SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
_______________
Date of Report (Date of earliest event reported):
October 27, 1997
NATIONAL AFFILIATED CORPORATION
Louisiana
(State or other jurisdiction of incorporation or organization)
0-13538
(Commission File No. )
72-0947819
(I.R.S. Employer
Identification No.)
7228 England Drive, Suite 24
Alexandria, Louisiana
(Address of principal executive offices)
71303
(Zip Code)
Registrant's telephone number, including area code: (318) 473-4355
______________________________________
(Former address, if changed since last report)
INFORMATION INCLUDED IN THIS REPORT
Item 9. Sales of Equity Securities Pursuant to Regulation S.
During the fourth quarter, National Affiliated Corporation ("NAC")
participated in offerings to offshore investors for their investment in a series
of convertible debentures. Such offerings to offshore investors were made
pursuant to Regulation S promulgated under the Securities Act of 1933, as
amended ("Regulation S"). The offered convertible debentures are
guaranteed by The Southern Group, Inc., the majority shareholder of NAC. The
following information is provided with respect to such convertible debentures:
<TABLE>
<C> <C> <C> <C> <C>
Debenture Gross Offering Price Broker's Fee Net
(1) $240,000 $200,000 $24,000 $176,000
(2) $1,380,000 $1,150,000 $138,000 $1,012,000
(3) $1,111,112 $1,000,000 $186,660 $813,340
(4) $2,970,001 $2,673,000 $320,760 $2,352,240
</TABLE>
(1)(a)On October 23, 1997, NAC sold convertible debentures entitled 12%
Series D Subordinated Convertible Redeemable Debenture due October 31, 1998, in
the face amount of $240,000 ("Debenture").
(b)The Debenture was sold to a non U.S. Person as the term is defined
pursuant to Rule 902 of Regulation S.
(c)The total offering price was $200,000, a 16.67% discount from the face
value of the Debenture. The broker, Vengua Capital Markets ("Vengua"), a
placement agent in Lemington Spa, Great Britain, was paid a broker's fee of 12%
or $24,000. NAC received cash in an amount equal to the offering price net of
the broker's fee or $176,000.
(d)The Debenture was sold pursuant to Regulation S.
(e)The holder of the Debenture, commencing 45 days after the closing of
the offering, has the option to convert all or any amount over $10,000 of the
face amount to the Debenture to common stock, $0.001 par value, of the NAC
("Common Stock") at a conversion price equal to the lower of (i) $2.41, (ii) 80%
of the average of the closing bid prices of the Common Stock for the five
business days immediately preceding the date of receipt by NAC of a notice of
conversion as reported by the National Association of Securities Dealers
Electronic Bulletin Board ("Conversion Shares"). If the number of
resultant Conversion Shares would as a matter of law or pursuant to a regulatory
authority require the Company to seek shareholder approval of such issuance, NAC
shall take the necessary steps to obtain such approval. If such approval is not
obtained within 45 days, NAC shall be required to redeem the Debenture. To
effectuate the conversion, the holder shall be required to execute investment
representations and documents reasonably required to comply with Regulation S.
If it fails to deliver the Conversion Shares to holder within ten
days of the conversion, NAC has agreed to pay liquidated damages to the holder
in the amount of $500 per day late, starting after the initial ten days, for up
to ten additional days late and $5,000 plus an additional $1,000 for every day
late after the additional ten days late. NAC can redeem the Debenture at any
time within 45 days of issuance or after 90 from issuance by paying 120% of
face value.
(2)(a)On October 27, 1997, NAC sold convertible debentures entitled 12%
Series D Subordinated Convertible Redeemable Debenture due October 31, 1998, in
the face amount of $1,380,000 ("Debenture").
(b)The Debenture was sold to non-U.S. Persons as the term is defined
pursuant to Rule 902 of Regulation S.
(c)The total offering price was $1,150,000, a 16.67% discount from the
face value of the Debenture. The broker, Vengua, a placement agent in Lemington
Spa, Great Britain, was paid a broker's fee of 12% or $138,000. NAC received
cash in an amount equal to the offering price net of the broker's fee or
$1,012,000.
(d)The Debenture was sold pursuant to Regulation S.
(e)The holder of the Debenture, commencing 45 days after the closing of
the offering, has the option to convert all or any amount over $10,000 of the
face amount to the Debenture to common stock, $0.001 par value, of the NAC
("Common Stock") at a conversion price equal to the lower of (i) $.80, (ii) 75%
of the average of the closing bid prices of the Common Stock for the five
business days immediately preceding the date of receipt by NAC of a notice of
conversion, or (iii) 75% of the closing bid price of the Common
Stock for the business day immediately preceding the closing date as reported by
the National Association of Securities Dealers Electronic Bulletin Board
("Conversion Shares"). If the number of resultant Conversion Shares would as
a matter of law or pursuant to a regulatory authority require the Company to
seek shareholder approval of such issuance, NAC shall take the necessary steps
to obtain such approval. If such approval is not obtained within 45 days,
NAC shall be required to redeem the Debenture. To effectuate the conversion,
the holder shall be required to execute investment representations and documents
reasonably required to comply with Regulation S. If it fails to deliver the
Conversion Shares to holder within ten days of the conversion, NAC has agreed
to pay liquidated damages to the holder in the amount of $500 per day late,
starting after the initial ten days, for up to ten additional days
late and $5,000 plus an additional $1,000 for every day late after the
additional ten days late. NAC can redeem the Debenture at any time within 45
days of issuance or after 90 from issuance by paying 120% of face value.
(3)(a)On November 14, 1997, NAC sold one convertible debenture entitled
12% Series X Subordinated Convertible Redeemable Debenture due November 30,
1998, in the face amount of $1,111,112 ("Debenture").
(b)The Debenture was sold to a non-U.S. Person as the term is defined
pursuant to Rule 902 of Regulation S.
(c)The total offering price was $1,000,000, a 16.67% discount from the
face value of the Debenture. The broker, Vengua, a placement agent in Lemington
Spa, Great Britain, was paid a broker's fee of 12% or $186,660. NAC received
cash in an amount equal to the offering price net of the broker's fee or
$813,340.
(d)The Debenture was sold pursuant to Regulation S.
(e)The holder of the Debenture, commencing 45 days after the closing of
the offering, has the option to convert all or any amount over $10,000 of the
face amount to the Debenture to common stock, $0.001 par value, of the NAC
("Common Stock") at a conversion price equal to the lower of (i) 80% of the
average of the closing bid prices of the Common Stock for the five business
days immediately preceding the date of receipt by NAC of a notice of conversion
or (ii) the average of the closing bid price of the Common Stock for
the business day immediately preceding the closing date as reported by the
National Association of Securities Dealers Electronic Bulletin Board
("Conversion Shares"). If the number of resultant Conversion Shares would as
a matter of law or pursuant to a regulatory authority require the Company to
seek shareholder approval of such issuance, NAC shall take the necessary steps
to obtain such approval. If such approval is not obtained within 45 days,
NAC shall be required to redeem the Debenture. To effectuate the conversion,
the holder shall be required to execute investment representations and documents
reasonably required to comply with Regulation S. If it fails to deliver the
Conversion Shares to holder within ten days of the conversion, NAC has agreed
to pay liquidated damages to the holder in the amount of $500 per day late,
starting after the initial ten days, for up to ten additional days late and
$5,000 plus an additional $1,000 for every day late after the additional ten
days late. NAC can redeem the Debenture at any time within 45 days of issuance
or after 90 from issuance by paying 120% of face value.
(4)(a) On December 12, 1997, and December 15, 1997, NAC sold convertible
debentures entitled 12% Series J Subordinated Convertible Redeemable Debenture
Due December 31, 1998, in the face amount of $2,970,001 ("Debenture").
(b)The Debenture was sold to non U.S. Persons as the term is defined
pursuant to Rule 902 of Regulation S.
(c)The total offering price was $2,673,000, a 10% discount from the face
value of the Debenture. The broker, Vengua, a placement agent in Lemington Spa,
Great Britain, was paid a broker's fee of 12% or $320,760. NAC will receive
cash in an amount equal to the offering price net of the broker's fee or
$2,352,240.
(d)The Debenture was sold pursuant to Regulation S.
(e)The holder of the Debenture, commencing 45 days after the closing of
the offering, has the option to convert all or any amount over $10,000 of the
face amount to the Debenture to common stock, $0.001 par value, of the NAC
("Common Stock") at a conversion price equal to the lower of (i) 75% of the
average of the closing bid prices of the Common Stock for the five business
days immediately preceding the date of receipt by NAC of a notice of conversion,
or (ii) 80% of the average of the closing bid prices of the Common Stock for the
five business days immediately preceding the closing date as reported by the
National Association of Securities Dealers Electronic Bulletin Board
("Conversion Shares"). If the number of resultant Conversion Shares would as
a matter of law or pursuant to a regulatory authority require the Company to
seek shareholder approval of such issuance, NAC shall take the necessary steps
to obtain such approval. If such approval is not obtained within 45 days, NAC
shall be required to redeem the Debenture. To effectuate the conversion, the
holder shall be required to execute investment representations and documents
reasonably required to comply with Regulation S. If it fails to deliver the
Conversion Shares to holder within ten days of the conversion, NAC has agreed to
pay liquidated damages to the holder in the amount of $500 per day late,
starting after the initial ten days, for up to ten additional days late and
$5,000 plus an additional $1,000 for every day late after the additional ten
days late. NAC can redeem the Debenture at any time within 30 days of
issuance by paying 120% of face value or at any time after 90 days from issuance
by paying 125% of face value.
