SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant[X]
Filed by party other than the Registrant[ ]
Check the appropriate box:
[X ]Preliminary Proxy Statement
[ ]Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ]Definitive Proxy Statement
[ ]Definitive Additional Materials
[ ]Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
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NATIONAL AFFILIATED CORPORATION
(Name of Registrant as Specified In Its Charter)
NATIONAL AFFILIATED CORPORATION
(Name of Person(s) Filing Proxy Statement)
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Payment of Filing Fee (Check the appropriate box):
[X ]No fee required.
[ ]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1Title of each class of securities to which transaction applies:
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2Aggregate number of securities to which transaction applies:
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3Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4Proposed maximum aggregate value of transaction:
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5Total fee paid:
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[ ]Fee paid previously with preliminary materials.
[ ]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1Amount Previously Paid:
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2Form, Schedule or Registration Statement No.:
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NATIONAL AFFILIATED CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
May 29, 1998
A Special Meeting of the Shareholders of National Affiliated
Corporation, a Louisiana corporation (the "Company"), will be National
Affiliated Corporation, beginning at 10:00 a.m. on Friday, May 29, 1998, at
the Louisiana Convention Centre, 2225 North MacArthur Drive, Alexandria,
Louisiana 71301 for the following purposes:
1.To consider and act upon a proposal to increase the number
of authorized shares of common stock of the Company from 14,000,000 to
100,000,000; and
2.To transact such other business as may properly come before
the meeting.
The record date for determination of the shareholders entitled to
notice of and to vote at the meeting and any adjournments thereof is the close
of business on May 1, 1998.
Whether or not you expect to attend the Special Meeting in person,
please complete, sign, date and promptly return the enclosed proxy in the
envelope provided, which requires no postage if mailed in the United States.
By Order of the Board of Directors
/s/ T. Brent Chapel
T. Brent Chapel
Vice Chairman of the Board
May 1, 1998
Bethesda, Maryland
NATIONAL AFFILIATED CORPORATION
7228 ENGLAND DRIVE, SUITE 26
ALEXANDRIA, LA 71303
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
May 29, 1998
INTRODUCTION
The Special Meeting of Shareholders of National Affiliated
Corporation (the "Company") will be held on Friday, May 29, 1998, at 10:00
a.m., Central Standard Time, at the Louisiana Convention Centre, 2225 North
MacArthur Drive, Alexandria, Louisiana 71301, or at any adjournments
thereof (the "Special Meeting"), for the purposes set forth in the Notice of
Meeting.
A proxy card is enclosed for your use. You are solicited on behalf of
the Board of Directors to SIGN AND RETURN THE PROXY CARD AS
SOON AS POSSIBLE IN THE ACCOMPANYING ENVELOPE. No
postage is required if mailed within the United States. The cost of soliciting
proxies, including the preparation, assembly and mailing of proxies and
soliciting material, as well as the cost of forwarding such material to the
beneficial owners of the Company's Common Stock, will be borne by the
Company. In addition, Directors, officers and regular employees of the
Company may, without compensation other than their regular compensation,
solicit proxies by telephone, telegraph or personal conversation. The
Company may reimburse brokerage firms and others for expenses in
forwarding proxy materials to the beneficial owners of Common Stock.
Any shareholder giving a proxy may revoke it at any time prior to its
use at the Special Meeting either by giving written notice of such revocation
to T. Brent Chapel, the Chief Financial Officer of the Company, by filing a
duly executed proxy bearing a later date with the Secretary of the Company,
or by appearing at the Special Meeting and filing written notice of revocation
with the Secretary of the Company prior to use of the proxy. Proxies will be
voted as specified by shareholders. Proxies that are signed by shareholders but
lack any such specification will be voted in favor of the proposals set forth in
the Notice of Meeting.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR THE APPROVAL OF THE PROPOSALS SET FORTH IN
THE NOTICE OF MEETING.
The Company expects that this proxy material will be mailed first to
shareholders on or about May 1, 1998.
