SALTON MAXIM HOUSEWARES INC, 8-K, 1996-07-03

SALTON MAXIM HOUSEWARES INC
8-K, 1996-07-03
ELECTRIC HOUSEWARES & FANS

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<PAGE> 1

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): JULY 1, 1996
SALTON/MAXIM HOUSEWARES, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 0-19557 36-3777824
(State or other jurisdiction Commission File Number (IRS Employer
of incorporation) Identification No.)
550 BUSINESS CENTER DRIVE, MOUNT PROSPECT, ILLINOIS 60056
(Address of principal executive offices) Zip Code
</TABLE>

(Registrant's telephone number): (847) 803-4600

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<PAGE> 2

ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.

(a) On July 1, 1996, Salton/Maxim Housewares, Inc. (the "Registrant" or the
"Company") acquired substantially all of the assets and certain liabilities of
Block China Corporation ("Block China"). Block China designs and markets table
top products, including china, crystal and glassware. The assets acquired by the
Registrant include, without limitation, cash, accounts receivable, inventories,
machinery, equipment, tools, dies, intellectual property (including patents,
trademarks, etc. and associated goodwill), personal and real property leases,
license agreements and other contracts.

The purchase price paid by the Registrant was $1,485,000 in cash, which is
subject to adjustment based upon an audit, and a warrant to purchase 25,000
shares of Common Stock with an exercise price equal to $4.83 per share. The
purchase price also includes an earn-out of up to $500,000 and 150,000 shares of
the Registrant's Common Stock based upon Block China's financial performance
over a three-year period. The Company also entered into a three-year employment
agreement with Robert C. Block, the principal stockholder of Block China.

The cash purchase price and cash used to retire Block China's bank debt
assumed by the Registrant in the acquisition was paid in part from available
cash and in part from an advance on the Company's line of credit with Foothill
Capital Corporation. The acquisition will be accounted for under the purchase
method of accounting.

Reference is made to the Asset Purchase Agreement dated July 1, 1996 by and
among the Registrant, Block China and Robert C. Block (Exhibit 1).

(b) The assets acquired by the Registrant include Block China's tools,
dies, machinery and equipment. Those assets had been used by Block China in
connection with the design and marketing of table top products, including china,
crystal and glassware. It is the present intention of the Registrant to continue
to use such assets for the same purposes.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial statements of businesses acquired.

The following financial statements of Block China as specified by Item 7(a)
of Form 8-K are set forth on pages 2 to 14 of this current report on Form 8-K.

Independent Auditors' Report

Audited Financial Statements
Balance Sheets at December 31, 1995 and 1994
Statements of Operations and Accumulated Deficit for the years ended December
31, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1995 and 1994
Notes to Financial Statements

Unaudited Financial Statements
Balance Sheet at March 31, 1996
Statements of Income for the three months ended March 31, 1996 and 1995
Statements of Cash Flows for the three months ended March 31, 1996 and 1995
Notes to Unaudited Financial Statements

(b) Pro forma financial information.

The pro forma financial information required pursuant to Article 11 of
Regulation S-X is set forth on pages 15 to 19 of this Current Report on Form
8-K. The pro forma financial information reflects: (i) the acquisition by the
Registrant of substantially all of the assets and certain liabilities of Block
China; and (ii) the consummation of the previously announced agreement by the
Registrant to sell 6,508,572 newly issued shares of the Registrant's common
stock (which will represent 50% of the outstanding shares of common stock after
giving effect to such sale) to Windmere-Durable Holdings, Inc. ("Windmere") for
$3,254,286, a subordinated promissory note in the aggregate principal amount of
$10,847,620 and 748,112 shares of Windmere's common stock (the "Transaction").
The closing of the Transaction, currently anticipated in the middle of July,
1996, remains subject to a number of conditions, including approval by the
Registrant's stockholders.

1. Asset Purchase Agreement dated July 1, 1996 by and among the Registrant,
Block China and Robert C. Block.

2. Press Release of Registrant dated July 1, 1996.

1
<PAGE> 3

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Block China Corporation
New York, New York

We have audited the accompanying balance sheets of Block China Corporation
as of December 31, 1995 and 1994, and the related statements of operations and
accumulated deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Block China Corporation as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.

Shine & Company

April 17, 1996, except as to note 13,
which is as of July 1, 1996
New York, New York

2
<PAGE> 4

BLOCK CHINA CORPORATION

BALANCE SHEETS
DECEMBER 31,

<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................... $ 135,083 $ 168,344
Accounts receivable................................................ 2,250,411 2,121,412
Inventory.......................................................... 3,333,698 3,532,263
Prepaid expenses and other receivables............................. 171,061 208,518
Marketable securities.............................................. -- 5,535
---------- ----------
Total current assets.......................................... 5,890,253 6,036,072
PROPERTY AND EQUIPMENT, at cost -- net............................... 286,165 241,612
OTHER ASSETS:
Security deposits.................................................. 30,729 30,529
---------- ----------
$6,207,147 $6,308,213
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade drafts and accounts payable.................................. $1,714,319 $1,677,073
Notes payable -- bank.............................................. 3,495,361 3,735,929
Loans payable -- stockholders...................................... 272,000 122,000
Accrued expenses payable........................................... 178,439 304,412
Equipment lease payable............................................ 15,852 --
---------- ----------
Total current liabilities..................................... 5,675,971 5,839,414
---------- ----------
LONG-TERM LIABILITIES:
Officer's loan payable............................................. 166,031 166,031
Equipment lease payable............................................ 35,932 --
Loan payable -- other.............................................. -- 100,000
---------- ----------
201,963 266,031
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock -- $.01 par value
15,000 shares -- Authorized
10,934 shares -- Issued and outstanding......................... 109 109
Capital in excess of par value..................................... 1,617,186 1,517,186
Accumulated deficit................................................ (72,751) (99,196)
---------- ----------
1,544,544 1,418,099
Less treasury stock, at cost, 6,413.5 shares....................... 1,215,331 1,215,331
---------- ----------
Total Stockholders' Equity.................................... 329,213 202,768
---------- ----------
$6,207,147 $6,308,213
========== ==========
</TABLE>

See notes to financial statements.

