EXHIBIT 10.1

 

 

 

 

PURCHASE AGREEMENT

dated as of

August 22, 2008

among

SALTON, INC.,

AND

HARBINGER CAPITAL PARTNERS MASTER FUND I, LTD.

 

 

--------------------------------------------------------------------------------

TABLE OF CONTENTS

PAGE

ARTICLE 1 DEFINITIONS

1

Section 1.01

Definitions

1

Section 1.02

Other Definitional and Interpretative Provisions

5

 

 

ARTICLE 2 PURCHASE AND SALE

5

Section 2.01

Purchase and Sale

5

Section 2.02

The Closing

6

 

 

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE ISSUER

7

Section 3.01

Corporation Existence and Power

7

Section 3.02

Authority; Execution and Delivery; Enforceability

7

Section 3.03

Governmental and Court Authorization

8

Section 3.04

Non-Contravention

8

Section 3.05

Due Authorization and Validity of Series E Preferred Stock

8

Section 3.06

Changes

8

Section 3.07

Litigation

8

Section 3.08

Issuer SEC Reports; Financial Statements

9

Section 3.09

State Takeover Laws

9

 

 

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

9

Section 4.01

Purchaser Representations

9

Section 4.02

Existence and Power

10

Section 4.03

Authority; Execution and Delivery, Enforceability

10

Section 4.04

Governmental and Court Authorization

10

Section 4.05

Non-Contravention

10

Section 4.06

Litigation

10

 

 

ARTICLE 5 CONDITIONS PRECEDENT TO CLOSING

11

Section 5.01

Conditions to the Purchaser’s Obligations

11

Section 5.02

Conditions to the Issuer’s Obligations

12

 

 

ARTICLE 6 TERMINATION

12

Section 6.01

Grounds for Termination

12

Section 6.02

Effect of Termination

13

 

 

 

i

 

 

--------------------------------------------------------------------------------

 

PAGE

ARTICLE 7 MISCELLANEOUS

13

Section 7.01

Notices

13

Section 7.02

Further Assurances

14

Section 7.03

No Waivers; Amendments

15

Section 7.04

Expenses

15

Section 7.05

Successors, Assigns, Transferees; Third-Party Beneficiaries

15

Section 7.06

Counterparts

15

Section 7.07

Entire Agreement

15

Section 7.08

Governing Law

16

Section 7.09

Jurisdiction; Waiver of Jury Trial

16

Section 7.10

Specific Performance

16

Section 7.11

Effectiveness

16

Section 7.12

Captions

16

Section 7.13

Survival

16

Section 7.14

Severability

17

Section 7.15

Independent Directors’ Authority; Remedies

17

Section 7.16

Purchaser’s Approval

17

 

 

 

Schedule 2.01(a)

Series E Preferred Stock to be Purchased on the First Closing Date

Schedule 2.01(b)

Series E Preferred Stock to be Purchased on the Additional Investment Closing
Dates

Schedule 2.02(b)

Account Information

EXHIBIT A

Registration Rights Agreement Amendment

EXHIBIT B

Certificate of Designations

EXHIBIT C

Bring Down Certificate

 

 

 

ii

 

 

--------------------------------------------------------------------------------

 

 

PURCHASE AGREEMENT

PURCHASE AGREEMENT (this “Agreement”) dated as of August 22, 2008 among Salton,
Inc., a Delaware corporation (the “Issuer”) and Harbinger Capital Partners
Master Fund I, Ltd., a company organized under the laws of the Cayman Islands
(the “Purchaser”).

NOW, THEREFORE, in consideration of the covenants and agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the parties hereby agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01    Definitions. (a) The following terms, as used herein, have the
following meanings:

“Affiliate” means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by or under common control with such Person,
provided, that no securityholder of the Issuer shall be deemed an Affiliate of
any other securityholder solely by reason of any investment in the Issuer. For
the purpose of this definition, the term “control” (including, with correlative
meanings, the terms “controlling”, “controlled by” and “under common control
with”), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise. For purposes of this Agreement, the Issuer shall not
be deemed to be an Affiliate of the Purchaser.

“Aggregate Maximum Commitment” means $50,000,000.

“Board of Directors” means the Board of Directors of the Issuer.

“Business Day” means any day except a Saturday, Sunday or other day on which
commercial banks in New York City are authorized by law to close.

“Certificate of Designations” means the Certificate of Designations of shares of
Series E Preferred Stock attached hereto as Exhibit B.

“Commitment Expiration Time” means the earlier to occur of (i) 5:00 p.m., New
York time, on the third anniversary of the date hereof, (ii) the time the
Purchaser, Harbinger Capital Partners Special Situations Fund, L.P. (“HCPSF”)
and their Affiliates shall collectively cease to own a majority of the issued
and outstanding shares of Common Stock, (iii) the time this Agreement is
terminated pursuant to Section 6.01, or (iv) the time the Purchaser purchases
shares of Series E Preferred Stock for an aggregate Purchase Price equal to the
Aggregate Maximum Commitment.

 

--------------------------------------------------------------------------------

“Common Stock” means the common stock, par value $0.01 per share of the Issuer.