VOTING OF SHARES
Only holders of the Company's common stock, no par value
("Common Stock") of record at the close of business on May 1, 1998 will be
entitled to vote at the Special Meeting. On March 31, 1998, the Company had
14,000,000 outstanding shares of Common Stock, each such share entitling
the holder thereof to one vote on each matter to be voted on at the Special
Meeting. The holders of a majority of the shares entitled to vote and
represented in person or by proxy at the Special Meeting will constitute a
quorum for the transaction of business at the Special Meeting. In general,
shares of Common Stock represented by a properly signed and returned proxy
card will be counted as shares present and entitled to vote at the meeting for
purposes of determining a quorum, without regard to whether the card
reflects abstentions (or is left blank) or reflects a "broker non-vote" on a
matter (i.e., a card returned by a broker because voting instructions have not
been received and the broker has no discretionary authority to vote). Holders
of shares of Common Stock are not entitled to cumulative voting rights.
The approval of each of the proposals described in this Proxy
Statement requires the approval of a majority of the shares present and
entitled to vote in person or by proxy on that matter (and at least a majority
of the minimum number of votes necessary for a quorum to transact business
at the Special Meeting). Shares represented by a proxy card voted as
abstaining on any of the proposals will be treated as shares present and
entitled to vote that were not cast in favor of a particular matter, and thus
will be counted as votes against the matter. Shares represented by a proxy card
including any broker non-vote on a matter will be treated as shares not
entitled to vote on that matter, and thus will not be counted in determining
whether that matter has been approved.
PRINCIPAL SHAREHOLDERS AND BENEFICIAL
OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 31, 1998,
unless otherwise noted, (a) by each shareholder who is known by the
Company to own beneficially more than 5% of the outstanding Common
Stock, (b) by each Director of the Company, (c) by each "named executive
officer" as defined in Item 402(a)(2) of Regulation S-B of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") for the fiscal year
ended December 31, 1997, and (d) by all executive officers and Directors of
<TABLE>
the Company as a group.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
---------------------------
<S> <C> <C>
PERCENT OF
NAME AMOUNT CLASS
------------------------------------------------------------------
Edward J. Biranne, Jr. 30,000 0.21%
T. Brent Chapel 5,494,517 1/ 39.25%
Robert W. Chapel 20,000 0.14%
Susan A. Davis 20,000 0.14%
Mary K. Descant 16,500 0.12%
Michael J. Dugan 20,000 0.14%
Lee M Gammill, Jr. 20,000 0.14%
Robert F. Meredith, III 16,474 0.12%
Sidney C. "Rusty" Shaw 20,000 0.14%
Benjamin P. Wall 67,657 0.48%
G. Vaughn Walton 19,476 0.14%
Bobby Williams 14,325 0.10%
The Southern Group 5,457,928 2/ 39.00%
Executive Officers and
Directors as a gr 5,758,949 41.00%
(12 persons)
1/ Family members hold 20,489 shares. Also reflects shares owned by
The Southern Group as to which Mr Chapel has voting and
investment powers.
2/ The Southern Group relinquished all of its 4,899,117 conversion
rights to the debenture holders.
</TABLE>
PROPOSAL TO AMEND THE COMPANY'S
AMENDED AND RESTATED ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
INTRODUCTION
Currently, the Company's Articles of Incorporation (the "Articles")
authorize the issuance of 14,000,000 shares of Common Stock. As of March
31, 1998, 14,000,000 shares of Common Stock were issued and outstanding.
The Company has issued several series of redeemable, convertible debentures,
defined hereunder as "Debentures", that give the holders the right to convert
the debentures into Common Stock at a conversion rate specified in the
debentures. Currently, the Company has 2,847,014 shares of Common Stock
held in escrow pursuant to the terms of the Debentures. The aggregate face
value of the debentures is $9,049,017.
Accordingly, on May 1, 1998, if all outstanding debentures were
converted at $.60 per share and if the Company issued all of the shares of
Common Stock upon such conversion, the Company would exceed its total
number of authorized shares by 9,777,762 shares.
AMENDMENT
On April 14, 1998, the Board approved an increase in the authorized
number of shares of Common Stock from 14,000,000 to 100,000,000 shares,
subject to shareholder approval. If this amendment is approved by the
Company's shareholders, 86,000,000 additional shares of Common Stock will
be authorized and available for issuance or sale by the Company immediately
after the Special Meeting (excluding shares reserved for issuance for some
special purpose such as a stock option plan).
