EXHIBIT 4.1
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THIS CONVERTIBLE DEBENTURE AND THE COMPANY SHARES ISSUABLE UPON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AND REGISTRATION OR QUALIFICATION FOR SALE UNDER APPLICABLE STATE SECURITIES
LAWS WILL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (ii) RECEIPT OF AN
OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY TO THE EFFECT THAT REGISTRATION AND QUALIFICATION UNDER THE SECURITIES
ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS ARE NOT REQUIRED IN CONNECTION
WITH SUCH PROPOSED TRANSFER.
LINCOLN SNACKS COMPANY
CONVERTIBLE SUBORDINATED DEBENTURE
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$5,000,000 As of April 1, 1999
Stamford, Connecticut
FOR VALUE RECEIVED, the undersigned, LINCOLN SNACKS COMPANY, a Delaware
corporation (the "Maker"), promises to pay to BRYNWOOD PARTNERS III L.P., a
Delaware limited partnership (the "Holder"), or order, at its office at Two
Soundview Avenue, Greenwich, Connecticut, or at such other place as the Holder
may designate, the amount of Five Million Dollars ($5,000,000) (the "Principal
Amount"), in lawful money of the United States of America, together with
interest on the unpaid balance of this Debenture, at the rates and upon the
terms set forth as follows:
1. PRINCIPAL. The Maker will pay the Holder the entire principal amount
of this Debenture on December 31, 2001 (the "Maturity Date").
2. INTEREST. The principal balance hereof from time to time remaining
unpaid and outstanding from and after the date hereof shall bear simple interest
at the rate of 6% per annum. In the event the unpaid principal balance or
interest accrued on this Debenture is not paid when due, such amount of accrued
interest shall bear interest at the rate of 9% per annum. During the term of
this Debenture, the Maker will pay interest quarterly in arrears (calculated on
the actual number of days elapsed over a year of 365 days) based on the
outstanding principal amount of this Debenture.
3. METHOD OF PAYMENT HEREUNDER. Each payment pursuant to this Debenture
will be made in such coin or currency of the United States of America as at the
time of payment will be legal tender therein for the payment of public and
private debts. All payments and prepayments of principal on this Debenture and
all payments of interest on this Debenture will be made by check and delivered
to the Holder of this Debenture at
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such Holder's address as set forth above or to such other address as the Holder
may from time to time specify in writing.
4. PREPAYMENT.
a) Except as set forth below, the Maker in its absolute discretion
may prepay this Debenture, in whole or in part, without penalty or premium, at
any time prior to the Maturity Date by providing at least ten (10) days' prior
written notice to the Holder (which period may be shortened at the sole option
of the Holder). Upon any prepayment of this Debenture, the Maker shall pay the
Holder the principal amount of the Debenture to be prepaid together with accrued
interest on the principal amount so prepaid to the date of prepayment. If the
Debenture is prepaid in part, the Maker will either execute and deliver to the
Holder a Debenture for the remaining balance of the principal amount hereof upon
surrender of this Debenture at the office of the Maker or make a notation hereon
of the principal amount prepaid upon presentment of this Debenture at the office
of the Maker. Anything to the contrary notwithstanding, this Debenture may not
be prepaid (in whole or in part) without the consent of the Holder, which may be
withheld in the Holder's sole discretion, until five business days after the
occurrence of the Convertability Event (as defined below).
b) If the Maker gives notice to the Holder of its desire to prepay
this Debenture, in whole or in part, prior to the Maturity Date (but after the
Convertability Event), then the Holder will have the option of proceeding with
the prepayment or converting all or any portion of the principal amount as to
which the Maker has given notice of prepayment, together with accrued interest
thereon to the prepayment date, in whole or in part, pursuant to the provisions
of Section 5 of this Debenture. If the Holder desires to convert all or any
portion of the amount specified in the notice of prepayment rather than permit
the prepayment requested by the Maker, the Holder must send written notice of
its decision to the Maker within five (5) business days of its receipt of the
notice of prepayment. If the Holder does not provide the Maker with timely
written notice of the Holder's decision to convert, then the Maker will prepay
the Debenture pursuant to the terms of this Section 4.
c) Any and all prepayments or conversions (as described in Section 5
hereunder) under this Debenture will be credited first against all amounts due
hereunder other than accrued and unpaid interest or principal, then against
accrued and unpaid interest and then against unpaid principal.
