Exhibit 99.2
AGREEMENT
This Agreement, dated as of June 23, 2005, by and between Salton, Inc.
a Delaware corporation (the "Company"), and Xxxxxx, Xxxxxx & Co., L.P., a
Delaware limited partnership as discretionary investment manager for and on
behalf of certain investment funds and accounts ("Xxxxxx Xxxxxx").
WHEREAS, Xxxxxx Xxxxxx beneficially owns an aggregate of $41.3 million
in principal amount of the Company's outstanding 10-3/4% Senior Subordinated
Notes due December 15, 2005 (the "2005 Notes");
WHEREAS, the Company and Xxxxxx Xxxxxx, through their representatives,
have engaged in good faith negotiations with respect to a proposed private debt
exchange offer by the Company for the outstanding 2005 Notes and the outstanding
12-1/4% Senior Subordinated Notes due April 15, 2008 (the "2008 Notes"); and
WHEREAS, the Company and Xxxxxx Xxxxxx desire that the Company conduct
an exchange offer to holders of the 2005 Notes and 2008 Notes, upon the terms
and conditions set forth in the Term Sheet attached hereto as Annex A (the
"Exchange Offer");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties agree as follows:
1. The Company and Xxxxxx Xxxxxx agree that, subject to the
preparation and, as applicable, the dissemination or execution of definitive
documentation, in form and substance satisfactory to Xxxxxx Xxxxxx, necessary to
implement the Exchange Offer and the transactions contemplated by the attached
Term Sheet in accordance with the terms of such Term Sheet (and such other terms
and conditions as may be agreed), the Company shall effect such Exchange Offer
and such transactions contemplated therein in accordance with the terms of such
Term Sheet and Xxxxxx Xxxxxx shall tender its 2005 Notes in the Exchange Offer
and shall consent to the proposed amendments to the indenture governing the 2005
Notes pursuant to and in accordance with the terms and conditions of such Term
Sheet.
2. The parties agree to use their commercially reasonably best
efforts to finalize before Monday, June 27, 2005 at 5:00 p.m. New York time (the
"Termination Date") the definitive documentation necessary to implement the
Exchange Offer and the transactions contemplated by the attached Term Sheet,
including, without limitation, (a) offering materials, (b) the agreements
relating to the securities to be issued in the Exchange Offer, (c) the
agreements related to the second lien credit facility, and (d) a support
agreement to be executed by Xxxxxx Xxxxxx and certain other holders of 2005
Notes.
3. Notwithstanding anything to the contrary contained herein,
if the conditions set forth in section 2 are not satisfied by the Termination
Date, this agreement shall thereupon terminate automatically and shall be of no
further force or effect.
-1-
4. If the Company amends or supplements the Term Sheet to
incorporate more favorable terms or conditions to the Exchange Offer for the
benefit of any other holder of the 2005 Notes, then the Term Sheet with Xxxxxx
Xxxxxx (and the transactions contemplated therein) shall be amended to
incorporate those more favorable terms and conditions, and, in the meantime,
shall be deemed amended thereby.
5. This Agreement shall be governed in all respects by the
laws of the State of New York (without reference to the conflict of laws and
provisions thereof).
6. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which shall constitute one
and the same agreement. Delivery of an executed counterpart of a signature page
by facsimile shall be effective as delivery of a manually executed counterpart.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed and delivered by the duly authorized officers as of the date first
written above.
SALTON, INC.
By:
--------------------------------
Its:
-------------------------------
XXXXXX, XXXXXX & CO., L.P.
By:
--------------------------------
Its:
-------------------------------
-2-
ANNEX A
TERM SHEET
1. Qualified Holders (each "Holder") of 10.75% Senior Subordinated Notes
(the "2005 Notes") and 12.25% Senior Subordinated Notes (the "2008
Notes" and, together with the 2005 Notes, the "Notes") may tender 2005
Notes and/or 2008 Notes to Salton in a private debt exchange offer (the
"Exchange Offer") in exchange for an aggregate principal amount of new
notes under a Salton second lien credit facility as follows:
(i) with respect to tendered 2005 Notes, the exchange
ratio will range from .60 to .675 depending on the
aggregate principal amount of the 2005 Notes tendered
in the Exchange Offer. The exchange ratio will be the
sum of (a) .60 and (b) the Incremental 2005 Note
Participation Percentage. The "Incremental 2005 Note
Participation Percentage" will be the product of (a)
.075 multiplied by (b) the ratio of (x) the amount,
if any, by which the aggregate amount of 2005 Notes
tendered in the Exchange Offer exceeds $75 million,
over (y) $50 million; provided that if the aggregate
principal amount of 2005 notes tendered in the
Exchange Offer does not exceed $75 million, the
Incremental 2005 Note Participation Amount will be
zero. Set forth below is a chart illustrating the
exchange ratio for the 2005 Notes assuming the tender
of various aggregate principal amounts of the 2005
Notes:
AGGREGATE PRINCIPAL AMOUNT
OF 2005 NOTES TENDERED EXCHANGE RATIO
------------------------------------ -------------------------
100% 0.67500
90% 0.65625
80% 0.63750
70% 0.61875
60% 0.60000
(ii) with respect to tendered 2008 Notes, the exchange
ratio will be .60.
