EXHIBIT 2.1(iii)
NOTICE: THIS DEBENTURE AND THE RIGHTS REPRESENTED
HEREBY ARE SUBJECT TO THE RESTRICTIONS AND OPTIONS
STATED IN, AND MAY NOT BE SOLD, TRANSFERRED,
ENCUMBERED, OR OTHERWISE DISPOSED OF IN ANY MANNER,
VOLUNTARILY OR INVOLUNTARILY, EXCEPT UPON COMPLIANCE
WITH THE PROVISIONS OF, THE SECURITYHOLDERS' AGREEMENT
(AND ANY AMENDMENTS THERETO) DATED FEBRUARY 29, 2000,
BY AND AMONG HEARTH TECHNOLOGIES INC. AND CERTAIN
SECURITYHOLDERS THEREOF (THE "SECURITYHOLDERS'
AGREEMENT"). COPIES OF SUCH AGREEMENT ARE ON FILE IN
THE OFFICES OF HEARTH TECHNOLOGIES INC., AND THE
PROVISIONS OF SUCH AGREEMENT ARE INCORPORATED HEREIN BY
REFERENCE.
No. [C-__] [D-__] $[___________]
HEARTH TECHNOLOGIES INC.
5.5% Convertible Debenture due February 28, 2005
FOR VALUE RECEIVED, the undersigned, HEARTH TECHNOLOGIES
INC., an Iowa corporation (the "Company"), promises to duly and
punctually pay to _____________ (the "Holder") the principal sum
of $[__________] (or, if greater, the Equity Value (as defined
in, and in accordance with, the Securityholders' Agreement)
hereof as if converted), on February 28, 2005, plus interest on
the unpaid balance of principal at the rate of five and one-half
percent (5-1/2%) per annum, such interest to be payable on a
monthly basis no later than 10 days following the end of each
month beginning March, 2000 until paid in full (whether paid at
maturity or upon a repurchase of this Debenture pursuant to the
Securityholders' Agreement). Payments of principal and interest
hereunder shall be made to the Holder (or such other person as
may be named by written notice to the Company signed by the
Holder), at _______________________________ (or such other
address as the Holder's representative may specify by written
notice to the Company) in lawful money of the United States of
America. The Company shall not have the right to prepay this
Debenture except as provided in the Securityholders' Agreement.
The foregoing notwithstanding, following any Payment Default
(as hereinafter defined), any amount of principal hereof and
interest hereon that is not paid when due shall bear interest
from the day when due until such amount is paid in full at an
interest rate equal at all times thereafter to the lesser of 10%
per annum or the maximum interest rate permitted by applicable
law. "Payment Default" means the default in the payment, when
due in accordance with this Debenture or the Securityholders'
Agreement, of principal of and interest on, or the Put Price or
First Call Price of, this Debenture, which default continues
unremedied for a period of five (5) business days after notice of
default has been received by the Company; provided, however, that
the exercise by the Company or any affiliate of the Company
pursuant to the Purchase Agreement referred to in clause [(i)]
[(ii)] of the following paragraph or any [Employment and] Non-
Competition Agreement (as defined in the Purchase Agreements) of
setoff rights with respect to any amounts owing hereunder shall
not be a Payment Default, but shall otherwise be subject to the
provisions of the final paragraph of this Debenture.
This Debenture is one of the duly authorized and issued
Debentures of the Company known as its "5.5% Convertible
Debentures due February 28, 2005" (herein referred to as the
"Debentures"), in the original principal amount of Fifty-three
Million Dollars ($53,000,000), issued pursuant to (i) the
Purchase Agreement, dated as of February 29, 2000, among Xxx X.
Xxxxxxxxx, Xxxx X. Xxxxxxxx, Madison Fire Place, Inc., Fireplace
& Spa, Inc. and The Minocqua Fireplace Company, as sellers, the
Company, as buyer, and HON INDUSTRIES Inc. ("HON") (the "Allied
Purchase Agreement") and (ii) the Purchase Agreement, dated as of
February 29, 2000, among American Fireplace Company and Hearth &
Home, Inc., as sellers, the Company, as buyer, and HON (the "AFC
Purchase Agreement", and collectively with the Allied Purchase
Agreement, the "Purchase Agreements").