3
<PAGE> 5

BLOCK CHINA CORPORATION

STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
REVENUE
Net sales, including retail outlet sales of $236,143 in 1995
and $528,906 in 1994.......................................... $15,688,756 $14,876,777
Cost of Goods Sold............................................... 10,016,084 9,158,116
----------- -----------
Gross Profit..................................................... 5,672,672 5,718,661
----------- -----------
OPERATING EXPENSES
Cooperative advertising allowance................................ 580,110 400,447
Warehouse........................................................ 1,192,285 1,157,761
Selling.......................................................... 2,281,474 1,872,550
General and administrative....................................... 1,283,529 1,579,558
Retail outlets................................................... 89,897 262,628
----------- -----------
5,427,295 5,272,944
----------- -----------
Income from Operations........................................... 245,377 445,717
----------- -----------
OTHER INCOME (EXPENSES)
Commission income................................................ 326,975 224,934
Dividend and miscellaneous income................................ 1,615 10,864
Interest expense -- net.......................................... (499,485) (402,304)
Loss on foreign currency exchange................................ (16,037) (73,767)
Litigation settlement............................................ (30,000) --
Moving expense................................................... -- (49,263)
----------- -----------
(216,932) (289,536)
----------- -----------
Income Before Income Taxes....................................... 28,445 156,181
Less: Provision for state and local income taxes................... 2,000 3,400
----------- -----------
NET INCOME.................................................... 26,445 152,781
Accumulated Deficit -- Beginning of Year........................... (99,196) (251,977)
----------- -----------
Accumulated Deficit -- End of Year................................. $ (72,751) $ (99,196)
=========== ===========
</TABLE>

See notes to financial statements.

4
<PAGE> 6

BLOCK CHINA CORPORATION

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
FROM OPERATING ACTIVITIES
Net Income.......................................................... $ 26,445 $ 152,781
Adjustments to Reconcile Net Income to Net Cash Flow from
Operating Activities:
Depreciation................................................... 52,262 29,903
Increase in allowance for sales returns and advertising........ 83,288 60,475
(Increase) Decrease in Operating Assets
Accounts receivable............................................ (212,287) (419,715)
Inventory...................................................... 198,565 (662,356)
Prepaid expenses, other receivables and assets................. 37,257 (74,724)
(Decrease) Increase in Operating Liabilities
Trade accounts payable......................................... 37,216 393,277
Accrued expenses............................................... (125,973) 101,176
--------- ---------
Net Cash from Operating Activities.................................. 96,773 (419,183)
--------- ---------
FROM INVESTING ACTIVITIES
Purchase of equipment and improvements.............................. (96,815) (130,821)
Sale of marketable securities....................................... 5,535 --
--------- ---------
Net Cash from Investing Activities............................... (91,280) (130,821)
--------- ---------
FROM FINANCING ACTIVITIES
(Decrease) increase in bank loan.................................... (240,536) 276,989
Increase (decrease) in officers/stockholders loans.................. 150,000 (13,278)
(Decrease) increase in loan payable -- other........................ (100,000) 100,000
Additional pain-in-capital.......................................... 100,000 --
Equipment lease financing -- net.................................... 51,782 --
--------- ---------
Net Cash from Financing Activities.................................. (38,754) 363,711
--------- ---------
Decrease in Cash................................................. (33,261) (186,293)
Cash -- Beginning of Year............................................. 168,344 354,637
--------- ---------
Cash -- End of Year................................................... $ 135,083 $ 168,344
========= =========
Additional disclosures of operating cash flows paid:
Interest............................................................ $ 465,038 $ 403,401
Income taxes........................................................ $ 3,008 $ 1,139
</TABLE>

See notes to financial statements.

5
<PAGE> 7

BLOCK CHINA CORPORATION

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994

1. BUSINESS ACTIVITY

Block China Corporation (The Company) is an importer of fine china, crystal
and ceramics for sale to department stores and other retail establishments.

A retail outlet store located in Long Branch, New Jersey has been in
operation since December 1991. Stores in Reading, Pennsylvania and New York City
ceased operations in September 1994 and February 1995, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventory -- Inventory, which consist of finished goods, is valued at the
lower of weighted average cost or market value.

Depreciation -- Property and equipment are stated at cost. The cost of
maintenance and repairs are charged to operations as incurred. Property and
equipment acquired prior to 1981 are depreciated using the straight line method
based on useful lives. Subsequent acquisitions are depreciated using the
accelerated cost recovery system or modified accelerated cost recovery system.
Depreciation expense for the years ended December 31, 1995 and 1994 amounted to
$52,262 and $26,728 respectively.

Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Leases -- The Company leases certain computer equipment with a lease term
of four years. The equipment has been capitalized using interest rates
appropriate at the inception of the lease. This lease has been included in
property and equipment at a value of $58,045.

Minimum future lease payments due as of December 31, 1995 are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------------------------------- -------
<S> <C>
1996................................................................ $15,852
1997................................................................ 15,852
1998................................................................ 15,852
1999................................................................ 4,228
-------
51,784
Less: current portion............................................... 15,852
-------
Long term obligations at December, 31, 1995......................... $35,932
=======
</TABLE>

Foreign Currency Translation -- Assets and liabilities denominated in
foreign currencies are adjusted to values based on the foreign exchange rates as
of the Company's year end. The resultant gain or loss is recorded in income for
financial statement purposes. This gain or loss is not recognized for income tax
purposes. No deferred tax liability has been created for this timing difference.

6
<PAGE> 8

BLOCK CHINA CORPORATION

NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1995 AND 1994

Gains and losses on closed foreign currency transactions are recorded in
income as incurred.

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Realized currency loss from closed transactions......................... $(11,366) $(75,195)
Unrealized (losses) gains as of December 31,............................ (4,671) 1,428
---------- ----------
Total Currency Loss................................................... $(16,037) $(73,767)
========== ==========
</TABLE>

3. ACCOUNTS RECEIVABLES

Accounts receivable at December 31, 1995 and 1994 were comprised of:

<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Accounts receivable.................................................. $ 585,676 $ 749,898
Due from factor...................................................... 1,908,420 1,531,911
---------- ----------
2,494,096 2,281,809
Less allowance for sales returns and advertising..................... 243,685 160,397
---------- ----------
$2,250,411 $2,121,412
========== ==========
</TABLE>

The Company assigns substantially all of its receivables to a commercial
factor up to maximum amounts established for each customer. Receivables in
excess of such limitations are subject to recourse in the event of the
customer's non-payment. As of December 31, 1995, approximately $78,000 of the
amount due from the factor was subject to recourse.