“Consent” means any consent, approval, authorization, clearance, exemption,
waiver, or similar affirmation or action by any Person pursuant to any Contract,
Law, Order or Permit.

“Contract” means any written or oral agreement, binding arrangement or
understanding, authorization, commitment, contract, indenture, instrument,
lease, license, obligation or undertaking of any kind or character, or other
document to which any Person is a party that is binding on any Person or its
capital stock, assets or business.

“Credit Agreements” mean the Sponsor Term Loan Agreement and the US ABL Credit
Agreement.

“Default” means (i) any breach or violation of, default under, contravention of,
or conflict with, any Contract, Law, Order or Permit, (ii) any occurrence of any
event that with the passage of time or the giving of notice or both would
constitute a breach or violation of, default under, contravention of, or
conflict with, any Contract, Law, Order or Permit, or (iii) any occurrence of
any event that with or without the passage of time or the giving of notice would
give rise to a right of any Person to exercise any remedy or obtain any relief
under, terminate or revoke, suspend, cancel, or modify or change the current
terms of, or to accelerate the maturity or performance of, or to increase or
impose any Liability under, any Contract, Law, Order or Permit.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“GAAP” means generally accepted accounting principles and practices set forth
from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of the
date of the report. When the term GAAP is used in this Agreement and in respect
of the Issuer Financial Statements other than annual audited Issuer Financial
Statements, such Issuer Financial Statements shall be subject to year-end
adjustments, shall not be required to include footnotes, shall not include
changes in stockholders’ equity and shall not include certain other information
required by GAAP. However, all adjustments to such Issuer Financial Statements
(consisting of normal recurring accruals) that, in the opinion of management of
the Issuer and the Subsidiaries, are necessary for a fair presentation of the
financial statements have been included. All such Issuer Financial Statements
shall be consistent with historical practices of the Issuer and the
Subsidiaries, as applicable, and shall present fairly the financial position of
the Issuer and the Subsidiaries, as applicable, subject to and in accordance
with the foregoing.

 

2

 

 

--------------------------------------------------------------------------------

 

“Governmental Authority” means the United States of America, any state,
commonwealth, territory or possession thereof, any foreign state or government
or any supranational organization, and any political subdivision or
quasi-governmental authority of any of the same, including but not limited to
courts, arbitral body, tribunals, governmental departments, commissions, boards,
bureaus, agencies, counties, municipalities, provinces, and similar
instrumentalities.

“Independent Directors” means any directors of the Issuer who are not employed
by the Issuer and who are not Affiliates or employees of any of the Purchaser,
HCPSF, or any of their respective Affiliates.

“Knowledge” means (i) with respect to the Issuer, on any matter in question, the
knowledge of Terry L. Polistina, Lisa R. Carstarphen or Ivan R. Habibe after
reasonable inquiry, (ii) with respect to the Purchaser, on any matter in
question, the knowledge of David M. Maura or John McCullough after reasonable
inquiry.

“Law” means any code, law (including common law), ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a Person or
its assets, Liabilities, or business, including those promulgated, interpreted
or enforced by any Governmental Authority.

“Liability” means any direct or indirect, primary or secondary, liability,
indebtedness, obligation, penalty, cost or expense (including costs of
investigation, collection and defense), claim, guaranty or endorsement of or by
any Person (other than endorsements of notes, bills, checks, and drafts
presented for collection or deposit in the ordinary course of business) of any
type, whether accrued, absolute or contingent, liquidated or unliquidated,
matured or unmatured, determined or determinable.

“Lien” means, with respect to any property or asset, any mortgage, deed of
trust, lien, pledge, charge, security interest, assignment, option, right of
first refusal, easement, restrictive covenant, encroachment or encumbrance or
other adverse claim of any kind in respect of such property or asset.

“Litigation” means any action, arbitration, lawsuit, claim, complaint, criminal
prosecution, governmental or other examination or investigation, audit (other
than regular audits of financial statements by outside auditors), involuntary
third party, compliance review, inspection, hearing, administrative or other
proceeding relating to or affecting a party, its business, its records, its
policies, its practices, its compliance with Law, its actions, its assets
(including Contracts related to it), or the transactions contemplated by this
Agreement.

“Material Adverse Effect” means a material adverse effect on the condition
(financial or otherwise), business, assets, liabilities or results of operations
of the Issuer and the Subsidiaries, taken as a whole.

“Order” means any administrative decision or award, decree, injunction,
judgment, order, ruling, or writ of any or Governmental Authority.

 

3

 

 

--------------------------------------------------------------------------------

 

“Permit” means any federal, state, local, and foreign governmental approval,
authorization, certificate, filing, franchise, license, notice, permit, or right
to which any Person is a party or that is or may be binding upon or inure to the
benefit of any Person or its securities, assets, or business.

“Person” means an individual, corporation, limited liability company,
partnership, joint venture, association, trust or other entity or organization,
including a Governmental Authority.

“Registration Rights Agreement Amendment” means Amendment No. 1 to the
Registration Rights Agreement dated as of December 28, 2007 by and among the
Issuer, the Purchaser and HCPSF, attached hereto as Exhibit A.