It is expressly understood and agreed that in the event: (a)
the Company becomes Bankrupt (as hereinafter defined), (b) any
Payment Default shall occur and be continuing, (c) a Change of
Control (as hereinafter defined) of HON shall have occurred, or
(d) the ratio of (i) Consolidated Debt (as defined in the Credit
Agreement, dated as of June 11, 1997, among HON, Bankers Trust
Company, and the other financial institutions from time to time
party thereto(the "Credit Agreement") and whether or not the
Credit Agreement is still in effect) on the last day of any
fiscal quarter of HON (the "Measurement Date") (after giving
effect to all payments and prepayments made under the Credit
Agreement on such date) to (ii) Consolidated EBITDA (as defined
in the Credit Agreement) for the period of four consecutive
fiscal quarters ending on the Measurement Date, exceeds 3.50 to
1.00, (e) if the Holder is a Seller (or an Affiliate thereof)
under the Allied Purchase Agreement, a Payment Default has
occurred and is continuing with respect to a Debenture held by
any other such Seller or Affiliate, or (f) if the Holder is a
Seller (or an Affiliate thereof) under the AFC Purchase
Agreement, a Payment Default has occurred and is continuing with
respect to a Debenture held by any other such Seller or Affiliate
(each, an "Event of Default"), the Company shall immediately
notify the Holder of the occurrence of any Event of Default
referred to in clauses (a), (c), or (d), as applicable, (the
"Default Notice") and the whole sum of principal (and accrued but
unpaid interest thereon) evidenced by this Debenture shall, at
the written election of the Holder made no later than thirty (30)
days following the first to occur of the receipt by the Holder of
the Default Notice or actual knowledge of such Event of Default,
become immediately due and payable. "Bankrupt" means the
occurrence of any of the following: (a) the making by the Company
of an assignment for the benefit of creditors; (b) the voluntary
filing by the Company of a petition seeking an adjudication of
bankruptcy; (c) the filing by the Company of a pleading in any
court admitting its inability to pay its debts as they come due
or admitting the material allegations of an involuntary petition
for adjudication of bankruptcy; or (d) an order, judgment or
decree by any court of competent jurisdiction adjudicating the
Company a bankrupt or appointing a receiver, trustee or other
administrator of its assets which continues in effect and
unstayed for a period of sixty days. "Change of Control" of HON
means (a) the consummation of any reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of HON or an issuance of
additional shares of HON, whether in one transaction or a series
of related transactions (a "Business Combination"), in each case,
unless, following such Business Combination, all or substantially
all of the individuals and entities who were the beneficial
owners, respectively, of the common stock of HON and securities
entitled to vote generally in the election of Directors of HON
outstanding immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of Directors, as the
case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which
as a result of such transaction owns HON or all or substantially
all of HON's assets either directly or through one or more
subsidiaries), or (b) approval by the shareholders of HON of a
complete liquidation or dissolution.
Subject to the provisions hereof, the Holder is entitled
after the earlier to occur of (i) a Public Offering (as defined
in the Securityholders' Agreement), or (ii) the fourth
anniversary of the date hereof, and prior to the earlier to occur
of (a) payment in full of all amounts owing hereunder, whether at
maturity or upon acceleration hereof, or (b) maturity hereof,
with 35 days prior written notice of election to convert in
substantially the form attached to this Debenture (duly executed
by the registered holder or by his, her or its duly authorized
attorney), to convert all, or to the extent allowed under the
next sentence, a part, of this Debenture into shares of Common
Stock, $1.00 par value ("Common Stock") of the Company at the
rate of 1.2709 shares of Common Stock for each $1,000.00 in
principal amount of Debenture, as adjusted as provided herein and
in the Securityholders' Agreement (the "Conversion Rate"), upon
surrender of this Debenture to the Company at the offices of the
Company in Muscatine, Iowa. The Holder may convert less than the
full amount of this Debenture on no more than four occasions and,
in any case, only in an amount no less than, and in multiples of,
25% of the face value of this Debenture.