The factoring arrangement exists in conjunction with a $1,475,000 revolving
credit line provided by the Company's primary lender (See Notes Payable --
Banks).

4. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1995 and 1994 was comprised of:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Furniture and equipment...................................... $272,031 $206,332
Automobiles.................................................. 9,240 9,240
Warehouse equipment.......................................... 66,329 49,879
Leasehold improvements....................................... 191,218 176,552
-------- --------
538,818 442,003
Less: Accumulated depreciation............................... 252,653 200,391
-------- --------
$286,165 $241,612
======== ========
</TABLE>

5. NOTES PAYABLE -- BANKS

Term Loans and Credit Lines -- The Company has arrangements with two banks
for credit facilities. Generally, the loans are secured by the Company's
factored receivables, accounts receivable and inventory and are guaranteed by
the Company's principal stockholder.

The arrangement with the primary bank provides a term loan in the original
amount $2,400,000 which bears interest at 1 1/2% over the bank's prime rate. The
loan was amended effective September 1, 1995 requiring principal payments of
$7,500 per week beginning October 6, 1995. Prior to the amendment, principal
payments due on the term loan were ten percent of each borrowing on the
revolving credit line (see note

7
<PAGE> 9

BLOCK CHINA CORPORATION

NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1995 AND 1994

below). The balance outstanding on this loan at December 31, 1995 and 1994
amounted to $1,930,452 and $2,176,552 respectively.

In September 1993 the primary bank made available a $600,000 revolving line
of credit that was subsequently increased to $1,375,000 in July 1994. The credit
line was increased to $1,475,000 in September 1995. Advances against the credit
line bear interest at 1 1/2% over the bank's prime rate and cannot exceed eighty
percent of factor approved accounts receivable. Each revolving credit loan is
for a term of 90 days. Balances of $927,356 and $949,977 were outstanding on
this line at December 31, 1995 and 1994 respectively.

The terms of the revolving credit line require the Company to maintain its
accounts receivable with a commercial factor.

The primary bank also provided the Company with a $500,000 line of credit
for opening letters of credit to purchase merchandise from a single supplier in
Portugal. Payment is due 90 days from the date the letter of credit is presented
for payment. An additional 60 day extension is available on the letter of credit
borrowings. Interest on this line is at 1 1/2% above the bank's prime rate. The
balance due on this line at December 31, 1995 was $298,155.

The secondary bank has made available a term loan of $429,400 (the original
sum was $1,230,000). As amended June 26, 1995, the loan bears interest at 2%
over the bank's prime rate and requires monthly principal repayments of $15,000.
At December 31, 1995 and 1994, loans outstanding under this facility were
$339,400 and $609,400 respectively.

In May 1994 the Company made an unscheduled principal payment on its term
loans of $150,000. The payment was applied $110,460 to the primary lender and
$39,540 to the secondary lender.

The term loans (both primary and secondary lenders) and credit line
terminated December 31, 1995. The Company has an arrangement with both lenders
that all credit facilities remain in place without change.

<TABLE>
<CAPTION>
LENDING SUMMARY 1995 1994
------------------------------------------------------ ---------- ----------
<S> <C> <C>
Primary Lender
Term loan........................................... $1,930,452 $2,176,552
Credit line......................................... 927,356 949,977
Letter of credit line............................... 298,155 --
Secondary Lender
Term loan........................................... 339,400 609,400
---------- ----------
$3,495,363 $3,735,929
========== ==========
</TABLE>

6. LOANS PAYABLE -- OFFICER/STOCKHOLDER

A stockholder loan in the amount of $122,000 bears interest at an annual
rate of 1 1/2% over the prime rate of the Company's primary lender. A second
loan of $150,000 bears interest at a rate of 9 1/2% per annum. The stockholder's
loans are due to minority shareholders.

The officer's loan is payable to the principal stockholder of the Company
and carries interest at 1 1/2% over the primary lenders prime rate.

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current Liabilities
Loans payable -- Stockholders.......................... $272,000 $122,000
======== ========
Non-current Liabilities
Officer's loan payable................................. $166,031 $166,031
======== ========
</TABLE>

The stockholder loans are payable upon demand.

8
<PAGE> 10

BLOCK CHINA CORPORATION

NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1995 AND 1994

7. LOAN PAYABLE -- OTHER

In 1994 a loan of $100,000 was made to the Company by an unrelated party.
This loan was converted to equity in 1995.

8. INCOME TAXES AND RETAINED EARNINGS

Effective January 1, 1987, the Company, with the consent of its
stockholders, elected under the Internal Revenue Code to be an "S" Corporation.
In lieu of corporation income taxes, the stockholders of an "S" Corporation are
taxed on their proportionate share of the Company's taxable income. Therefore,
no provision or liability for Federal income taxes has been included in these
financial statements.

For Federal tax purposes, retained earnings is comprised of the following
components:

<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Accumulated adjustments account (Subchapter "S"
Corp.)............................................... $(561,695) $(588,140)
Retained earnings (Subchapter "C" Corp.)............... 488,944 488,944
--------- ---------
$ (72,751) $ (99,196)
========= =========
</TABLE>

9. INTEREST EXPENSE

The components of interest expense are as follows:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Interest expense -- term loans and credit lines.......... $428,819 $370,073
Interest expense -- stockholder, officer's loans and
miscellaneous.......................................... 70,666 33,327
Interest income.......................................... -- (1,096)
-------- --------
$499,485 $402,304
======== ========
</TABLE>

10. PENSION PLAN

The Company adopted a non-contributory defined contribution pension plan
401(k) in 1991. No matching contributions have been made by the Company to this
plan for the years ending December 31, 1995 and 1994.

11. CONCENTRATION OF BUSINESS

Two customers accounted for approximately 24.1% and 20% respectively of the
Company's calendar year 1995 and 1994 net sales.