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5. RIGHT OF HOLDER'S CONVERSION TO SHARES IN LIEU OF REPAYMENT.
a) Subject to and upon compliance with the provisions hereof, at any
time after the Convertability Event, but prior to the Maturity Date, this
Debenture, together with accrued and unpaid interest, may be converted, in whole
or in part, at the option of the Holder, into the number of duly issued, fully
paid and non-assessable shares of Common Stock of the Maker (the "Conversion
Shares") specified below.
b) The number of Conversion Shares to be delivered upon any
conversion hereof will be the principal amount of this Debenture being converted
plus the accrued and unpaid interest on the principal amount converted to the
date of conversion, divided by $1.37 (the "Conversion Price"), representing a
mark-up in favor of the Maker over the market value of $0.18 per share as
evidenced by the average closing price on the immediately preceding ten trading
days. No fraction of a Conversion Share shall be issued upon the conversion of
any portion of this Debenture. In lieu of any fraction of a Conversion Share to
which the Holder would otherwise be entitled, the Maker shall pay the Holder an
amount in cash equal to the fraction of a Conversion Share multiplied by the
most recent publicly reported closing price per share of the Common Stock of the
Maker prior to the Conversion Date (as defined below) or, if such Common Stock
is not then publicly traded, the Conversion Price.
c) In order to exercise the conversion privilege, (i) this Debenture
must be surrendered at the office of the Maker, (ii) the Maker must receive
written notice of the Holder's desire to convert at least two (2) business days
prior to the desired conversion date (the "Conversion Date") specifying the
principal amount hereof to be converted and the Conversion Date. On the
Conversion Date, the Holder shall be deemed to be the purchaser of record of the
Conversion Shares to which this Debenture will have been converted.
d) In the event of the conversion of less than the entire principal
amount hereof, the Maker shall deliver to the Holder the number of Conversion
Shares to which the Holder is entitled on such Conversion Date together with a
Debenture in the form hereof dated as of the most recent date prior to such
Conversion Date to which interest hereon has been paid in principal amount equal
to the principal amount hereof not having been converted on such Conversion
Date.
e) The Maker will at all times reserve and keep available for the
purpose of effecting the conversion of this Debenture such number of Conversion
Shares as will from time to time be sufficient to effect the conversion of this
Debenture.
f) As used herein, "Convertability Event" shall mean (i) the earlier
of the date on which this Debenture may become convertible without the need for
approval by the stockholders of the Maker pursuant to Section 203 of the General
Corporation Law of the State of Delaware or (ii) the date on which the issuance
of this
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Debenture shall have been approved by the affirmative vote at an annual or
special meeting of the stockholders of the Maker of at least 66-2/3% of the
outstanding voting sock of the Company which is not owned by the Holder.
6. SUBORDINATION. This Debenture is subordinate and junior to any
present or future indebtedness of Borrower to banks or other financial
institutions, including, without limitation, The Bank of New York. Such
subordination shall not require the consent or written approval of the Lender
and such subordination shall be deemed to occur automatically, without further
action, upon the creation of any such indebtedness; provided, however, that
Lender shall first be given written notice thereof and the opportunity to demand
the indebtedness evidenced hereby.
7. DEFAULT. In the event of the occurrence of any of the following
events ("Events of Default"):
a) The Maker will fail to make payment of any interest on this
Debenture when and as the same will become due and payable, whether at the due
date hereof, at a date fixed for redemption hereof, or otherwise, and such
default will continue for a period of ten (10) days after an executive officer
of the Maker receives written notice from Holder of such failure;
b) The Maker will fail to perform or observe any other material
covenant or agreement contained in this Debenture on its part to be performed or
observed and any such failure remains unremedied for ten (10) business days
after an executive officer of the Maker receives written notice from Holder of
such failure;
c) The Maker shall be in breach of any material term, covenant or
restriction set forth in its financing documents with any other lender,
including, without limitation, The Bank of New York, N.A.; or
d) The Maker will (i) apply for or consent to the appointment of a
receiver or liquidator of itself or of all or a substantial part of its
property; (ii) make a general assignment for the benefit of creditors; (iii) be
adjudicated a bankrupt or insolvent or (iv) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an arrangement
with creditors or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment or debt, dissolution or liquidation law or statute, or
an answer admitting the material allegations of a petition filed against it in
any proceeding under any such law, or if corporate action will be taken by the
Maker for the purpose of effecting any of the foregoing; or
e) An order, judgment or decree will be entered, without the
application, approval or consent of the Maker by any court of competent
jurisdiction, approving a petition seeking reorganization of the Maker or a
substantial part of the assets of the Maker, or appointing a receiver, trustee
or liquidator of the Maker, and such order, judgment or decree will continue
unstayed for a period of ninety (90) days;
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then, and in every such event and at any time thereafter during the continuance
of such event, the Holder may, by written notice to the Maker, declare this
Debenture to be forthwith due and payable, whereupon this Debenture will
forthwith become due and payable, both as to principal and accrued and unpaid
interest.
8. TAXES, COSTS, ETC. All taxes levied or assessed against the Holder
on this Debenture or the debt evidenced hereby, together with all costs,
expenses, reasonable attorneys' fees incurred in any action to collect the
indebtedness of this Debenture, to foreclose any security agreement securing the
indebtedness of this Debenture, or in any litigation or controversy arising from
or connected with this Debenture or any other agreement securing the
indebtedness of this Debenture shall be due and payable as they arise in the
same manner as accrued interest pursuant to Section 2.
