Subordinated Convertible Debenture
$2,250,000 Dated: September 12, 1996
FOR VALUE RECEIVED, the undersigned, NAL FINANCIAL GROUP INC., a
Delaware corporation ("Maker" or the "Company"), promises to pay to the order of
Bridge Rope & Co., ("Lender"), in immediately available funds at the office of
Lender at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ or at such other
location as the holder hereof may designate from time to time, the principal
amount of $2,250,000 as set forth in a Securities Purchase Agreement by and
between Convertible Holdings, Inc. and ▇▇▇▇▇▇▇ ▇▇▇▇▇ World Income Fund, Inc. and
Maker, (the "Securities Purchase Agreement") to which this is attached and
incorporated therein, together with interest from the date hereof (computed on
the basis of a year of 360 days of twelve 30-day months) on the outstanding
principal balance, to be fixed at a rate equal to 10% per annum, for the period
commencing on September 12, 1996 and ending on September 11, 1998, and at a rate
equal to 9% per annum for the period commencing September 12, 1998 and ending on
the Maturity Date, in accordance with the following terms:
1. Terms of Repayment. Principal and all unpaid interest which accrues
thereon shall be payable in full upon twenty (20) days written notice of demand
by the Lender any time after September 12, 1998, such date upon which principal
and all unpaid interest shall be payable in full shall hereinafter be referred
to as the "Maturity Date". Interest on the outstanding principal balance of this
Debenture shall accrue at the rate of 10% per annum until September 11, 1998,
and thereafter interest shall accrue at the rate of 9% per annum until the
Maturity Date. Interest shall be due and payable at its rate of accrual on a
monthly basis, in arrears, on the last business day of each month, commencing
September 30, 1996, and continuing during the term hereof through the Maturity
Date. Except as set forth in section 7 hereof, Maker may not prepay or redeem
part or all of the principal due under this Debenture without the consent of
Lender.
2. Securities Purchase Agreement. This Debenture has been issued
pursuant to, and in conjunction with the Securities Purchase Agreement pursuant
to which Maker agreed to sell, and ▇▇▇▇▇▇ agreed to purchase, the Debenture
evidenced by this instrument. The terms and provisions of the Securities
Purchase Agreement shall govern the terms and provisions of this Debenture and
any conflict between this Debenture and the Securities Purchase Agreement shall
be resolved by the Securities Purchase Agreement.
3. Transferability. This Debenture may not be offered for sale or sold,
or otherwise transferred in any transaction which would constitute a sale
thereof within the meaning of the Securities Act of 1933, as amended (the "1933
Act"), unless (i) such security has been registered for sale under the 1933 Act
and registered or qualified upon applicable state securities laws relating to
the offer and sale of securities; or (ii)
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exemptions from the registration requirements of the 1933 Act and the
registration or qualification requirements of all such state securities laws are
available and, if requested in writing by Maker, the Maker shall have received
an opinion of counsel to the Holder reasonably satisfactory to Maker that the
proposed sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such opinion to be reasonably satisfactory to counsel to
Maker.
4. Subordination. The indebtedness evidenced by this Debenture is
subordinated to the prior payment when due of the principal of, premium, if any,
and interest on all "Senior Indebtedness" (as defined in the Securities Purchase
Agreement) of Maker. Therefore, upon any distribution of its assets in a
liquidation or dissolution of Maker, or in bankruptcy, reorganization,
insolvency, receivership or similar proceedings relating to Maker, Lender will
not be entitled to receive payment of the indebtedness evidenced by this
Debenture until the holders of Senior Indebtedness are paid in full. Upon the
occurrence of an "Event of Default" with respect to any Senior Indebtedness, as
such Event of Default may be defined in such instrument evidencing the Senior
Indebtedness, to the extent such Event of Default permits the holders of such
Senior Indebtedness to accelerate the maturity thereof, then upon written notice
thereof given to Maker by any holder of such Senior Indebtedness or their
representative, no payment shall be made by Maker in respect of this Debenture
until Maker has cured such Event of Default to the satisfaction of the holders
of such Senior Indebtedness; provided, however, that in the event such Senior
Indebtedness has not been accelerated within 30 days from the date of such
notice, the Maker shall resume all payments required to be made pursuant to the
terms of this Debenture.
5. Remedies and Events of Default. An Event of Default under this
Debenture shall occur under the circumstances identified in Section 9.1 of the
Securities Purchase Agreement. Upon the occurrence of an Event of Default,
Lender may exercise those remedies identified in section 9.2 of the Securities
Purchase Agreement.