(5)(a)On December 4, 1997, NAC issued warrants entitled Outstanding
Investor Warrants ("Warrants") for the benefit of investors in the Series D
Subordinated Convertible Redeemable Debentures discussed above. NAC delivered
to an escrow agent a total of 675,000 Warrants as described in the following
table:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Cash
Investment Series 1 Series 2 Series 3 Series 4 Series 5 Total
Investor 1,350,000 135,000 135,000 135,000 135,000 135,000 675,000
</TABLE>
(b)The Warrants were issued to non U.S. Persons as the term is defined
pursuant to Rule 902 of Regulation S.
(c)The Warrants were issued at a ratio of 5 Warrants for every $10 of cash
invested in the debentures
(d)The Debenture was sold pursuant to Regulation S.
(e) Each Warrant can be exercised at any time prior to the 31st day of
October, 1999. The following exercise prices apply to each series of Warrants
as indicated: Series 1 $3.00 per warrant, Series 2 $3.25 per warrant, Series 3
$3.50 per warrant, Series 4 $3.75 per warrant, and Series 5 $4.00 per warrant.
As of January 26, 1998, the following conversions have occurred with
respect to the
convertible debentures that are the subject of this Form 8-K:
<TABLE>
<C> <C> <C> <C> <C> <C>
Debenture Gross Amount Converted Number of Shares Amount Left Shares in
Escrow
(1) $240,000 $10,000 14,198 $230,000 222,500
(2) $1,380,000 $185,000 344,169 $1,195,000 1,228,000
(3) $1,111,112 $100,000 206,794 $1,011,112 0
(4) $2,970,001 $0 0 $2,970,001 2,797,014
</TABLE>
NAC reported the issuance of convertible debentures issued in the second
quarter of 1997 on Form 10-QSB for the second quarter of 1997 ("2Q 10-QSB").
Such 2Q 10-QSB is incorporated herein in its entirety by this reference. NAC
also reported the issuance of convertible debentures issued in the third quarter
of 1997 of Form 10-QSB for the third quarter of 1997 ("3Q 10-QSB"). Such 3Q
10-QSB is incorporated herein in its entirety by this reference. As of
January 26, 1998, the following conversions have occurred with respect
to the previously reported convertible debentures:
<TABLE>
<C> <C> <C> <C> <C> <C>
Debenture Gross Amt Converted No of Shares Amount Left Shares in
Escrow
2Q Debentures $1,500,000 $1,500,000 1,422,560 $0 0
3Q Debentures $3,347,904 $2,148,000 2,211,528 $460,544 1,346,514*
</TABLE>
_____________
* These shares represent two share certificates. NAC issued a replacement
share certificate for 833,334 shares and did not receive in return a certificate
representing the shares being replaced. Accordingly, NAC presently is seeking
return of the remaining 513,180 shares from escrow.
EXHIBITS
4.01-12% Series D Subordinated Convertible Redeemable Debenture Due
October 31, 1998
4.02-12% Series D Subordinated Convertible Redeemable Debenture Due
October 31, 1998
4.03-12% Series X Subordinated Converible Redeemable Debenture Due
November 30, 1998
4.04-12% Series J Subordinated Convertible Redeemable Debenture Due
December 31, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February 6, 1998.
NATIONAL AFFILIATED CORPORATION
By: /s/ T. Brent Chapel
T. Brent Chapel, Vice Chairman and Chief Financial
Officer
Exhibit 4.01
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD IN
THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE
ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS
(AS DEFINED IN REGULATION S UNDER THE ACT) EXCEPT
PURSUANT TO REGISTRATION UNDER THE ACT OR AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND
APPLICABLE STATE SECURITIES LAWS.
No. US $__________
NATIONAL AFFILIATED CORPORATION
12% SERIES D SUBORDINATED CONVERTIBLE REDEEMABLE
DEBENTURE DUE OCTOBER 31, 1998
THIS DEBENTURE is one of a duly authorized issue of Debentures of National
Affiliated Corporation, a corporation duly organized and existing under the laws
of Louisiana (the "Company") designated as its 12% Series D Subordinated
Convertible Redeemable Debentures Due October 31, 1998, in an aggregate
principal face amount not exceeding One Million Six Hundred Fifty Thousand
Dollars (U.S. $1,650,000) which Debentures are being purchased at 83.33% of
the face amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to _______________________ the
registered holder hereof and its successors and assigns (the "Holder"), the
principal face sum of ______________________________ Dollars (US $________) on
October 31, 1998 (the "Maturity Date"), and to pay interest on the principal sum
outstanding, at the rate of 12% per annum due and payable quarterly commencing
October 31, 1997 pursuant to paragraph 4(b) herein and pursuant to the terms
and conditions of the Subscription Agreement between the Company and __________
of even date herewith (the "Subscription Agreement"). Accrual of interest shall
commence on the date hereof and shall continue until payment in full of the
outstanding principal sum has been made or duly provided for. The interest
so payable will be paid to the person in whose name this Debenture (or one or
more predecessor Debentures) is registered on the records of the Company
regarding registration and transfers of the Debentures (the "Debenture
Register"); provided, however, that the Company's obligation to a transferee
of this Debenture arises only if such transfer, sale or other disposition is
made in accordance with the terms and conditions of the Subscription Agreement.
The principal of, and interest (with the exception of the prepaid interest set
forth in Section 4(b) herein) on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing on
the Debenture Register of the Company as designated in writing delivered to the
Company (with a copy to the Transfer Agent) by the Holder hereof from time to
time. The Company will pay the outstanding principal due upon this Debenture
before or on the Maturity Date, less any amounts required by law to be deducted
or withheld, to the Holder of this Debenture no later than the tenth (10th)
day prior to the Maturity Date by check or on the Maturity Date by wire transfer
and addressed to such Holder at the last address appearing on the Debenture
Register. The forwarding of such check or wire transfer shall constitute a
payment of outstanding principal hereunder and shall satisfy and discharge the
liability for principal on this Debenture to the extent of the sum represented
by such check or wire transfer plus any amounts so deducted. Interest
shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b)
herein.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Twenty-Five Thousand
Dollars (US$25,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holders surrendering the same but
not less than U.S. $10,000. No service charge will be made for such
registration or transfer or exchange, except that transferee shall pay any tax
or other governmental charges payable in connection therewith.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax or
other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933, as amended (the "Act") and
applicable state securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person
in whose name this Debenture is duly registered on the Company's Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Debenture be overdue,
and neither the Company nor any such agent shall be affected or bound by notice
to the contrary. Any holder of this Debenture, electing to exercise the
right of conversion set forth in Section 4(a) hereof, in addition to the
requirements set forth in Section 4(a), and any prospective transferee of this
Debenture, is also required to give the Company (i) written confirmation that it
is not a U.S. Person and the Debenture is not being converted on behalf of a
U.S. Person ("Notice of Conversion") or (ii) an opinion of U.S. counsel
to the effect that the Debenture and shares of common stock issuable upon
conversion or transfer thereof have been registered under the 1933 Act or are
exempt from such registration. In the event a Notice of Conversion or opinion
of counsel is not provided the Holder hereof will not be entitled to exercise
the right to convert or transfer the Debentures.
4. (a) The Holder of this Debenture is entitled, at its option, at any
time commencing 45 days after closing of the Offering hereof to convert all or
any amount over $10,000 of the principal face amount of this Debenture then
outstanding into shares of common stock, $0.001 par value per share, of the
Company (the "Common Stock"), at a conversion price for each share of Common
Stock equal to the lower of (a) $2.41 or (b) 80% of the average of the closing
bid prices of the Common Stock for the five (5) business days immediately
preceding the date of receipt by the Company of notice of conversion
("Conversion Shares") as reported by the National Association of Securities
Dealers ("NASDAQ") (the "Conversion Price"). If the number of resultant
Conversion Shares would as a matter of law or pursuant to regulatory authority
require the Company to seek shareholder approval of such issuance, the Company
shall, as soon as practicable, take the necessary steps to seek such approval.
If such approval is not received within 45 days then Company shall be required
to redeem the Debenture pursuant to paragraph 4(c) herein. Such conversion
shall be effectuated by surrendering the Debentures to be converted (with a
copy, by facsimile or courier, to the Company) to the Escrow Agent with a copy
to Company with the form of conversion notice attached hereto as Exhibit I,
executed by the Holder of this Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion (as above provided) hereof, and
accompanied by proper assignment hereof in blank. Accrued but unpaid interest
shall be subject to conversion. No fractional shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The transferee or issuee
shall execute such investment representations or other documents as are
respectively required by counsel in order to ascertain the available
registration exemption. The date on which notice of conversion is given
shall be deemed to be the date on which the Holder has delivered this Debenture,
with the assignment and conversion notice duly executed, to the Escrow Agent
with a copy to Company or, if earlier, the date set forth in such notice of
conversion if the Debenture is received by the Escrow Agent and Company within
five (5) business days thereafter. The transferee or issuee shall execute such
investment representations or other documents as are reasonably required by
counsel in order to ascertain the available registration exemption.
(b)Interest at the rate of 12% per annum shall be payable in advance,
quarterly commencing on the date of closing. However, at Closing, the Company
shall prepay the first 3 months interest by issuing in Common Stock of the
Company as follows: Based on the average closing bid prices of the Common Stock
for the last 5 consecutive trading days prior to Closing ("Market Price") the
Company shall issue to the Holder shares of Common Stock in an amount equal to
the total monthly interest accrued and due divided by 80% of the Market Price
(the "Interest Shares"). Common Stock issued pursuant hereto shall be issued
pursuant to Regulation S or other applicable exemption to federal and state
securities laws in accordance with the terms of the Subscription Agreement.
Thereafter, commencing 91 days after Closing the Company shall pay interest on
a quarterly basis in advance in cash (or Common Stock, based on the above
formula, at the Company's option).