“Securities Act” means the Securities Act of 1933, as amended from time to time.

“Series D Certificate of Designations” means that certain Certificate of the
Powers, Designations, Preferences and Rights of the Series D Preferred Stock of
the Issuer dated as of October 1, 2007.

“Sponsor Term Loan Agreement” means the Term Loan Agreement dated as of December
28, 2007 among the lenders parties thereto, the Purchaser as administrative
agent and collateral agent and the Issuer, Applica Inc., Applica Consumer
Products, Inc., Applica Americas, Inc., APN Holding Company, Inc., HP Delaware,
Inc., HPG LLC, Applica Mexico Holdings, Inc., Sonex International Corporation,
Home Creations Direct Limited., Salton Holdings Inc., Icebox LLC, Toastmaster
Inc., Family Products Inc., One:One Coffee LLC and Salton Toastmaster Logistics
LLC as borrowers and Applica Asian Limited and Applica Canada Corporation as
guarantors, as amended, amended and restated, modified, supplemented, renewed,
refunded, replaced, or refinanced in whole or in part and whether by the same or
any other agent, lender, or group of lenders, from time to time.

“Subsidiary” means any entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other Persons performing similar functions are at the time directly or
indirectly owned by the Issuer. Unless otherwise qualified, or the context
otherwise requires, all references to a “Subsidiary” or to “Subsidiaries” in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Issuer.

“US ABL Credit Agreement” means the Third Amended and Restated Credit Agreement,
dated as of February 28, 2008 by and among the Issuer, its subsidiaries parties
thereto, the lenders parties thereto, and Bank of America, N.A., as agent for
the lenders parties thereto, as amended, amended and restated, modified,
supplemented, renewed, refunded, replaced, or refinanced in whole or in part and
whether by the same or any other agent, lender, or group of lenders, from time
to time.

 

4

 

 

--------------------------------------------------------------------------------

 

Each of the following terms is defined in the Section set forth opposite such
term:

 

Term

Section

Additional Investment Closing

2.01(b)

Additional Investment Closing Date

2.01(b)

Additional Investment Notice

2.01(b)(ii)

Agreement

Preamble

Closing

2.02

Closing Date

Appendix

e-mail

7.01

First Closing

2.02

First Closing Date

2.02

HCPSF

1.01

Initial Investment

2.01

Issuer

Preamble

Issuer Financial Statements

3.08(b)

Issuer SEC Reports

3.08

Purchase Price

2.01(c)

Purchaser

Preamble

 

Section 1.02    Other Definitional and Interpretative Provisions. References to
any Contract are to that Contract as amended, restated, modified or supplemented
from time to time in accordance with the terms hereof and thereof. References to
any Person include the successors and permitted assigns of that Person.
References from or through any date mean, unless otherwise specified, from and
including or through and including, respectively. Whenever the term “include” or
“including” is used in this Agreement, it shall be deemed to be followed by the
phrase “but not limited to” or “without limitation” or words of similar import
and such term shall be interpreted as not limiting the matter described by the
examples given.

ARTICLE 2

PURCHASE AND SALE

Section 2.01    Purchase and Sale. (a) Initial Investment. Subject to the terms
and conditions of this Agreement, the Issuer agrees to issue and sell to the
Purchaser and the Purchaser agrees to purchase from the Issuer, at the First
Closing, the number of shares of Series E Preferred Stock set forth opposite the
Purchaser’s name on Schedule 2.01(a) hereto (the “Initial Investment”).

(b)       Additional Investment. (i) Subject to the terms and conditions of this
Agreement, the Issuer agrees to issue and sell to the Purchaser and the
Purchaser agrees to purchase from the Issuer, from time to time and subject to
the satisfaction or waiver as of such Closing Date of the conditions set forth
in Section 5.01, at one or more Closings (each an “Additional Investment
Closing”; the date of an Additional Investment

5

 

 

--------------------------------------------------------------------------------

 

Closing, an “Additional Investment Closing Date”) following the First Closing,
the number of Series E Preferred Stock set forth opposite such Purchaser’s name
on Schedule 2.01(b) hereto (as adjusted for any stock splits, reverse-stock
splits, combinations, stock dividends, recapitalizations or other similar events
of the Series E Preferred Stock); provided, that the obligation of the Issuer to
sell, and the obligation of the Purchaser to purchase shares of Series E
Preferred Stock pursuant to this Agreement shall expire at the Commitment
Expiration Time (other than with respect to issuances and sales contemplated by
Additional Investment Notices issued prior to the Commitment Expiration Time
(but subject to satisfaction or waiver of the conditions set forth in Section
5.01)).