6. Conversion Feature. The unpaid principal of this Debenture is
convertible at the option of the Lender, in whole or in part, at any time until
the Maturity Date, upon surrender of this Debenture at the principal office of
the Company, into restricted shares of the Maker's Common Stock at a conversion
price ("Conversion Price") equal to the lesser of: (i) 80% of the closing bid
price of the Company's Common Stock as reported by The NASDAQ Stock Market (or
the principal exchange upon which the Company's Common Stock trades) on the date
of conversion of the Debenture; or (ii) $12.00 per share. Upon such conversion,
all principal due under this Debenture shall be discharged and the Company
released from all obligations thereunder, however, accrued interest shall be
paid to the date of conversion. The conversion price of the Debenture may be
subject to adjustment in the manner provided at Paragraph 8.
7. Redemption. Commencing September 12, 1998, this Debenture is subject
to redemption by the Company at any time thereafter at the principal amount,
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plus any accrued and unpaid interest, on 30 days written notice provided that:
(i) the average of the closing bid prices of the Company's Common Stock as
reported by The NASDAQ Stock Market (or the principal exchange upon which the
Company's Common Stock trades) exceeds $25.00 per share for the 60 consecutive
trading days ending within 15 days of the Notice of Redemption; and (ii) the
resale of the shares of Common Stock issuable upon conversion of the Debenture
have been included within a Registration Statement declared effective by the
Securities and Exchange Commission. All Debentures must be redeemed if any are
redeemed.
8. Adjustments. The number of shares issuable to the Lender upon
conversion of this Debenture is subject to adjustment from time to time as
follows:
8.1. Reorganization, Merger or Sale of Assets. If at any time while
this Debenture, or any portion thereof, is outstanding there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation with or into another corporation in which the Company is not the
surviving entity, or a reverse triangular merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (iii) a sale
or transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
holder of this Debenture shall thereafter be entitled to receive upon conversion
of the Debentures the number of shares of stock or other securities or property
of the successor corporation resulting from such reorganization, merger,
consolidation, sale or transfer that a holder of the shares deliverable upon
conversion of this Debenture would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Debenture had
been converted immediately before such reorganization, merger, consolidation,
sale or transfer, all subject to further adjustment as provided in this Section
8. The foregoing provisions of this Section 8.1 shall similarly apply to
successive reorganizations, consolidations, mergers, sales and transfers and to
the stock or securities of any other corporation that are at the time receivable
upon the conversion of this Debenture. If the per-share consideration payable to
Lender for shares in connection with any such transaction is in a form other
than cash or marketable securities, then the value of such consideration shall
be determined in good faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Debenture
with respect to the rights and interests of Lender after the transaction, to the
end that the provisions of this Debenture shall be applicable after that event,
as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Debenture.
8.2. Reclassification. If the Company, at any time while this
Debenture, or any portion thereof, remains outstanding, by reclassification of
securities or otherwise, shall change any of the securities as to which
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conversion rights under this Debenture exist into the same or a different number
of securities of any other class or classes, this Debenture shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the conversion rights under this Debenture immediately prior to
such reclassification or other change and the Conversion Price or number of
shares received upon such conversion shall be appropriately adjusted, all
subject to further adjustment as provided in this Section 8.
8.3. Split, Subdivision or Combination of Shares. If the Company at
any time while this Debenture, or any portion thereof, remains outstanding shall
split, subdivide or combine the securities as to which conversion rights under
this Debenture exist, into a different number of securities of the same class,
the number of shares issuable upon conversion shall be proportionately decreased
in the case of a split or subdivision or proportionately increased in the case
of a combination.
8.4. Adjustments for Dividends in Stock or Other Securities or
Property. If while this Debenture, or any portion hereof, remains outstanding
and unexpired the holders of the securities as to which conversion rights under
this Debenture exist at the time shall have received, or, on or after the record
date fixed for the determination of eligible stockholders, shall have become
entitled to receive, without payment therefor, other or additional stock or
other securities or property (other than cash) of the Company by way of
dividend, then and in each case, this Debenture shall represent the right to
acquire upon conversion, in addition to the number of shares of the security
receivable upon conversion of this Debenture, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company that such
holder would hold on the date of such conversion had it been the holder of
record of the security receivable upon conversion of this Debenture on the date
hereof and had thereafter, during the period from the date hereof to and
including the date of such conversion, retained such shares and/or all other
additional stock, other securities or property available by this Debenture as
aforesaid during such period, giving effect to all adjustments called for during
such period by the provisions of this Section 8.
8.5. Issuance of Shares Below Conversion Price.
(a) If while this Debenture, or any portion hereof, remains
outstanding, the Company shall offer and sell Additional Shares of Common Stock
(as hereinafter defined) for consideration per share less than the Conversion
Price in effect immediately prior to the issuance of such Additional Shares of
Common Stock, the Conversion Price in effect immediately prior to each such
issuance shall forthwith be adjusted upon such issuance to a price equal to the
price paid per share for such Additional Shares of Common Stock.