PURPOSES OF PROPOSED AMENDMENT
During the second half of 1997, the Company issued several series of
Debentures to offshore investors pursuant to Regulation S as promulgated
under the Securities Act of 1933, as amended, in an effort to raise capital to
supplement the revenues of the Company and to fund the operations of the
Company. As part of the agreement of the Debentures, the Company
represented to the Debenture holders that the Company would have available
from its authorized but unissued Common Stock enough shares necessary to
allow for such conversions. At present time, the Company does not have the
necessary number of authorized shares to comply with the conversion terms
of the Debentures. If all shares were to be converted using a $.60 per share
conversion price on May 1, 1998, the Company would need to issue
9,777,762 shares. Therefore, the Company must have, available for issuance,
a minimum of 9,777,762 shares of its Common Stock authorized.
A summary of the Debentures follows:
The offered convertible debentures, except for those debentures in (2)
and (3) below, are guaranteed by The Southern Group, Inc., the majority
shareholder of the Company. The following information is provided with
respect to such convertible debentures:
<TABLE>
<C> <C> <C> <C> <C>
Debenture Gross Offering Broker's Net
Price Fee
(1) $1,788,000 $1,490,000 $178,000 $1,311,200
(2) $360,000 $300,000 $36,000 $264,000
(3) $1,199,904 $1,000,000 $120,660 $880,000
(4) $240,000 $200,000 $24,000 $176,000
(5) $1,380,000 $1,150,000 $138,000 $1,012,000
(6) $1,111,112 $1,000,000 $186,660 $813,340
(7) $2,970,001 $2,673,000 $320,760 $2,352,240
</TABLE>
(1)On September 15, 1997, September 18, 1997, and September
22, 1997, the Company sold convertible debentures entitled 12% Series A
Subordinated Convertible Redeemable Debenture due August 31, 1998, in the
face amount of $1,788,000 ("Debenture," see Exhibits). The total offering
price was $1,490,000, 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
$178,800. The Company received cash in an amount equal to the offering
price net of the broker's fee or $1,311,200.
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 of the Debenture to 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 the Company of a notice of conversion or (ii) 80% 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,
the Company shall take the necessary steps to obtain such approval. If such
approval is not obtained within 45 days, the Company shall be required to
redeem the Debenture. Debenture holders have temporarily waived this
condition pending authorization at the Special Meeting to increase the number
of authorized shares of Common Stock. If it fails to deliver the Conversion
Shares to holder within ten days of the conversion, the Company 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. The Company can redeem the Debenture within 45 days of issuance by
paying 100% of the face value or after 90 days from issuance by paying 120% of
face value.
(2)On September 19, 1997, the Company sold one convertible
debenture entitled 12% Convertible Debenture due September 18, 1998, in
the face amount of $360,000 ("Debenture," see Exhibits). The total offering
price was $300,000, 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 $36,000. The Company received cash in an
amount equal to the offering price net of the broker's fee or $264,000.
The holder of the Debenture, commencing on or after October 29,
1997, has the option to convert all or any amount, in increments of $50,000,
of the face amount of the Debenture to Common Stock at a conversion price
equal to (i) 80% of the five days average lower bid price prior to the date of
execution of the Debenture or (ii) the lower of (x) 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 the Company of a notice of
conversion or (x) 75% of the lower bid price of the Common Stock for the
day immediately prior to conversion as reported by the National Association
of Securities Dealers Electronic Bulletin Board. If it fails to deliver the
Common Stock within five days of the conversion, the Company will pay to
the holder a monthly penalty of an additional three percent discount to the
stated value of Common Stock upon conversion. The Company can redeem
the Debenture at any time within 90 days of the issuance by paying 120% of
face value.
(3)On September 23, 1997, the Company sold convertible
debentures entitled 12% Senior Convertible Redeemable Debenture due
September 25, 1998, in the face amount of $1,199,904 ("Debenture," see
Exhibits). The total offering price was $1,000,000, a 16.66% 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 $120,000.
The Company received cash in an amount equal to the offering price net of the
broker's fee or $880,000.
The holder of the Debenture, at any time commencing 45 days after
the issue date of the Debenture, has the option to convert all or any amount,
in increments of $50,000, of the face amount of the Debenture to Common
Stock at a conversion price equal to (i) $.80 or (ii) 75% of the closing bid
price of the Common Stock on the last day that the Common Stock trades
immediately preceding the date of receipt by the Company of a notice of
conversion by the holder as such closing price is quoted by the National
Association of Securities Dealers Electronic Bulletin Board. 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, the Company shall take the necessary steps to obtain such
approval. Debenture holders have temporarily waived this condition pending
authorization at the Special Meeting to increase the number of authorized
shares of Common Stock. If such approval is not obtained within 30 days, the
Company shall be required to redeem the Debenture. If the Conversion
Shares are not delivered to the holder within three days of the conversion, the
Company will pay a cash penalty equal to .5% of the face amount of the
Debenture.