12. COMMITMENTS & CONTINGENCIES

Leases -- The Company leases office, warehouse and retail outlet premises
requiring minimum annual rental payments plus real estate tax escalation's
(warehouse only). The office lease term is from January 1, 1996 to December 31,
1996. The retail outlet lease lapsed in May 1995 and is on a month to month
basis. The

9
<PAGE> 11

BLOCK CHINA CORPORATION

NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1995 AND 1994

warehouse is subleased with a term from March 1, 1994 through June 30, 1997.
Minimum rental payments are listed below.

<TABLE>
<CAPTION>
OFFICE WAREHOUSE
-------- ---------
<S> <C> <C>
1996............................. $135,000 $203,569
1997............................. -- 101,785
</TABLE>

The Company exercised its option not to continue the lease of its retail
outlet space in Reading, Pennsylvania, effective September 1994. The Company
also discontinued its monthly lease for its New York City retail outlet in
February 1995.

Rent expense for the years ended December 31, 1995 and 1994 amounted to
$377,125 and $502,855 respectively.

Letter of Credit -- At December 31, 1995, the Company was contingently
liable on $175,289 of outstanding letters of credit.

Warehouse Operations -- The Company contracts with an independent warehouse
operator to manage all receiving, shipping and warehouse operations. The monthly
fee for these services for calendar year 1996, including all labor costs, is the
greater of $39,375 or 3 1/2% of gross sales shipped by the warehouse. Warehouse
management fees for the years ended December 31, 1995 and 1994 were $525,000 and
$420,758 respectively.

Expenses incurred in moving the Company's warehouse operations from New
York City to North Bergen, New Jersey in February 1994 totaled $49,263.

License Agreement -- The Company entered into a licensing agreement which
required license fees which range from 3-5% of gross sales of the licensed
product. Sales of the licensed products commenced in March 1995 and totaled
approximately $2.4 million.

Litigation -- A former sales representative of the Company filed a claim
for wrongful termination due to age discrimination. The Company settled the
claim in 1995 for $30,000.

The Company also settled litigation with a former supplier for payment of
delivered goods. The settlement was for the original merchandise cost which was
included in the 1994 operating results, plus interest of $14,057 which is an
expense in 1995.

13. SUBSEQUENT EVENTS

On July 1, 1996, the Company sold substantially all of its assets (subject
to certain liabilities) to Salton/Maxim Housewares, Inc. ("Salton/Maxim"). The
consideration paid by Salton/Maxim consisted of $1,485,000 in cash and a warrant
to purchase 25,000 shares of Salton/Maxim's common stock with an exercise price
equal to $4.83 per share. The consideration also included an earn-out of up to
$500,000 and 150,000 shares of Salton/Maxim common stock based on the Company's
financial performance over a three-year period.

10
<PAGE> 12

BLOCK CHINA CORPORATION

BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
<S> <C>
ASSETS
Current Assets
Cash........................................................................ $ 24,626
Accounts receivable -- net.................................................. 391,251
Due from Factors............................................................ 2,162,765
Loans and exchanges......................................................... (14,791)
Inventory................................................................... 3,561,923
Prepaid expenses............................................................ 240,261
------------
Total Current Assets..................................................... 6,366,035
Property and Equipment
Machinery & Equipment....................................................... 60,324
Furniture and fixtures...................................................... 211,708
Automobiles................................................................. 12,303
Warehouse equipment......................................................... 66,329
Leasehold improvements...................................................... 191,218
------------
541,882
Less: Accumulated Depreciation.............................................. (261,236)
------------
Net Property & Equipment................................................. 280,646
Other Assets
Security deposits........................................................... 30,729
------------
Total Other Assets....................................................... 30,729
------------
Total Assets............................................................. $ 6,677,410
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable -- BPA........................................................ $ 3,253,611
Notes payable -- LBS........................................................ 294,400
Accounts payable............................................................ 2,147,102
Accrued expenses............................................................ 126,560
Loan payable -- Officer..................................................... 413,031
Equipment leases payable.................................................... 15,852
------------
Total Current Liabilities................................................ 6,250,556
Long-Term Liabilities
Equipment leases payable.................................................... 30,538
------------
Total Long-Term Liabilities.............................................. 30,538
------------
Total Liabilities........................................................ 6,281,094
Stockholders' Equity
Capital stock -- par value.................................................. 109
Paid in capital............................................................. 1,617,186
Retained Earnings........................................................... (5,648)
Less treasury stock......................................................... (1,215,331)
------------
Total Stockholders' Equity............................................... 396,316
------------
Total Liabilities & Stockholders' Equity................................. $ 6,677,410
============
</TABLE>

11
<PAGE> 13

BLOCK CHINA CORPORATION

STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Income
Net sales.......................................................... $3,367,109 $2,179,058
Warehouse sales.................................................... 68,413 73,963
---------- ----------
Total income.................................................... 3,435,522 2,253,021
---------- ----------
Cost of sales................................................... 2,039,469 1,400,927
---------- ----------
Gross profit.................................................... 1,396,053 852,094
---------- ----------
Expenses
Warehouse expenses................................................. 287,221 247,137
Advertising allowance.............................................. 148,886 62,266
Selling expenses................................................... 534,783 375,952
General and administrative expenses................................ 255,464 356,547
New York store expenses............................................ 0 19,818
New Jersey store expenses.......................................... 24,937 15,553
Reading store expenses............................................. 0 30,024
---------- ----------
Total expenses.................................................. 1,251,292 1,107,297
---------- ----------
Operating Profit (Loss)............................................ 144,761 (255,203)
---------- ----------
Other income (expense)
Commission income.................................................. 74,265 38,823
Interest income.................................................... 0 181
Miscellaneous income............................................... 0 812
Interest expense................................................... (106,733) (73,940)
Gain (loss) on currency............................................ (1,897) 15,072
Factor commissions................................................. (43,294) (31,612)
Moving expenses.................................................... 0 (49,263)
---------- ----------
Total other income (expense).................................... (77,660) (99,927)
---------- ----------
Net profit (loss).................................................. $ 67,101 $ (355,130)
========== ==========
</TABLE>

