or other objectionable odors to permeatein or emanate from the demised premises. 13. If the building contains central air conditioning and ventilation. Tenants agrees to keep all windows closed at all times and to abide by all rules and regulations issued by the Owner with respect to such services. If Tenant requires air conditioning or ventilation after the usual hours, Tenant shall give notice in writing to the building superintendent prior to 3:00 P.M. in the case of services required on week days, prior to 3:00 P.M. on the day prior in the case of after hours service required weekends or on holidays. 14. Tenant shall not move any safe, heavy machinery, heavy equipment bulky matter, or fixtures into or out of the building without Landlord's prior written consent, if such safe, machinery, equipment bulky matter or fixtures requires special handling, all work in connection therewith shall comply with the Administrative Code of the City of New York and all other laws and regulations applicable thereof and shall be done during such hours as Owner may designate. RIDER TO LEASE DATED SEPTEMBER 13, 1995 BETWEEN THE 1010 COMPANY, AS OWNER, AND NATIONAL ARBITRATION & MEDIATION, INC., AS TENANT, COVERING SPACE AT 1010 NORTHERN BOULEVARD, GREAT NECK, NEW YORK 11021. 37. In the event of a conflict between the terms of the printed portion of this Lease, and the terms of this Rider, the terms of this Rider shall prevail. 38. A. Owner will furnish to Tenant, through transmission facilities installed by Owner in the Building, alternating electric current to be used by Tenant for the lighting fixtures and electrical receptacles installed in the Premises, but Owner shall not be liable in any way to Tenant for any failure or defect in supply or character of electric current furnished to the Premises. Owner shall furnish and install all lighting tubes, lamps, bulbs and ballasts used in the Premises and Tenant shall pay Owner's reasonable charges therefor on demand as additional rent subsequent to Initial Installation. Tenant shall use said electric current for lighting and for operation of such equipment as is normally used in connection with the operation of normal office including, without limitation, personal computers, fax machines, etc. Under no circumstances shall Tenant, at any time during the term of this Lease, use or permit the use of electric heaters or similar heating devices. B. Tenant's use of electric current in the Premises shall not at any time exceed the capacity of any of the electrical conductors and equipment in or otherwise serving the Premises. Landlord represents that the Premises will have sufficient electrical capacity for normal office as provided above. Tenant shall not make or perform, or permit the making or performing of, any alterations to wiring installations or other electrical facilities in or serving the Premises or any material additions to the machines, equipment and other appliances in the Premises without the prior consent of Owner in each instance which consent shall not be unreasonably conditioned, withheld or delayed. Should Owner grant any such consent, all additional risers or other equipment required therfor shall be installed by Owner and the cost thereof shall be paid by Tenant, upon Owner's demand, as additional rent. As a condition to granting any such consent, Owner may require that Tenant shall agree to an increase in the Electric Charge (as said term is hereinafter defined) payable hereunder by an amount which will reflect the value to Tenant of the additional service to be furnished by Owner, that is, the potential additional electric current to be made available to Tenant to the extent that it results in an increase in Owner's cost to supply electric to Tenant above the Electric Charge or Adjusted Electric Charge, as the case may be. C. (1) In addition to the annual amount set forth in the "Witnesseth" paragraph on the first page of the printed portion of this Lease, Tenant shall pay an annual amount (the "Electric Charge") equal to the product obtained by multiplying Two Dollars ($2.00) by the rentable square footage of the Premises. The Electric Charge shall be payable in equal monthly installments in advance on the first day of each month, and shall be deemed a portion of the annual rent payable under this Lease. The above initial determination of the Electric Charge is based upon certain assumptions incorporating estimates of consumption of electric energy by lighting fixtures and other equipment and machines, the anticipated periods of operation of such lighting fixtures, equipment and machines and the cost of furnishing such electric energy. (2) At any time, and from time to time, during the term hereof, the Electric Charge may be increased to take into account one or more of the following: (a) any material addition to the lighting fixtures, equipment and machines in the Premises to the extent that it results in an increase in Owner's cost to supply electric to Tenant above the Electric Charge or Adjusted Electric Charge, as the case may be; (b) use by Tenant of electric energy in the Premises in excess of the quantity considered in estimating the initial Electric Charge or any adjusted Electric Charge (as hereinafter defined) to the extent that it results in an increase in Owner's cost to supply electric to Tenant above the Electric Charge or Adjusted Electric Charge, as the case may be; and (c) any increase in Owner's cost or expense for or in connection with the furnishing by Owner of electric energy to Tenant which shall be due to any change in the rates or amounts charged by the public utility furnishing electric energy to the Building or to any change in taxes based on the amounts charged by said public utility since the effective date of the Electric Charge or the Adjusted Electric Charge, as the case may be, then in effect to the extent that it results in an increase in Owner's cost to supply electric to Tenant above the Electric Charge or Adjusted Electric Charge, as the case may by. The Electric Charge set forth in paragraph (1) of this Section C has been computed on the basis of the rates and taxes charged by LILCO as of the date hereof and is subject to adjustment as aforesaid in the event such rate or taxes change. (3) Whenever, at any time during the term of this Lease, Owner proposed that the Electric Charge shall be increased pursuant to clause (a), clause (b) or clause (c), of paragraph (2) of this Section (C), Owner shall furnish to Tenant a survey (a "Survey") setting forth the basis for the new Electric Charge. (Any new Electric Charge pursuant to paragraph (2) of this Section C is herein sometimes called the "Adjusted Electric Charge.") At any time a survey is done, Tenant shall be provided with a copy of same. (4) Upon the determination of an Adjusted Electric Charge pursuant to paragraph (2) of this Section (c), Owner shall furnish to Tenant a statement 2 in writing computing the Adjusted Electric Charge, which statement shall be accompanied by the Survey, or utility company bill or rate schedule, upon which said increase is based. (5) Each adjustment of the Electric Charge shall be effective retroactively, not to exceed two (2) years as of: (a) the effective date of the addition of equipment or the increase in usage, with respect to any adjustment made pursuant to clause (a) or (b) of paragraph (2) of this Section C, or (b) the date of the change in rates, with respect to any adjustment made pursuant to clause (c) of paragraph (2) of this Section C. Within twenty days after the furnishing of the statement in writing referred to in paragraph (4) of this section C, Tenant shall pay to Owner as additional rent the retroactive portion of the new Adjusted Electric Charge. (6) The reasonable cost of any Survey shall be borne equally between Owner and Tenant, and Tenant's share thereof shall be payable promptly following demand, as additional rent. Owner agrees not to survey the Premises more than once annually. The determination of the engineers preparing any Survey shall be conclusive upon Owner and Tenant, subject however to the provisions of paragraph (7) (b) below. (7) (a) Except as provided in this Paragraph 7, all Surveys shall be made by a reputable independent engineer selected by Owner. (b) In the event Tenant shall disagree with a Survey, Tenant shall so notify Owner within thirty (30) days after receiving such Survey, setting forth in reasonable detail the items of the Survey that Tenant disputes. If within sixty (60) days from Tenant's receipt of Survey, Owner and Tenant have not resolved the dispute, Tenant, at the expense solely of Tenant, may select and retain a different independent reputable engineer to make its own electrical survey (hereinafter called "Tenant's Survey") of the Premises. Tenant shall send Tenant's Survey to Owner and to the engineer who made Owner's Survey. In the event that within thirty (30) days from said receipt of Tenant's Survey, Owner and Tenant still have not settled the dispute, then the Adjusted Electric Charge shall be determined by a third engineer or expert selected by the two initial engineers, and the fee of such third engineer shall be divided equally between the parties. In the event of any dispute concerning a Survey, Tenant agrees to pay to Owner the Adjusted Electric Charge based on said Survey as if no dispute existed, but if Owner and Tenant subsequently agree to a lesser amount, or if the above-mentioned third engineer or expert determines that a lesser amount is 3 due, then Tenant shall thereafter be entitled to a rent credit to the extent of any overpayments. (8) It is the intention of the parties hereto that the cost to Tenant for electric energy at any time shall come as close as is practicable to approximating the cost (including taxes regularly passed on by the public utility to the consumer) which would have been incurred by Tenant had Tenant purchased such quantity of electric energy directly from said public utility, but in no event shall such cost be less than the amount set forth in Section C (1) hereof, nor less than the actual cost to Owner of supplying electric energy to Tenant at the Premises. D. Owner reserves the right to discontinue furnishing electric energy to Tenant in the Premises at any time upon not less than 30 days' notice to Tenant provided that Owner discontinues furnishing electric energy to all tenants of the Building. If Owner exercises such right of termination, this Lease shall continue in full force and effect and shall be unaffected thereby, except only that, from and after the effective date of such termination, Owner shall not be obligated to furnish electric energy to Tenant. If Owner so discontinues furnishing electric energy to Tenant, Tenant shall pay the Electric Charge through the date of discontinuance and Tenant shall arrange to obtain electric energy directly from the public utility company furnishing electric service to the Building. Such electric energy may be furnished to Tenant at no charge to Tenant by means of the then existing Building system feeders, risers and wiring, to the extent that the same are available, suitable and safe for such purposes. Provided Tenant is using diligent efforts to obtain electric energy directly from the public utility company, Owner shall not discontinue furnishing electric energy until Tenant has obtained electric directly from the public utility. E. Notwithstanding the aforesaid provisions of this Article, if pursuant to an action of the Public Service Commission of the State of New York, or otherwise, sub-metering of electricity is permitted at the Building, Owner shall have the option, at Owner's expense, of installing sub-meters to measure Tenant's electricity consumption and to charge the Tenant for its electric consumption at the same rate Tenant would have to pay if Tenant were purchasing the electricity directly from the utility company. Payments by Tenant under such sub-metering arrangement shall be in lieu of the Electric Charge, and such payments shall constitute additional rent hereunder and shall be payable on a schedule which will enable owner to collect the funds in time to make Owner's corresponding payment to the utility company. 39. Owner shall provide parking spaces in the Building's parking area for the use of Tenant, at no additional charge to Tenant. Twenty-five (25) of said spaces will be undesignated parking spaces in the garage for employees of Tenant. 4 Visitor parking on the outdoor deck shall be provided on a first come-first served basis. In the event Tenant has additional employees, Owner will make all reasonable efforts to provide the additional employees with parking in the garage or on-site parking. Owner and Tenant acknowledge that Tenant's parking requirements exceed its actual Tenant Share of the buildings's parking facilities, but there shall be no additional charge in connection therewith. The parking area, driveways, walkways and any other common areas shall be unattended and subject to reasonable Rules and Regulations to be promulgated by Owner from time to time. Use of the parking area shall be at the risk solely of the individual vehicle owners and users, and Owner shall not be liable for death or injury to persons in connection with any use of the parking area, nor for any loss or damage, by theft, collision, casualty or otherwise, to any vehicle or its contents, except if caused by the negligence of Owner or its agents. 40. For the purpose of this Lease: A. The team "lease year" shall mean the 12-month period commencing on the Commencement Date, and each sucessive 12-month period commencing on the anniversary of the Commencement Date, except that the final lease year shall be the period, of whatever duration, commencing on the last such anniversary prior to the expiration or earlier termination of the term of this Lease and ending upon the date of such expiration or termination. B. (1) the Premises shall be deemed to contain a floor area of 4,800 rentable square feet, (2) the Building shall be deemed to contain a total floor area of 154,425 rentable square feet, and (3) the ratio of item (1) to item (2) of this sentence (herein-after called "Tenant's Share") shall be deemed to be .0311. 41. Escalation for Increases in Real Estate Taxes A. As used herein: (1) "Taxes" shall mean the real estate taxes and assessments imposed upon the land on which the Building is erected (the "Land") and the Building payable by Owner with respect thereto. Penalties and interest on Taxes, and income, franchise, transfer, inheritance, capital stock, capital, rents, and profits, taxes shall be deemed excluded from the term Taxes for the purposes hereof. However, if and to the extent that, due to a change in the method of assessment or taxation, any franchise, capital stock, capital, rents, income, profits or other tax or charge shall be substituted for the taxes now or hereafter imposed upon the Land and the Building, such franchise, capital stock, capital, rents, income, profits or other tax or charge, computed as if Owner owned or operated no property other than the Land and the Building, shall be deemed included in the term Taxes for the purposes hereof. 