(4)On October 23, 1997, the Company sold convertible
debentures entitled 12% Series D Subordinated Convertible Redeemable
Debenture due October 31, 1998, in the face amount of $240,000
("Debenture" see Exhibits). 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. The Company received cash in an
amount equal to the offering price net of the broker's fee or $176,000.
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 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 the Company of a notice of conversion as reported by the
National Association of Securities Dealers Electronic Bulletin Board. 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, the Company shall take the necessary steps to obtain such
approval. If such approval is not obtained within 45 days, the Company shall
be required to redeem the Debenture. Debenture holders have temporarily
waived this condition pending authorization at the Special Meeting to increase
the number of authorized shares of Common Stock. If it fails to deliver the
Conversion Shares to holder within ten days of the conversion, the Company
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. The Company can redeem the Debenture at any time
within 45 days of issuance or after 90 from issuance by paying 120% of face
value.
(5)On October 27, 1997, the Company sold convertible
debentures entitled 12% Series D Subordinated Convertible Redeemable
Debenture due October 31, 1998, in the face amount of $1,380,000
("Debenture" see Exhibits). 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. The Company received cash in an amount equal to the
offering price net of the broker's fee or $1,012,000.
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 ("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 the Company 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. 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, the Company shall take
the necessary steps to obtain such approval. If such approval is not obtained
within 45 days, the Company shall be required to redeem the Debenture.
Debenture holders have temporarily waived this condition pending
authorization at the Special Meeting to increase the number of authorized
shares of Common Stock. If it fails to deliver the Conversion Shares to
holder within ten days of the conversion, the Company 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.
The Company can redeem the Debenture at any time within 45 days of issuance or
after 90 from issuance by paying 120% of face value.
(6)On November 14, 1997, the Company 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" see Exhibits). 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. The Company received cash in an amount equal to the
offering price net of the broker's fee or $813,340.
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 ("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 the Company 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. 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, the Company shall take
the necessary steps to obtain such approval. If such approval is not obtained
within 45 days, the Company shall be required to redeem the Debenture.
Debenture holders have temporarily waived this condition pending
authorization at the Special Meeting to increase the number of authorized
shares of Common Stock. If it fails to deliver the Conversion Shares to
holder within ten days of the conversion, the Company 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. The
Company can redeem the Debenture at any time within 45 days of issuance or
after 90 from issuance by paying 120% of face value.
(7)On December 12, 1997, and December 15, 1997, the Company
sold convertible debentures entitled 12% Series J Subordinated Convertible
Redeemable Debenture Due December 31, 1998, in the face amount of
$2,970,001 ("Debenture" see Exhibits). 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. The Company will receive cash in an
amount equal to the offering price net of the broker's fee or $2,352,240.
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 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 the Company 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. 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, the Company shall take the necessary steps to obtain such
approval. If such approval is not obtained within 45 days, the Company shall
be required to redeem the Debenture. Debenture holders have temporarily
waived this condition pending authorization at the Special Meeting to increase
the number of authorized shares of Common Stock. If it fails to deliver the
Conversion Shares to holder within ten days of the conversion, the Company
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. The Company 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.
On December 4, 1997, the Company issued warrants entitled
Outstanding Investor Warrants ("Warrants") for the benefit of investors in the
Series D Subordinated Convertible Redeemable Debentures discussed above.
The Company 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>
The Warrants were issued at a ratio of 5 Warrants for every $10 of
cash invested in the debentures. Each Warrant can be exercised and
converted into Common Stock 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:
<TABLE>
<S> <C> <C> <C> <C> <C>
Debenture Gross Amount Number of Amount Shares in
Converted Shares Left Escrow
(1) $1,788,000 $1,738,000 1,786,108 $50,000 0
(2) $360,000 $360,000 362,920 0 0
(3) $1,199,904 $50,000 62,500 $410,544 1,346,514*
(4) $240,000 $10,000 14,198 $230,000 222,500
(5) $1,380,000 $185,000 344,169 $1,195,000 1,228,000
(6) $1,111,112 $100,000 206,794 $1,011,112 0
(7) $2,970,001 $0 0 $2,970,001 2,797,014
_________
* These shares represent two share certificates. The Company issued
a replacement share certificate for 833,334 shares and did not receive
a certificate representing the shares being replaced. The remaining
513,180 shares are presently being disputed by the Company as
superseded by the replacement shares.