(ii)       Subject to the satisfaction or waiver as of such Additional
Investment Closing Date of the conditions set forth in Section 5.01, the
Purchaser shall, on the Additional Investment Closing Date set forth in the
Additional Investment Notice, purchase the shares of Series E Preferred Stock
from the Issuer under this Section 2.01(b) following the receipt of a written
notice (an “Additional Investment Notice”) from the Issuer. The Issuer shall be
permitted to revoke an Additional Investment Notice at any time prior to the
applicable Additional Investment Closing. The Additional Investment Notice shall
set forth the Additional Investment Closing Date and the number of shares of
Series E Preferred Stock to be purchased by the Purchaser at such Additional
Investment Closing Date; provided, however, that in no event shall the
Purchaser’s obligation to purchase shares of Series E Preferred Stock pursuant
to this Agreement at all Closings hereunder exceed, in the aggregate, the
Aggregate Maximum Commitment. The Issuer shall deliver the Additional Investment
Notice to the Purchaser at least two (2) full Business Days prior to each such
Additional Investment Closing Date. No later than one (1) calendar day before
any Additional Investment Closing Date, the Issuer may notify the Purchaser in
writing of a reduction in the aggregate amount of funds required by the Issuer
on such Additional Investment Closing Date, in which case the number of shares
of Series E Preferred Stock to be purchased by the Purchaser at such Additional
Investment Closing Date and the aggregate purchase price therefor shall be
reduced accordingly; provided, however, that in no event shall the aggregate
number of shares of Series E Preferred Stock to be purchased by the Purchaser in
each such Additional Investment Closing Date be less than 5,000.

(c)       The purchase price (the “Purchase Price”) of the shares of Series E
Preferred Stock purchased by the Purchaser pursuant to the terms hereof is
$1,000 per share of Series E Preferred Stock., (as adjusted for any stock
splits, reverse-stock splits, combinations, stock dividends, recapitalizations
or other similar events of the Series E Preferred Stock). The Purchase Price
shall be paid as set forth in Section 2.02(b).

Section 2.02    The Closing. (a) The first closing (“First Closing”) shall take
place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285
Avenue of the Americas, New York, New York 10019, at 10:00 a.m. New York City
time on the First Closing Date and each purchase and sale of shares of Series E
Preferred Stock pursuant to Section 2.01(b) after the First Closing shall also
take place at a closing (each of the First Closing and each Additional
Investment Closing shall be herein referred to as a “Closing”) at the offices of
Paul, Weiss, Rifkind, Wharton & Garrison LLP. Each Closing shall occur on the
date set forth in

 

6

 

 

--------------------------------------------------------------------------------

 

the applicable Additional Investment Notice, subject to the satisfaction or
waiver (by the party entitled to exercise such waiver) of the conditions set
forth in Article 5, or at such later time or other place as the Issuer and the
Purchaser may agree. The date and time of each Closing are each referred to
herein as the “Closing Date”, and August 22, 2008 is referred to herein as the
“First Closing Date”.

(b)       At each Closing, the Purchaser shall deliver to the Issuer an amount
in immediately available funds equal to the aggregate Purchase Price of the
shares of Series E Preferred Stock to be purchased by the Purchaser at such
Closing pursuant to Article 2 by wire transfer to the account set forth in
Schedule 2.02(b), as such schedule may be amended by the Issuer from time to
time upon written notice to the Purchaser.

(c)       At each Closing, the Issuer shall deliver to the Purchaser, against
payment of the Purchase Price therefor, a certificate registered in the name of
the Purchaser, evidencing the shares of Series E Preferred Stock to be purchased
by the Purchaser at such Closing pursuant to Article 2.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE ISSUER

The Issuer represents and warrants to the Purchaser as of the date hereof and as
of each Closing Date that:

Section 3.01    Corporation Existence and Power. The Issuer and each of its
Subsidiaries (a) is duly organized, validly existing and in good standing under
the Laws of the jurisdiction of its organization, (b) has all powers and all
material Permits and Consents required to enable it to own, lease or otherwise
hold its assets and properties and to conduct its business as currently
conducted, and (c) is duly qualified as a foreign corporation, licensed and in
good standing under the Laws of each jurisdiction in which its ownership, lease
or operation of property or the conduct of its business requires such
qualification, except in the case of (c) above, for failures that would not
individually or in the aggregate, have a Material Adverse Effect.

Section 3.02    Authority; Execution and Delivery; Enforceability. The Issuer
has the power and authority to execute this Agreement and the Registration
Rights Agreement Amendment, to fully perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Registration Rights
Agreement Amendment by the Issuer and the consummation by the Issuer of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Issuer (acting upon the unanimous written
consent of Independent Finance Committee designated by the Board of Directors),
and no other action on the part of the Issuer is necessary to authorize this
Agreement, the Registration Rights Agreement Amendment or the consummation of
the transactions contemplated hereby and thereby. The Issuer has duly executed
and delivered this Agreement and the Registration Rights Agreement Amendment
and, assuming their due execution

 

7

 

 

--------------------------------------------------------------------------------

 

and delivery by the Purchaser, each constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other Laws
affecting creditors’ rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at Law.

Section 3.03    Governmental and Court Authorization. The execution, delivery
and performance of this Agreement and the Registration Rights Agreement
Amendment by the Issuer and the consummation by the Issuer of the transactions
contemplated hereby and thereby require no action by or in respect of, or (other
than as may be required to be filed with the SEC) filing with, any Governmental
Authority that has not been made or obtained or will not have been obtained or
made prior to each Closing Date and, in each case, will be in full force and
effect as of such Closing Date.