5 (2) "Tax Year" shall mean the year 1996 and each year thereafter during the term of this Lease. (3) "Base Tax" shall mean the sum of the Taxes due during the calendar year 1995 as finally determined. B. If the Taxes for any Tax Year shall be greater than the Base Tax, Tenant shall pay as additional rent for such Tax Year an amount equal to Tenant's Share of such excess (which amount is hereinafter called the "Tax Payment"). Notwithstanding the foregoing, there shall be no Tax Payment due or payable from Tenant until one year after the Commencement Date. Should this Lease commence or terminate prior to the expiration of a Tax Year, such Tax Payment shall be prorated to, and shall be payable on, or as when ascertained after, the expiration date, as the case may be. Tenant's obligation to pay such additional rent and Owner's obligation to refund any excess Tax Payment pursuant to Section C below, as the case may be, shall survive the termination of this Lease. If the Taxes for any Tax Year, or an installment thereof, shall be reduced before such Taxes, or such installment, shall be paid, the amount of Owner's reasonable costs and expenses of obtaining such reduction (but not exceeding the amount of such reduction) shall be added to and be deemed part of the Taxes for such Tax Year as same shall have been reduced. Payment of additional rent for any Tax Payment due from Tenant shall be made as and subject to the conditions hereinafter provided in this Section. C. Owner shall be under no obligation to contest the Taxes or the assessed valuation of the Land and the Building for any Tax Year or to refrain from contesting the same, and may settle any such contest on such terms as Owner in its sole judgment considers proper. If Owner shall receive a refund for any Tax Year for which a Tax Payment shall have been made by Tenant pursuant to Section B above, Owner shall repay to Tenant, with reasonable promptness, Tenant's Share of such refund and of any interest received thereon less reasonable expenses (including experts' and attorneys' fees) of obtaining such refund. Owner shall also make the repayment to Tenant after the expiration date of this Lease if Tenant's entitlement thereto arose during the Lease Term. D. At any time during a Tax Year after the Taxes for such Tax Year become known Owner may, or else with reasonable promptness after the end of each Tax Year Owner shall, render to Tenant a comparative statement showing the amount of the Base Tax and the amount of the Taxes for Such Tax Year, indicating thereon in reasonable detail the computation of such Tax payment. Tenant shall pay the amount of the Tax payment shown on such comparative statement (or the balance or a proportionate installment thereon, if only an installment is involved) concurrently with the installment of fixed rent then or next due, or, if such statement shall be rendered at or after the termination of this Lease, within thirty (30) days after such rendition. When such comparative statement is 6 furnished to Tenant for the first Tax year. Tenant shall also pay on account of the Tax Payment for the period from the beginning of the second Tax Year to the end of the month in which such statement is rendered, an amount equal to the Tax Payment for the entire first Tax Year multiplied by the fraction of a year represented by said period of the second Tax Year. Thereafter for the balance of the second Tax Year and for each succeeding Tax Year, Tenant shall pay the Tax Payment with each installment of fixed rent in an amount equal to one-twelfth (1/12) of the Tax Payment specified in the Owner's comparative statement for the preceding Tax Year. Adjustments for underpayment or over-payment resulting from such monthly payments shall be made with respect to the second and each subsequent Tax year and shown upon the statement for such Tax Year. Upon the furnishing by Owner of such comparative statement, any underpayment for such Tax Year shall be promptly payable by Tenant to Owner and any overpayments for such Tax year shall be allowed as a credit to Tenant against the next rental payment(s) due hereunder or if all rental payments and other payments due hereunder have been paid, Owner shall promptly refund to Tenant such overpayment. Whenever so requested, but not more often than once a year, Owner will furnish Tenant with a reproduced copy of the bill for Taxes for the current or next preceding Tax Year. 42. The Tenant shall pay annual rent ("Annual Rent") as follows: *Lease Year Annual Rent Monthly Rent - ----------- ----------- ------------ 1 $118,224.00 $ 9,852.00 2 $122,952.00 $10,246.00 3 $127,872.00 $10,656.00 4 $132,984.00 $11,082.00 5 $138,312.00 $11,526.00 *Reference to lease year refers to "Lease Year: as defined in Paragraph A. of Article 40 of this Lease. Notwithstanding the foregoing, provided Tenant is not in default beyond applicable grace periods, the monthly rent (exclusive of electric charges pursuant to Article 38 and the Tax Payment pursuant to Article 41) for the sixth month of each of the first five (5) lease years of the term, shall be abated. 43. prior to the eighth anniversary of the Commencement Date of this Lease, Provided Tenant is not in default beyond all applicable notice and grace periods under this Lease either at the time notice is given, as hereinafter provided, or on the date of commencement of the option term, and provided that this lease has not been assigned or the Premises have not been sublet pursuant to Article 73 (B), Tenant shall have the option to extend the term of this Lease for the one (1) additional five (5) year period commencing after the Termination Date as such date may or may not yet have been extended pursuant to Article 69 of this Lease (the "Renewal Term") subject to Tenant's right to further extend the term of this lease pursuant to Article 69 hereof. If Tenant shall elect to exercise such renewal option, Tenant shall give written notice thereof to Owner 7 in accordance with the provisions of this Lease ("Tenant's Exercise Notice") no later than twelve (12) months prior to the Termination Date, as such date may or may not have been extended pursuant to Article 69 of this Lease, or Tenant shall be deemed to have waived such renewal option. Time is of the essence with respect to the giving of Tenant's Exercise Notice. Tenant's giving of Tenant's Exercise Notice shall be irrevocable and shall bind Owner and Tenant to the extension of the term of this Lease for the Renewal Term, on the terms and conditions provided therefor for the Renewal Term, on the terms and conditions provided therefor in this Article 43. The Renewal Term shall commence on the first day following the expiration of the initial term as the same may have been extended pursuant to Article 69, and shall be governed by the same terms and conditions as are set forth in this Lease, except that the Annual Rent shall be equal to the number of rentable square feet then demised to Tenant multiplied by the Annual Per Square Foot Rental as follows: Lease Year Annual Per Square Foot Rental - ---------- ----------------------------- Year 6 $26.94 Year 7 27.48 Year 8 28.03 Year 9 28.59 Year 10 29.16 Year 11 29.74 Year 12 30.34 Year 13 30.95 Year 14 31.56 Notwithstanding anything in this Lease to the contrary, in no event shall the lease term extend beyond fourteen (14) years from the Commencement Date. 44. Owner reserves the privilege of stopping the service of heat, elevator or other service systems at such times as may be reasonably necessary by reason of accident, repairs, alterations or improvements desirable or necessary to be made, until such time as said repairs, alterations or improvements shall have been completed. There shall always be one elevator operational unless a condition is beyond Owner's reasonable control. Further, owner shall not be liable for any failure to supply heat, elevator, electric current or other service in the Building, due to strikes, accidents or causes beyond the reasonable control of Owner. 45. Tenant agrees to carry, at the expense solely of Tenant, general public liability insurance with a combined single limit of not less than $2,000,000 per occurrence with respect to death, personal injury and property damage. In the policies for all such insurance Owner shall be named as an additional insured, with Tenant as the insured as its interest may appear. In the event that Tenant elects to carry any other type or any further amount of public liability insurance or insurance against risks in which Owner is directly concerned, Tenant agrees that policies for any such insurance shall be written with Owner as an additional insured so that Owner will be protected as its 8 interest may appear. In addition, to the extent not covered by insurance, Tenant agrees to indemnify and hold harmless Owner from any and all claims, loss, liability, damage and expense (including without limitation reasonable legal fees) that may arise by reason of this Lease or of Tenant's occupancy or use of the Premises. A certificate or a copy of the policies indicating the above mentioned insurance coverage, together with proof of payment of all currently-due premiums therefor, is to be delivered to Owner prior to the commencement of this Lease, and same shall be kept current throughout the term hereof; in furtherance thereof, Tenant shall deliver to Owner evidence of renewal of all such policies (together with such proof of payment) at least 30 days prior to their respective expiration dates. If Owner at any time reasonably determines that higher limits of insurance coverage and/or other types of insurance are then being required of their tenants by prudent owners of buildings in the area similar to the Building, Tenant shall obtain such coverage within thirty (30) days after notice from Owner, at the expense solely of Tenant, and such coverage shall otherwise conform to the requirements of this Article. 46. Owner shall have the same remedies against Tenant for any failure by Tenant to make any required payment under this Lease as Owner has under this Lease for any failure by Tenant to pay rent. All of the aforesaid required payments shall be deemed to be additional rent hereunder. 47. The parties acknowledge that Schmergel Enterprises Corp. was the sole broker involved in this Lease, and that any compensation of such broker in connection herewith shall be made by Owner pursuant to a separate agreement between Owner and such broker. Each of the parties indemnifies the other against all claims, loss, liability and expense (including without limitation reasonable legal fees) in connection with demands for brokerage commissions or other compensation by any other broker, purported broker or salesperson with whom the indemnitor has dealt. 48. If Tenant fails to make any payment (or portion thereof) hereunder by its due date, and if such failure is not fully remedied within ten (10) days after such due date, interest shall accrue at a 24% per annum rate for Annual Rent and ten (10) days after notice as to additional rent. Said late charge shall be deemed additional rent. All such late charges for overdue amounts shall be payable by Tenant, as soon as they accrue. 49. If Owner, by reason of the failure of Tenant to keep, observe, or perform any one or more of the covenants, agreements or conditions in this lease contained, after fifteen (15) days' notice to Tenant except in an emergency when the notice shall be reasonable under the circumstances, pays any sum of money, or does any act which requires the payment of money, or if Owner incurs any expense including reasonable attorney's fees in instituting, prosecuting, or 9 defending any action or proceeding instituted by reason of any default beyond the applicable notice and grace periods of Tenant hereunder, then the sum or sums so paid or required to be paid together with all interest, costs, and damages shall be deemed to be and shall constitute additional rent hereunder, and shall be collectible in the same manner and with the same remedies as if they had been rents originally reserved herein, and shall be due from and payable by Tenant to Owner on the first day of the month following the incurring of such respective expenses or payments. 50. Each party shall from time to time, within twenty (20) days after request therefor in each instance, execute, acknowledge and deliver to the other party a certificate (a) identifying this Lease and any amendments or modifications hereto, and (b) stating (i) whether or not Tenant has accepted possession of the Premises, (ii) the amount of rent then payable hereunder, including the types and amounts of all escalations included therein, (iii) the respective dates through which rent and the various escalations have been paid, (iv) that this Lease is in full force and effect and that this lease is unmodified except as may be noted under item (a) above, (v) that to the best of such party's knowledge, there exists no default (or other fact which, with one or both of the passage of time or the giving notice, would constitute a default) under this lease, or, if such party claims any such defaults exist, specifying the nature and extent thereof, (vi) any claim by Tenant concerning incomplete Owner work at the Premises, and (vii) such other information as may reasonably be requested. If the non-requesting party fails to deliver any such certificate within the said twenty (20) days any purchaser, lender or other party interested in the information to be contained therein shall be entitled to rely on a certificate given by the requesting party or its agent with respect to such information. 51. This lease shall not be binding on Owner or Tenant unless and until it is executed and delivered by Owner and Tenant. 52. A. The mortgages referred to in Article 7, which this Lease is subject and subordinate, are hereinafter sometimes called "superior mortgages." No pre-payment of more than one month's fixed rent shall be valid or binding upon the holder of a superior mortgage unless expressly approved in writing by such holder or any of its predecessors in interest. B. In the event of any act of omission of Owner which would give Tenant the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or claim a partial or total eviction, Tenant shall not exercise such right (1) until it has given written notice of such act or omission to the holder of each superior mortgage whose name and address shall previously have been furnished to Tenant in writing, and (2) unless such act or omission shall be one which is not capable of being remedied by Owner or such 10 mortgage holder within thirty (30) days except in an emergency, until a thirty (30) day period for remedying such act or omission shall have elapsed following the giving of such notice (which reasonable period shall in no event be less than the period to which Owner would be entitled under this Lease or otherwise, after similar notice, to effect such remedy), provided such holder shall with due diligence give Tenant written notice of intention to, and commence and continue, to remedy such act or omission. C. If the holder of a superior mortgage shall succeed to Owner's estate in the Building or the rights of Owner under this Lease, whether through possession or foreclosure action or delivery of a deed or otherwise, then at the election of such party so succeeding to Owner's rights (herein sometimes called "successor owner"), Tenant shall attorn to and recognize such successor owner as Tenant's owner under this Lease, and shall promptly execute and deliver any instrument that such successor owner may reasonably request to evidence such attornment. Tenant hereby waives any right Tenant may have under any present or future law to terminate this Lease or surrender the Premises by reason of the institution of any proceeding or action to foreclose a superior mortgage and this Lease shall not be affected by any such proceeding or action unless and until the holder of the superior mortgage, elects in such proceeding or action to terminate this Lease. D. If in connection with the procurement, continuation or renewal of any financing for which the Land and/or the Building or the interest of the lessee therein an institutional lender shall request reasonable modifications of this Lease as a condition of such financing, Tenant will not withhold its consent thereto provided that such modifications do not increase the rents or additional rents payable or increase any of Tenant's other obligations under this Lease or materially and adversely affect or diminish any rights of Tenant under this Lease. 