</TABLE>
EFFECTS OF PROPOSED AMENDMENT
Under the Company's Articles, the Company's shareholders do not
have preemptive rights with respect to the Common Stock. Thus, should the
Board elect to issue additional shares of Common Stock, existing shareholders
would not have any preferential rights to purchase such shares, and any such
issuances could, therefore, have a dilutive effect on the shareholdings of
current shareholders.
The proposed amendment to increase the authorized number of shares
of Common Stock could, under certain circumstances, have an anti-takeover
effect, although this is not the intention of this proposal. In the event of a
hostile attempt to take over the Company, it might be possible for the
Company to try to impede such an attempt by issuing shares of the Common
Stock through a "private placement" to a friendly party, thereby diluting the
voting power of the other outstanding shares and increasing the potential cost
to acquire control of the Company. The overall effect, therefore, could be to
discourage unsolicited takeover attempts. By potentially discouraging
initiation of any such unsolicited takeover attempt, the proposed amendment
may limit the opportunity for the Company's shareholders to dispose of their
shares at the higher price generally available in takeover attempts or that may
be available under a merger proposal. The proposed amendment may have the
effect of permitting the Company's current management, including the current
Board, to retain its position and place it in a better position to resist
changes that shareholders may wish to make if they are dissatisfied with the
conduct of the Company's business.
As previously stated, however, the only intended purpose of the
proposed amendment is to increase the number of available shares of Common
Stock in order to satisfy the Company's obligations under the Debentures and
to give the Board more flexibility in conducting normal business operations,
and the proposal is not being presented as, nor is it part of, a plan to adopt a
series of anti-takeover measures.
PROPOSED RESOLUTION
A resolution in substantially the following form will be submitted to
the shareholders at the Special Meeting:
"RESOLVED, that the Company's authorized shares of
Common Stock be increased from 14,000,000 shares to
100,000,000 shares.
RESOLVED FURTHER, that appropriate officers of the
Company be, and the same are, hereby resolved, empowered
and directed in the name on behalf of the Company to take
such action and execute such documents as may be deemed
necessary or desirable to carry out the intent and purpose of
the foregoing resolution."
RECOMMENDATION OF THE BOARD
The Board recommends a vote FOR approval of the amendment to
Company's Articles to increase the number of authorized shares of Common
Stock. The affirmative vote of the holders of a majority of shares of Common
Stock present in person or by proxy at the Special Meeting, assuming a
quorum is present, is necessary for approval. Unless a contrary choice is
specified, proxies solicited by the Board will be voted FOR approval of such
increase.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
It is anticipated that the next shareholders meeting will be held in May
1998. Shareholder proposals intended to be presented in the proxy materials
relating to the 1998 Annual Meeting of Shareholders must be received by the
Company at its principal executive offices on or about April 30, 1998.
OTHER BUSINESS
The Company knows of no business that will be presented for
consideration at the Special Meeting other than that described in this Proxy
Statement. As to other business, if any, that may properly come before the
Special Meeting, it is intended that proxies solicited by the Board will be
voted in accordance with the judgment of the person or persons voting the
proxies.
By Order of the Board of Directors
/s/ T. Brent Chapel
T. Brent Chapel
Vice-Chairman of the Board, and Chief Executive Officer
May 1, 1998
Bethesda, Maryland
NATIONAL AFFILIATED CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints T. Brent Chapel and Mary K.
Descant, as Proxies, each with full power of substitution, and hereby
authorizes each of them to represent and to vote, as designated below, all the
shares of Common Stock of National Affiliated Corporation held of record by
the undersigned as of May 1, 1998, at the Special Meeting of Shareholders to
be held on May 29, 1998, or any adjournment thereof.
1.PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK OF THE COMPANY FROM 14,000,000
TO 100,000,000.
|_| FOR|_| AGAINST|_| ABSTAIN
2.In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 ABOVE. Please sign exactly as name
appears below. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Dated:_____________, 1998
______________________________________
Signature
______________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
[Place Shareholder Sticker here.]