Section 3.04    Non-Contravention. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement Amendment by the Issuer and
the consummation by the Issuer of the transactions contemplated hereby and
thereby do not and will not (a) violate, conflict with or result in any breach,
Default or contravention of the Credit Agreements or the Issuer’s certificate of
incorporation and by-laws, (b) violate conflict with or result in any Default of
any Law or Order binding upon or applicable to the Issuer or any Subsidiary, (c)
require any Consent or other action by any Person under, or constitute a Default
under, is entitled under, any material Contract binding upon the Issuer or any
Subsidiary or any Permit held by the Issuer or any Subsidiary, or (d) result in
the creation or imposition of any Lien on any material asset of the Issuer or
any Subsidiary or the shares of Series E Preferred Stock to be purchased by the
Purchaser. The Issuer is not in violation or Default of any term of the Credit
Agreements.

Section 3.05    Due Authorization and Validity of Series E Preferred Stock. The
shares of Series E Preferred Stock to be purchased by the Purchaser hereunder
have been duly reserved for issuance by the Issuer and, when issued and
delivered in accordance with the terms of this Agreement, will be duly
authorized, validly issued, fully paid, and non-assessable and free of all
preemptive rights, Liens, voting or transfer restrictions and encumbrances,
except as specifically set forth in the Certificate of Designations or as may be
provided under federal or state securities Laws.

 

Section 3.06    Changes. Since March 31, 2008 there has not been any adverse
change in the assets, Liabilities, business, financial condition or results of
operations of the Issuer and its Subsidiaries, taken as a whole, other than
changes which, either individually or in the aggregate, have not had and would
not reasonably be expected to have a Material Adverse Effect.

Section 3.07    Litigation. There is no pending or, to the Knowledge of the
Issuer, threatened Litigation against or affecting the Issuer or any Subsidiary
that (a) questions the validity of this Agreement or the Registration Rights
Agreement Amendment or the right of the Issuer to enter into this

 

8

 

 

--------------------------------------------------------------------------------

Agreement or the Registration Rights Agreement Amendment, or to consummate the
transactions contemplated hereby and thereby, or which in any manner challenges
or seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement or the Registration Rights Agreement Amendment,
or (b) prevents the Issuer from performing its obligations hereunder or
thereunder in any material respect.

Section 3.08    Issuer SEC Reports; Financial Statements. (a) The Issuer has
timely filed with the SEC all registration statements, prospectuses, reports,
schedules, forms, proxy statements, certifications and other documents
(including exhibits and all other information incorporated by reference therein)
required to be filed by the Issuer since January 1, 2008 (the “Issuer SEC
Reports”). The Issuer SEC Reports (i) were prepared in all material respects in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading, except to
the extent corrected by a subsequent Company SEC Report filed with the SEC prior
to the date of this Agreement. No Subsidiary is subject to the periodic
reporting requirements of the Exchange Act by Law or Contract.

(b)       Each of the consolidated financial statements of the Issuer
(including, in each case, any notes thereto) contained in the Issuer SEC Reports
(the “Issuer Financial Statements”) was prepared in accordance with GAAP (except
as may be indicated in the notes thereto) and presented fairly in all material
respects the consolidated financial position and consolidated results of
operations of the Issuer and its Subsidiaries as of the respective dates thereof
and for the respective periods indicated therein, except as otherwise noted
therein and subject, in the case of unaudited statements, to normal year end
audit adjustments in amounts that are immaterial in nature and amounts
consistent with past experience.

Section 3.09    State Takeover Laws. No “takeover” or “interested stockholder”
Law is applicable to this Agreement, the Registration Rights Agreement Amendment
or the transactions contemplated hereby and thereby.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

The Purchaser represents and warrants to the Issuer as of the date hereof that:

Section 4.01    Purchaser Representations. The Purchaser acknowledges that the
shares of Series E Preferred Stock to be issued pursuant to this Agreement
initially will not be registered under the Securities Act in reliance on the
exemptions from the registration requirements of Section 5 of the Securities Act
set forth in Section 4(2) thereof and Regulation D promulgated thereunder. The
Purchaser is an “accredited investor” as such term is defined under the
Securities Act, or, alternatively, has such knowledge and

 

9

 

 

--------------------------------------------------------------------------------

 

experience in financial and business matters to be capable of evaluating the
merits and risks of an investment in the Issuer and the Series E Preferred
Stock. The shares of Series E Preferred Stock to be issued to the Purchaser
pursuant to this Agreement are being purchased for investment for the account of
the Purchaser and without the intent of participating directly or indirectly in
a distribution of such shares in violation of the Securities Act or other
applicable securities Laws.

Section 4.02    Existence and Power. The Purchaser is duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
organization.

Section 4.03    Authority; Execution and Delivery, Enforceability. The Purchaser
has full power and authority and full legal capacity to execute this Agreement
and the Registration Rights Agreement Amendment, to fully perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Registration Rights Agreement Amendment by the Purchaser and the
consummation by the Purchaser of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of the
Purchaser, and no other action on the part of the Purchaser is necessary to
authorize this Agreement, the Registration Rights Agreement Amendment or the
consummation of the transactions contemplated hereby and thereby. The Purchaser
has duly executed and delivered this Agreement and the Registration Rights
Agreement Amendment and, assuming their due execution and delivery by the
Issuer, each constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other Laws affecting creditors’ rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at Law.