53. Tenant shall look only to Owner's estate and interest in the Land and the Building (or the proceeds thereof) for the satisfaction of Tenant's remedies for the collection of any judgment (or other judicial process) requiring the payment of money by Owner in the event of any default by Owner under this Lease, and no other property or assets of Owner (or any of the partners that comprise Owner) shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of owner and tenant hereunder or Tenant's use and occupancy of the Premises. 54. A. Owner, at its sole cost and expense, agrees to perform the work (the "Initial Installation") in the Premises shown on the preliminary plan prepared by Owner's architect, Omnitech, last dated August 28, 1995 and attached hereto as Exhibit B (the Preliminary Plan). 11 B. Upon execution of this Lease, Owner's architect, at Owner's sole cost and expense, shall commence preparation of complete working drawings and plans, which shall be consistent with the Preliminary Plans and shall be submitted to Tenant's approval. Tenant's failure to approve or disapprove the final working drawings and plans within five (5) business days after submission by Owner shall be deemed to be approval and Owner's sole obligation shall be to construct the Initial Installations in accordance with such final working drawings and plans. Tenant shall cooperate with Owner's architect in the preparation of the final working drawings and plans. In connection with the preparation of such drawings and plans or subsequent thereto, Tenant may request that Owner furnish, at the expense solely of Tenant, certain installations and materials and perform certain work in addition to or in substitution of the Initial Installations (such installations, materials and work being hereinafter referred to as "Tenant Extras"), provided that the furnishing of such Tenant Extras is feasible (based on availability of parts, materials and trained labor and compatibility with the building's mechanical systems and exterior decor) and will not delay the commencement of the term of this Lease. Owner's judgment, reasonably exercised, as to whether any proposed Tenant Extras are feasible and/or will cause such delay shall be binding on Tenant. Following any submission by Tenant of a proposal for Tenant Extras, Owner shall prepare and submit to Tenant a budget and payment schedule for those proposed Tenant Extras that Owner determines are feasible and non-delay-causing. Within 5 days after its receipt of Owner's budget, Tenant shall submit to Owner written authorization to carry out the budgeted work, together with (i) a written undertaking to pay for such work in accordance with Owner's payment schedule, and (ii) payment of that portion of the cost of such work that Owner's payment schedule indicates is payable at the time of Tenant's authorization. If Tenant makes timely submission of such authorization, undertaking and payment, Owner shall carry out such work. Tenant shall pay for such work in accordance with the payment schedule submitted by Owner, and any failure by Tenant to make timely payment thereunder after ten (10) days' notice shall constitute a default under this Lease. Owner's failure to complete any Tenant Extras prior to the commencement date of this Lease shall not give Tenant any claim for rent abatement or any extension of such commencement date. All Tenant Extras (including millwork) installed in the Premises shall, upon installation, become the property of Owner and shall remain upon and be surrendered with the Premises. C. Any budget for Tenant Extras prepared by Owner shall be based on Owner's cost for the materials and labor involved, plus a charge of 10% of such cost for office overhead, plus an additional 10% for supervision and field handling, plus a further 2% for insurance. In addition, Tenant shall pay to Owner, on demand, any reasonable charges for architectural, engineering, legal and administrative services incurred by Owner in reviewing proposed Tenant 12 Extras preparing a budget and negotiating with Tenant with respect to such Tenant Extras. 55. A. The Premises shall be deemed ready for occupancy on the date on which the Initial Installations in the Premises have been substantially completed; and it shall be so deemed notwithstanding the fact that minor or insubstantial details of construction, mechanical adjustment or decoration remain to be performed, the noncompletion of which does not materially interfere with Tenant's use of the Premises for the conduct of normal business therein ("Substantial Completion"). Owner shall give Tenant at least fifteen (15) days prior notice of "Substantial Completion." B. If substantial completion of the Initial Installations, and thereby the readying of the Premises for occupancy, shall be delayed as the direct result of any act or omission of Tenant or any of its employees or agents, of which prompt notice of such act or omission is given to Tenant, the Premises shall be deemed ready for occupancy on the date when they would have been ready but for such delay. C. It shall be conclusively presumed that the Premises were in satisfactory condition unless within thirty (30) days after the Commencement Date Tenant shall give Owner notice specifying the respects in which the Premises were not in satisfactory condition. However, nothing contained in this Section C shall be deemed to relieve Owner from its obligation to complete, with reasonable speed and diligence, such details of construction unperformed at the time Tenant took actual possession. D. The term "Commencement Date" shall mean the date on which the Premises are deemed ready for occupancy pursuant to Section A hereof provided Owner gives Tenant fifteen (15) days prior notice. The Commencement Date as determined above shall supersede the starting date (the "Starting Date") set forth at the beginning this Lease, it being understood that the Starting Date constitutes a target date based on currently available information on construction scheduling. If the Commencement Date is later than the Starting Date, the Termination Date of this Lease shall be moved back by the same number of days as the Commencement Date is later than the Starting Date, and, if the revised termination date falls on other than the last day of a calendar month, the term of this Lease shall continue through and including the date (the "Termination Date") which is the last day of the calendar month in which the revised termination date falls, at the same monthly rental rate (including additional rent) that was in effect on said revised termination date. The rental so payable for such fractional part of a month shall be paid on the first day of such fractional period. Following the Commencement Date, Owner and Tenant shall 13 execute and deliver to each other copies of a document which states the Commencement Date and the Termination Date. 56. Owner shall have the right at any time to name and change the name of the Building and to change the designated address of the Building (if directed to do so by the Post Office). The Building may be named after any person, firm or otherwise, whether or not such name is, or resembles, the name of a tenant of the Building. 57. A. At any time subsequent to the Owners performance of the Initial Installations, if Owner should consent to any changes proposed to be made by Tenant which consent shall not be unreasonably withheld, conditioned or delayed, ("Tenant's Changes") at the Premises, such Tenant's Changes shall be performed in compliance with all applicable requirements of insurance bodies having jurisdiction, and in such manner as not to materially interfere with, delay or impose any additional expense upon Owner in the construction, maintenance or operation of the Building, and so as to maintain harmonious labor relations in the Building. All Tenant Changes shall be performed by Owner's contractor at Tenant's expense, which cost shall not exceed the price for similar work in comparable office buildings in Nassau County. Notwithstanding anything to the contrary, no consent shall be necessary for mere decorative changes. For Tenant Changes in excess of $25,000.00, Owner's consent may be conditioned upon Tenant furnishing to Owner such security and insurance as Owner may reasonably require to protect Owner against any loss or liability arising from Tenant's Changes. B. Tenant shall reimburse Owner, on demand, for its reasonable out-of-pocket costs and expenses relating to its evaluation of Tenant's request for consent to Tenant Changes, including reasonable charges for architectural, engineering, legal and administrative services incurred in connection therewith. C. Tenant shall make all repairs to the Premises and the fixtures and appurtenances therein as may be reasonably required by reason of one or more of (1) the making and existence of Tenant's Changes in the Premises, (2) the use, operation and/or movement of Tenant's property in and out of and within the Premises, and (3) the misuse or neglect of Tenant or any of its employees, agents, licenses, invitees or contractors. 58. A. Tenant shall (i) keep the Premises free of all hazardous substances including, without limitation, all pollutants, dangerous substances, toxic substances, hazardous wastes and hazardous substances as defined or set forth in or pursuant to or covered by the Resource Conservation and Recovery Act (42 U.S.C. Section 9601, et seq.) as amended ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 6901, 14 et seq.) as amended ("CERCLA"), or any other federal, state or local environmental law, ordinance, rule or regulation (collectively, the "Hazardous Substances"), (ii) keep the Premises in full compliance with all provisions of federal, state and local environmental and health laws, ordinances, rules or regulations including, without limitation, RCRA and CERCLA (the "Environmental Law"), and (iii) pay all costs and expenses incurred in connection with the removal of the Hazardous Substances from the Premises and/or compliance with the Environmental Law if same was caused by Tenant. Tenant shall indemnify, defend and hold Owner, its successors and assigns harmless from and against any and all liability, cost and expense, including, without limitation, reasonable attorneys fees and disbursements, which Owner may incur arising out of, caused by, relating to or resulting from the presence of Hazardous Substances at the Premises caused by Tenant or Tenant's failure to comply with its obligations hereunder including, without limitation, any and all personal injury claims caused by or arising out of or with respect to the presence of Hazardous Substances at the Premises. Notwithstanding anything contained in the lease to the contrary, (a) Tenant shall remain liable for the performance of its obligations as set forth in this Article 58 and (b) Tenant's obligations as set forth in this Article 58 shall survive the expiration or earlier termination of this lease. B. Owner represents that the Premises are free of Hazardous Substances on the Commencement Date. Owner shall indemnify, defend and hold Tenant, its successors and assigns, harmless from and against any and all liability, cost and expense, including without limitation, reasonable attorney's fees and disbursements which Tenant may incur arising out of, caused by, relating to or resulting from the presence of Hazardous Substances at the Premises on the Commencement Date. 59. INTENTIONALLY OMITTED. 60. A. As part of its Initial Installation to the extent that it does not presently exist, a year-round variable volume air conditioning system capable of maintaining an average temperature of 78 F (plus or minus 2) and an average relative humidity of 50% when outside conditions are 95 DB, 76 F WB, shall be furnished and installed by Owner and shall be in good working order on the Commencement Date. Maintained temperatures shall be as above unless otherwise required by law or governmental guideline. As part of its Initial Installation to the extent that it does not presently exist, all heating will be provided from perimeter baseboard radiation with the heat output controlled by inside air temperature to maintain average inside air temperature conditions of 70 F (plus or minus 2 F) when outside air temperature is 10 F or more and shall be in good working order on the Commencement Date. The conference rooms and waiting areas will be cooled and ventilated with two (2) 15 separate 5-ton HVAC units each with their own thermostatic and humidity controls, The rest of the Premises will be split up into a number of zones, each with individual thermostatic controls as determined by Owner's HVAC contractor. Owner shall maintain the HVAC system throughout the term, unless the repair or maintenance required shall be caused by the act or negligence of Tenant. Said temperatures subject to change as required by law or governmental guideline. The proper performance of the heating, ventilating and air-conditioning (HVAC) system serving the Premises excluding the conference rooms and waiting areas is based upon a maximum density of one person per 90 net rentable square feet, a maximum electric heat gain of 4 watts per net usable square foot and a supply of 0.10 CFM of fresh air per net rentable square foot. Owner shall not be responsible for the proper performance of such HVAC system if the HVAC system is not working properly as a result of the Premises (or any room or area thereof), excluding the conference rooms and waiting areas, being subjected to a greater population density or a greater heat gain than above specified, if the partitioning in the Premises shall be rearranged in such manner as to materially interfere with the normal operations of the HVAC system in the Premises, if the windows and the public corridor entrance doors of the Premises shall not be kept closed, or if the blinds shall not be lowered in windows as exposed to the sun as reasonably necessary of the Premises when exposed to the sun. Owner shall have free and unrestricted access to all HVAC equipment located in or accessible through the Premises, provided Owner uses reasonable efforts to minimize interference with Tenant's business. B. If Tenant shall require HVAC service at any time other than between 8:00 A.M. and 6:00 P.M. on a business day or between 9:00 A.M. and 1:00 P.M. on Saturday, Owner shall furnish such service (herein called "after hours air-conditioning service") upon reasonable advance notice from Tenant and Tenant shall pay Owner's then established charges therefor on Owner's demand. Such charges shall not exceed 125% of Owner's actual cost of labor which is presently $25.00 per hour, subject to reasonable increases over the term, utilities and supplies used in providing such after hours air-conditioning service. If any of the other tenants of the Building in the same air conditioning zone shall receive after hours air-conditioning service, pursuant to Owner's obligation to provide the same to them, or otherwise at their request, (whether for a similar charge or without separate charge) at the same time as Tenant, only a portion of such labor and utilities costs as shall be incurred for such common service, in the ratio of the rentable area of the Premises and the premises of such other tenants so served, shall be included in the costs upon which the charge to Tenant is based. Otherwise, no adjustment in the charge to Tenant shall be made for other tenants use of their premises when after hours air-conditioning service is being provided to the Premises at Tenant's request. 