(c)At any time within 45 days of issuance of the Debenture the Company
shall have the option to redeem the Debenture in full by paying to the Holder
120% of the face amount of the Debenture. In addition, at any time on or after
90 days the Company shall have the option to pay to the Holder 120% of the
principal face amount of the Debenture, in full, to the extent conversion has
not occurred pursuant to paragraph 4(a) herein, or prepay upon maturity if the
Debenture is not converted. The Company shall give the Holder 5 days written
notice and the Holder shall have the option to convert the Debenture or any
part thereof into shares of Common Stock in accordance with the terms of
paragraph 4(a), or accept the cash repayment. Any shares issued pursuant to the
options shall be issued pursuant to Regulation S or a Registration Statement.
Notwithstanding the Company's Notice of Redemption stated in paragraph 4(c), the
Holder shall retain its right to convert into Common Stock under the terms and
conditions of the conversion right stated in paragraph 4(a) of the Agreement.
Should the Holder fail to convert during the 5 business day conversion period,
the Company shall immediately wire the funds to the Holder's bank account within
3 business days thereafter. The Holder shall notice the Company concerning
specific wiring instructions where the redemption process shall be paid. If the
Company does not have a sufficient number of Common Shares to effect conversion,
the Holder shall have the right to demand redemption on the terms contained in
this paragraph. If the Company elects such redemption the Holder shall have
the same conversion rights as described herein.
5. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place, and rate, and in the coin
currency, herein prescribed.
6. The Company hereby expressly waives demand and presentment for payment,
notice of nonpayment, protest, notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, bringing of suit and diligence in taking
any action to collect amounts called for hereunder and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
7. The Company agrees to pay all costs and expenses, including reasonable
attorneys' fees, which may be incurred by the Holder in collecting any amount
due under this Debenture.
8.If one or more of the following described "Events of Default" shall
occur (and shall not be caused by misrepresentation or omission by Holder in
Holders Subscription Agreement) and continue for 30 days unless a different
period is otherwise stated below:
(a) The Company shall default in the payment of principal or interest on this
Debenture; or
(b) Any of the representations or warranties made by the Company herein, in the
Subscription Agreement, or in any certificate or financial or other written
statements heretofore or hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Debenture or the Subscription
Agreement shall be false or misleading in any material respect at the time
made; or
(c) The Company shall fail to perform or observe, in any material respect, any
other covenant, term, provision, condition, agreement or obligation of the
Company under this Debenture and such failure shall continue uncured for a
period of thirty (30) days after notice from the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing its liability
to pay its debts generally as they mature; (3) make an assignment for the
benefit of creditors or commence proceedings for its dissolution; or (4) apply
for or consent to the appointment of a trustee, liquidator or receiver for its
or for a substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the Company or for
a substantial part of its property or business without its consent and shall not
be discharged within thirty (60) days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company and shall
not be dismissed within thirty (30) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or similar process, in
excess of One Million ($1,000,000) Dollars in the aggregate shall be entered or
filed against the Company or any of its properties or other assets and shall
remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15)
days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Company and, if instituted against
the Company, shall not be dismissed within thirty (60) days after such
instruction of the Company shall by any action or answer approve of, consent to,
or acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding; or
(i) The Company shall have its Common Stock delisted from the over-the-counter
market.
(j) The Company shall fail to issue the Common Stock within seven (7) business
days pursuant to paragraph 4 herein and as permitted by then current SEC
guidelines for this type of offering without a restrictive legend.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
(further) notice of any kind (other than notice of acceleration), all of which
are hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies provided herein or any other rights or remedies afforded by
law.
9.(a)This Debenture represents a secured obligation of the Company
guaranteed by The Southern Group, Inc. pursuant to paragraph 9(b) herein.
However, no recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, officer or director, as such, past,
present or future, of the Company whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise,
all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
(b)The Southern Group, Inc. shall contemporaneously with the issuance of
this Debenture enter into a guarantee in the form attached hereto. All Holders
of the Debentures shall have equal priority regardless of the time of their
purchase. The Southern Group, Inc. shall take all steps necessary to execute
appropriate guarantee documents and shall provide the Holder with an
opinion of counsel or other evidence that such guarantee is enforceable in
accordance with its terms.
10.The Holder of this Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon exercise thereof except under circumstances which will not result
in a violation of the Act or any applicable state Blue Sky law
or similar laws relating to the sale of securities.
11.In case any provision of this Debenture is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or unenforceable,
such provision shall be adjusted rather than voided, if possible, so that it is
enforceable to the maximum extent possible, and the validity and enforceability
of the remaining provisions of this Debenture will not in any way be affected or
impaired thereby.
12.This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the Company
and the Holder with respect to the subject hereof. Neither this Debenture nor
any term hereof may be amended, waived, discharged or terminated other than by
a written instrument signed by the Company and the Holder.
13.This Debenture shall be governed by and construed in accordance with
the laws of New York. Holder hereby waives trial by jury and consents to
exclusive jurisdiction and venue in the State of New York.
14.Any controversy or claim relating to this Agreement ("Arbitrable
Dispute") shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA") as such
rules may be modified herein or as otherwise agreed by the parties in
controversy. The forum for arbitration shall be New York, New York. Broker
agrees to submit to the jurisdiction of the New York Courts for purposes of
confirming any award.
15.As set forth herein, the Company shall use all reasonable efforts to
issue and deliver, within seven (7) business days after the Holder has fulfilled
all conditions and submitted all necessary documents duly executed and in proper
form required for conversion (the "Deadline"), to the Holder or any part
receiving a Debenture by transfer from the Holder (together, a "Holder"), at
the address of the Holder on the books of the Company, a certificate or
certificates for the number of Shares of Common Stock to which the Holder shall
be entitled. It is understood by both parties that such certificates must
comply with the then enacted SEC regulations governing this transaction. The
Company understands that a delay in the issuance of the Shares of Common
Stock beyond the Deadline could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Company agrees to pay as
liquidated damages to the Holder for late issuance of Shares (not resulting from
causes out of Company's control) upon conversion in accordance with the
following schedule (where "No. Business Days Late" is defined as the
number of business days beyond ten (10) business days from the date of receipt
by the Company and the transfer agent of a Notice of Conversion of all necessary
documentation duly executed and in proper form required for conversion,
including the original Debenture to be converted, all in accordance with the
Debenture, Subscription Agreement and the requirements of the transfer agent):
<TABLE>
<C> <C>
Liquidated Damages per
No. Business Days Late $100,000 of Debenture
1 $500
2 $1,000
3 $1,500
4 $2,000
5 $2,500
6 $3,000
7 $3,500
8 $4,000
9 $4,500
10 $5,000
10 $5,000 + $1,000 each
Business Day Late beyond 10 days
</TABLE>
The Company shall pay the Holder any liquidated damages incurred under this
Section by check upon the earlier to occur of (i) issuance of the Shares to the
Holder or (ii) each monthly anniversary of the receipt of the Company of such
Holder's Notice of Conversion.
The Company shall at all times reserve and have available all Common Stock
necessary to meet conversion of the Debentures by all Holders of the entire
amount of Debentures then outstanding. If, at any time Holder submits a Notice
of Conversion and the Company does not have sufficient authorized but unissued
shares of Common Stock available to effect, in full, a conversion of the
Debentures (a "Conversion Default", the date of such default being referred to
herein as the "Conversion Default Date"), the Company shall issue to the Holder
all of the shares of Common Stock which are available, and the Notice of
Conversion as to any Debentures requested to be converted but not converted
(the "Unconverted Debentures"), upon Holder's sole option, may be deemed null
and void. The Company shall provide notice of such Conversion Default ("Notice
of Conversion Default") to all existing Holders of outstanding Debentures, by
facsimile, within one (1) business day of such default (with the original
delivered by overnight or two day courier), and the Holder shall give notice to
the Company by facsimile within five business days of receipt of the original
Notice of Conversion Default (with the original delivered by overnight or two
day courier) of its election to either nullify or confirm the Notice of
Conversion.
The Company agrees to pay to all Holders of outstanding Debentures, as
liquidated damages, payments for a Conversion Default ("Conversion Default
Payments") in the amount of (N/365) x (.24) x the initial issuance price of the
outstanding and/or tendered but not converted Debentures held by each Holder
where N = the number of days from the Conversion Default Date to the date
(the "Authorization Date") that the Company authorizes a sufficient number of
shares of Common Stock to effect conversion of all remaining Debentures. The
Company shall send notice ("Authorization Notice") to each Holder of outstanding
Debentures that additional shares of Common Stock have been authorized, the
Authorization Date and the amount of Holder's accrued Conversion Default
Payments. The accrued Conversion Default shall be paid in cash or shall be
convertible into Common Stock at the Conversion Rate, at the Holder's option,
payable as follows: (i) in the event Holder elects to take such payment in
cash, cash payments shall be made to such Holder of outstanding Debentures by
the fifth day of the following calendar month, or (ii) in the event Holder
elects to take such payment in stock, the Holder may convert such payment
amount into Common Stock at the conversion rate set forth in Section 4(a) at
anytime after the 5th day of the calendar month following the month in which the
Authorization Notice was received, until the maturity date. Nothing herein
shall limit the Holder's right to pursue actual damages for the Company's
failure to issue and deliver shares of Common Stock to the Subscriber in
accordance to the terms of the Form of Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated:
NATIONAL AFFILIATED CORPORATION
By:
Title:
Guaranteed By:
THE SOUTHERN GROUP, INC.
By:
Title:
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $______________ of the
above Debenture No. ___ into Shares of Common Stock of National Affiliated
Corporation (the "Company") according to the conditions set forth in such
Debenture, as of the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, as amended, and is
not converting the Debenture on behalf of any U.S. Person and the
representations contained in the Subscription Agreement are true and correct.
If Shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
Date of Conversion*
Applicable Conversion Price
Signature
[Print Name of Holder and Title of Signer]
Address:
Medallion Signature Guaranty
* This original Debenture and Notice of Conversion must be received by the
Company by the fifth business date following the Date of Conversion.
Exhibit 4.02
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN
REGULATION S UNDER THE ACT) EXCEPT PURSUANT TO
REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE
SECURITIES LAWS.