Section 4.04    Governmental and Court Authorization. The execution, delivery
and performance by the Purchaser of this Agreement or the Registration Rights
Agreement Amendment and the consummation of the transactions contemplated hereby
and thereby require no action by or in respect of, or filing with any
Governmental Authority.

Section 4.05    Non-Contravention. The execution, delivery, and performance by
the Purchaser of this Agreement and the Registration Rights Agreement Amendment
do not and will not (a) violate the constituent documents, if any, of the
Purchaser as currently in effect, (b) violate, conflict with or result in any
Default or contravention of any Law or Order binding upon or applicable to the
Purchaser, or (c) require any consent or other action by any Person under, or
constitute a Default under, any material Contract or other instrument binding
upon the Purchaser.

Section 4.06    Litigation. There is no Litigation pending or, to the Knowledge
of the Purchaser, threatened against or affecting the Purchaser that (a)
questions the validity of this Agreement or the Registration Rights Agreement
Amendment or the right of the Purchaser to enter into this Agreement or the
Registration Rights Agreement Amendment, or to consummate the transactions
contemplated

 

10

 

 

--------------------------------------------------------------------------------

 

hereby and thereby, or which in any manner challenges or seeks to prevent,
enjoin, alter or delay the transactions contemplated by this Agreement or the
Registration Rights Agreement Amendment, or (b) prevents the Purchaser from
performing its obligations hereunder or thereunder in any material respect.

ARTICLE 5

CONDITIONS PRECEDENT TO CLOSING

Section 5.01    Conditions to the Purchaser’s Obligations. The obligation of the
Purchaser to purchase the shares of Series E Preferred Stock pursuant to
Article 2 hereof at each Closing is subject to the satisfaction or waiver, at or
prior to the applicable Closing Date, of the following conditions:

(a)       The representations and warranties of the Issuer contained in
(i) Article 3 shall be true and correct at and on such Closing Date as if made
on and as of such Closing Date (except for representations and warranties
expressly stated to relate to a specific date, in which case such
representations and warranties shall be true and correct on such earlier date)
unless the failure of such representations and warranties to be true and
correct, individually or in the aggregate, does not have a Material Adverse
Effect and (ii) Sections 3.01(a) (Corporation Existence and Power), 3.02
(Authority), 3.04(c) and (d) (Non-Contravention) and 3.05 (Due Authorization and
Validity of Series E Preferred Stock) shall be true and correct at and on such
Closing Date as if made on and as of such Closing Date;

(b)       The Issuer shall have performed and complied in all material respects
with all covenants and agreements required by this Agreement to be performed or
complied with or by it at or prior to such Closing Date;

(c)       Purchaser’s purchase of and payment for the shares of Series E
Preferred Stock or consummation of the other transactions contemplated hereby
shall not be prohibited by or violate any applicable Law, Order, injunction or
judgment of any court or Governmental Authority having competent jurisdiction
with respect to the Issuer or the Purchaser.

(d)       From and including March 31, 2008, there shall not have occurred a
Material Adverse Effect nor shall there have been any event, occurrence or
condition that would , individually or in the aggregate, be reasonably likely to
have a Material Adverse Effect;

(e)       The Purchaser shall have received a certificate, in the form of
Exhibit C attached hereto, dated such Closing Date signed by an executive
officer of the Issuer to the effect set forth in subsections (a), (b) and (d) of
this Section 5.01;

(f)        The aggregate cash purchase price paid by the Purchaser for shares of
Series E Preferred Stock at the First Closing, together with any subsequent
purchase of shares of Series E Preferred Stock at any Closing subsequent to the
First Closing, shall not exceed the Aggregate Maximum Commitment;

 

11

 

 

--------------------------------------------------------------------------------

 

(g)       The Purchaser shall have received a certificate from the Issuer, in
the form of Exhibit C attached hereto, dated as of such Closing Date and signed
by an executive officer of the Issuer, certifying that there being no “Default”
or “Event of Default” (as defined in each of the Credit Agreements) in existence
under the Credit Agreements at the time of, or after giving effect to the making
of, the transactions contemplated in connection with such Closing; and

(h)       With respect to the First Closing only, the Issuer shall have duly
executed and delivered the Registration Rights Agreement Amendment to the
Purchaser, and, with respect to each Closing, such Registration Rights Agreement
Amendment shall be in full force and effect except as otherwise terminated in
accordance with its terms.

(i)        Issuer shall have delivered and not withdrawn the applicable
Additional Investment Notice pursuant to Section 2.01(b)(ii).