In addition, for each $1,000 of new notes issued under the second lien
credit facility to a holder of 2005 Notes and/or 2008 Notes in the
exchange offer, such holder would also receive:
(i) 1.3636 shares of Series C Preferred Stock with a
liquidation preference equal to $100.00 (the
aggregate number of shares of the Series C Preferred
Stock to be issued if the maximum of $110 million of
new notes are issued in the exchange offer would be
150,000 with an aggregate liquidation preference of
$15 million); provided that fractional shares would
be paid in cash. The Series C Preferred Stock would:
(i) rank on parity with the
-1-
Series A Voting Convertible Preferred Stock and
senior to the Series B Junior Participating Preferred
Stock; (ii) be non-dividend bearing and non-voting
(except as required under Delaware law); (iii) be
redeemable by the holders upon a change of control at
the liquidation preference plus a rate of 5% per
annum compounded annually on each anniversary of the
issuance date; and (iv) be redeemable by Salton at
the face amount on the fifth anniversary of the
issuance date.
(ii) 20.58 shares of Common Stock (the aggregate number of
shares of Common Stock to be issued if the maximum of
$110 million of new notes are issued in the exchange
offer would be 2,263,880); provided that fractional
shares would be paid in cash. The shares of Common
Stock would be subject to a registration rights
agreement with Salton.
2. The second lien credit facility would mature on January 15, 2008 and
would bear interest at LIBOR plus 7%, payable semi-annually in cash.
The default rate would be LIBOR plus 10%. The facility would be
callable prior to maturity in whole or in part whether optionally
redeemed by Salton or mandatorily redeemed upon a change of control at
102% of principal until the first anniversary of the Exchange Offer,
101% of principal from the first anniversary of the Exchange Offer
through the second anniversary of the Exchange Offer and at 100% of
principal thereafter.
The second lien credit facility will provide that Salton may purchase
2008 Notes not exchanged in the Exchange Offer through open market
purchases or otherwise, provided that (i) Salton has a minimum level of
availability under its senior secured credit facility of at least $4
million after giving effect to such purchases and (ii) the amount spent
to purchase 2008 Notes does not exceed $11 million plus the amount set
forth in the schedule below so long as the amount of optional
prepayments on the schedule have been made on the second lien credit
facility. The schedule below assumes a full subscription of $110
million of available second lien credit facility. To the extent a lower
amount is subscribed to, then the following amounts will adjust
downward ratably.
Amount of 2d Lien Prepayment Cumulative Additional Permitted Funds
---------------------------- -------------------------------------
$10 million $2 million
$20 million $5 million
$30 million $9 million
$40 million $14 million
$50 million $20 million
Continues to increase ratably
3. The maximum aggregate principal amount of new notes under the second
lien credit facility to be issued in the Exchange Offer would not
exceed $110 million. To the extent
-2-
that proration is required, Salton intends to accept tendered Notes in
the following order of priority:
(i) 2005 Notes;
(ii) 2008 Notes held by each Holder of 2005 Notes who has
tendered all of the 2005 Notes held by such Holder
and its affiliates pro rata based on the principal
amount of 2005 Notes tendered by such Holders; and
(iii) Other 2008 Notes pro rata based on the principal
amount of 2008 Notes tendered.
4. Upon the closing of the Exchange Offer, a new independent board member
designated by the holders of a majority of the Notes tendered would be
added to Salton's Board of Directors, which board member must be
reasonably acceptable to the existing Board of Directors of Salton.
5. In connection with the Exchange Offer, each tendering Holder of 2005
Notes will consent to an amendment to the indenture governing the 2005
Notes (the "2005 Indenture Amendment"), which amendment would remove
substantially all of the covenants set forth in such indenture.
6. The closing of the Exchange Offer would be conditioned upon and subject
to: (i) Holders of at least $75,000,000 of aggregate principal amount
of the 2005 Notes participating in the Exchange Offer; (ii) execution
by the senior lender of an amendment to Salton's senior secured credit
facility to, among other things, permit the Exchange Offer; (iii)
execution by the Trustee under the indenture governing the 2005 Notes
of the 2005 Indenture Amendment; (iv) an opinion of counsel to Salton
acceptable to Xxxxxx Xxxxxx; and (v) all documentation necessary to
consummate the Exchange Offer being acceptable to Xxxxxx Xxxxxx,
including without limitation, the following: (a) certificate of
designation of Series C Preferred Stock, (b) the credit agreement for
the second lien credit facility, (c) the intercreditor agreement and
(d) the registration rights agreement.
7. Assuming a sufficient level of lock-up/support letters which reflect at
least a minimum participation of $75,000,000 of aggregate principal
amount of 2005 Notes in the Exchange Offer, it is anticipated that the
interest payment due June 15, 2005 on the 2005 Notes will be paid with
interest prior to expiration of the grace period for the payment of the
interest on July 14, 2005.
-3-