No._____ US $_______
NATIONAL AFFILIATED CORPORATION
12% SERIES D SUBORDINATED CONVERTIBLE REDEEMABLE
DEBENTURE DUE OCTOBER 31,1998
THIS DEBENTURE is one of a duly authorized issue of Debentures of
National Affiliated Corporation, a corporation duly organized and existing
under the laws of Louisiana (the "Company") designated as its 12% Series D \
Subordinated Convertible Redeemable Debentures Due October 31, 1998, in an
aggregate principal face amount not exceeding One Million Six Hundred Fifty
Thousand Dollars (U.S. $1,650,000) which Debentures are being purchased at
83.33% of the face amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to __________, the
registered holder hereof and its successors and assigns (the "Holder"), the
principal face sum of ___ ______________________________ (US $_______) on
October 31, 1998 (the "Maturity Date"), and to pay interest on the principal sum
outstanding, at the rate of 12% per annum due and payable quarterly commencing
October 31, 1997 pursuant to paragraph 4(b) herein and pursuant to the terms and
conditions of the Subscription Agreement between the Company and __________ of
even date herewith (the "Subscription Agreement"). Accrual of interest shall
commence on the date hereof and shall continue until payment in full of the
outstanding principal sum has been made or duly provided for. The interest so
payable will be paid to the person in whose name this Debenture (or one or more
predecessor Debentures) is registered on the records of the Company regarding
registration and transfers of the Debentures (the "Debenture Register");
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is
made in accordance with the terms and conditions of the Subscription Agreement.
The principal of, and interest (with the exception of the prepaid interest set
forth in Section 4(b) herein) on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing on
the Debenture Register of the Company as designated in writing delivered to the
Company (with a copy to the Transfer Agent) by the Holder hereof from time to
time. The Company shall pay the outstanding principal due upon this Debenture
before or on the Maturity Date, less any amounts required by law to be deducted
or withheld, to the Holder of this Debenture no later than the tenth (10th) day
prior to the Maturity Date by check or on the Maturity Date by wire transfer and
addressed to such Holder at the last address appearing on the Debenture
Register. The forwarding of such check or wire transfer
shall constitute a payment of outstanding principal hereunder and shall satisfy
and discharge the liability for principal on this Debenture to the extent of the
sum represented by such check or wire transfer plus any amounts so deducted.
Interest shall be payable in Common Stock (as defined below) pursuant to
paragraph 4(b) herein.
This Debenture is subject to the following additional provisions:
1.The Debentures are issuable in denominations of Twenty-Five
Thousand Dollars (US$25,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holders surrendering the same but
not less than U.S. $10,000. No service charge will be made for such
registration or transfer or exchange, except that transferee shall pay any tax
or other governmental charges payable in connection therewith.
2.The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax or
other applicable laws at the time of such payments.
3.This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933, as amended (the "Act") and
applicable state securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected or bound by notice to the
contrary. Any holder of this Debenture, electing to exercise the right of
conversion set forth in Section 4(a) hereof, in addition to the requirements set
forth in Section 4(a), and any prospective transferee of this Debenture, is also
required to give the Company (i) written confirmation that it is not a U.S.
Person and the Debenture is not being converted on behalf of a U.S. Person
("Notice of Conversion") or (ii) an opinion of U.S. counsel to the effect that
the Debenture and shares of common stock issuable upon conversion
or transfer thereof have been registered under the 1933 Act or are exempt from
such registration. In the event a Notice of Conversion or opinion of counsel
is not provided the Holder hereof will not be entitled to exercise the right to
convert or transfer the Debentures.
4.(a)The Holder of this Debenture is entitled, at its option, at any
time commencing 45 days after closing of the Offering hereof to convert all or
any amount over $10,000 of the principal face amount of this Debenture then
outstanding into shares of common stock, $0.001 par value per share, of the
Company (the "Common Stock"), at a conversion price for each share of Common
Stock equal to the lower of (a) $.80, (b) 75% of the average of the closing bid
prices of the Common Stock for the five (5) business days immediately preceding
the date of receipt by the Company of notice of conversion or (c) 75% of the
closing bid price of Common Stock for the business day immediately preceding the
date of receipt by the Company of notice of conversion ("Conversion Shares") as
reported by the National Association of Securities Dealers ("NASDAQ") (the
"Conversion Price"). If the number of resultant Conversion Shares would as a
matter of law or pursuant to regulatory authority require the Company to seek
shareholder approval of such issuance, the Company shall, as soon as
practicable, take the necessary steps to seek such approval. If such approval
is not received within 45 days then Company shall be required to
redeem the Debenture pursuant to paragraph 4(c) herein. Such conversion shall
be effectuated by surrendering the Debentures to be converted (with a copy, by
facsimile or courier, to the Company) to the Escrow Agent with a copy to Company
with the form of conversion notice attached hereto as Exhibit 1, executed by the
Holder of this Debenture evidencing such Holder's intention to convert this
Debenture or a specified portion (as above provided) hereof, and accompanied by
proper assignment hereof in blank. Accrued but unpaid interest shall be subject
to conversion. No fractional shares or scrip representing fractions of shares
will be issued on conversion, but the number of shares issuable shall be rounded
to the nearest whole share. The transferee or issuee shall execute such
investment representations or other documents as are respectively required by
counsel in order to ascertain the available registration exemption. The date
on which notice of conversion is given shall be deemed to be the
date on which the Holder has delivered this Debenture, with the assignment and
conversion notice duly executed, to the Escrow Agent with a copy to Company or,
if earlier, the date set forth in such notice of conversion if the Debenture is
received by the Escrow Agent and Company within five (5) business days
thereafter. The transferee or issuee shall execute such investment
representations or other documents as are reasonably required by counsel in
order to ascertain the available registration exemption.
(b)Interest at the rate of 12% per annum shall be payable in
advance, quarterly commencing on the date of closing. However, at Closing, the
Company shall prepay the first 3 months interest by issuing in Common Stock of
the Company as follows: Based on the average closing bid prices of the Common
Stock for the last 5 consecutive trading days prior to Closing ("Market Price")
the Company shall issue to the Holder shares of Common Stock in an amount equal
to the total monthly interest accrued and due divided by 80% of the Market Price
(the "Interest Shares"). Common Stock issued pursuant hereto shall be issued
pursuant to Regulation S or other applicable exemption to federal and state
securities laws in accordance with the terms of the Subscription Agreement.
Thereafter, commencing 91 days after Closing the Company shall pay interest on a
quarterly basis in advance in cash (or Common Stock, based on the above formula,
at the Company's option).
(c)At any time within 45 days of issuance of the Debenture the
Company shall have the option to redeem the Debenture in full by paying to the
Holder 125% of the face amount of the Debenture. In addition, at any time on or
after 90 days the Company shall have the option to pay to the Holder 125% of the
principal face amount of the Debenture, in full, to the extent conversion has
not occurred pursuant to paragraph 4(a) herein, or prepay upon maturity if the
Debenture is not converted. The Company shall give the Holder 5 days written
notice and the Holder shall have the option to convert the Debenture or any part
thereof into shares of Common Stock in accordance with the terms of paragraph
4(a), or accept the cash repayment. Any shares issued pursuant to the options
shall be issued pursuant to Regulation S or a Registration Statement.
Notwithstanding the Company's Notice of Redemption stated in paragraph 4(c),
the Holder shall retain its right to convert into Common Stock under the terms
and conditions of the conversion right stated in paragraph 4(a) of the
Agreement. Should the Holder fail to convert during the 5 business day
conversion period, the Company shall immediately wire the funds to the
Holder's bank account within 3 business days thereafter. The Holder shall
notice the Company concerning specific wiring instructions where the redemption
process shall be paid. If the Company does not have a sufficient number of
Common Shares to effect conversion, the Holder shall have the right to demand
redemption on the terms contained in this paragraph. If the Company elects such
redemption the Holder shall have the same conversion rights as described herein.
5.No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place, and rate, and in the coin
currency, herein prescribed.
6.The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, bringing of suit and diligence
in taking any action to collect amounts called for hereunder and shall be
directly and primarily liable for the payment of all sums owing and to be
owing hereon, regardless of and without any notice, diligence, act or omission
as or with respect to the collection of any amount called for hereunder.
7.The Company agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by the Holder in collecting
any amount due under this Debenture.
8.If one or more of the following described "Events of Default" shall
occur (and shall not be caused by misrepresentation or omission by Holder in
Holders Subscription Agreement) and continue for 30 days unless a different
period is otherwise stated below:
(a) The Company shall default in the payment of principal or
interest on this Debenture; or
(b) Any of the representations or warranties made by the
Company herein, in the Subscription Agreement, or in any
certificate or financial or other written statements heretofore
or hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Debenture
or the Subscription Agreement shall be false or misleading in
any material respect at the time made; or
(c) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under this Debenture
[and such failure shall continue uncured for a period of thirty
(30) days after notice from the Holder of such failure]; or
(d) The Company shall (1) become insolvent; (2) admit in writing
its liability to pay its debts generally as they mature; (3) make
an assignment for the benefit of creditors or commence
proceedings for its dissolution; or (4) apply for or consent to
the appointment of a trustee, liquidator or receiver for its or
for a substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial art of its property or business
without its consent and shall not be discharged within sixty
(60) days after such appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall
assume custody or control of the whole or any substantial
portion of the properties or assets of the Company and shall
not be dismissed within thirty (30) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or
similar process, in excess of One Million ($1,000,000) Dollars
in the aggregate shall be entered or filed against the Company
or any of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of fifteen (15)
days or in any event later than five (5) days prior to the date
of any proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted against
the Company, shall not be dismissed within thirty (60) days
after such instruction of the Company shall by any action or
answer approve of, consent to, or acquiesce in any such
proceedings or admit the material allegations of, or default in
answering a petition filed in any such proceeding; or
(i) The Company shall have its Common Stock delisted from the
over-the-counter market.