Section 5.02    Conditions to the Issuer’s Obligations. The obligations of the
Issuer to issue and sell the shares of Series E Preferred Stock to the Purchaser
at each Closing pursuant to this Agreement are subject to the satisfaction or
waiver, at or prior to such Closing Date, of the following conditions:

(a)       The representations and warranties of the Purchaser contained in
Article 4 shall be true and correct in all material respects, in each case
(except for representations and warranties expressly stated to relate to a
specific date, in which case such representations and warranties shall be true
and correct on such earlier date) at and on such Closing Date as if made on and
as of such Closing Date;

(b)       The Purchaser shall have performed and complied in all material
respects with all agreements required by this Agreement to be performed or
complied with by it at or prior to such Closing Date, including delivery of the
applicable Purchase Price; and

(c)       The issue and sale of shares of Series E Preferred Stock by the Issuer
shall not be prohibited by any applicable Law or Order; and

(d)       Issuer shall have delivered and not withdrawn the applicable
Additional Investment Notice pursuant to Section 2.01(b)(ii).

ARTICLE 6

TERMINATION

Section 6.01    Grounds for Termination. This Agreement may be terminated at any
time prior to any Closing:

(a)       By a mutual written consent of the Purchaser and the Issuer;

(b)       At the election of the Issuer by written notice to the Purchaser at
any time; or

 

12

 

 

--------------------------------------------------------------------------------

 

(c)       At the election of the Purchaser, if a “Default” or an “Event of
Default” (as defined in each of the Credit Agreements) is outstanding under the
Credit Agreements, for more than thirty (30) calendar days following notice to
the Issuer of such “Default” or “Event of Default”.

The party desiring to terminate this Agreement shall give notice of such
termination to the other party. If this Agreement terminates pursuant to this
Section 6.01, it shall become null and void and have no further force or affect,
except as provided in Section 6.02.

Section 6.02    Effect of Termination. If this Agreement is terminated as
permitted by Section 6.01, such termination shall be without liability of any
party (or any stockholder, member, partner, director, officer, employee,
partner, agent, consultant or representative of such party) to any other party
to this Agreement, other than any such liability (including with respect to
representations and warranties) that may have arisen in connection with any
Closing that has been consummated prior to such termination; provided, that if
such termination shall result from the willful failure of any party to fulfill a
condition to the performance of the obligations of any other party, failure to
perform a covenant of this Agreement or breach by any party hereto of any
representation or warranty or agreement contained herein, such party shall be
fully liable for any actual damages incurred or suffered by any other party as a
result of such failure or breach; provided, further, that none of the parties
hereto shall have any liability for speculative, indirect, unforeseeable or
consequential damages or lost profits resulting from any legal action relating
to any termination of this Agreement.

ARTICLE 7

MISCELLANEOUS

Section 7.01    Notices. All notices, requests and other communications to any
party shall be in writing and shall be delivered in person, mailed by certified
or registered mail, return receipt requested, or sent by facsimile or electronic
(“e-mail”) transmission (so long as a receipt of such e-mail is requested and
received, with a copy mailed or faxed as provided herein),

if to the Issuer to:

Salton, Inc.

3633 S. Flamingo Road

Miramx, FL 33027

Attention: General Counsel

Telephone: (954) 883-1000

Facsimile: (954) 883-1714

e-mail: Lisa.Carstarphen@applicamail.com

 

13

 

 

--------------------------------------------------------------------------------

 

with a copy to:

Akin, Gump, Strauss, Hauer & Feld LLP

One Bryant Park,

New York, NY 10036-6715

Attention: Kerry E. Berchem

Telephone: (212) 872-1095

Facsimile: (212) 872-1002

e-mail: kberchem@akingump.com

if to the Purchaser, to:

c/o Harbinger Capital Partners Master Fund I, Ltd.

555 Madison Avenue, 16th Floor

New York, New York 10022

Attention: David M. Maura

Telephone: (212) 508-3703

Facsimile: (212) 508-3721

e-mail: dmaura@harbingercap.net

with a copy to

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, New York 10019

Attention: Jeffrey D. Marell

Telephone: (212) 373-3000

Fax: (212) 757-3990

email: jmarell@paulweiss.com

All notices, requests and other communications shall be deemed received on the
date of receipt by the recipient thereof if received prior to 5:00 p.m. in the
place of receipt and such day is a Business Day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding Business Day in the place of receipt.
Any notice, request or other written communication sent by facsimile or e-mail
transmission shall be confirmed by certified or registered mail, return receipt
requested, posted within one Business Day, or by personal delivery, whether
courier or otherwise, made within two Business Days after the date of such
facsimile or email transmissions.

Section 7.02    Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.

 

14

 

 

--------------------------------------------------------------------------------

 

Section 7.03    No Waivers; Amendments. (a) No failure or delay on the part of
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by Law.

(b)       Any provision of this Agreement may be amended or waived if, but only
if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement or, in the case of a waiver, by the
party against whom the waiver is to be effective.

Section 7.04    Expenses. All reasonable out-of-pocket costs and expenses
(including, the legal fees, expenses and disbursements of the Purchaser’s legal
counsel Paul, Weiss) incurred by the Purchaser and its Affiliates in connection
with the preparation and negotiation of this Agreement and the Registration
Rights Agreement Amendment, and the consummation of the transactions
contemplated to occur at each Closing, shall be paid by the Issuer. The Issuer
shall pay its own costs and expenses incurred in connection with this Agreement.