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(b) For the purpose of the calculations provided in this
Section 8.5, if at any time or from time to time after the date hereof the
Company shall issue any rights or options for the purchase of, or stock or other
securities convertible into, Additional Shares of Common Stock (such Common
Stock or securities being hereinafter referred to as "Convertible Securities"),
then, and in each case, if the Effective Price (as hereinafter defined) of such
rights, options or Convertible Securities shall be less than the Conversion
Price, the Company shall be deemed to have issued at the time of the issuance of
such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion thereof
and to have received as consideration for the issuance of such shares an amount
equal to the total amount of the consideration, if any, payable to the Company
upon exercise or conversion of such options or rights. "Effective Price" shall
mean the quotient determined by dividing the total of all of such consideration
by such maximum number of Additional Shares of Common Stock. No further
adjustment shall be made as a result of the actual issuance of Additional Shares
of Common Stock on the exercise of any such rights or options or the conversion
of any such Convertible Securities. In the case of Convertible Securities which
have a conversion price which is based, in whole or in part, upon a discount to
the market price or value of the Common Stock, then for the purposes of
calculating the Effective Price, the consideration shall be deemed to include
the minimum conversion price payable to the Company.
If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire prior to the
Maturity hereof without having been exercised, the adjustment to the number of
shares available hereunder upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the number of shares that would
have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the Additional Shares of Common
Stock, if any, actually issued or sold on the exercise of such rights or options
or rights of conversion of such Convertible Securities, and such Additional
Shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company for the granting of all such rights or options,
whether or not exercised, plus the consideration received for issuing or selling
the Convertible Securities actually converted plus the consideration, if any,
actually received by the Company on the conversion of such Convertible
Securities.
(c) For the purpose of the calculations provided for in this
Section 8.5, if at any time or from time to time after the date hereof the
Company shall issue any rights or options for the purchase of Convertible
Securities, then, in each such case, if the Effective Price thereof is less than
the then Conversion Price, the Company shall be deemed to have issued at the
time of the issuance of such rights or options the maximum number of Additional
Shares of Common Stock issuable upon conversion of the total amount of
Convertible Securities covered by such rights or options and to have received as
consideration for the issuance of such Additional Shares of Common Stock an
amount equal to the amount of consideration, if any, received by the Company for
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the issuance of such rights or options, plus the consideration, if any, payable
to the Company upon the conversion of such Convertible Securities. "Effective
Price" shall mean the quotient determined by dividing the total amount of such
consideration by such maximum number of Additional Shares of Common Stock. No
further adjustment of such Conversion Price adjusted upon the issuance of such
rights or options shall be made as a result of the actual issuance of the
Convertible Securities upon the exercise of such rights or options or upon the
actual issuance of Additional Shares of Common Stock upon the conversion of such
Convertible Securities.
The provisions of subsection (b) above for readjustment upon
the expiration of rights or options or the rights of conversion of Convertible
Securities, shall apply mutatis mutandis to the rights, options and Convertible
Securities referred to in this subsection (c).
(d) The term "Additional Shares of Common Stock" as used
herein shall mean all shares of Common Stock issued or deemed issued by the
Company after the date hereof, other than (i) securities issued pursuant to or
in connection with the terms of the Securities Purchase Agreement dated of even
date herewith, by and among the Company and ▇▇▇▇▇▇▇ ▇▇▇▇▇ World Income Fund,
Inc. and Convertible Holdings, Inc.; (ii) shares of Common Stock issued upon
conversion of convertible securities or the exercise of common stock purchase
warrants outstanding as of the date hereof; (iii) shares of Common Stock
issuable to employees, officers or directors pursuant to the Company's stock
option plan; (iv) shares of Common Stock issued or issuable to directors in
connection with their service as directors; (v) shares of Common Stock issued or
issuable to directors, officers or employees for services rendered or to be
rendered pursuant to arrangements approved by the Board of Directors; and (vii)
shares of Common Stock issued in connection with a business combination, merger,
consolidation, asset acquisition or the acquisition of the business of another
corporation (through the purchase of stock or assets) approved by the Board of
Directors.
8.6. No Impairment. Maker will not, by any voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by Maker, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 8 and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of Lender against impairment.
9. Investment Intent. Lender, by acceptance hereof, acknowledges that
this Debenture and the shares to be issued upon conversion hereof are being
acquired solely for ▇▇▇▇▇▇'s own account and not as a nominee for any other
party, and for investment, and that Lender will not offer, sell or otherwise
dispose of this Debenture or any shares to be issued upon conversion hereof
except under circumstances that will not result in a violation of applicable
federal and state securities laws. Upon exercise of this Debenture, Lender
shall, if requested by Maker, confirm in writing, in a form satisfactory to
Maker, that the shares so purchased are being acquired solely for ▇▇▇▇▇▇'s own
account and not as a nominee for any other party, for investment, and not with a
view toward distribution or resale.