16 61. Tenant agrees not to look to the mortgagee, as mortgagee, mortgagee in possession, or successor in title to the Building, for accountability for any security deposit required by Owner hereunder, unless said sums have actually been received by said mortgagee as security for Tenant's performance of this Lease. 62. INTENTIONALLY OMITTED. 63. In the event the Tenant does not vacate the Premises upon the expiration date of this Lease, or upon the expiration of any renewal option, then in that event or events, the Tenant shall remain as month to month Tenant at a monthly rental of 125% of the monthly Annual Rent and 100% of the additional rent payable in the last month of the then current term. The acceptance by the Owner of such rental after termination of this Lease shall not be construed as consent of continued occupancy. 64. Tenant represents that on the date hereof Tenant (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of New York, (b) has the fully power and authority to enter into and perform its obligations under this Lease and (c) has taken all actions and obtained all consents and approvals required pursuant to Tenant's Certificate of Incorporation and by-laws in connection with this Lease. The execution and delivery of this Lease and the consummation of the transactions contemplated hereby will not violate or constitute a breach of or a default under any agreement or instrument to which Tenant is a party or by which it is or may be bound and such execution, delivery and consummation does not violate any law, order or regulation of any governmental authority having jurisdiction over Tenant. 65. Tenant shall not bring or permit to be brought or kept in or on the Premises, any vending machines, coin operated machines, automats or any other similar machine. 66. Owner shall install as part of the Initial Installations all lighting tubes, lamp bulbs and ballasts. Thereafter, Owner shall furnish and install all lighting tubes, lamps, bulbs and ballasts used in the Premises, and Tenant agrees to purchase same, from the Owner, and shall pay Owner's reasonable charges therefor and the installation thereof on demand, as additional rent. 67. Tenant, at Tenant's sole cost and expense, shall have the right to install a sign with Tenant's name on the entrance door of the Tenant's Premises. All signs are subject to Owner's approval, which approval shall not be unreasonably withheld, delayed or conditioned. All of the following signage 17 shall be provided by Owner within a reasonable time after ordered by Tenant at Tenant's reasonable expense: a. Internal signs as needed. b. Door signage in either the building standard plaque or upgraded aluminum letters which are the same as those that appear on the Schmergel Enterprises Corp. suite entrance. c. Exterior signage-Tenant shall be permitted to have its name and logo appear on two (2) sides of the sign cube located at the main entrance to the property, but not the lowest slot. The size of these signs shall be 25 1/2" x 6 1/2" which conforms with the size of all the existing signs on the cube sign. d. Temporary neat signage for the door shall be permitted until permanent sign is installed. 68. Tenant shall be entitled to four (4) listings on the Building's directory free of charge. Owner shall install the initial listings, at Owner's cost, upon request by Tenant. To the extent available, Tenant may have additional listing at $10.00 each, subject to increase. 69. A. At any time prior to the ninth anniversary of the Commencement Date of this Lease, if this Lease shall be in full force and effect and Tenant shall not be in default beyond the applicable cure period, in the payment of Annual Rent, Additional Rent or any other sums or charges provided to be paid by Tenant under this Lease, Tenant shall have the right not more than twice to lease cumulatively up to a cumulative total of approximately 4800 additional rentable square feet utilizing a loss factor ratio of usable to rentable square feet of .85 ("Additional Space") as the same becomes available from time to time on the third floor of the Building under this Lease for a term to commence on "Substantial Completion" of the Additional Space (the Additional Space Commencement Date), and in the event less than five (5) years remain in the Term of this Lease, then the Termination Date of this lease shall be extended so as to expire on the last day of the month which is five (5) years after Substantial Completion of the Additional Space, unless such term shall sooner cease and expire pursuant to any of the terms, covenants or conditions of this Lease or pursuant to law. Such right to lease the Additional Space shall be exercised, if at all, by Tenant's notice to Owner ("Tenant's Notice"), which notice shall state the approximate number of rentable square feet that Tenant desires to 18 lease and Tenant's failure duly to give the Tenant's Notice shall be deemed a waiver of such right to lease the Additional Space. Upon receipt of Tenant's Notice, Owner will respond within twenty (20) days advising Tenant of any space which is then vacant and available for lease on the third floor of the Building. Tenant shall have ten (10) days to accept Owner's offer. In the event Tenant fails to accept Owner's offer, Tenant shall have no further rights to such Additional Space. Notwithstanding anything to the contrary herein, the Tenant shall have no rights under this Article at any time when there is less than one year remaining under the term. B. If Tenant shall effectively exercise its right to lease the Additional Space, as set forth in Section A hereof, then, effective on and after Substantial Completion of all leasehold improvements within the Additional Space at a cost to Owner not to exceed $12.00 per rentable square foot, this Lease shall be amended as follows: (i) The Additional Space shall be deemed to be added to and form a part of the Premises demised under the Lease with the same force and effect as if originally demised under the Lease, and the terms "Premises," "premises," and "demised premises" as used in the Lease shall include the Additional Space; (ii) The Annual Rent shall be increased by an amount equal to the product of a) the number of rentable square feet of Additional Space and b) an amount equal to the Annual Rent, payable from time to time, under this Lease on a per square foot basis, and the Annual Rent as so increased shall thereafter be further subject to the provisions of Articles 41 and 38; and (iii) Article 40(B) shall be amended so as to accurately reflect "Tenant's Share, taking into account the Additional Space. C. If Tenant shall effectively exercise its right to lease the Additional Space, as set forth in Section (A) of this Article, Tenant shall accept the Additional Space and Owner shall perform the work therein in accordance with plans and specifications approved by Tenant at a cost to Owner not to exceed Twelve ($12.00) Dollars, multiplied by the total number of rentable square feet in the Additional Space (Owner's Cost). All work of Owner shall be based upon competitive price for similar work in Nassau County. Any cost in excess of Twelve ($12.00) Dollars, per square foot shall be deemed to be a Tenant Extra and paid to Owner if approved by Tenant in accordance with Article 54 (B). All such work shall be Substantially Completed prior to the commencement of rent for such space. Article 54(B) shall be applicable to the Additional Space. Any portion of the Owner's Cost not used in the Additional Space shall be given to Tenant, as a rent credit against the Annual Rent due for the Additional Space. 19 D. The provisions of this Article are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. E. Tenant shall deposit with Owner additional security pursuant to Article 34, equal to two (2) months' Annual Rent on the Additional Space upon the Additional Space Commencement Date. F. Following Substantial Completion, Owner and Tenant shall execute and deliver to each other copies of a document which states the Additional Space Commencement Date, revised Termination Date and the new rental for such period. 70. Any notice and other communication given pursuant to the provisions of the Lease shall be in writing and shall be given (a) by mailing the same by certified mail or registered mail, return receipt requested, postage prepaid, or (b) by reputable overnight courier. Except as may be expressly otherwise provided in the Lease, any such notice or other communication given by mail shall be deemed given two (2) business days after same is mailed and any such notice or other communication given by overnight courier as aforesaid shall be deemed given when received or when receipt is refused. If sent to Owner, the same shall be mailed to Owner at c/o Schmergel Enterprises Corp., 1010 Northern Boulevard, Great Neck, New York 11021, with a copy to Stanley P. Amelkin, Esq., 6800 Jericho Turnpike, Syosset, New York 11791, or at such other address or addresses as Owner may hereafter designate by notice to Tenant; and if sent to Tenant, the same shall be mailed to Tenant (i) prior to the Commencement Date, at 44 South Bayles Avenue, Port Washington, New York 11050, Attention: Mr. Roy Israel; and (ii) after the Commencement Date, at the Premises, Attention: Mr. Roy Israel, with a copy to Stuart S. Ball, Esq., Camhy Karlinsky & Stein LLP, 1740 Broadway, Sixteenth Floor, New York, New York 10019-4315, or at such other address or addresses as Tenant may hereafter designate by notice to Owner. 71. INTENTIONALLY OMITTED. 72. Notwithstanding anything to the contrary contained in this Lease, Owner shall use all reasonable efforts to minimize interference with Tenant's use and occupancy of the Premises in making any repairs, alterations, additions or improvements to the Premises or the Building. 73. A. Notwithstanding anything to the contrary contained in Article 11 of this Lease, Tenant may, without the consent of Owner, but upon notice, assign this Lease, or sublease the whole or any part of the Premises to, or permit them to be used, occupied or operated by (each of the following being a "Successor 20 Entity") (a) any corporation, partnership or other entity which is an affiliate or parent of Tenant (having 25% or more common ownership) or an entity whose majority ownership is held by one (1) or more members of the Israel Family (hereinafter defined), or (b) any corporation, partnership or other entity in which or with which Tenant, its successors or assigns, is merged or consolidated, so long as the assets and liabilities of the entities participating in such merger or consolidation are transferred and assumed by the entity surviving such merger or created by such consolidation. In addition, no consent of Owner shall be required in the event of a public or private offering, sale or placement of equity or debt securities of Tenant or of any Successor Entity, or to the trading or sale of such securities on public exchanges or in private placements. For purposes of this Paragraph, the members of the "Israel Family" shall mean Roy Israel, his parents, spouse, brother and brother-in-law, children, grandchildren, and if any of the foregoing children are minors, trusts for the benefit of such minors. B. Provided Tenant is not in default beyond the applicable grace period under any of the covenants and conditions of this lease on the part of Tenant to be performed and further conditioned upon Tenant not having taken Additional space pursuant to Article 69 of this lease, if Tenant serves Tenant's Notice, as such term is defined in Article 69, and Owner is unable within sixty (60) days thereafter to provide Additional Space in the approximate square footage set forth in Tenant's notice to Owner, pursuant to Article 69(A) anywhere in the entire Building, then and in that event, the Tenant may assign this Lease or sublet the entire Premises with written consent, which consent shall not be unreasonably withheld, conditioned, or delayed beyond ten (10) business days (the failure of Owner to respond within said ten (10) business days shall be deemed to be a consent) provided: (i) That such assignment or sublease is for a use which is in compliance with Article 2 of this Lease, the then existing zoning regulations and the Certificate of Occupancy; (ii) That at the time of such assignment or subletting, there is no default beyond the applicable grace period under the terms of this Lease on the Tenant's part; (iii) That in the event of an assignment or sublease the assignee or sublessee, as the case may be, assume in writing the performance of all of the terms and obligations of the within Lease; (iv) That a duplicate original of said assignment or sublease be delivered within ten (10) days from the date of the said assignment or sublease (after Owner's consent has been obtained) and within ninety (90) days of the 21 date that Tenant first advises Owner of the name and address of the proposed subtenant or assignee, as required pursuant to subparagraph (C) hereof; (v) Such assignment of subletting shall not, however, release the within Tenant from its liability for the full and faithful performance of all of the terms and conditions of this Lease; (vi) If this Lease be assigned, or if the Premises or any part thereof be under let or occupied by anybody other than Tenant, Owner may after default by Tenant collect rent from the assignee, undertenant or occupant, and apply the net amount collected to the rent herein reserved; (vii) At least two (2) years remaining in the term of the Lease. C. Notwithstanding anything contained in this paragraph 73 to the contrary, no assignment or underletting shall be made by Tenant in any event until Tenant has offered to terminate this Lease as of the last day of any calendar month during the term hereof and to vacate and surrender the Premises to Owner on the date fixed in the notice served by Tenant upon Owner (which date shall be prior to the date of such proposed assignment or the commencement date of such proposed lease). Owner agrees to respond to Tenant's offer to terminate within ten (10) business days of receipt of Tenant's offer. The failure of Owner to respond within said ten (10) business day period shall be deemed a rejection of Tenant's offer to terminate. Simultaneously with said offer to terminate this Lease, Tenant shall advise the Owner in writing, of the name and address of the proposed assignee or subtenant, and all the terms, covenants, and conditions of the proposed sublease or assignment. The provisions of this paragraph (C) shall not apply to an assignment or sublease made pursuant to Article 73(A). D. Whenever Tenant shall claim under this Article or any other part of this Lease that Owner has unreasonably withheld or delayed its consent to some request of Tenant, Tenant shall have no claim for damages by reason of such alleged withholding or delay, and Tenant's sole remedy thereof shall be a right to obtain specific performance or injunction but in no event with recovery or damages. Notwithstanding anything to the contrary, any dispute relating to the withholding or delay of consent by Owner may be determined, under the Expedited Procedures provisions of the Commercial Arbitration Rules of the American Arbitration Association; provided however, that with respect to any such arbitration (i) the list of arbitrators shall be returned within five (5) business days from the date of mailing, (ii) the parties shall notify the American Arbitration Association, by telephone, within three (3) days of any objections to the arbitrator appointed, and will have no right to object if the 22 arbitrator so appointed was on the list submitted by the American Arbitration Association, (iii) the hearing shall be held within seven (7) days after the appointment of the arbitrator, and (iv) the arbitrator shall have no right to award damages. E. In the event of a permitted assignment or sublease pursuant to Article 73(B), Articles 43 and 69, shall thereafter be null and void and Tenant shall have no further right pursuant to said Articles. 