(j) The Company shall fail to issue the Common Stock within
seven (7) business days pursuant to paragraph 4 herein and as
permitted by then current SEC guidelines for this type of
offering without a restrictive legend.
(k) The Company shall fail within three (3) business days from the
date of closing to perfect a secured interest for the debenture
in its asset by the filing of a UCC-1 statement and all other
necessary documents.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
(further) notice of any kind (other than notice of acceleration), all of which
are hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies provided herein or any other rights or remedies afforded
by law.
9.(a)This Debenture represents a secured obligation of the Company
guaranteed by The Southern Group, Inc. pursuant to paragraph 9(b) herein.
However, no recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, officer or director, as such, past,
present or future, of the Company whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise,
all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
(b)The Southern Group, Inc. shall contemporaneously with the
issuance of this Debenture enter into a guarantee in the form attached hereto.
All Holders of the Debentures shall have equal priority regardless of the time
of their purchase. The Southern Group, Inc. shall take all steps necessary to
execute appropriate guarantee documents and shall provide the Holder with an
opinion of counsel or other evidence that such guarantee is enforceable in
accordance with its terms.
10.The Holder of this Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon exercise thereof except under circumstances which will not result
in a violation of the Act or any applicable state Blue Sky law or similar laws
relating to the sale of securities.
11.In case any provision of this Debenture is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or unenforceable,
such provision shall be adjusted rather than voided, if possible, so that it is
enforceable to the maximum extent possible, and the validity and enforceability
of the remaining provisions of this Debenture will not in any way be affected or
impaired thereby.
12.This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the Company
and the Holder with respect to the subject hereof. Neither this Debenture nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Holder.
13.This Debenture shall be governed by and construed in accordance with
the laws of New York. Holder hereby waives trial by jury and consents to
exclusive jurisdiction and venue in the State of New York.
14.Any controversy or claim relating to this Agreement ("Arbitrable
Dispute") shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA") as such
rules may be modified herein or as otherwise agreed by the parties in
controversy. The forum for arbitration shall be New York, New York. Broker
agrees to submit to the jurisdiction of the New York Courts for purposes of
confirming any award.
15.As set forth herein, the Company shall use all reasonable efforts to
issue and deliver, within seven (7) business days after the Holder has fulfilled
all conditions and submitted all necessary documents duly executed and in proper
form required for conversion (the "Deadline"), to the Holder or any part
receiving a Debenture by transfer from the Holder (together, a "Holder"), at the
address of the Holder on the books of the Company, a certificate or certificates
for the number of Shares of Common Stock to which the Holder shall be entitled.
It is understood by both parties that such certificates must comply with the
then enacted SEC regulations governing this transaction. The Company
understands that a delay in the issuance of the Shares of Common Stock beyond
the Deadline could result in economic loss to the Holder. As compensation to
the Holder for such loss, the Company agrees to pay as liquidated damages to
the Holder for late issuance of Shares (not resulting from causes out of
Company's control) upon conversion in accordance with the following schedule
(where "No. Business Days Late" is defined as the number of business days
beyond ten (10) business days from the date of receipt by the Company and the
transfer agent of a Notice of Conversion of all necessary documentation duly
executed and in proper form required for conversion, including the original
Debenture to be converted, all in accordance with the Debenture, Subscription
Agreement and the requirements of the transfer agent):
<TABLE>
<C> <C>
Liquidated Damages per
No. Business Days Late $100,000 of Debenture
1 $500
2 $1,000
3 $1,500
4 $2,000
5 $2,500
6 $3,000
7 $3,500
8 $4,000
9 $4,500
10 $5,000
10 $5,000 + $1,000 each
Business Day Late beyond 10 days
</TABLE>
The Company shall pay the Holder any liquidated damages incurred under this
Section by check upon the earlier to occur of (i) issuance of the Shares to the
Holder or (ii) each monthly anniversary of the receipt of the Company of such
Holder's Notice of Conversion.
The Company shall at all times reserve and have available all Common Stock
necessary to meet conversion of the Debentures by all Holders of the entire
amount of Debentures then outstanding. If, at any time Holder submits a Notice
of Conversion and the Company does not have sufficient authorized but unissued
shares of Common Stock available to effect, in full, a conversion of the
Debentures (a "Conversion Default", the date of such default being referred to
herein as the "Conversion Default Date"), the Company shall issue to the Holder
all of the shares of Common Stock which are available, and the Notice of
Conversion as to any Debentures requested to be converted but not converted (the
"Unconverted Debentures"), upon Holder's sole option, may be deemed null and
void. The Company shall provide notice of such Conversion Default ("Notice of
Conversion Default") to all existing Holders of outstanding Debentures, by
facsimile, within one (1) business day of such default (with the original
delivered by overnight or two day courier), and the Holder shall give notice to
the Company by facsimile within five business days of receipt of the original
Notice of Conversion Default (with the original delivered by overnight or two
day courier) of its election to either nullify or confirm the Notice of
Conversion.
The Company agrees to pay to all Holders of outstanding Debentures, as
liquidated damages, payments for a Conversion Default ("Conversion Default
Payments") in the amount of (N/365) x (.24) x the initial issuance price of the
outstanding and/or tendered but not converted Debentures held by each Holder
where N = the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number of shares
of Common Stock to effect conversion of all remaining Debentures. The Company
shall send notice ("Authorization Notice") to each Holder of outstanding
Debentures that additional shares of Common Stock have been authorized, the
Authorization Date and the amount of Holder's accrued Conversion Default
Payments. The accrued Conversion Default shall be paid in cash or shall be
convertible into Common Stock at the Conversion Rate, at the Holder's option,
payable as follow: (i) in the event Holder elects to take such payment in cash,
cash payments shall be made to such Holder of outstanding Debentures by the
fifth day of the following calendar month, or (ii) in the event Holder elects
to take such payment in stock, the Holder may convert such payment amount into
Common Stock at the conversion rate set forth in Section 4(a) at anytime after
the 5th day of the calendar month following the month in which the Authorization
Notice was received, until the maturity date. Nothing herein shall limit the
Holder's right to pursue actual damages for the Company's failure
to issue and deliver shares of Common Stock to the Subscriber in accordance to
the terms of the Form of Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by an officer thereunto duly authorized.
Date:
NATIONAL AFFILIATED CORPORATION
By:
Title:
Guaranteed By:
THE SOUTHERN GROUP, INC.
By:
Title:
Exhibit 4.03
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S
UNDER THE ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF
U.S. PERSONS (AS DEFINED IN REGULATION S U UNDER THE ACT
OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE ACT AND APPLICABLE STATE SECURITIES LAWS.
No. _____________________ US $_________
NATIONAL AFFILIATED CORPORATION
12% SERIES X SUBORDINATED CONVERTIBLE REDEEMABLE
DEBENTURE DUE NOVEMBER 30, 1998
THIS DEBENTURE is one of a duly authorized issue of Debentures
of National Affiliated Corporation, a corporation duly organized and existing
under the laws of Louisiana (the "Company") designated as its 12% Series X
Subordinated Convertible Redeemable Debentures Due November 30, 1998,
in an aggregate principal face amount not exceeding ___ _______
________________ (U.S. $_______) which Debentures are being purchased
at 90% of the face amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to
_____________________, ____, the registered holder hereof and its
successors and assigns (the "Holder"), the principal face sum of
____________________________________________________________
______________ _______ ($_________) on November 30, 1998 (the
"Maturity Date"), and to pay interest on the principal sum outstanding, at the
rate of 12% per annum due and payable quarterly commencing
_______________, 1997 pursuant to paragraph 4(b) herein and pursuant to
the terms and conditions of the Subscription Agreement between the
Company and _____________________, ____ of even date herewith (the
"Subscription Agreement"). Accrual of interest shall commence on the date
hereof and shall continue until payment in full of the outstanding principal sum
has been made or duly provided for. The interest so payable will be paid to
the person in whose name this Debenture (or one or more of the predecessor
Debentures) is registered on the records of the Company regarding
registration and transfers of the Debentures (the "Debenture Register");
provided, however, that the Company's obligation to transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions of the Subscription Agreement.
The principal of, and interest (with the exception of the prepaid interest set
forth in Section 4(b) herein) on, this Debenture and payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing
on the Debenture Register of the Company as designated in writing delivered
to the Company (with a copy to the Transfer Agent) by the Holder hereof
from time to time. The Company will pay the outstanding principal due upon
this Debenture before or on the Maturity Date, less any amounts required by
law to be deducted or withheld, to the Holder of this Debenture no later than
the tenth (10th) day prior to the Maturity Date by check or on the Maturity
Date by wire transfer and addressed to such Holder at the last address
appearing on the Debenture Register. The forwarding of such check or wire
transfer shall constitute a payment of outstanding principal hereunder and shall
satisfy and discharge the liability for principal on this Debenture to the
extent of the sum represented by such check or wire transfer plus any amounts so
deducted. Interest shall be payable in Common Stock (as defined below)
pursuant to paragraph 4(b) herein.
This Debenture is subject to the additional provisions:
1.The Debentures are issuable in denominations of Ten
Thousand Dollars (US$10,000) and integral multiples thereof. The
Debentures are exchangeable for an equal aggregate principal amount of
Debentures of different authorized denominations, as requested by the
Holders surrendering the same but not less than U.S. $10,000. No service
charge will be made for such registration or transfer or exchange, except that
transferee shall pay any tax or other governmental charges payable in
connection therewith.
2.The Company shall be entitled to withhold from all payments
of principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax or
other applicable laws at the time of such payments.