12
<PAGE> 14

BLOCK CHINA CORPORATION

STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Operating Activities
Net income (loss)................................................... $ 67,101 $(112,051)
Adjustment to reconcile net income to net cash provided by (used in)
operating activities
Depreciation and amortization.................................... 8,583 8,341
(Increase) decrease in operating assets
Accounts receivable............................................ (303,605) 12,366
Merchandise inventory.......................................... (228,225) (549,296)
Prepaid expenses, other receivables and assets................. (54,408) 103,193
Increase (decrease) in operating liabilities
Accounts payable............................................... 432,783 129,537
Accrued expenses and other current liabilities................. (51,878) (71,634)
--------- ---------
Net cash (used in) operating activities............................. (129,649) (479,544)
--------- ---------
Investing activities
Acquisition of property and equipment............................... (3,064) (21,090)
--------- ---------
Net cash (used in) investing activities.......................... (3,064) (21,090)
--------- ---------
Financing activities
Increase (decrease) in bank loan.................................... 52,650 201,103
Increase (decrease) in officers/stockholders loans.................. (25,000) 150,000
Increase (decrease) in loan payable -- other........................ -- (100,000)
Additional paid in capital.......................................... -- 100,000
Equipment lease financing -- net.................................... (5,394) --
--------- ---------
Net cash provided by financing activities........................ 22,256 351,103
--------- ---------
Decrease in cash...................................................... (110,457) (149,531)
Cash -- beginning of period........................................... 135,083 168,344
--------- ---------
Cash -- end of period................................................. $ 24,626 $ 18,813
========= =========
Additional disclosure of operating cash flows paid during the period
Interest............................................................ $ 126,336 $ 104,979
Income taxes........................................................ $ 1,249 $ 1,128
</TABLE>

13
<PAGE> 15

BLOCK CHINA CORPORATION

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

1. FINANCIAL STATEMENTS

The financial statements have been prepared from the Company's books
without audit and are subject to year-end adjustments. The interim financial
statements reflect all adjustments consisting only of normal recurring accruals
which are, in the opinion of management, necessary for a fair presentation of
financial information. The financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
audited financial statements. The results of operations for interim periods
should not be considered indicative of results to be expected for the full year.

2. SUBSEQUENT EVENTS

14
<PAGE> 16

SALTON/MAXIM HOUSEWARES, INC.
PRO FORMA FINANCIAL STATEMENTS
The pro forma statements of operations for the thirty-nine weeks ended March
30, 1996 and the fiscal year ended July 1, 1995 give effect to the current
assumptions relating to the Transaction and the acquisition of Block China as
described under "Salton/Maxim Housewares, Inc. Notes to Pro Forma Financial
Statements" below, assuming the Transaction and such acquisition had occurred as
of July 3, 1994. The pro forma balance sheet gives effect to the current
assumptions relating to the Transaction and the acquisition of Block China as if
they had occurred on March 30, 1996.
The pro forma financial statements have been derived from and should be read
in conjunction with the historical financial statements included elsewhere
herein. The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the results of operations or financial
position that would have occurred had the Transaction and the acquisition of
Block China been consummated on the dates assumed; nor is the pro forma
information intended to be indicative of the Company's future results of
operations or financial position.
PRO FORMA STATEMENT OF OPERATIONS
FOR THIRTY-NINE WEEKS ENDED MARCH 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ACQUISITION PRO FORMA
OF BLOCK CHINA TO REFLECT
THE TRANSACTION ----------------------------- THE TRANSACTION
----------------- PRO FORMA BLOCK AND THE
COMPANY PRO FORMA TO REFLECT THE HISTORICAL PRO FORMA ACQUISITION OF
HISTORICAL ADJUSTMENTS NOTE TRANSACTION (NOTE 8) ADJUSTMENTS NOTE BLOCK CHINA
---------- ----------- ---- -------------- ---------- ----------- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $79,844 $ $79,844 $12,832 $ $92,676
Cost of goods sold................ 55,320 55,320 7,928 63,248
Distribution expenses............. 4,426 4,426 954 5,380
------- ----- ------- ------- -------
Gross profit...................... 20,098 20,098 3,950 24,048
Selling, general and
administrative expenses......... 14,345 14,345 3,251 173 9 17,769
------- ----- ------- ------- ----- -------
Operating income.................. 5,753 5,753 699 (173) 6,279
Interest expense, net............. 2,976 (651) 1 2,325 363 (7) 10 2,681
Other income, net................. 82 82
Dividend income................... 112 2 112 112
------- ----- ------- ------- ----- -------
Income before taxes............... 2,777 763 3,540 418 (166) 3,792
Income taxes...................... 90 656 3 746 2 42 11 790
------- ----- ------- ------- ----- -------
Net income........................ $ 2,687 $ 107 $ 2,794 $ 416 $(208) $ 3,002
======= ===== ======= ======= ===== =======
Weighted average common and common
equivalent shares outstanding... 6,583,783 13,092,355 13,092,355
Net income per common and common
equivalent share................ $0.41 $0.21 $0.23
</TABLE>

PRO FORMA STATEMENT OF OPERATIONS
FOR FISCAL YEAR ENDED JULY 1, 1995 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ACQUISITION PRO FORMA
OF BLOCK CHINA TO REFLECT
THE TRANSACTION ----------------------------- THE TRANSACTION
----------------- PRO FORMA BLOCK AND THE
COMPANY PRO FORMA TO REFLECT THE HISTORICAL PRO FORMA ACQUISITION OF
HISTORICAL ADJUSTMENTS NOTE TRANSACTION (NOTE 8) ADJUSTMENTS NOTE BLOCK CHINA
---------- ----------- ---- -------------- ---------- ----------- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $76,991 $ $76,991 $15,496 $ $92,487
Cost of goods sold................ 55,552 55,552 9,759 65,311
Distribution expenses............. 4,570 4,570 1,168 5,738
------ ------ ------- ----- -------
Gross profit...................... 16,869 16,869 4,569 21,438
Selling, general and
administrative expenses......... 13,141 13,141 3,908 230 9 17,279
------ ------ ------- ----- ----- -------
Operating income.................. 3,728 3,728 661 (230) 4,159
Interest expense, net............. 3,057 (868) 1 2,189 479 (4) 10 2,664
Other income, net................. 13 13
Dividend income................... 150 2 150 150
------ ------ ------- ----- ----- -------
Income before taxes............... 671 1,018 1,689 195 (226) 1,658
Income taxes...................... 20 283 3 303 (55) 11 248
------ ------ ------- ----- ----- -------
Net income........................ $ 651 $ 735 $ 1,386 $ 195 $(171) $ 1,410
====== ====== ======= ===== ===== =======
Weighted average common and common
equivalent shares outstanding... 5,901,133 12,409,705 12,409,705
Net income per common and common
equivalent share................ $0.11 $0.11 $0.11
</TABLE>

See Notes to Pro Forma Financial Statements.

