Quiksilver has entered into a debt-for-equity agreement with Rhône to exchange $75 million of its outstanding principal of Quiksilver’s senior secured term loans for an aggregate of approximately 16.7 million shares of its common stock at an exchange price of $4.50. According to CEO and chairman of the board Bob McKnight the agreement will help improve the company’s balance sheet and provide Quiksilver with additional operating flexibility as business continues to increase, according to Quiksilver’s investor relations page.

“The closing share price of the company’s common stock on the New York Stock Exchange on June 14, 2010 was $4.47. In addition, under the agreement, Quiksilver has an option, exercisable in its sole discretion, to require Rhône to exchange up to an additional approximately $65 million of the remaining outstanding principal amount of senior secured term loans for additional shares of common stock at the same price per share. This option is available for a 60-day period following execution of definitive documentation relating to the transaction. As of April 30, 2010, the outstanding principal balance of the senior secured term loans was approximately $159.4 million.

Quiksilver intends to pursue alternative equity or equity-related financing during the option period, proceeds of which would be used to repay the senior secured term loans.

The proposed transaction, which would be accretive to the company’s earnings, was approved by Quiksilver’s independent directors.

In announcing the agreement, Robert B. McKnight, Jr., Chairman of the Board, Chief Executive Officer and President of Quiksilver, Inc., commented, “This exchange offer is an important step toward further de-leveraging our balance sheet and will provide us with additional operating flexibility in an improving business environment. Additionally, the Rhône offer demonstrates a real vote of confidence by a major investor who is willing to commit to a further equity investment amid a volatile stock market. We believe that stockholders will recognize the substantial value of this endorsement.”

Rhône currently owns warrants to acquire approximately 16.2% of the outstanding shares of Quiksilver’s common stock on an as-exercised basis, based on the number of outstanding shares as of June 4, 2010. Upon consummation of the initial $75 million debt-for-equity exchange, Rhône would own approximately 24.2% of the company’s outstanding shares including the shares issuable upon exercise of the warrants. If Quiksilver exercises the option in full, Rhône would own approximately 30.0% of the company’s outstanding shares, including the shares issuable upon exercise of the warrants.

In connection with the debt-for-equity exchange transactions, Quiksilver and Rhône would enter into a stockholders agreement, pursuant to which, among other things, Rhône would be subject to certain transfer and standstill restrictions and would be entitled to certain customary information rights, participation rights and registration rights. Rhône’s two designated directors will continue to serve on Quiksilver”s board of directors. If, following the exercise of the option, $30 million or less in aggregate principal amount remains outstanding under the senior secured term loans, under the agreement, Rhône has agreed to modify the minimum EBITDA financial covenant contained in the senior secured term loans.

The issuance of the common stock to Rhône in the debt-for-equity exchanges is subject to stockholder approval. The exchange transactions, if approved by stockholders and exercised by the company, are subject to other customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, and would be expected to close during the fiscal year ending October 31, 2010.