Section 7.05    Successors, Assigns, Transferees; Third-Party Beneficiaries. The
provisions of this Agreement shall be binding upon and accrue to the benefit of
the parties hereto and their respective successors, heirs, executors,
administrators and permitted assigns. Notwithstanding the foregoing, neither
this Agreement nor any right, remedy, obligation or liability arising hereunder
or by reason hereof shall be assigned by the Issuer or the Purchaser without the
consent of the other party hereto; provided, that a Purchaser may assign any of
its rights under this Agreement to any of its Affiliates. Nothing in this
Agreement, expressed or implied, is intended to confer on any Person other than
the parties hereto, and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.

Section 7.06    Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.

Section 7.07    Entire Agreement. This Agreement and the Registration Rights
Agreement Amendment constitute the entire agreement and understanding of the
parties hereto and thereto in respect of the subject matter contained herein and
therein, and there are no restrictions, promises, representations, warranties,
covenants, or undertakings with respect to the subject matter hereof or thereof,
other than those expressly set forth or referred to herein or therein. This
Agreement, the Registration Rights Agreement Amendment and the other agreements
referred to herein and therein supersede all prior agreements and understandings
between the parties hereto and thereto with respect to the subject matter hereof
and thereof.

 

15

 

 

--------------------------------------------------------------------------------

 

Section 7.08    Governing Law. This Agreement shall be construed in accordance
with and governed by the Laws of the State of New York, without regard to the
conflicts of Law rules of such state.

Section 7.09    Jurisdiction; Waiver of Jury Trial. The parties hereby agree
that any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the
transactions contemplated hereby shall be brought in the United States District
Court for the Southern District of New York or any other New York State court
sitting in New York County, so long as one of such courts shall have subject
matter jurisdiction over such suit, action or proceeding, and that any cause of
action arising out of this Agreement shall be deemed to have arisen from a
transaction of business in the State of New York, and each of the parties hereby
irrevocably consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by Law, any objection that
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient form.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in Section 7.01 shall be deemed effective service of
process on such party. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 7.10    Specific Performance. The parties hereby acknowledge and agree
that the failure of any party to perform its agreements and covenants hereunder,
including its failure to take all actions as are necessary on its part to the
consummation of the transactions contemplated hereby, will cause irreparable
injury to the other party for which damages, even if available, will not be an
adequate remedy. Accordingly, each party hereby consents to the issuance of
injunctive relief by any court of competent jurisdiction to compel performance
of such party’s obligations and to the granting by any court of the remedy of
specific performance of its obligations hereunder.

Section 7.11    Effectiveness. This Agreement shall become effective when each
party hereto shall have received a counterpart hereof signed by the other party
hereto.

Section 7.12    Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.

Section 7.13    Survival. The covenants and agreements of the parties hereto
contained in this Agreement or in any certificate or other writing delivered
pursuant hereto or in connection herewith shall survive until the expiration of
the applicable statute of limitation. The representations and

 

16

 

 

--------------------------------------------------------------------------------

 

warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive until the twelve (12) month anniversary of the Closing Date in
which such representations and warranties were made, as applicable.

Section 7.14    Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. Upon such a
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner so that the transactions contemplated hereby be
consummated as originally contemplated to the fullest extent possible.

Section 7.15    Independent Directors’ Authority; Remedies. The Independent
Directors shall have the authority to institute any action on behalf of the
Issuer to enforce the performance of this Agreement in accordance with its
terms.

Section 7.16    Purchaser’s Approval. The Purchaser and HCPSF, in their capacity
as holders of all of the outstanding shares of Series D Preferred Stock, par
value $0.01 per share of the Issuer, in connection with the transactions
contemplated by this Agreement and in accordance with Section 3(b) of the Series
D Certificate of Designations, hereby consents to the authorization and issuance
of the shares of Series E Preferred Stock contemplated by this Agreement.

 

[Signature page follows]

 

17

 

 

--------------------------------------------------------------------------------

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be
duly executed as of the date first above written.

 

 

SALTON, INC.

 

By: 

/s/ Lisa R. Carstarphen

 

 

Name:  Lisa R. Carstarphen 

Title:    Corporate Secretary

 

 

 

 

HARBINGER CAPITAL PARTNERS MASTER FUND I, LTD.

 

By:

Harbinger Capital Partners Offshore Manager, L.L.C., its investment manager

 

By: 

/s/ William R. Lucas, Jr.

 

 

Name:  William R. Lucas, Jr.

Title:     Executive Vice President

 

 

 

Purchase Agreement – Signature Page

 

--------------------------------------------------------------------------------

Solely for purposes of Section 7.16:

 

 

HARBINGER CAPITAL PARTNERS SPECIAL SITUATIONS FUND, L.P.

 

By:

Harbinger Capital Partners Special Situations GP, LLC, its general partner

 

By:

HMC – New York, Inc.,
its managing member

 

By: 

/s/ William R. Lucas, Jr.

 

 

Name:  William R. Lucas, Jr.

Title:     Executive Vice President

 

 

 

 

 

 

 

Purchase Agreement – Signature Page