15
<PAGE> 17

PRO FORMA BALANCE SHEET
MARCH 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ACQUISITION OF PRO FORMA
BLOCK CHINA TO REFLECT
THE TRANSACTION ---------------------------- THE TRANSACTION
----------------- PRO FORMA BLOCK AND THE
COMPANY PRO FORMA TO REFLECT THE HISTORICAL PRO FORMA ACQUISITION OF
HISTORICAL ADJUSTMENTS NOTE TRANSACTION (NOTE 12) ADJUSTMENTS NOTE BLOCK CHINA
---------- ----------- ---- -------------- --------- ----------- ---- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.......................... $ 8 $ 2,754 4 $ 2,762 $ 25 $(2,787) 13 $
Accounts receivable, net of
allowance................... 17,982 17,982 2,553 (400) 14 20,135
Inventories................... 27,146 27,146 3,562 15 30,708
Prepaid expenses and other
current assets.............. 1,634 1,634 226 (114) 16 1,746
-------- --------- -------- ------- ------- ---------
Total current assets...... 46,770 2,754 49,524 6,366 (3,301) 52,589
Property, plant and equipment:
Molds and tooling............. 11,072 11,072 11,072
Warehouse equipment........... 282 282 66 348
Office furniture and
equipment................... 1,847 1,847 476 2,323
-------- --------- -------- ------- ------- ---------
13,201 13,201 542 13,743
Less accumulated
depreciation................ (8,109) (8,109) (261) 261 17 (8,109)
-------- -------- ------- ------- ---------
5,092 5,092 281 261 5,634
Investment in Windmere Common
Stock......................... 10,100 6 10,100 10,100
Goodwill and other
intangibles................... 1,393 18 1,393
Other assets (net of accumulated
amortization)................. 3,846 3,846 30 19 3,876
-------- --------- -------- ------- ------- ---------
Total assets.............. $ 55,708 $ 12,854 $ 68,562 $ 6,677 $(1,647) $ 73,592
======== ========= ======== ======= ======= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable.............. $ 10,997 $ $ 10,997 $ 2,147 $ 20 $ 13,144
Accrued expenses.............. 862 862 143 50 21 1,055
Revolving line of credit...... 24,665 24,665 2,270 22 26,935
Bank debt..................... 3,548 (3,548) 23
Other debt.................... 413 (413) 24
Current portion --
Subordinated debt........... 667 667 667
-------- --------- -------- ------- ------- ---------
Total current
liabilities............. 37,191 37,191 6,251 (1,641) 41,801
Subordinated debt............... 500 500 500
Other non-current liabilities... 31 389 24 420
Stockholders' equity:
Preferred stock, $.01 par
value, authorized 2,000,000
shares; no shares issued
Common Stock, $.01 par value,
authorized 20,000,000
shares; issued and
outstanding March 30, 1996
-- 6,508,572, Pro Forma
March 30, 1996 --
13,017,144.................. 65 65 7 130 130
Note receivable from
Windmere.................... (10,848) 5 (10,848) (10,848)
Additional paid in capital.... 29,293 23,637 7 52,930 1,617 (1,617) 25 52,930
Accumulated deficit........... (11,341) (11,341) (6) 6 25 (11,341)
Treasury stock................ (1,216) 1,216 25
-------- --------- -------- ------- ------- ---------
Total stockholders'
equity.................. 18,017 12,854 30,871 395 (395) 30,871
-------- --------- -------- ------- ------- ---------
Total liabilities and
stockholder's equity.......... $ 55,708 $ 12,854 $ 68,562 $ 6,677 $(1,647) $ 73,592
======== ========= ======== ======= ======= =========
</TABLE>

See Notes to Pro Forma Financial Statements.

16
<PAGE> 18

NOTES TO PRO FORMA FINANCIAL STATEMENTS
(In thousands, except share data)

BASIS OF PRESENTATION: The pro forma balance sheet as of March 30, 1996
gives effect to the current assumptions relating to the Transaction and the
acquisition of substantially all of the assets and certain liabilities of Block
China assuming the Transaction and such acquisition were consummated on March
30, 1996. The pro forma statements of operations for the 39 weeks ended March
30, 1996 and the fiscal year ended July 1, 1995 give effect to the current
assumptions relating to the Transaction and the acquisition of Block China
assuming the Transaction and such acquisition had been consummated as of July 3,
1994.

PRO FORMA ADJUSTMENTS TO REFLECT THE TRANSACTIONS:

(1) Records interest income at the stated rate of 8% on the face value of
the note ($10,848) earned during the respective pro forma periods.

(2) Records dividend income on the 748,112 shares of Windmere Common Stock
based on per share dividends declared by Windmere during the pro forma period.
The actual amount of dividends paid on the Windmere Common Stock is subject to
the discretion of the board of directors of Windmere.

(3) Records the additional income tax expense resulting from the
Transaction. The "ownership change" in the Company for purposes of Section 382
of the IRC resulting from the Transactions will limit the extent to which the
Company's net operating loss carryforwards ("NOLs") can be used to offset future
taxable income. Subsequent to the ownership change, annual utilization of NOLs
will be limited to approximately $900. Accordingly, the pro forma adjustment to
income taxes includes the income tax effect of the pro forma increase in income
before taxes, as well as the additional income tax expense on the historical
amount of income before taxes resulting from the limitation on NOL utilization.

The effective income tax rate is calculated by estimating annual income and
income tax expense for each of the applicable fiscal years after giving effect
to the limitations on the NOLs available to offset taxable income. The resultant
effective income tax rate is then applied to income before taxes in each of the
pro forma periods presented.

(4) Records cash proceeds of the Transaction ($3,254), net of anticipated
expenses ($500).

(5) Records the note receivable from Windmere. The note is a valid and
binding obligation of Windmere secured by certain assets of Windmere and its
domestic subsidiaries.