3.This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the U.S. only in compliance with the Securities Act of 1933, as
amended (the "Act") and applicable state securities laws. Prior to due
presentment for transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly
registered on the Company's Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture be overdue, and neither the Company nor any
such agent shall be affected or bound by notice to the contrary. Any holder
of this Debenture, electing to exercise the right of conversion set forth in
Section 4(a) hereof, in addition to the requirements set forth in Section 4(a),
and any prospective transferee of this Debenture, is also required to give the
Company (i) written confirmation that it is not a U.S. Person and the
Debenture is not being converted on behalf of a U.S. Person ("Notice of
Conversion") or (ii) an opinion of U.S. counsel to the effect that the
Debenture and shares of common stock issuable upon conversion or transfer
thereof have been registered under the 1993 Act or are exempt from such
registration. In the event a Notice of Conversion or opinion of counsel is not
provided the Holder thereof will not be entitled to exercise the right to
convert or transfer the Debentures.
4.(a)The Holder of this Debenture is entitled, at its option,
at any time commencing 45 days after closing of the Offering hereof to
convert all or any amount over $10,000 of the principal face amount of this
Debenture then outstanding into shares of common stock, $0.01 par value per
share, of the Company (the "Common Stock"), at a conversion price for each
share of Common Stock equal to the lower of (a) 80% of the average of the
closing bid prices of the Common Stock for the five (5) business days
immediately preceding the date of receipt by the Company of notice of
conversion or (b) the average of the closing bid prices of the Common Stock
for the five (5) business days immediately preceding the closing date
("Conversion Shares") as reported by the National Association of Securities
Dealers ("NASDAQ") (the "Conversion Price"). If the number of resultant
Conversion Shares would as a matter of law or pursuant to regulatory
authority require the Company to seek shareholder approval of such issuance,
the Company shall, as soon as practicable, take the necessary steps to seek
such approval. If such approval is not received within 45 days then Company
shall be required to redeem the Debenture pursuant to paragraph 4(c) herein.
Such conversion shall be effectuated by surrendering the Debentures to be
converted (with a copy, by facsimile or courier, to the Company) to the
Company with the form of conversion notice attached hereto as Exhibit I,
executed by the Holder of this Debenture evidencing such Holder's intention
to convert this Debenture or a specified portion (as above provided) hereof,
and accompanied by proper assignment hereof in blank. Accrued but unpaid
interest shall be subject to conversion. No fractual shares or script
representing fractions of shares will be issued on conversion, but the number
of shares issuable shall be rounded to the nearest whole share. The transferor
or issue shall execute such investment representations or other documents as
are respectively required by counsel in order to ascertain the available
registration exemption. The date on which notice of conversion is given shall
be deemed to be the date on which the Holder has delivered this Debenture,
with the assignment and conversion notice duly executed, to the Company or,
if earlier, the date set forth in such notice of conversion if the Debenture is
received by the Company within five (5) business days thereafter. The
transferee or issuee shall execute such investment representations or other
documents as are reasonably required by counsel in order to ascertain the
available registration exemption.
(b)Interest at the rate of 12% per annum shall be payable
in advance, quarterly commencing ______________ __, 1997. However, at
Closing, the Company shall prepay the first 3 months interest by issue in
Common Stock of the Company as follows: Based on the average closing bid
prices of the Common Stock for the last 5 consecutive trading days prior to
Closing ("Market Price") the Company shall issue to the Holder shares of
Common Stock in an amount equal to the total monthly interest accrued and
due divided by 80% of the Market Price (the "Interest Shares"). Common
Stock issued pursuant hereto shall be issued pursuant to Regulation S or other
applicable exemption to federal and state securities laws in accordance with
the terms of the Subscription Agreement. Thereafter, commencing 21 days
after Closing the Company shall pay interest on a quarterly basis in advance
in cash (or Common Stock, based on the above formula, at the Closing's
option).
(c)At any time within 45 days of issuance of the
Debenture the Company shall have the option to redeem the Debenture in full
by paying to the Holder 120% of the face amount of the Debenture. In
addition, at any time on or after 90 days the Company shall have the option
to pay to the Holder 120% of the principal face amount of the Debenture, in
full, to the extent conversion has not occurred pursuant to paragraph 4(a)
herein, or prepay upon maturity if the Debenture is not converted, the
Company shall give the Holder 5 days written notice and the Holder shall have
the option to convert the Debenture or any part thereof into shares of
Common Stock at a conversion price equal to 80% of the average of the
closing bid price of the Common Stock for the 5 consecutive trading days
prior to the date of such conversion or accept the cash repayment. Any shares
issued pursuant to the options shall be issued pursuant to Regulation S or a
Registration Statement. Notwithstanding the Company's Notice of
Redemption, the Holder shall retain its right to convert into Common Stock
under the terms and conditions of the conversion right stated in paragraph
4(a) of the Agreement. Should the Holder fail to convert during the 5
business day conversion period, the Company shall immediately wire the funds
to the Holder's bank account within 3 business days thereafter. The Holder
shall notice the Company concerning specific wiring instructions where the
redemption process shall be paid.
5.No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Debenture at the time, place, and rate, and
in the coin currency, herein prescribed.
6.The Company hereby expressly waives demand and
presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, bringing of
suit and diligence in taking any action to collect amounts called for hereunder
and shall be directly and primarily liable for the payment of all sums owing and
to be owing hereon, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.
7.The Company agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by the Holder in collecting
any amount due under this Debenture.
8.If one or more of the following described "Events of Default"
shall occur (and shall not be caused by misrepresentation or omission by
Holder in Holders Subscription Agreement) and continue for 30 days unless
a different period is otherwise stated below:
(a) The Company shall default in the payment of principal
or interest on this Debenture; or
(b) Any of the representations or warranties made by the
Company herein, in the Subscription Agreement, or in
any certificate or financial or other written statements
heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and
delivery of this Debenture or the Subscription
Agreement shall be false or misleading in any material
respect at the time made; or
(c) The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision,
condition, agreement or obligation of the Company
under this Debenture [and such failure shall continue
uncured for a period of thirty (30) days after notice
from the Holder of such failure]; or
(d) The Company shall (1) become insolvent; (2) admit in
writing its liability to pay its debts generally as they
mature; (3) make an assignment for the benefit of
creditors or commence proceedings for its dissolution;
or (4) apply for or consent to the appointment of a
trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property
or business without its consent and shall not be
discharged within thirty (30) days after such
appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of the
Company and shall not be dismissed within thirty (60)
days thereafter; or
(g) Any money judgment, writ or warrant of attachment,
or similar process, in excess of One Million
($1,000,000) Dollars in the aggregate shall be entered
or filed against the Company or any of its properties or
other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of fifteen (15) days
or in any event later than five (5) days prior to the date
of any proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed
within thirty (60) days after such instruction of the
Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in
answering a petition filed in any such proceeding; or
(i) The Company shall have its Common Stock delisted
from the over-the-counter market.
(j) The Company shall fail to issue the Common Stock
within seven (7) business days pursuant to paragraph
4 herein and as permitted by then current SEC
guidelines for this type of offering without a restrictive
legend.
(k) The Company shall fail within 3 business days from the
date of closing to perfect a secured interest for the
debenture in its asset by the filing of a UCC-1
Statement and all other necessary documents.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or (further) notice of any kind (other than notice of
acceleration), all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary notwithstanding, and
the Holder may immediately, and without expiration of any period of grace,
enforce any and all Holder's rights and remedies provided herein or any other
rights or remedies afforded by law.
9.(a)This Debenture represents a secured obligation of the
Company guaranteed by The Southern Group, Inc. pursuant to paragraph 9(b)
herein. However, no recourse shall be had for the payment of the principal of,
or the interest on, this Debenture, or for any claim based herein, or otherwise
in respect hereof, against any incorporator, officer or director, as such, past,
present or future, of the Company whether by virtue of any constitution,
statue or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
(b)The Southern Group, Inc. shall contemporaneously
with the issuance of this Debenture enter into a guarantee in the form attached
hereto. All Holders of the Debenture shall have equal priority regardless of
the time of their purchase. The Southern Group, Inc. shall take all steps
necessary to execute appropriate guarantee documents and shall provide the
Holder with an opinion of counsel or other evidence that such guarantee is
enforceable in accordance with its terms.
10.The Holder of this Debenture, by acceptance hereof, agrees
that this Debenture is being acquired for investment and that such Holder will
not offer, sell or otherwise dispose of this Debenture or the Shares of
Common Stock issuable upon exercise thereof except under circumstances
which will not result in a violation of the Act or any applicable state Blue Sky
law or similar laws relating to the sale of securities.
11.In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any
way be affected or impaired thereby.
12.This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement between
the Company and the Holder with respect to the subject hereof. Neither this
Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.
13.This Debenture shall be governed by and construed in
accordance with the laws of New York. Holders hereby waives trial by jury
and consents to exclusive jurisdiction and venue in the State of New York.
14.Any controversy or claim relating to this Agreement
("Arbitrable Dispute") shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA") as such rules may be modified herein or as otherwise agreed by the
parties in controversy. The forum for arbitration shall be New York, New
York. Broker agrees to submit the jurisdiction of the New York Courts for
purposes of confirming any award.
15.As set forth herein, the Company shall use all reasonable
efforts to issue and deliver, within seven (7) business days after the Holder
has fulfilled all conditions and submitted all necessary documents duly executed
and in proper form required for conversion (the "Deadline"), to the Holder or
any part receiving a Debenture by transfer from the Holder (together, a
"Holder"), at the address of the Holder on the books of the Company, a
certificate or certificates for the number of Shares of Common Stock to which
the Holder shall be entitled. It is understood by both parties that such
certificates must comply with the then enacted SEC regulations governing this
transaction. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Deadline could result in economic loss
to the Holder. As compensation to the Holder for such loss, the Company
agrees to pay as liquidated damages to the Holder for the late issuance of
Shares (not resulting from causes out of Company's control) upon conversion
in accordance with the following schedule (where "No. Business Days Late"
is defined as the number of business days beyond ten (10) business days from
the date of receipt by the Company and the transfer agent of a Notice of
Conversion of all necessary documentation duly executed and in proper form
required for conversion, including the original Debenture to be converted, all
in accordance with the Debenture, Subscription Agreement and the
requirements of the transfer agent):
<TABLE>
<C> <C>
Liquidated Damages per
No. Business Days Late $100,000 of Debentures
1 $500
2 $1,000
3 $1,500
4 $2,000
5 $2,500
6 $3,000
7 $3,500
8 $4,000
9 $4,500
10 $5,000
10 $5,000 + $1,000 each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay the Holder any liquidated damages incurred
under this Section by check upon the earlier to occur of (i) issuance of the
Shares to the Holder or (ii) each monthly anniversary of the receipt of the
Company of such Holder's Notice of Conversion.