74. A. If the Premises shall be damaged by fire or other casualty, then promptly following the giving of notice thereof to Owner, the damage shall be diligently repaired by and at the expense of Owner to substantially the same condition as existed prior to the damage to the extent of insurance proceeds available to Owner, and until such repairs shall be substantially completed (of which substantial completion Owner shall promptly notify Tenant) the Rent shall be reduced in the proportion which the ratio between the area of the part of the Premises which is not usable by Tenant, as determined by Owner in its reasonable discretion, bears to the total area of the Premises immediately prior to such casualty. In the event the Tenant is reasonably unable to conduct its business in the undamaged portion of the Premises or Tenant does not have reasonable access to the Premises, then Tenant may vacate the undamaged portion of the Premises and the Rent shall be totally abated until ten (10) business days after the damage has been repaired and/or Tenant once again has reasonable access to the Premises. Subject to the provisions of Article 72, Owner shall use all reasonable efforts to minimize interference with Tenant's use and occupancy in making any repairs pursuant to this Section. B. Anything contained in this Lease to the contrary notwithstanding, if the Premises shall be so damaged by fire or other casualty that, in Owner's reasonable opinion confirmed by an independent architect, substantial alteration, demolition, or reconstruction of the Premises shall be required, then Owner, at Owner's option, may, not later than sixty (60) days following the damage, give Tenant a notice in writing terminating this Lease. If Owner elects to terminate this Lease, the Term shall expire upon the date set by Owner, but not sooner than the tenth (10th) day nor later than the thirtieth (30th) day after such notice is given, and Tenant shall vacate the Premises and surrender the same to Owner in accordance with the provisions of Article 22 hereof. Upon the termination of this Lease under the conditions provided for in this Section B, the Rent shall be apportioned to the date that the Premises are no longer usable or the date of termination (whichever date occurs sooner) and any prepaid portion of Rent for any period after such date shall be refunded by Owner to Tenant. C. Within thirty (30) days after notice to Owner of any damage described in Section A hereof, Owner shall deliver to Tenant a statement prepared by a reputable contractor setting forth the contractor's estimate as to 23 the time required to repair such damage. If the estimated time period exceeds six (6) months from the date of such statement, Tenant may elect to terminate this Lease by notice to Owner not later than ten (10) business days following receipt of such statement. If Tenant makes such election, the Term shall expire upon the tenth (10th) day after notice of such election is given by Tenant and Tenant shall vacate the Premises and surrender the same to Owner in accordance with the provisions of Article 22 hereof. If Tenant shall not have elected to terminate this Lease pursuant to this Article 74 (or is not entitled to terminate this Lease pursuant to Article 74), the damage shall be diligently repaired by and at the expense of Owner as set forth in Section A hereof. Notwithstanding any such estimate, if the damage is not substantially repaired within six (6) months from the date of such statement, then Tenant may elect to terminate this Lease by notice to Owner. If Tenant makes such election, the other provisions of this Section (C) relating to termination shall apply thereto. D. Notwithstanding the foregoing, if the Premises shall be substantially damaged during the last year of the Term, either party may elect by notice, given within thirty (30) days after the occurrence of such damage, to terminate this Lease and if either party makes such election, the Term shall expire upon the thirtieth (30th) day after notice of such election is given, and Tenant shall vacate the Premises and surrender the same to Owner in accordance with the provisions of Article 22 hereof. E. This Article 74 constitutes an express agreement governing any case of damage or destruction of the Premises or the Building by fire or other casualty, and Section 227 of the Real Property Law of the State of New York, which provides for such contingency in the absence of an express agreement, and any other law of like nature and purpose now or hereafter in force shall have no application in any such case. F. Neither Owner nor Tenant shall be liable to the other for any business interruption or any loss or damage to the property or injury to or death of persons occurring in the Building (including the Premises), or in any manner growing out of or connected with the Tenant's use and occupation of the Premises, the Building or the condition thereof, whether or not caused by the negligence or other fault of Owner or Tenant and, or of their respective agents, employees, subtenants, licensees, or assigns. This release shall apply to the extent that such business interruption, loss, or damage to property or injury to or death of persons is covered by insurance, regardless of whether such insurance is payable to or protects Owner or Tenant, or both. Nothing herein shall be constructed to impose any other or greater liability upon either Owner or Tenant than would have existed in the absence of this provision. This release shall be in effect only so long as the applicable insurance policies contain a clause to the effect that this release shall not effect the right of the insured 24 to recover under such policies. Such clauses shall be obtained by the parties whenever possible. Each party agrees that their insurance policy contains a waiver of subrogation against the other party. The release in favor of Owner and Tenant contained herein, is in addition to and not in substitution for, or in diminution of the hold harmless and indemnification provisions hereof. THE 1010 COMPANY By: /s/ John P. Schmergel ------------------------------------- John P. Schmergel, General Partner NATIONAL ARBITRATION AND MEDIATION, INC. By: /s/ Roy Israel ------------------------------------- Roy Israel, President 25 EX-10.8 18 EXHIBIT 10.8 Exhibit 10.8 PICTURETEL CORPORATION THE TOWER AT NORTHWOODS 222 ROSEWOOD DRIVE DANVERS, MA 01923 Friday, September 22, 1995 Mr. Roy Israel President National Video Conferencing, Inc. 44 South Bayles Ave. Suite 210 Port Washington, NY 11050 RE: PSD RESELLER AGREEMENT NO. 1094801 Dear Mr. Israel: Enclosed please find a copy of the above-referenced document for your records. Les B. Strauss, Vice President and CFO, has signed on behalf of PictureTel. If you have any questions concerning these Agreements, please call Leah Maher, Esq., Corporate Counsel at (508) 762-5189. Sincerely, Laurie A. Conwell Administrative Assistant Law Department /lac Enclosure Cc: Susan Middleton Lindsey Ralph Judy Stohlberg Phone: 508-762-5000 Fax: 508-762-5102 PictureTel Corporation The Tower at Northwoods 222 Rosewood Drive Danvers, MA 01923 Agreement No.: 1094801 PSD RESELLER AGREEMENT This Reseller Agreement ("Agreement") is entered into as of the effective date specified below by and between PictureTel Corporation, having its principal place of business at the Tower at Northwoods, 222 Rosewood Drive, Denvers, MA 01923 ("PictureTel") and National Video Conferencing, Inc. having its principal place of business at 4 South Byles Ave., Suite 210, Fort Washington, NY 11050 ("Reseller"). WHEREAS, PictureTel is in the business of manufacturing and producing for sale or licenses, visual communications equipment, software and related communication including, without limitation, the PictureTel PSD Products listed in PictureTel's current Price List attached as Exhibit A ("Products"); and WHEREAS, to enhance the goodwill and marketing of Products, PictureTel desires that Reseller, as an independent contractor, distribute and market PictureTel Products to end-users. NOW, THEREFORE, in consideration of the foregoing premises and of the covenants herein contained, the parties agree as follows: 1. APPOINTMENT OF RESELLER; MARKETING ACTIVITIES. (a) PictureTel hereby appoints Reseller as a Reseller for the Products, on a non-exclusive basis, to sell and/or sublicense Products to end-users for their internal use only ("Customers") within The United States ("Territory") subject to the terms and conditions set forth in this Agreement. (b) Reseller will maintain an adequate number of trained employees and will make best efforts in good faith to promote, demonstrate and sell Products to end-users to ensure the highest quality of pre and post sale support, and to promote in the Territory the goodwill, name and interest of PictureTel and its Products. (c) PictureTel expressly reserves the right to market, solicit sales, and sell, lease rent or otherwise dispose of the Products directly or indirectly to others through any channel or form of distribution at any time. Reseller will not be entitled to any commissions, discount, or any other compensation with respect to or on account of any such sale, lease, rental or other disposition. (d) Reseller may participate in marketing development funds ("MDF") or other marketing activities subject to being in compliance with Section 6 herein and meeting the eligibility requirements which may be offered by PictureTel from time to time as set forth in Exhibit B in accordance with PictureTel's then-current policies and procedures. 2. ORDERING. (a) Reseller may order the Products set forth in Exhibit A by executing and delivering a written purchase order to PictureTel which references this Agreement by number. Reseller agrees that the terms and conditions of this Agreement, and no others, will apply to all purchase orders and any different or additional terms appearing on any other document are deemed inapplicable. All purchase orders will be subject to acceptance by PictureTel. (b) PictureTel may at its sole option at any time add, delete or modify Products from Exhibit A. PictureTel will provide Reseller not less than 30 days written notice of any such deletion, addition or modification. (c) Any purchase order for Products may be canceled by Reseller without penalty up to 10 business days prior to the scheduled shipment date. 3 3. PRICES AND PAYMENT. (a) Prices for Products will be the prices set forth in PictureTel's Price List in effect from time to time, less any applicable discount determined pursuant to the Discount Schedule attached hereto as Exhibit A. Prices and discounts are subject to change by PictureTel upon 30 days written notice to Reseller. Price decreases will be effective on the date PictureTel notifies Reseller. (b) Invoices are due and payable in US Dollars within 30 days after shipment of the Products to Reseller. PictureTel may impose a charge of 1.5% per month or the maximum allowable by law on overdue payments. Shipments are subject to credit terms established by PictureTel. PictureTel may decline to make any shipments if, in PictureTel's reasonable opinion, circumstances exist which raise doubt as to Reseller's ability or willingness to pay as provided herein. (c) Product prices do not include sales, use, value-added or other excise tax, however designated or levied. Unless Reseller provides PictureTel a valid tax exemption certificate, PictureTel will invoice Reseller for all such taxes based upon this Agreement, or on Products purchased or services provided under this Agreement and all personal property taxes assessed on any Products after delivery, together with any interest. 4. RESELLERS SUPPORT OBLIGATIONS. (a) Resellers must have successfully completed any reasonably required PictureTel training within 60 days following the Effective Date of this Agreement. (b) Reseller will be responsible, or make arrangements with PictureTel or a PictureTel-authorized Service Provider. For the provisioning of training, installation, warranty, maintenance and repair services ("Support Services"). PictureTel will have no obligation to provide Support Services directly to Reseller's Customers unless so arranged. In no event may Reseller assign its service obligations to any third party and Reseller will, at all times, remain liable to its Customers for the adequate provisions of Support Services. (c) Reseller may, at its option, elect to become a PictureTel Service Provider ("PSP") by meeting PictureTel's then-current PSP criteria. 5. SHIPMENT (a) PictureTel will use best efforts to deliver Products by the agreed delivery dates provided Reseller issues purchase orders for such Products at least 30 days in advance of the scheduled delivery dates. In no event will PictureTel be liable for any expense or damages resulting from its failure to meet the agreed delivery date(s). (b) Products will be delivered to Reseller F.O.B. PictureTel's manufacturing facility. Title to the Products (except for software) and risk of loans will pass to Reseller upon delivery to the carrier. (c) PictureTel will arrange to ship Products to Reseller's specified location(s) and will select a common carrier. PictureTel will prepay the freight and any other necessary and reasonable transportation and delivery charges and invoice Reseller for such costs, which we are due and payable in full at the time the invoice relating to the shipped Product is due. 6. RESELLER'S REPORTING OBLIGATIONS (a) Reseller will, on a monthly basis, maintain and provide to PictureTel shipment records for each month not later than the 15th day of each month in accordance with PictureTel's then-current policies and procedures. The printed and electronic format for such report is attached hereto as Exhibit C. (b) Reseller may participate in the inventory protection programs set forth in Section 7 below and the marketing programs referenced in Section 1(d) including MDF only if it complies with all of the provisions on this Section 6 on a timely and monthly basis. Any accommodated PictureTel MDF Funds is subject to being forfeited if Reseller is in default of this Section. 