Management considers the note to be a significant asset of the Company due
to its stated terms and the terms of the Transaction. However, in accordance
with SEC interpretations of Rule 5-02.30 of Regulation S-X, the note will be
displayed in the Company's balance sheet as a deduction from stockholders'
equity until paid.

(6) Records the Company's investment in 748,112 shares of Windmere Common
Stock. The shares were valued using the quoted closing market price of Windmere
Common Stock as of July 1, 1996, which was $13 1/2 per share. The value of the
748,112 shares of Windmere Common Stock on any future date may be higher or
lower than the value on July 1, 1996.

(7) Records the value of the 6,508,572 shares of Common Stock to be issued
to Windmere. The total value of the shares of Common Stock to be issued to
Windmere is calculated as the sum of the net cash proceeds of $2,754 (after
anticipated expenses of $500), the investment in 748,112 shares of Windmere
Common Stock valued using the quoted closing market price of Windmere Common
Stock as of July 1, 1996, and the face value of the note receivable from
Windmere of $10,848. The resultant total value of the 6,508,572 shares of Common
Stock to be issued to Windmere is allocated first to Common Stock based on its
par value of $.01 per share, with the remaining amount allocated to paid in
capital.

17
<PAGE> 19

PRO FORMA ADJUSTMENTS TO REFLECT THE ACQUISITION OF BLOCK CHINA:

The following pro forma adjustments (i) include various assumptions with
respect to the fair value of assets acquired and liabilities assumed in the
acquisition, (ii) have been derived from the unaudited financial statements of
Block China, and (iii) reflect the terms of the acquisition. Certain pro forma
adjustments are based on the Company's preliminary assessments and assumptions
and are therefore subject to adjustment. Such adjustments, however, are not
expected to have a material impact on the accompanying pro forma financial
statements. The Block China financial statements used to prepare the pro forma
adjustments are unaudited and have been conformed to the Company's fiscal
period. Such conformed financial statements do not exclude from or include more
than once sales or income from any period.

(8) Adjustments record the historical results of operations of Block China
during the pro forma periods.

(9) Records the additional depreciation and amortization expense during the
pro forma periods resulting from the acquisition.

(10) Records the change in interest expense in the pro forma periods
resulting from the acquisition. Pro forma interest expense has been calculated
using the Company's weighted average rate of 11.2%.

(11) Records the income tax effect of the acquisition. The pro forma
adjustment to income taxes assumes that the operations of Block China were
included in the Company's consolidated tax provision for the pro forma periods.

(12) Records the historical balances of Block China as of the pro forma
date, March 31, 1996.

(13) Records the cash payment to Block China of $1,485, the net cash of
$1,277 used to retire Block China debt assumed in the acquisition and Block
China cash of $25 not assumed. The Company retired Block China's bank debt of
$3,548 through available cash of $1,277 and an advance on the Company's line of
credit of $2,271. The Company's lender advanced such funds against certain
assets of Block China.

(14) Adjusts accounts receivable acquired in the acquisition to their
assumed present value net of estimated allowances for uncollectible accounts and
collection costs. The allowance for uncollectible accounts has been increased by
$400 for pro forma purposes.

(15) The Company has assumed that the historical value of inventory
approximates the fair market value that will generate a reasonable profit margin
upon disposition.

(16) Eliminates certain prepaid expenses, aggregating $114, that the
Company does not expect to acquire in the acquisition. Management assumes that
the fair market value of the remaining prepaid expenses and other assets
approximates book value.

(17) Adjusts the value of plant and equipment to current replacement cost,
which the Company assumes is approximately equal to gross historical amounts.

(18) Records the estimated excess of the cost of the acquisition over the
sum of the amounts assigned to tangible assets acquired less liabilities
assumed. The Company estimates that this amount will be amortized over a
weighted average period of approximately ten years. The following table
illustrates the calculation of goodwill as of March 30, 1996:

<TABLE>
<S> <C>
Purchase price:
Cash payment to Block China............................................... $1,485
Liabilities assumed....................................................... 6,257
Estimated transaction costs............................................... 50
------
Total purchase price........................................................ 7,792
Assumed fair value of tangible assets acquired.............................. 6,399
------
Goodwill and other intangibles.............................................. $1,393
======
</TABLE>

(19) The Company has assumed that the historical value of other assets
approximates fair market value.

18
<PAGE> 20

(20) Because of the short term nature of the liability, the Company assumes
the fair market value of accounts payable equals book value.

(21) Records estimated direct costs of the acquisition of $50. Because of
the short term nature of the liabilities, the Company assumes fair market value
of the accrued expenses assumed in the acquisition approximates book value.

(22) Records the advance on the Company's line of credit used to retire the
amount of bank debt assumed in the acquisition in excess of available cash
balances.

(23) Records the retirement of bank debt assumed in the acquisition.

(24) Reflects (i) the reclassification to non-current liabilities of $389
of debt payable to shareholders of Block China which was assumed by the Company
subject to revised terms, and (ii) the elimination of $24 of other debt which
was not assumed by the Company.

(25) Records the elimination of Block China's equity resulting from the
acquisition.

19
<PAGE> 21

SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

SALTON/MAXIM HOUSEWARES, INC.

/s/ LEONHARD DREIMANN
--------------------------------------
Leonhard Dreimann
Chairman, President
and Chief Executive Officer

Dated: July 1, 1996

20
<PAGE> 22

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------------
<S> <C>
1 Asset Purchase Agreement dated July 1, 1996 by and among the Registrant, Block China
and Robert C. Block.
2. Press Release of Registrant dated July 1, 1996
</TABLE>

<PAGE> 1
EXHIBIT 99.1

ASSET PURCHASE AGREEMENT

DATED AS OF

July 1, 1996

BY AND AMONG

SALTON/MAXIM HOUSEWARES, INC.