The Company shall at all times reserve and have available all Common
Stock necessary to meet conversion of the Debentures by all Holders of the
entire amount of Debenture then outstanding. If, at any time Holder submits
a Notice of Conversion and the Company does not have sufficient authorized
but unissued shares of Common Stock available to effect, in full, a conversion
of the Debentures (a "Conversion Default", the date of such default being
referred to herein as the "Conversion Default Date"), the Company shall issue
to the Holder all of the shares of Common Stock which are available, and the
Notice of Conversion as to any Debentures requested to be converted but not
converted (the "Unconverted Debentures"), upon Holder's sole option, may
be deemed null and void. The Company shall provide notice of such
Conversion Default ("Notice of Conversion Default") to all existing Holders
of outstanding Debentures, by facsimile, within one (1) business day of such
default (with the original delivered by overnight or two day courier), and the
Holder shall give notice to the Company by facsimile within five business days
of receipt of the original Notice of Conversion Default (with the original
delivered by overnight or two day courier of its election to either nullify or
confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding Debentures,
as liquidated damages, payments for a Conversion Default ("Conversion
Default Payment") in the amount of (N/365) x (24) x the initial issuance price
of the outstanding and/or tendered but not converted Debentures held by each
Holder where N = the number of days from the Conversion Default Date to
the date (the "Authorization Date") that the Company authorizes a sufficient
number of shares of Common Stock to effect conversion of all remaining
Debentures. The Company shall send notice ("Authorization Notice") to each
Holder of outstanding Debentures that additional shares of Common Stock
have been authorized, the Authorization Date and the amount of Holder's
accrued Conversion Default Payments. The accrued Conversion Default shall
be paid in cash or shall be convertible into Common Stock at the Conversion
Rate, at the Holder's option, payable as follows: (i) in the event Holder
elects to take such payment in cash, cash payments shall be made to such Holder
of outstanding Debentures by the fifth day of the following calendar month, or
(ii) in the event Holder elects to take such payment in stock, the Holder may
convert such payment amount into Common Stock at the conversion rate set
forth in Section 4(a) at anytime after the 5th day of the calendar month
following the month in which the Authorization Notice was received, until the
maturity date. Nothing herein shall limit the Holder's right to pursue actual
damages for the Company's failure to issue and deliver shares of Common
Stock to the Subscriber in accordance to the terms of the Form of Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed by an officer thereunder duly authorized.
Date: _________________________
NATIONAL AFFILIATED CORPORATION
By:_______________________________
Title:_______________________________
Guaranteed By:
THE SOUTHERN GROUP, INC.
By:_________________________________
Title:_________________________________
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debenture)
The undersigned hereby irrevocably elects to convert $__________
of the above Debenture No. ____ into Shares of Common Stock of National
Affiliated Corporation (the "Company" according to the conditions set forth
in such Debenture, as of the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, as amended, and
is not converting the Debenture on behalf of any U.S. Person and the
representations contained in the Subscription Agreement are true and correct.
If Shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
Date of Conversion
Applicable Conversion Price
Signature
(Print Name of Holder and Title of Signer)
Address:
Medallion Signature Guaranty
Exhibit 4.04
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S
UNDER THE ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF
U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE ACT)
EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND APPLICABLE STATE SECURITIES LAWS.
No. __________________ US $______
NATIONAL AFFILIATED CORPORATION
12% SERIES J SUBORDINATED CONVERTIBLE REDEEMABLE
DEBENTURE DUE DECEMBER 31,1998
THIS DEBENTURE is one of a duly authorized issue of Debentures
of National Affiliated Corporation, a corporation duly organized and existing
under the laws of Louisiana (the "Company") designated as its 12% Series J
Subordinated Convertible Redeemable Debentures Due December 31, 1998,
in an aggregate principal face amount not exceeding Two Million Dollars
(U.S. $2,000,000) which Debentures are being purchased at 90% of the face
amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to
____________, the registered holder hereof and its successors and assigns
(the "Holder"), the principal face sum of __________
________________________________________ (US $______) on
December 31, 1998 (the "Maturity Date"), and to pay interest on the principal
sum outstanding, at the rate of 12% per annum due and payable quarterly
commencing April 1, 1997 pursuant to paragraph 4(b) herein and pursuant to
the terms and conditions of the Subscription Agreement between the
Company and ____________ of even date herewith (the "Subscription
Agreement"). Accrual of interest shall commence on the date hereof and shall
continue until payment in full of the outstanding principal sum has been made
or duly provided for. The interest so payable will be paid to the person in
whose name this Debenture (or one or more predecessor Debentures) is
registered on the records of the Company regarding registration and transfers
of the Debentures (the "Debenture Register"); provided, however, that the
Company's obligation to a transferee of this Debenture arises only if such
transfer, sale or other disposition is made in accordance with the terms and
conditions of the Subscription Agreement. The principal of, and interest (with
the exception of the prepaid interest set forth in Section 4(b) herein) on, this
Debenture are payable in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the Debenture Register of the
Company as designated in writing delivered to the Company (with a copy to
the Transfer Agent) by the Holder hereof from time to time. The Company
will pay the outstanding principal due upon this Debenture before or on the
Maturity Date, less any amounts required by law to be deducted or withheld,
to the Holder of this Debenture no later than the tenth (10th) day prior to the
Maturity Date by check or on the
Maturity Date by wire transfer and addressed to such Holder at the last
address appearing on the Debenture Register. The forwarding of such check
or wire transfer shall constitute a payment of outstanding principal hereunder
and shall satisfy and discharge the liability for principal on this Debenture to
the extent of the sum represented by such check or wire transfer plus any
amounts so deducted. Interest shall be payable in Common Stock (as defined
below) pursuant to paragraph 4(b) herein.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten
Thousand Dollars (US$ 10,000) and integral multiples thereof. The
Debentures are exchangeable for an equal aggregate principal amount of
Debentures of different authorized denominations, as requested by the
Holders surrendering the same but not less than U.S. $10,000. No service
charge will be made for such registration or transfer or exchange, except that
transferee shall pay any tax or other governmental charges payable in
connection therewith.
2.The Company shall be entitled to withhold from all payments
of principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax or
other applicable laws at the time of such payments.
3.This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the U.S. only in compliance with the Securities Act of 1933, as
amended (the "Act") and applicable state securities laws. Prior to due
presentment for transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly
registered on the Company's Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture be overdue, and neither the Company nor any
such agent shall be affected or bound by notice to the contrary. Any holder
of this Debenture, electing to exercise the right of conversion set forth in
Section 4(a) hereof, in addition to the requirements set forth in Section 4(a),
and any prospective transferee of this Debenture, is also required to give the
Company (i) written confirmation that it is not a U.S. Person and the
Debenture is not being converted on behalf of a U.S. Person ("Notice of
Conversion") or (ii) an opinion of U.S. counsel to the effect that the
Debenture and shares of common stock issuable upon conversion or transfer
thereof have been registered under the 1933 Act or are exempt from such
registration. In the event a Notice of Conversion or opinion of counsel is not
provided the Holder hereof will not be entitled to exercise the right to convert
or transfer the Debentures.
4.(a) The Holder of this Debenture is entitled, at its option,
at any time commencing 45 days after closing of the Offering hereof to
convert all or any amount over $10,000 of the principal face amount of this
Debenture then outstanding into shares of common stock, $0.001 par value
per share, of the Company (the "Common Stock"), at a conversion price for
each share of Common Stock equal to the lower of (a) 75% of the average of
the closing bid prices of the Common Stock for the five (5) business days
immediately preceding the date of receipt by the Company of notice of
conversion or (b) 80% of the average of the closing bid prices of the Common
Stock for the five (5) business days immediately preceding the closing date
("Conversion Shares") as reported by the National Association of Securities
Dealers ("NASDAQ") (the "Conversion Price"). If the number of resultant
Conversion Shares would as a matter of law or pursuant to regulatory
authority require the Company to seek shareholder approval of such issuance,
the Company shall, as soon as practicable, take the necessary steps to seek
such approval. If such approval is not received within 45 days then Company
shall be required to redeem the Debenture pursuant to paragraph 4(c) herein.
Such conversion shall be effectuated by surrendering the Debentures to be
converted (with a copy, by facsimile or courier, to the Company) to the
Company with the form of conversion notice attached hereto as Exhibit I,
executed by the Holder of this Debenture evidencing such Holder's intention
to convert this Debenture or a specified portion (as above provided) hereof,
and accompanied by proper assignment hereof in blank. Accrued but unpaid
interest shall be subject to conversion. No fractional shares or scrip
representing fractions of shares will be issued on conversion, but the number
of shares issuable shall be rounded to the nearest whole share. The transferee
or issuee shall execute such investment representations or other documents as
are respectively required by counsel in order to ascertain the available
registration exemption. The date on which notice of conversion is given shall
be deemed to be the date on which the Holder has delivered this Debenture,
with the assignment and conversion notice duly executed, to the Company or,
if earlier, the date set forth in such notice of conversion if the Debenture is
received by the Company within five (5) business days thereafter. The
transferee or issuee shall execute such investment representations or other
documents as are reasonably required by counsel in order to ascertain the
available registration exemption.