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All shares issued upon exercise hereof shall be stamped or imprinted
with a legend in substantially the following form (in addition to any legend
required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES AND ANY
SECURITIES OR SHARES ISSUED UPON CONVERSION THEREOF MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT.
10. Reservation of Shares. Maker covenants that during the term that
this Debenture is outstanding, Maker will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the shares upon the conversion of this Debenture, from time to time, will
take all steps necessary to amend its Certificate of Incorporation (the
"Certificate") to provide sufficient reserves of shares of Common Stock issuable
upon the conversion of the Debenture. Maker further covenants that all shares
that may be issued upon the conversion of this Debenture and payment of the
Conversion Price, all as set forth herein, will be free from all taxes, liens
and charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). Maker
agrees that its issuance of this Debenture shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares upon the conversion
of this Debenture.
11. Notices.
(a) Whenever the number of shares issuable or the Conversion Price
hereunder shall be adjusted pursuant to Section 8 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
Conversion Price and number of shares purchasable hereunder after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to Lender.
(b) All notices, advices and communications under this Debenture
shall be deemed to have been given, (i) in the case of personal delivery, on the
date of such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing, addressed as follows:
If to Maker:
NAL Financial Group Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇. Lauderdale, FL 33309
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
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With a Copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esquire
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Professional Corporation
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-2771
and to the Lender:
at the address of the Lender appearing on the
books of the Company or the Company's
transfer agent, if any.
Either of Maker or Lender may from time to time change the address to
which notices to it are to be mailed hereunder by notice in accordance with the
provisions of this Section 11.
12. Registration Rights. Lender shall be entitled to the registration
rights set forth in a certain Registration Rights Agreement of even date
herewith by and between Maker and Lender.
13. Amendments.
(a) Any term of this Debenture may be amended with the written
consent of the Company and the Holder. Any amendment effected in accordance with
this Section 13 shall be binding upon the Holder, each future holder and the
Company.
(b) No waivers of, or exceptions to, any term, condition or
provision of this Debenture, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
14. Agreements of Maker. Maker and any other party now or hereafter
liable for the payment of this Debenture in whole or in part, hereby severally
(i) waive demand, presentment for payment, notice of nonpayment, protest, notice
of protest, notice of intent to accelerate, notice of acceleration and all other
notice, filing of suit and diligence in collecting this Debenture, (ii) agree to
the release of any party primarily or secondarily liable hereon, (iii) agree
that the Lender shall not be required first to institute suit or exhaust its
remedies hereon against Maker or others liable or to become liable hereon or to
enforce its rights against them, and (iv) consent to any extension or
postponement of time of payment of this Debenture and to any other indulgence
with respect hereto without notice thereof to any of them.
15. Binding Parties. This Debenture shall bind Maker and its successors
and assigns, and the benefits hereof shall inure to the benefit of Lender and
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its successors and assigns. All references herein to "Maker" and "Lender" shall
be deemed to apply to Maker and Lender, respectively, and to their respective
successors and assigns.
16. Governing Law. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction, validity,
interpretation and enforceability of this Debenture and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of Delaware or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
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17. Jurisdiction. The Lender and the Maker agree to submit to personal
jurisdiction and to waive any objection as to venue in the federal or state
courts in the County of New Castle, State of Delaware. Service of process on the
Maker or the Lender in any action arising out of or relating to this Debenture
shall be effective if mailed to such party at the address listed in Section 11
hereof.
18. Section Titles. The Section titles in this Debenture are and shall
be without substantive meaning or content of any kind whatsoever and are not a
part of this Debenture.
WITNESS the due execution hereof on the date first above written with
the intention that this Debenture shall constitute a sealed instrument.
NAL FINANCIAL GROUP INC.
By: (Seal)
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chief Executive Officer
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NOTICE OF CONVERSION
TO: NAL FINANCIAL GROUP INC.
(1) The undersigned hereby elects to purchase _______ shares of Common
Stock of NAL FINANCIAL GROUP INC. pursuant to the terms of the attached
Debenture, and tenders herewith payment of the purchase price for such shares in
full.
(2) In converting this Debenture, the undersigned will not offer, sell
or otherwise dispose of any such shares of Common Stock except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
--------------------------------
(Name)
---------------------------------
(Name)
(4) Please issue a new Debenture for the unexercised portion of the
attached Debenture in the name of the undersigned or in such other name as is
specified below:
---------------------------------
(Name)
------------------ ---------------------------------
(Date) (Signature)
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