The Company covenants and agrees that for so long as this
Debenture is convertible into Common Stock and shall remain
outstanding, it will (i) cause to be reserved and kept available
out of its authorized and unissued shares of Common Stock such
number of shares that will be sufficient to permit the conversion
in full of this Debenture, and (ii) take any and all necessary
action to ensure that all shares of Common Stock delivered upon
conversion of this Debenture shall, at the time of delivery of
the certificates for such shares, be duly authorized, validly
issued, fully paid and non-assessable.
The Conversion Rate shall be adjusted up or down from time
to time to equitably reflect any stock split, stock dividend or
similar recapitalization or reorganization of the Company (other
than in connection with a business combination, merger, sale of
assets or similar transaction) that results in a change in the
number of issued and outstanding shares of Common Stock of the
Company in order to prevent any dilution or enlargement of the
Holder's rights and obligations under this Debenture. Upon the
occurrence of any such adjustment or readjustment of the
Conversion Rate (whether pursuant to this Debenture or the
Securityholders' Agreement), the Company at its expense promptly
shall compute such adjustment or readjustment and furnish to the
Holder a certificate signed by the Chief Financial Officer of the
Company (the "Conversion Certificate") disclosing the Conversion
Rate, as adjusted or readjusted, and the basis upon which such
adjustment was made.
Holders of a majority in aggregate principal amount of
Debentures ("Majority Holders") shall have 10 business days from
the date of delivery of the Conversion Certificate in which to
review the Conversion Certificate, and if, in the Majority
Holders' reasonable judgment, the adjusted or readjusted
Conversion Rate contained therein is not an equitable adjustment
or readjustment appropriate pursuant to the first sentence of the
preceding paragraph, the Majority Holders shall have the right to
propose a different adjustment or readjustment to the Conversion
Rate within such 10-day period. Any such proposed adjustment
shall be in writing (the "Adjustment Request"), shall be
submitted to the Company within the 10-day period referred to in
the preceding sentence, and shall specify (i) the proposed
adjustment or readjustment and (ii) the facts and circumstances
supporting the reasonableness and propriety of such adjustment
under the standards set forth in the preceding paragraph. Unless
the Majority Holders notify the Company within such 10-day period
that the Majority Holders object to the adjustment or
readjustment contained in the Conversion Certificate, the
Conversion Certificate shall be binding upon all holders of
Debentures ("Holders") and the Company. The Majority Holders and
the Company shall use their best efforts for 15 business days
after the submission of any Adjustment Request to agree upon any
proposed adjustments or readjustments to the Conversion Rate.
Any dispute as to a proposed adjustment or readjustment of the
Conversion Rate that is not resolved by the Majority Holders and
the Company during such 15-day period shall be submitted for
resolution to a mutually acceptable "Big Four" independent public
accounting firm (other than the accounting firm then serving the
Company, HON, or any of their Affiliates), whose costs shall be
borne half by the Company and half by the objecting Holders. The
decision of such firm shall be final and binding on all Holders
and the Company.