4 7. INVENTORY PRICE ADJUSTMENTS/STOCK BALANCING. (a) PictureTel will notify Reseller of any price change by means of revised Price Lists. Reseller will be entitled to a price reduction credit equal to the difference between the new and former price for applicable Products in Reseller's inventory on the effective date of the price reduction, provided such Products were (i) acquired pursuant to this Agreement at the former price, (ii) shipped by PictureTel within 6 months prior to the effective date of the price reduction, and (iii) is the current version of Product (a) remaining in Reseller's inventory, or (b) were shipped by Reseller to a Customer within 30 days prior to the effective date of the price reduction. Such price reduction credit will be applicable only towards Products ordered under this Agreement. (b) In the event PictureTel increases the price of any Product, orders accepted by PictureTel prior to the effective date of the price increase and specified for delivery within a 30 days period after the effective date of the price increase will be honored at the lower price. Shipments made after such 30 day period will be at the increased price. (c) Reseller may, not more than once every six months after the Effective Date of this Agreement, return Products to PictureTel with an aggregate value not to exceed 15% of the total aggregate purchase price of Products delivered to Reseller within the six month period preceding such return ("Return Value"). Reseller will bear the transportation costs to PictureTel. Requests must be accompanied by an offering non-cancelable purchase order of equal or greater dollar value of the Products being returned and subject to immediate shipment. 8. SOFTWARE LICENSES. (a) Reseller is granted the right to distribute the Products which are listed in Exhibit A only to Customers. Reseller will distribute Products only as originally packaged by PictureTel with the end user License Agreements ("Shrink-wrap License"). Use of the Product will be subject to the terms of the accompanying Shrink-wrap License. The Customer indicates its acceptances of such terms by opening the media package. No title or ownership of the software covered by the Shrink-wrap License or related documentation (which the exception of the media on which it is contained) it transferred to Reseller or Customer. Title to all applicable rights in patents, copyrights and trade secrets in the Products will remain in PictureTel or its licensor. (b) Reseller is granted a license to use the Products for marketing demonstration purposes provided that Reseller complies with the terms of the applicable Shrink-wrap License packaged with the Products. (c) Unless prior written consent is granted by PictureTel, Reseller will not copy or modify any Products or related materials supplied under this Agreement. Reseller will not remove or omit any copyright notice or other proprietary notice contained in or packaged with the Product. (d) The Product is provided with RESTRICTED RIGHTS, Use, duplication, or disclosure by the Government is subject to restrictions as set forth in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer Software clause at DFARS 25.2227-7013 or subparagraphs (c)(1) and (2) of the Commercial Computer Software -- Restricted Rights at 48 CFR 52.227-19, as applicable. Reseller agrees to clearly and appropriately mark any and all Products, including documentation, that is to be directly or indirectly delivered to any branch of the US Government with the Restricted Rights legend set forth in the FAR clause at 52.227- 19(c)(4), agrees to inform all US Government Contracting Officers, when applicable, that the Product is commercial software and subject to the restrictions set forth herein and agrees to indemnify PictureTel from any and all leases, liabilities or expenses incurred by PictureTel, including attorney's fees, as a result of its failure to perform the obligations set forth in this Section. 9. PROPRIETARY INFORMATION. During the term of this Agreement, PictureTel may disclose to Reseller or Reseller may become aware of, proprietary information which PictureTel wishes to be held in confidence ("Confidential Information"). Confidential Information will include the software, any business, marketing, technical, scientific or other information released to the Reseller in any form which is identified as confidential or proprietary. Any Confidential information received by Reseller during the term of this Agreement will be kept in confidence and disclosed only to employees of Reseller with a need to know such Confidential Information, and used only 5 in furtherance of this Agreement. Reseller's confidentiality obligations will not apply to information which: (a) was in the public domain prior to disclosure, or becomes publicly available other than through a breach of this Agreement, (b) was known by the reseller prior to disclosure, or it is at any time developed by the Reseller independently of any such disclosure, (c) was rightfully disclosed to the Reseller by a third party without a duty of confidentiality to the discloser. 10. PATENT AND COPYRIGHT INDEMNIFICATION. (a) If a claim is made or an action brought that any Product infringes a duly issued US patent or any copyright, trademark or trade secret, PictureTel will defend and indemnify Reseller against such claim and will pay resulting costs, damages and attorney's fees finally awarded, provided that: (i) Reseller promptly notifies PictureTel in writing of that claim, and (ii) PictureTel has sole control of the defense and all related settlement negotiations. PictureTel's obligation under this Paragraph is conditioned on Reseller's agreement that if the Product or use or operation thereof, becomes, or in PictureTel's opinion is likely to become, the subject of such a claim, PictureTel may at its expense, either procure the right for Reseller to continue using the Product or, at its option, replace or modify the same so that it becomes non-infringing (provided such replacement or modification does not materially adversely affect Reseller's intended use of the Product as contemplated hereunder). If neither of the foregoing alternatives is available on terms which are reasonable in PictureTel's judgment, Reseller will return the Product on written request by PictureTel and PictureTel will credit or refund to Reseller, at Reseller's option, the price paid for such Products less depreciation on a straight line basis over an assumed five (5) year service life. (b) PictureTel will have no liability for any claim based upon the combinations, operation or use of any Product with equipment, software or data not supplied by PictureTel if such claim would have been avoided by the use of other equipment, software or data whether or not capable of achieving the same results, or based upon alteration of the hardware component of the Product or modification of any software provided by PictureTel. (c) THE FOREGOING STATES THE ENTIRE OBLIGATION OF PICTURETEL WITH RESPECT TO INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADEMARKS OR TRADE SECRETS. 11. LIMITED WARRANTY. (a) Products are warranted only (i) if installed in the United States by the Customer, (ii) as set forth in the Limited Warranty Statement accompanying each Product, and (iii) when purchased from an authorized reseller. Reseller will make no warranty representation on PictureTel's behalf beyond those contained in the applicable Limited Warranty Statement. The warranty shall commence when the Products are resold and/or licensed to the Customer by Reseller, subject to the terms and conditions of the Limited Warranty Statement. PictureTel makes no warranty to Reseller with respect to the Products. In the event any Product fails to operate according to PictureTel's specifications prior to being resold to a Customer, the exclusive remedy and PictureTel's exclusive responsibility will be the repair and replacement of the Product, at PictureTel's option, in accordance with PictureTel's then prevailing policy. (b) EXCEPT AS EXPRESSLY STATED IN THIS SECTION 11, THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, OF PRODUCTS OR SERVICES SOLD OR FURNISHED UNDER THIS AGREEMENT OR IN CONNECTION HEREWITH. PICTURETEL DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE NO REPRESENTATION OR OTHER AFFIRMATION OF FACT, INCLUDING BUT NOT LIMITED TO, STATEMENTS REGARDING CAPACITY, SUITABILITY FOR USE OR PERFORMANCE OF PRODUCTS, WHETHER MADE BY PICTURETEL EMPLOYEES OR OTHERWISE, WHICH IS NOT CONTAINED IN THIS AGREEMENT, WILL BE DEEMED TO BE A WARRANTY BY PICTURETEL FOR ANY PURPOSE, OR GIVE RISE TO ANY LIABILITY OF PICTURETEL WHATSOEVER. THE WARRANTIES AND CORRESPONDING REMEDIES AS STATED IN THIS SECTION 11 ARE EXCLUSIVE AND IN LIEU OF ALL OTHERS WRITTEN OR ORAL. 12. LIMITATION OF REMEDIES AND LIABILITIES. EXCEPT AS PROVIDED HEREIN OR IN SECTION 10. PICTURETEL'S MAXIMUM LIABILITY WILL BE LIMITED IN ANY EVENT TO ACTUAL DIRECT DAMAGES TO THE EXTENT CAUSED SOLELY BY THE ACTS OR OMISSIONS OF PICTURETEL, SUBJECT TO A MAXIMUM 6 LIABILITY OF THE GREATER OF $25,000 OR THE AMOUNT PAID FOR THE SPECIFIC PRODUCT WHICH DIRECTLY CAUSED SUCH DAMAGE. IN NO EVENT WILL PICTURETEL BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES, LOST BUSINESS PROFITS, OR LOSS, DAMAGE OR DESTRUCTION OF DATA, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), BREACH OF WARRANTY OR OTHERWISE, EVEN IF PICTURETEL HAS BEEN ADVISED AS TO THE POSSIBILITY OF SAME. NO LIMITATION AS TO DAMAGES FOR PERSONAL INJURY IS HEREBY INTENDED. SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES AND THE ABOVE EXCLUSION OR LIMITATION MAY NOT APPLY. 13. TRADEMARKS AND TRADENAMES. (a) Reseller may market and sell Products only under PictureTel names and may use the same PictureTel and may other tradename or trademark of PictureTel ("Marks") solely in the performance of its rights and obligations under this Agreement. Reseller will not attach any additional trademarks or tradenames to the Products and will refrain from removing or altering any PictureTel trademark, logo or notice affixed by PictureTel to Products. Reseller will not use any PictureTel trademark or trade name in a way that implies Reseller is an agency or branch of PictureTel. Reseller will immediately change or discontinue any use as requested by PictureTel. (b) Reseller may display the Marks in connection with the marketing, sale or support of Products with an appropriate trademark notice or other notice or proprietary rights in the Marks as PictureTel may request. Reseller shall not register, assign or take other action concerning the Marks except with the express written permission of PictureTel. Reseller shall not refer to PictureTel in any of Reseller's advertising, except where PictureTel has specifically approved such advertisement in writing prior to its publication. All rights that arise from the use of the Marks in any jurisdiction by Reseller will belong solely PictureTel. 14. RELATIONSHIP OF THE PARTIES. (a) Reseller's relationship to PictureTel is that of an independent contractor engaged in purchasing and licensing Products for resale to Customers. Reseller and its employees are not agents, partners or legal representatives of PictureTel for any purpose and have no authority to act for bind or commit PictureTel. PictureTel and Reseller agree that this Agreement does not establish a franchise, joint venture, agency or partnership. (b) Any commitment made by Reseller to Customers with respect to quantities, delivery, modification, interfacing capability, suitability of Products, or suitability in specific applications will be Reseller's sole responsibility. Reseller has no authority to modify any warranty contained in this Agreement or provided with the Products or to make any other commitment on behalf of PictureTel, and Reseller will indemnify and defend PictureTel from any expense, loss or liability (including reasonable attorney's fees), suit or proceeding for any such modified warranty or other commitments. 15. TERM AND TERMINATION; DEFAULT. (a) This Agreement will become effective on the date executed by an authorized representative of PictureTel and, unless terminated as provided herein, will continue until March 31, 1996. Thereafter, the term will automatically be renewed for successive one year terms. (b) Either party may, at its option, terminate this Agreement by written notice to the other party upon occurrence of any of the following events which shall constitute cause: (i) A party's substantial or material failure to comply with any of the provisions of this Agreement, provided, however that, the defaulting party shall have a period of ten (10) days from the date of notice in which to care such breach, or, if the breach cannot be reasonably cared within said ten (10) day period, then the party shall have a reasonable time in which to cure the breach, so long as the party diligently attempts to care; or (ii) A party's material change in management, becoming insolvent or commiting any act of bankruptcy, or upon any proceeding being commenced by or against Reseller under any law providing relief to Reseller as a dealer. (c) Either party may terminate this Agreement, without cause, at any time upon 60 day's written notice. 7 (d) Any suspension or termination of this Agreement pursuant to its terms will not relieve Reseller of its obligation to pay may seem due hereunder or of its obligations with respect to the confidential treatment and protection of PictureTel proprietary information and Software. PictureTel will not pay for any loss or damage of any nature whatsoever arising from any such suspension or termination which is in accordance with the provisions of this Agreement. (e) Upon termination or expiration of this Agreement, Reseller will immediately cease to be a PictureTel authorized Reseller and Reseller will refrain from representing itself as such and from using any PictureTel Marks. 16. GOVERNMENT EXPORT RESTRICTION. Reseller and/or its Customers will comply with any government export control laws and procedures applicable to the export of Products and also shall obtain any premises and licenses required for the operation or use of Products. 17. FORCE MAJEURE. In no event shall either party be liable its failure to perform hereunder due to contingencies beyond its reasonable control including, without limitation, fire, explosion, flood, strike, war, civil disturbances, acts of God, or acts in compliance with any law or governmental regulation. 18. GENERAL. (a) Reseller will not assign or transfer any part of this Agreement or any of Reseller's rights or obligations hereunder, without the prior written consent of PictureTel. (b) Either party's failure to enforce any provision of this Agreement will not be deemed a waiver of that provision or of the right to enforce it in the future. (c) This Agreement shall be governed and construed by the laws of the Commonwealth of Massachusetts whose courts (including the federal courts) shall have sole jurisdiction. (d) If any provisions or provisions of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby. (e) Each party agrees that this Agreement together with any and all exhibits, attachments, and schedules referred to herein, expressly made a part hereof will be the complete and exclusive statement of the agreement between the parties, superseding all proposals or prior agreements, oral or written, and all other communications between the parties relating to the subject matter of this Agreement. Except as expressly provided herein, this Agreement may only be modified by a written instrument executed by an authorized officer of PictureTel and of Reseller. PICTURETEL CORPORATION By: /s/ --------------------------------- Name: --------------------------------- Title: --------------------------------- Effective Date: 9/21/95 --------------------------------- 8 RESELLER: NATIONAL VIDEO CONFERENCING, INC. By: /s/ Roy Israel --------------------------------- Name: Roy Israel --------------------------------- Title: President --------------------------------- Effective Date: 9/18/95 --------------------------------- 9 EXHIBIT A Unless Reseller agrees to a binding forecast and annual Quota set forth in Exhibit B, Reseller will be granted a 25% discount off the List Price Product Hardware and 40% of Product Software. 10 PRODUCT AND PRICES