(b)Interest at the rate of 12% per annum shall be payable
in advance, quarterly commencing April 1, 1998. However, at Closing, the
Company shall prepay the first 3 months interest by issuing in Common Stock
of the Company as follows: Based on the average closing bid prices of the
Common Stock for the last 5 consecutive trading days prior to Closing
("Market Price") the Company shall issue to the Holder shares of Common
Stock in an amount equal to the total monthly interest accrued and due
divided by 80% of the Market Price (the "Interest Shares"). Common Stock
issued pursuant hereto shall be issued pursuant to Regulation S or other
applicable exemption to federal and state securities laws in accordance with
the terms of the Subscription Agreement. Thereafter, commencing 91 days
after Closing the Company shall pay interest on a quarterly basis in advance
in cash (or Common Stock, based on the above formula, at the Company's
option).
(c)At any time within 30 days of issuance of the
Debenture the Company shall have the option to redeem the Debenture in full
by paying to the Holder 120% of the face amount of the Debenture. In
addition, at any time on or after 90 days the Company shall have the option
to pay to the Holder 125% of the principal face amount of the Debenture, in
full, to the extent conversion has not occurred pursuant to paragraph 4(a)
herein, or prepay upon maturity if the Debenture is not converted, the
Company shall give the Holder 5 days written notice and the Holder shall have
the option to convert the Debenture or any part thereof into shares of
Common Stock at a conversion price equal to 75% of the average of the
closing bid price of the Common Stock for the 5 consecutive trading days
prior to the date of such conversion or accept the cash repayment. Any shares
issued pursuant to the options shall be issued pursuant to Regulation S or a
Registration Statement. Notwithstanding the Company's Notice of
Redemption, the Holder shall retain its right to convert into Common Stock
under the terms and conditions of the conversion right stated in paragraph
4(a) of the Agreement. Should the Holder fail to convert during the 5
business day conversion period, the Company shall immediately wire the funds
to the Holder's bank account within 3 business days thereafter. The Holder
shall notice the Company concerning specific wiring instructions where the
redemption process shall be paid.
5. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Debenture at the time, place, and rate, and
in the coin currency, herein prescribed.
6.The Company hereby expressly waives demand and
presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, bringing of
suit and diligence in taking any action to collect amounts called for hereunder
and shall be directly and primarily liable for the payment of all sums owing and
to be owing hereon, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.
7.The Company agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by the Holder in collecting
any amount due under this Debenture.
8. If one or more of the following described "Events of Default"
shall occur (and shall not be caused by misrepresentation or omission by
Holder in Holders Subscription Agreement) and continue for 30 days unless
a different period is otherwise stated below:
(a) The Company shall default in the payment of principal
or interest on this Debenture; or
(b) Any of the representations or warranties made by the
Company herein, in the Subscription Agreement, or in
any certificate or financial or other written statements
heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and
delivery of this Debenture or the Subscription
Agreement shall be false or misleading in any material
respect at the time made; or
(c) The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision,
condition, agreement or obligation of the Company
under this Debenture and such failure shall continue
uncured for a period of thirty (30) days after notice
from the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in
writing its liability to pay its debts generally as they
mature; (3) make an assignment for the benefit of
creditors or commence proceedings for its dissolution;
or (4) apply for or consent to the appointment of a
trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property
or business without its consent and shall not be
discharged within thirty (60) days after such
appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of the
Company and shall not be dismissed, within thirty (30)
days thereafter; or
(g) Any money judgment, writ or warrant of attachment,
or similar process, in excess of One Million ($
1,000,000) Dollars in the aggregate shall be entered or
filed against the Company or any of its properties or
other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of fifteen (15) days
or in any event later than five (5) days prior to the date
of any proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed
within thirty (60) days after such instruction of the
Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in
answering a petition filed in any such proceeding; or
(i) The Company shall have its Common Stock delisted
from the over-the-counter market.
(j) The Company shall fail to issue the Common Stock
within seven (7) business days pursuant to paragraph
4 herein and as permitted by then current SEC
guidelines for this type of offering without a restrictive
legend.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or (further) notice of any kind (other than notice of
acceleration), all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary notwithstanding, and
the Holder may immediately, and without expiration of any period of grace,
enforce any and all of the Holder's rights and remedies provided herein or any
other rights or remedies afforded by law.
9.(a) This Debenture represents a secured obligation of the
Company guaranteed by The Southern Group, Inc. pursuant to paragraph 9(b)
herein. However, no recourse shall be had for the payment of the principal of,
or the interest on, this Debenture, or for any claim based hereon, or otherwise
in respect hereof, against any incorporator, officer or director, as such, past,
present or future, of the Company whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
(b)The Southern Group, Inc. shall contemporaneously
with the issuance of this Debenture enter into a guarantee in the form attached
hereto. All Holders of the Debentures shall have equal priority regardless of
the time of their purchase. The Southern Group, Inc. shall take all steps
necessary to execute appropriate guarantee documents.
10.The Holder of this Debenture, by acceptance hereof, agrees
that this Debenture is being acquired for investment and that such Holder will
not offer, sell or otherwise dispose of this Debenture or the Shares of
Common Stock issuable upon exercise thereof except under circumstances
which will not result in a violation of the Act or any applicable state Blue Sky
law or similar laws relating to the sale of securities.
11.In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any
way be affected or impaired thereby.
12. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement between
the Company and the Holder with respect to the subject hereof. Neither this
Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.
13. This Debenture shall be governed by and construed in
accordance with the laws of New York. Holder hereby waives trial by jury
and consents to exclusive jurisdiction and venue in the State of New York.
14.Any controversy or claim relating to this Agreement
("Arbitrable Dispute") shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA") as such rules may be modified herein or as otherwise agreed by the
parties in controversy. The forum for arbitration shall be New York, New
York. Broker agrees to submit to the jurisdiction of the New York Courts for
purposes of confirming any award.
15.As set forth herein, the Company shall use all reasonable
efforts to issue and deliver, within seven (7) business days after the Holder
has fulfilled all conditions and submitted all necessary documents duly executed
and in proper form required for conversion (the "Deadline"), to the Holder or
any part receiving a Debenture by transfer from the Holder (together, a
"Holder"), at the address of the Holder on the books of the Company, a
certificate or certificates for the number of Shares of Common Stock to which
the Holder shall be entitled. It is understood by both parties that such
certificates must comply with the then enacted SEC regulations governing this
transaction. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Deadline could result in economic loss
to the Holder. As compensation to the Holder for such loss, the Company
agrees to pay as liquidated damages to the Holder for late issuance of Shares
(not resulting from causes out of Company's control) upon conversion in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond ten (10) business days from the
date of receipt by the Company and the transfer agent of a Notice of
Conversion of all necessary documentation duly executed and in proper form
required for conversion, including the original Debenture to be converted, all
in accordance with the Debenture, Subscription Agreement and the
requirements of the transfer agent):
<TABLE>
<C> <C>
Liquidated Damages per
No. Business Days Late $100,000 of Debenture
1 $500
2 $1,000
3 $1,500
4 $2,000
5 $2,500
6 $3,000
7 $3,500
8 $4,000
9 $4,500
10 $5,000
10 $5,000 + $1,000 each
Business Day Late beyond 10 days
</TABLE>
The Company shall pay the Holder any liquidated damages incurred
under this Section by check upon the earlier to occur of (i) issuance of the
Shares to the Holder or (ii) each monthly anniversary of the receipt of the
Company of such Holder's Notice of Conversion.
The Company shall at all times reserve and have available all Common
Stock necessary to meet conversion of the Debentures by all Holders of the
entire amount of Debentures then outstanding. If, at any time Holder submits
a Notice of Conversion and the Company does not have sufficient authorized
but unissued shares of Common Stock available to effect, in full, a conversion
of the Debentures (a "Conversion Default", the date of such default being
referred to herein as the "Conversion Default Date"), the Company shall issue
to the Holder all of the shares of Common Stock which are available, and the
Notice of Conversion as to any Debentures requested to be converted but not
converted (the "Unconverted Debentures"), upon Holder's sole option, may
be deemed null and void. The Company shall provide notice of such
Conversion Default ("Notice of Conversion Default") to all existing Holders
of outstanding Debentures, by facsimile, within one (1) business day of such
default (with the original delivered by overnight or two day courier), and the
Holder shall give notice to the Company by facsimile within five business days
of receipt of the original Notice of Conversion Default (with the original
delivered by overnight or two day courier) of its election to either nullify or
confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding Debentures,
as liquidated damages, payments for a Conversion Default ('Conversion
Default Payments") in the amount of (N/365) x (.24) x the initial issuance
price of the outstanding and/or tendered but not converted Debentures held
by each Holder where N = the number of days from the Conversion Default
Date to the date (the "Authorization Date") that the Company authorizes a
sufficient number of shares of Common Stock to effect conversion of all
remaining Debentures. The Company shall send notice ("Authorization
Notice") to each Holder of outstanding Debentures that additional shares of
Common Stock have been authorized, the Authorization Date and the amount
of Holder's accrued Holder of outstanding Debentures by the fifth day of the
following calendar month, or (ii) in the event Holder of" to take such payment
in stock, the lienholder may convert such payment amount into Common
Stock at the conversion rate set forth in Section 4(4) at anytime after the 5th
day of the calendar month following the month in which the Authorization
Notice was received, until the maturity date. Nothing herein shalli limit the
Holder's right to pursue actual damages for the Company's failure to issue and
deliver shares of Cornmon Stock to the Subscriber in accordance to the terms
of the Form of Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed by an officer therounto duly authorized.
Dated: __________________________
NATIONAL AFFILIATED CORPORATION
By:______________________________
Title:______________________________
Guaranteed By:
THE SOUTHERN GROUP, INC.
By:_______________________________
Title:_______________________________