9. PRINCIPAL DUE. Unless sooner demanded as a result of the occurrence
of an Event of Default or paid, all outstanding principal, together with all
accrued interest not paid pursuant to Section 1, late charges, costs and
expenses will be due and payable in full on the Maturity Date. Interest on the
outstanding principal balance hereunder is due and payable monthly by the Maker
to the Holder in arrears as set forth in Section 2 herein.
10. RIGHT OF ACCELERATION UPON DEFAULT. The Maker agrees that if (i) it
fails to comply fully with any of the terms and conditions of this Debenture or
(ii) an Event of Default occurs, then, upon either occurrence, the entire
indebtedness with accrued interest thereon due under this Debenture will, at the
option of the Holder, accelerate and become immediately due and payable upon
notice.
11. NO WAIVER. The failure of the Holder to exercise its option to
accelerate the indebtedness of this Debenture will not constitute a waiver of
its right to exercise the same upon the occurrence of any continued or
subsequent Event of Default.
12. INTEREST RATE UPON DEFAULT. The Maker agrees that upon the
occurrence of an Event of Default, or after the entry of a judgment on this
Debenture or after the Maturity Date, the unpaid indebtedness of this Debenture
will bear interest at the rate of 9% per annum.
13. MAXIMUM RATE OF INTEREST. Notwithstanding any provision of this
Debenture, it is the understanding and agreement of the Maker and the Holder
that the maximum rate of interest to be paid by the Maker to the Holder shall
not exceed the highest or the maximum rate of interest permissible to be charged
under the laws of the State of Connecticut. Any amounts paid in excess of such
rate will be considered to have been payments in reduction of principal.
14. RECEIPT AND USE OF PROCEEDS. The Maker acknowledges receipt of a
copy of this Debenture and attests that the proceeds of this Debenture are to be
used for general commercial purposes and that no part of such proceeds will be
used, in whole or in
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part, for purchasing or carrying any "margin security" as such term is defined
in Regulation U of the Board of Governors of the Federal Reserve System.
15. LOST OR DESTROYED DEBENTURE. Upon receipt by the Maker of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Debenture and of the indemnity of the Holder together with such security as the
Maker will reasonably request, the Maker will make and deliver a new Debenture
of like tenor in lieu of this Debenture.
16. EXTENSIONS. Should the principal of or interest on this Debenture
become due and payable on other than a business day, the payment due date will
be extended to the next succeeding business day and, in the case of a payment of
principal, interest will be payable thereon at the rate per annum herein
specified during any such extension. The term "business day" will mean any day
that is not a Saturday, Sunday or legal or banking holiday in the State of
Connecticut.
17. NEGOTIABILITY; REGISTRATION; SUBSEQUENT HOLDER'S RIGHTS UPON
TRANSFER. The Holder may negotiate, pledge, assign or otherwise transfer this
Debenture in its sole discretion. The Maker will keep a register at its
principal office in which provision will be made for the registration,
substitution and transfers of Debenture. The Holder of this Debenture (including
Holder's subsequent permitted transferees, if any) is entitled to the benefits
of such Debenture and the Debenture and Stock Purchase Agreement and may enforce
the agreements of the Company contained therein and exercise the remedies
provided for thereby or otherwise available in respect thereof.
18. NO RIGHTS AS SHAREHOLDER. Prior to the Conversion Date, nothing
contained in this Debenture will be construed as conferring upon the Holder or
any other person the right to vote or to consent or to receive notice as a
shareholder of the Company.
19. NOTICES. Any notices or filings required or permitted to be made
pursuant to this Debenture will be made in writing and will be delivered by
United States mail, overnight or express courier or in person, to the following
addresses.
a) If to the Maker:
Lincoln Snacks Company
4 High Ridge Park
Stamford, CT 06905
Attention: President
b) If to the Brynwood Partners III L.P.
Two Soundview Drive Greenwich, CT 06830
Attention: Mr. Hendrik J. Hartong, Jr.
Mr. John T. Gray
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20. GOVERNING LAW; JURISDICTION.
a) This Debenture will be governed by and construed in accordance
with the laws of the State of Connecticut without regard to choice of law
principles.
b) For purposes of any action or proceeding involving this
Debenture, the Holder (by accepting the benefits of this Debenture) and the
Maker hereby expressly submit to the jurisdiction of all Federal and state
courts sitting in the state of Connecticut and consent that any order, process,
notice or motion or other application to or by any of said courts or a judge
thereof may be served within or without such court's jurisdiction by registered
mail or by personal service, provided that a reasonable time for appearance is
allowed. The Holder and the Maker hereby irrevocably waive any objection that
they may now or hereafter may have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Debenture brought in any Federal
or state court sitting in Connecticut and hereby further irrevocably waive any
claim that any such suit, action or proceeding in any such court has been
brought in an inconvenient forum.
IN WITNESS WHEREOF, this Debenture has been executed and delivered as
of the date first set forth above.
LINCOLN SNACKS COMPANY
By: /s/ Hendrik J. Hartong III
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Hendrik J. Hartong III
President