-------------------------------------------------------------------------------------------------------------------------------- Hardware or Reseller Product Number Product Description US List Price Software (H/5) Cost - --------------------------------------------------------------------------------------------------------------------------------- Picture Tel PCS100 & PCS50 H 320 Products PCS100 Desktop add-on kit for ISA or EISA-bus PC's running Microsoft Windows 3.1/3.11. Includes video and audio/ISDN boards, Flip Cam with stand, Speakerphone and Live Share information sharing Software PCS100E PSC100 Kit $4,995 H $3,746 PCS100E-3 With 384Kbps operation feature $5,995 H $4,496 VCS100 Communications Options: V/35D-1 Dual VC 35 and R-366 (for dialing) $2,500 H $1,875 V/35N-1 Dual VC 35 (non-dial) $2,000 H $1,500 RS-449-1 Dual RS-449 and RS-366 (for dialing) $2,500 H $1,875 RS-449N-1 Dual RS-449 (non-dial) $2,000 H $1,500 SW-56-1 Dual 4-wired switched 56 $2,000 H $1,500 PCS100 Software Options: PCS100-UPG-E Software version 1.5 upgrade kit. Inclused Snapshot, FEC $99 S $59 LiveShare Plus and new documentation. PCS100-UPG-3E Software version 1.5 upgrade kit w/384 option $99 S $59 384UPG 384Kpps upgrade software $1,000 S $600 VCS-NOTES Video Connect for Lotus Notes $149 S $89 DTK-WIN-2.0 Developers Toolkit -- Release 2.0 $750 S $250 PWR-CBL-A Power cord for AUX-PWR $25 H $19 DOC-PCS 100-E Documentation set: includes one User's Guide, One Install $50 -- $50 Guide, and one Quick reference card PCS100 CODEC PCS100 based Video Modem. Consists of 2 ISA-Bus boards, PCS100 software, manuals and ISDN cable. VM100-E PCS 100 Codec $3,750 H $2,813 Desktop add-on kit for ISA or EISA-bus PCs running Microsoft Windows 3.1/3.11. Includes video/audio board with ISDN BRI camers, headset of speakerpones, LiveShare, and optional graphics board with VAFC interface for ISA PCS50 or PCI bus. (Note that only the Compaq DeskPro XL and XE PCs have pre-installed compatible VAFC cards) PSC50-01-E With headset and without VAFC graphics card $2,495 H $1,871 PCS50-02-E With headset and ISA VAFC graphics card $2,795 H $2,096 PCS50-03-E With headset and PCI VAFC graphics card $2,995 H $2,246 PCS50-04-E With speakerphone and without VAFC graphics card $2,995 H $2,246 PCS50-05-E With speakerphone and ISA VAFC graphics card $3,295 H $2,471 PCS50-06-E With speakerpone and PCI VAFC graphics card $3,495 H $2,621 PCS50 Software Options: PSC50-UPG-E Software version 1.5 upgrade kit. Includes Snapshop, FEC $99 S $59 LiveShare Plus and new documentation. DTK-WIN-2.0 Developers Toolkit -- Release 2.0 $750 S $450 PCS50 Peripherals & Documentation: VAFC-ISA Graphics board w/VAFC interface for ISA bus PCs $300 H $225 VAFC-PCI Graphics board w/VAFC interface for PCI bus PC's $500 H $375 Manual, swivel document camera w/10 meter cable, stand and FLIPCAM-4 adapter $1,475 H $1,106 PCS=SP PictureTel Speakerphone with handset $500 H $375 - ---------------------------------------------------------------------------------------------------------------------------
11 EXHIBIT C SHIP-TO, SELL-THROUGH, AND INVENTORY REPORTING (A) DEFINITIONS: Ship-To is defined as the number of units of each PictureTel product shipped from reseller distributions locations to reseller outlets, stores, centers, sales offices, etc. Ship-To is defined as the number of units of each PictureTel product sold by headquarters, outlets, stores, centers, sales offices, etc., to end user customers. Inventory is defined as the number of units of each PictureTel product that each warehouse, distribution center, outlet, store, center, sales office, etc., has in inventory at month-end. All reporting must be SKU-specific (i.e., PSC 100, Desktop Toolkit, etc.). All data must be net of returns. (B) FORMAT: The data shall be provided in electronic, computer-readable format. Acceptable media is: 1) 3.5 inch diskette; or 2) 5.25 inch diskette. File format should be in Fixed ASCII, variable ASCII delimited, ECCHIC or quote-comma-quote delimited. Hard copy reports should also be provided until the account is otherwise notified in writing by PictureTel. The record layout for this data is listed below: Field 1: Product Field 2: Quantity Field 3: Ship to location Field 4: Sell through-end user account name Field 5: End user Account address Field 6: End user Account city Field 7: End user Account State Field 8: End user Account Zip code Field 9: House Account Reference/Invoice number Field 10:Date of sale (c) Timing: Monthly reporting is due at PictureTel Corporation, The Tower at Northwoods, 222 Rosewood Drive, Danvers, MA. 01923, PSD Division no later than the 15th of each subsequent month (January reporting is due on February 10th). At that time, all reports are reviewed for errors and inconsistencies. PictureTel will notify you of any problems within 10 working days. (c) Contact: All questions regarding data definitions, format, and timing should be directed to PictureTel Corporation -- 508-762-5000. 12 ADDENDUM TO PSD RESELLER AGREEMENT This is an Addendum to the PSD Reseller Agreement #______________ ("Agreement") by and between PictureTel Corporation ("PICTURETEL") and National Video Conferencing, Inc. ("Reseller") and is effective as of _______________, 1995. In the event of any conflict or inconsistency between the terms of this Addendum and the terms of the Agreement, the terms of this Addendum shall control. The following Sections are hereby modified: Section 1(c): Add the following to the end of the subsection, "unless otherwise agreed to in writing in advance." Section 2(b): Add the following to the end of the subsection, "but any such additions deletions or modifications will not affect any existing orders accepted by PictureTel." Section 3(b): In the second sentence insert the word "reasonably" after the word "established." Section 6(b): In the last sentence insert at the end of the subsection, "and such default is not cured by Reseller within ten (10) business days." Section 7(b): At the end of the first sentence insert, "provided Reseller shall have the right to cancel any such order without penalty by written notice within ten business days after receipt of notice of any such price increase." Section 8(d): In the second to the last line of the last sentence insert the word "reasonable" before the word "attorneys." Section 9: At the end of the third sentence, "and such employees have obligations to respect the confidentiality of information given to them by Reseller." Section 10(a): In the fourth line insert the word "reasonable" before the word "attorneys." Section 10(a)(ii): After the word "claim" insert "within a reasonable time after Reseller becomes aware thereof." Section 10(b): In the last line of the subsection, after the word "Product," insert "provided by PictureTel." Section 11(a): Insert at the end of the subsection "at PictureTel's sole expense." Section 13(a): In the last sentence insert the word "reasonably" before the word "requested." Section 13(b): In the third line insert the word "reasonably" before the word "request." Section 15: In the third line, replace "March 31, 199" with "July 31, 1996" Section 13(b)(ii): In the first line, replace the word "management" with "ownership." Section 15(d): In the second line replace "Reseller" with "either party." Section 18(a): Add at the end of the subsection, "which consent will not be unreasonably withheld or delayed." In all other respects, the terms of the above-referenced Agreement remain unchanged. PICTURETEL CORPORATION INC. NATIONAL VIDEO CONFERENCING INC. By: /s/ Les B. Strauss By: /s/ Ray Israel - ----------------------------------- -------------------------------- Authorized Signature Authorized Signature Name Los S. Statues Name: Ray Israel Title: CP & CEO Title: President Effective Date: 9/21/95 Date: 9/18/95 13 EX-10.9 19 EXHIBIT 10.9 Exhibit 10.9 FINANCIAL ADVISORY AND CONSULTING AGREEMENT This Agreement is made and entered into as of this __ day of ________, 1996, [the effective date of the Registration Statement] by and between NAM CORPORATION, a Delaware corporation (the "Company"), and JOSEPH STEVENS & COMPANY, L.P. (the "Consultant"). In consideration of and for the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Purpose. The Company hereby retains the Consultant during the term specified in Section 2 hereof to render consulting advice to the Company as an investment banker relating to financial and similar matters, upon the terms and conditions as set forth herein. 2. Term. Subject to the provisions of Sections 8, 9 and 10 hereof, this Agreement shall be effective for a period of twenty-four (24) months commencing _______ __, 1996 [the effective date of the Registration Statement]. 3. Duties of Consultant. During the term of this Agreement, the Consultant will provide the Company with such regular and customary consulting advice as is reasonably requested by the Company, provided that the Consultant shall not be required to undertake duties not reasonably within the scope of the consulting advisory service contemplated by this Agreement. In performance of these duties, the Consultant shall provide the Company with the benefits of its best judgment and efforts. It is understood and acknowledged by the parties that the value of the Consultant's advice is not measurable in any quantitative manner, and that the Consultant shall be obligated to render advice, upon the request of the Company, in good faith, but shall not be obligated to spend any specific amount of time in doing so. The Consultant's duties may include, but will not necessarily be limited to: A. Providing sponsorship and exposure in connection with the dissemination of corporate information regarding the Company to the investment community at large under a systematic planned approach. B. Rendering advice and assistance in connection with the preparation of annual and interim reports and press releases. C. Arranging, on behalf of the Company and its representatives, at appropriate times, meetings with securities analysts of major regional investment banking firms. D. Assisting in the Company's financial public relations, including discussions between the Company and the financial community. E. Rendering advice with regard to internal operations, including: (1) advice regarding formation of corporate goals and their implementation; (2) advice regarding the financial structure of the Company and its divisions or subsidiaries or any programs and projects of such entities; (3) advice concerning the securing, when necessary and if possible, of additional financing through banks, insurance companies and/or other institutions; and (4) advice regarding corporate organization and personnel. F. Rendering advice with respect to any acquisition program of the Company. G. Rendering advice regarding a future public or private offering of securities of the Company or of any subsidiary. 4. Relationships with Others. The Company acknowledges that the Consultant and its affiliates are in the business of providing financial services and consulting advice (of all types contemplated by this Agreement) to others. Nothing herein contained shall be construed to limit or restrict the Consultant or its affiliates from rendering such services or advice to others. 5. Consultant's Liability. In the absence of gross negligence or willful misconduct on the part of the Consultant, or the Consultant's breach of this Agreement, the Consultant shall not be liable to the Company, or to any officer, director, employee, shareholder or creditor of the Company, for any act or omission in the course of or in connection with the rendering or providing of advice hereunder. Except in those cases where the gross negligence or willful misconduct of the Consultant or the breach by the Consultant of this Agreement is alleged and proven, the Company agrees to defend, indemnify and hold the Consultant harmless from and against any and all reasonable costs, expenses and liability (including, but not limited to, attorneys' fees paid in the defense of the Consultant) which may in any way result from services rendered by the Consultant pursuant to or in any connection with this Agreement. 6. Expenses. The Company, upon receipt of appropriate supporting documentation, shall reimburse the Consultant for any and all reasonable out-of-pocket expenses incurred by the Consultant in connection with services rendered by the Consultant to the Company pursuant to this Agreement, including, but not limited to, hotel, food and associated expenses, all charges for travel and long-distance telephone calls and all other expenses incurred by the Consultant in connection with services rendered by the Consultant to the Company pursuant to this Agreement. Expenses payable under this Section 6 shall not include allocable overhead expenses of the Consultant, including, but not limited to, attorneys' fees, secretarial charges and rent. 2 7. Compensation. As compensation for the services to be rendered by the Consultant to the Company pursuant to Section 3 hereof, the Company shall pay the Consultant a financial consulting fee of two thousand dollars ($2,000) per month for twenty-four (24) months commencing on ______ __ 1996 [the effective date of the Registration Statement]. Forty-Eight Thousand Dollars ($48,000), representing payment in full of all amounts due the Consultant pursuant to this Section 7, shall be paid by the Company on _______ __, 1996 [the closing of the initial public offering]. 8. Other Advice. In addition to the duties set out in Section 3 hereof, the Consultant agrees to furnish advice to the Company in connection with the acquisition of and/or merger with other companies, joint ventures with any third parties, license and royalty agreements and any other financing (other than the private or public sale of the Company's securities for cash), including, but not limited to, the sale of the Company itself (or any significant percentage, subsidiaries or affiliates thereof). In the event that any such transactions are directly or indirectly originated by the Consultant for a period of five (5) years from the date hereof, the Company shall pay fees to the Consultant as follows: Legal Consideration Fee ------------------- --- 1. $ -0- - $3,000,000 5% of legal consideration 2. $ 3,000,001 - $4,000,000 Amount calculated pursuant to line 1 of this computation, plus 4% of excess over $3,000,000 3. $ 4,000,001 - 5,000,000 Amount calculated pursuant to lines 1 and 2 of this computation, plus 3% of excess over $4,000,000 4. above $ 5,000,000 Amount calculated pursuant to lines 1, 2 and 3 of this computation, plus 2% of excess over $5,000,000. Legal consideration is defined, for purposes of this Agreement, as the total of stock (valued at market on the day of closing, or if there is no public market, valued as set forth herein for other property), cash and assets and property or other benefits exchanged by the Company or received by the Company or its shareholders (all valued at fair market value as agreed or, if not, by any independent appraiser), irrespective of period of payment or terms. 9. Sales or Distributions of Securities. If the Consultant assists the Company in the sale or distribution of securities to the public or in a private transaction, the Consultant shall receive fees in the amount and form to be arranged separately at the time of such transaction. 