Prior to the earlier of maturity, repurchase or conversion
of this Debenture, the Company shall not issue any additional
shares of capital stock (other than (1) such shares of Common
Stock as may be required to be issued, including pursuant to the
exercise of preemptive rights, pursuant to the 7% Convertible
Debentures due October 1, 1999, as amended, issued pursuant to
the Agreement and Plan of Merger dated as of October 2, 1996
between the Company and Heat-N-Glo Fireplace Products, Inc. and
the Securityholders' Agreement, dated as of October 2, 1996, as
amended, among the Company, HON, and the securityholders party
thereto, or (2) such shares of Common Stock as may be required to
be issued, including pursuant to the exercise of preemptive
rights, pursuant to the other Debentures issued in connection
with the Purchase Agreements, or (3) such shares of Common Stock
as may be issued pursuant to a stock split, stock dividend or
similar recapitalization or reorganization in which the Holder's
pro-rata ownership of the Company does not change on an as
converted basis) unless (a) HON has repaid to the Company all
Excess Distributions, and (b) the Company has given the Holder
(i) at least thirty (30) days prior written notice thereof and
(ii) the opportunity to purchase, at the same price per share and
on the same terms as the additional shares to be issued, up to
that portion of such shares of capital stock of the Company
proposed to be issued which equals the proportion that the number
of shares of Common Stock issued and then held by the Holder (or
then issuable upon conversion by the Holder of this Debenture or
other securities then exercisable or convertible in Common Stock
of the Company) bears to the total number of shares of Common
Stock of the Company then outstanding (assuming full conversion
and exercise of all convertible or exercisable securities of the
Company). "Excess Distributions" shall mean the amount by which
(A) (i) any Distributions (as defined in the Securityholders
Agreement) paid to HON or its Affiliates (other than the Company
or subsidiaries of the Company) prior to the fourth anniversary
of the date of this Debenture which are not also paid to other
holders of Debenture Securities (as defined in the
Securityholders' Agreement) pro rata in accordance with such
holders' as-converted equity interests in HTI, plus (ii) the
amount set forth on the balance sheet of HTI as intercompany
advances owed by HON (other than the Company or subsidiaries of
the Company) to HTI as of the date on which the Excess
Distributions are determined, exceeds (B) the cumulative amount
of all interest paid on the Debenture Securities through the date
on which such Excess Distributions are determined.
This Debenture shall be binding upon the Company's
successors and assigns. Except as otherwise provided in this
Debenture or in the Securityholders' Agreement, no remedy
conferred hereby shall be exclusive of any other remedy referred
to herein or now or hereafter available at law, in equity, by
statute or otherwise. In the event of any dispute among HON, the
Company and the Holder arising out of or related to this
Debenture involving mediation, arbitration and/or litigation,
HON, HTI and the Holder agree that, except as may be otherwise
agreed by the parties or ordered by any mediator, arbitrator or
court of competent jurisdiction, the party or parties against
whom a final determination is made will reimburse the other party
or parties for all fees, costs and expenses of counsel incurred
by such party or parties with respect to such mediation,
arbitration and/or litigation.
This Debenture and the obligations hereunder shall be
governed by and construed under the laws of the State of Iowa.
This Debenture is one of the Debentures referred to in the
Securityholders' Agreement and is entitled to the benefits
thereof and is subject to the restrictions therein. This
Debenture is one of the Debentures referred to in the HON
Guaranty (as defined in the Purchase Agreements) and is entitled
to the benefits thereof. The Company hereby represents and
warrants that (a) it has full corporate power and authority to
execute and deliver, and to perform its obligations under, this
Debenture, and (b) this Debenture has been duly authorized,
executed and delivered by the Company.
Payments pursuant to this Debenture are subject to offset by
the Company in accordance with and to the extent permitted by the
Purchase Agreements and the Securityholders' Agreement.
In any year that is not a leap year, the anniversary date of
this Debenture shall be February 28th of such year.
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed as of the date indicated below.
Dated: February 29, 2000
HEARTH TECHNOLOGIES INC.
By:_____________________
CONVERSION NOTICE
To: Hearth Technologies, Inc.
c/o HON INDUSTRIES Inc.
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxxx, Xxxx 00000-7109
Attention: Chief Financial Officer
The undersigned holder of this Debenture hereby irrevocably
exercises his or her option to convert this Debenture into shares
of Common Stock of Hearth Technologies Inc. in accordance with
the terms of this Debenture, and directs that the shares issuable
and deliverable upon the conversion, be issued and delivered to
the registered holder hereof.
Face amount of Debenture being converted: $_______________
Dated: _______________________________
Signature
Fill in for registration of (must conform in all respects
shares of Common Stock to name(s) of holder(s)
appearing on face hereof).
Signature guarantee
___________________________
(Name of Holder)
___________________________ (Signature(s) must be guaranteed
(Address) by a commercial bank or trust
company or by a brokerage firm
having a membership in one of
Please print name and address the major stock exchanges)
(including zip code number)
Social Security or Other
Taxpayer Indentifying Number
_____________________________