3 10. Form of Payment. All fees due to the Consultant pursuant to Section 8 hereof are due and payable to the Consultant, in cash or by certified check, at the closing or closings of a transaction specified in such Section 8 or as otherwise agreed between the parties hereto; provided, however, that in the case of license and royalty agreements specified in Section 8 hereof, the fees due the Consultant in receipt of such license and royalty agreements shall be paid as and when license and/or royalty payments are received by the Company. In the event that this Agreement shall not be renewed for a period of at least twelve (12) months at the end of the five (5) year period referred to in Section 8 hereof or if terminated for any reason prior to the end of such five (5) year period then, notwithstanding any such non-renewal or termination, the Consultant shall be entitled to the full fee for any transaction contemplated under Section 8 hereof which closes within twelve (12) months after such non-renewal or termination. 11. Limitation Upon the Use of Advice and Services. (a) No person or entity, other than the Company or any of its subsidiaries, shall be entitled to make use of or rely upon the advice of the Consultant to be given hereunder, and the Company shall not transmit such advice to others, or encourage or facilitate the use of or reliance upon such advice by others, without the prior written consent of the Consultant. (b) It is clearly understood that the Consultant, for services rendered under this Agreement, makes no commitment whatsoever as to making a market in the securities of the Company or to recommend or advise its clients to purchase the securities of the Company. Research reports or corporate finance reports that may be prepared by the Consultant will, when and if prepared, be done solely on the merits or judgment of analysts of the Consultant or senior corporate finance personnel of the Consultant. (c) The use of the Consultant's name in any annual report or other report of the Company, or any release or similar document prepared by or on behalf of the Company, must have the prior written approval of the Consultant unless the Company is required by law to include the Consultant's name in such annual report, other report or release, in which event the Consultant will be furnished with a copy of such annual report, other report or release using Consultant's name in advance of publication by or on behalf of the Company. (d) Should any purchases of securities be requested to be effected through the Consultant by the Company, its officers, directors, employees or other affiliates, or by any person on behalf of any profit sharing, pension or similar plan of the Company, for the account of the Company or the individuals or entities involved, such orders shall be taken by a registered account executive of the Consultant, shall not be subject to the terms of this Agreement, and the normal brokerage commission as charged by the Consultant will apply in conformity with all rules and regulations of the New York Stock Exchange, the National Association of Securities Dealers, Inc. or other regulatory bodies. Where no regulatory body sets the fee, the normal established fee as used by the Consultant shall apply. 4 (e) The Consultant shall not disclose confidential information which it learns about the Company as a result of its engagement hereunder, except as such disclosure as may be required for Consultant to perform its duties hereunder. 12. Indemnification. Since the Consultant will be acting on behalf of the Company in connection with its engagement hereunder, the Company and Consultant have entered into a separate indemnification agreement substantially in the form attached hereto as Exhibit A and dated the date hereof, providing for the indemnification of Consultant by the Company. The Consultant has entered into this Agreement in reliance on the indemnities set forth in such indemnification agreement. 13. Severability. Every provision of this Agreement is intended to be severable. If any term or provision hereof is deemed unlawful or invalid for any reason whatsoever, such unlawfulness or invalidity shall not affect the validity of the remainder of this Agreement. 14. Miscellaneous. (a) Any notice or other communication between the parties hereto shall be sent by certified or registered mail, postage prepaid, if to the Company, addressed to it at 1010 Northern Boulevard, Suite 336, Great Neck, New York 11021, Attention: Roy Israel, President and Chief Executive Officer, with a copy to Camhy Karlinsky & Stein LLP, 1740 Broadway, Sixteenth Floor, New York, New York 10019-4315, Attention: Robert S. Matlin, Esq., or, if to the Consultant, addressed to it at 33 Maiden Lane, 8th Floor, New York, New York 10038, Attention: Joseph Sorbara, Chief Executive Officer, with a copy to Orrick, Herrington & Sutcliffe, 666 Fifth Avenue, New York, New York 10103, Attention: Rubi Finkelstein, Esq., or to such address as may hereafter be designated in writing by one party to the other. Such notice or other communication shall be deemed to be given on the date of receipt. (b) If, during the term hereof, the Consultant shall cease to do business, the provisions hereof relating to the duties of the Consultant and compensation by the Company as it applies to the Consultant shall thereupon cease to be in effect, except for the Company's obligation of payment for services rendered prior thereto. This Agreement shall survive any merger of, acquisition of, or acquisition by the Consultant and, after any such merger or acquisition, shall be binding upon the Company and the corporation surviving such merger or acquisition. (c) This Agreement embodies the entire agreement and understanding between the Company and the Consultant and supersedes any and all negotiations, prior discussions and preliminary and prior agreements and understandings related to the central subject matter hereof. (d) This Agreement has been duly authorized, executed and delivered by and on behalf of the Company and the Consultant. (e) This Agreement shall be construed and interpreted in accordance with laws of the State of New York, without giving effect to conflicts of laws. 5 (f) This Agreement and the rights hereunder may not be assigned by either party (except by operation of law) and shall be binding upon and inure to the benefit of the parties and their respective successors, assigns and legal representatives. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date hereof. NAM CORPORATION By:______________________________________ Roy Israel President and Chief Executive Officer JOSEPH STEVENS & COMPANY, L.P. By:______________________________________ 6 EXHIBIT A _________________, 1996 JOSEPH STEVENS & COMPANY, L.P 33 Maiden Lane 8th Floor New York, New York 10038 Ladies and Gentlemen: In connection with our engagement of JOSEPH STEVENS & COMPANY, L.P. (the "Consultant") as our financial advisor and investment banker, we hereby agree to indemnify and hold the Consultant and its affiliates, and the directors, officers, partners, shareholders, agents and employees of the Consultant (collectively the "Indemnified Persons"), harmless from and against any and all claims, actions, suits, proceedings (including those of shareholders), damages, liabilities and expenses incurred by any of them (including, but not limited to, fees and expenses of counsel) which are (A) related to or arise out of (i) any actions taken or omitted to be taken (including any untrue statements made or any statements omitted to be made) by us, or (ii) any actions taken or omitted to be taken by any Indemnified Person in connection with our engagement of the Consultant pursuant to the Financial Advisory and Consulting Agreement, of even date herewith, between the Consultant and us (the "Consulting Agreement"), or (B) otherwise related to or arising out of the Consultant's activities on our behalf pursuant to the Consultant's engagement under the Consulting Agreement, and we shall reimburse any Indemnified Person for all expenses (including, but not limited to, fees and expenses of counsel) incurred by such Indemnified Person in connection with investigating, preparing or defending any such claim, action, suit or proceeding (collectively a "Claim"), whether or not in connection with pending or threatened litigation in which any Indemnified Person is a party. We will not, however, be responsible for any Claim which is finally judicially determined to have resulted exclusively from the gross negligence or willful misconduct of any person seeking indemnification hereunder. We further agree that no Indemnified Person shall have any liability to us for or in connection with the Consultant's engagement under the Consulting Agreement except for any Claim incurred by us solely as a direct result of any Indemnified Person's gross negligence or willful misconduct. We further agree that we will not, without the prior written consent of the Consultant settle, compromise or consent to the entry of any judgment in any pending or threatened Claim in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is an actual or potential party to such Claim), unless such settlement, compromise or consent includes a legally binding, unconditional, and irrevocable release of each Indemnified Person hereunder from any and all liability arising out of such Claim. Promptly upon receipt by an Indemnified Person of notice of any complaint or the assertion or institution of any Claim with respect to which indemnification is being sought hereunder, such Indemnified Person shall notify us in writing of such complaint or of such assertion or institution, but failure to so notify us shall not relieve us from any obligation we may have hereunder, unless, and only to the extent that, such failure results in the forfeiture by us of substantial rights and defenses, and such failure to so notify us will not in any event relieve us from any other obligation or liability we may have to any Indemnified Person otherwise than under this Agreement. If we so elect or are requested by such Indemnified Person, we will assume the defense of such Claim, including the employment of counsel reasonably satisfactory to such Indemnified Person and the payment of the fees and expenses of such counsel. In the event, however, that such Indemnified Person reasonably determines in its sole judgment that having common counsel would present such counsel with a conflict of interest or such Indemnified Person concludes that there may be legal defenses available to it or other Indemnified Persons different from or in addition to those available to us, then such Indemnified Person may employ its own separate counsel to represent or defend it in any such Claim and we shall pay the reasonable fees and expenses of such counsel. Notwithstanding anything herein to the contrary, if we fail timely or diligently to defend, contest, or otherwise protect against any Claim, the relevant Indemnified Party shall have the right, but not the obligation, to defend, contest, compromise, settle, assert crossclaims or counterclaims, or otherwise protect against the same, and shall be fully indemnified by us therefor, including, but not limited to, for the fees and expenses of its counsel and all amounts paid as a result of such Claim or the compromise or settlement thereof. In any Claim in which we assume the defense, the Indemnified Person shall have the right to participate in such defense and to retain its own counsel therefor at its own expense. We agree that if any indemnity sought by an Indemnified Person hereunder is held by a court to be unavailable for any reason, then (whether or not the Consultant is the Indemnified Person) we and the Consultant shall contribute to the Claim for which such indemnity is held unavailable in such proportion as is appropriate to reflect the relative benefits to us, on the one hand, and the Consultant, on the other, in connection with the Consultant's engagement by us under the Consulting Agreement, subject to the limitation that in no event shall the amount of the Consultant's contribution to such Claim exceed the amount of fees actually received by the Consultant from us pursuant to the Consultant's engagement under the Consulting Agreement. We hereby agree that the relative benefits to us, on the one hand, and the Consultant, on the other hand, with respect to the Consultant's engagement under the Consulting Agreement shall be deemed to be in the same proportion as (a) the total value paid or proposed to be paid or received by us or our stockholders as the case may be, pursuant to the transaction (whether or not consummated) for which the Consultant is engaged to render services bears to (b) the fee paid or proposed to be paid to the Consultant in connection with such engagement. 2 Our indemnity, reimbursement and contribution obligations under this Agreement shall be in addition to, and shall in no way limit or otherwise adversely affect any rights that an Indemnified Part may have at law or at equity. Should the Consultant, or any of its directors, officers, partners, shareholders, agents or employees, be required or be requested by us to provide documentary evidence or testimony in connection with any proceeding arising from or relating to the Consultant's engagement under the Consulting Agreement, we agree to pay all reasonable expenses (including but not limited to fees and expenses of counsel) in complying therewith and one thousand dollars ($1,000) per day for any sworn testimony or preparation therefor, payable in advance. We hereby consent to personal jurisdiction and service of process and venue in any court in which any claim for indemnity is brought by any Indemnified Person. It is understood that, in connection with the Consultant's engagement under the Consulting Agreement, the Consultant may be engaged to act in one or more additional capacities and that the terms of the original engagement or any such additional engagement may be embodied in one or more separate written agreements. The provisions of this Agreement shall apply to the original engagement and any such additional engagement and shall remain in full force and effect following the completion or termination of the Consultant's engagement(s). Very truly yours, NAM CORPORATION By:___________________________________ Roy Israel President and Chief Executive Officer CONFIRMED AND AGREED TO: JOSEPH STEVENS & COMPANY, L.P. By:____________________________ 3 EX-21 20 EXHIBIT 21.1 SUBSIDIARIES OF NAM CORPORATION Set forth below are the names of all subsidiaries of the Company:
Percentage Owned By Jurisdiction of Name Company Incorporation ------------------------------------------ --------------------- ------------------- National Arbitration & Mediation, Inc. 100% New York National Video Conferencing, Inc. 100% Delaware Michael Marketing Corporation 100% Delaware
15 EX-23.2 21 CONSENT OF INDEPENDENT AUDITORS Consent of Independent Auditors - ------------------------------- The Board of Directors and Stockholders NAM Corporation We consent to the use of our report dated October 23, 1995 relating to the consolidated financial statements of NAM Corporation as of June 30, 1995 and for the year ended June 30, 1995, the six months ended June 30, 1994, and the year ended December 31, 1993, and to the references to our firm under the headings "Experts" and "Selected Consolidated Financial Data" in the Registration Statement on Form SB-2 and related Prospectus of NAM Corporation. /s/ KPMG PEAT MARWICK LLP ------------------------------- KPMG PEAT MARWICK LLP Jericho, New York July 30, 1996 EX-23.3 22 EXHIBIT 23.3 Exhibit 23.3 Anthony J. Mercorella, Esq. July 15, 1996 Mr. Roy Israel NAM Corporation 1010 Northern Boulevard, Suite 336 Great Neck, NY 11021 Dear Mr. Israel: I do hereby consent to my inclusion as a nominee director of NAM Corporation in the Company's Registration Statement on Form SB-2. Very truly yours, /s/ Anthony J. Mercorella ------------------------- Anthony J. Mercorella -----END PRIVACY-ENHANCED MESSAGE-----