BLOCK CHINA CORPORATION

AND

ROBERT C. BLOCK

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE

<S> <C> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Section 2. Basic Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Purchase and Sale of Purchased Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Assumption of Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 Tax Treatment of Acquisition and Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . 11
2.6 Post-Closing Adjustment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Section 3. Closing and Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Section 4. Representations and Warranties of the Stockholder and the Seller . . . . . . . . . . . . . . . . . . . . 12
4.1 Organization; No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.7 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.8 Accounts Receivable and Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.9 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.11 Machinery and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.12 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.13 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.15 Product Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.16 Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.17 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.18 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.19 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.20 Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.22 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.23 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.24 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.25 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.26 Completeness of Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

</TABLE>

-i-

<PAGE> 3

Section 5. Representations and Warranties of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.1 Organization of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Authorization of Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.3 Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.4 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.5 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Section 6. Post-Closing Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Post-Closing Consents; Nonassignable Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Litigation Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4 Agreements Regarding Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.5 Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 No Solicitation; Non-Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.7 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.8 Termination of Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.9 Property Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.10 Collection of Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.11 Repayment of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.12 Moving Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.13 Transition Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Section 7. Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Conditions to Obligation of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Conditions to Obligation of the Seller and the Stockholder . . . . . . . . . . . . . . . . . . . . . . . 30

Section 8. Remedies for Breaches of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Section 9. Piggyback Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Request for Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Limitations on Piggyback Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3 Selection of Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Transfer of Shares and Assignment of the Registration Rights to the Stockholder . . . . . . . . . . . . 36

Section 10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.1 Press Releases and Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.3 Arbitration Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.4 Consent to Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

</TABLE>

-ii-

<PAGE> 4

<TABLE>
<S> <C> <C>
10.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.8 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
10.10 No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.11 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.12 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.13 Incorporation of Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.14 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

</TABLE>

EXHIBITS

<TABLE>
<S> <C>
Exhibit A - Form of Note
Exhibit B - Form of Warrant
Exhibit C - Form of Bill of Sale
Exhibit D - Form of Employment Agreement
Exhibit E - Form of Seller's Legal Opinion
Exhibit F - Form of Lender Release
Exhibit G - Form of Assumption Agreement
Exhibit H - Form of Purchaser's Legal Opinion

TAX ALLOCATION SCHEDULE

DISCLOSURE SCHEDULES

Schedule 4.1 - Organization
Schedule 4.3 - Noncontravention
Schedule 4.4 - Financial Statements
Schedule 4.6 - No Material Adverse Change
Schedule 4.10 - Contracts
Schedule 4.13(a) - Intellectual Property
Schedule 4.13(b) - Infringement
Schedule 4.14 - Litigation
Schedule 4.7 - ERISA
Schedule 4.18(b) - Leased Real Property
Schedule 4.19 - Labor Relations
Schedule 4.23 - Transactions with Affiliates
Schedule 4.24 - Investment
Schedule 4.25 - Insurance
Schedule 5.3 - Noncontravention
Schedule 5.5 - Broker's Fees

</TABLE>

-iii-

<PAGE> 5

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT ("Agreement") is entered into as of this
1st day of July, 1996, and among SALTON/MAXIM HOUSEWARES, INC., a Delaware
corporation (the "Purchaser"), BLOCK CHINA CORPORATION, a New York corporation
(the "Seller"), and ROBERT C. BLOCK (the "Stockholder").

WHEREAS, upon the terms and subject to the conditions of this
Agreement, the Purchaser desires to acquire from the Seller, and the Seller
desires to sell to the Purchaser, substantially all of the Seller's assets
(subject to certain of the Seller's liabilities as specifically provided
herein).

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

Section 1. Definitions. For purposes of this Agreement, the
following terms have the meanings set forth below:

"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act.

"Agreement" means this Asset Purchase Agreement and the Exhibits and
Schedules attached hereto.

"Assumed Contracts" means only those Contracts which are specifically
set forth and described in Schedule 4.10 of the Disclosure Schedules.

"Business" means the Seller's business of designing and marketing
table top products, including china, crystal and glassware, including the
agency and private label business relating thereto, and each and every of the
following incidents of such business: income, cash flow, operations, condition
(financial or other), assets, anticipated revenues, prospects and personnel.

"Code" means the Internal Revenue Code of 1986, as amended.

"Confidential Information" means any information concerning the
operations and affairs of the Business.

"Disclosure Schedules" means, collectively, the various schedules
referred to in this Agreement and incorporated herein by reference.

"Environmental Law" means any federal, state or local statute,
regulation or ordinance or any judicial or administrative decree or decision
with respect to any Hazardous Materials, drinking water, groundwater, wetlands,
landfills, open dumps, storage tanks, underground storage tanks, solid waste,
waste water, storm water run-off, waste emissions or wells. Without limiting
the generality of the foregoing, the term will encompass each of the following
statutes

<PAGE> 6

and the regulations promulgated thereunder: (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (codified in scattered
sections of 26 U.S.C., 33 U.S.C., 42 U.S.C. and 42 U.S.C. Section 9601 et
seq.); (ii) the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
Section 6901 et seq.); (iii) the Hazardous Materials Transportation Act (49
U.S.C. Section 1801 et seq.); (iv) the Toxic Substances Control Act (15 U.S.C.
Section 2061 et seq.); (v) the Clean Water Act (33 U.S.C. Section 7401 et
seq.); (vi) the Clean Air Act (42 U.S.C. Section 7401 et seq.); (vii) the Safe
Drinking Water Act (21 U.S.C. Section 349); 42 U.S.C. Section 201 and Section
300f et seq.); (viii) the National Environmental Policy Act of 1969 (42 U.S.C.
Section 4321); (ix) the Superfund Amendment and Reauthorization Act of 1986
(codified in scattered sections of 10 U.S.C., 29 U.S.C., 33 U.S.C. and 42
U.S.C.); and (x) Title III of the Superfund Amendment and Reauthorization Act
(40 U.S.C. Section 1101 et seq).

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"GAAP" means United States generally accepted accounting principles,
as in effect as of the date of this Agreement.

"Hazardous Materials" means each and every element, compound, chemical
mixture, contaminant, pollutant, material, waste or other substance which is
defined, determined or identified as hazardous or toxic under any Environmental
Law or the Release of which is prohibited under any Environmental Law. Without
limiting the generality of the foregoing, the term will include:

(a) "hazardous substances" as defined in the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, the Superfund Amendment and Reauthorization Act of 1986, or
Title III of the Superfund Amendment and Reauthorization Act, each as
amended, and regulations promulgated thereunder;

(b) "hazardous waste" as defined in the Resource
Conservation and Recovery Act of 1976, as amended, and regulations
promulgated thereunder;

(c) "hazardous materials" as defined in the Hazardous
Materials Transportation Act, as amended, and regulations promulgated
thereunder;

(d) "chemical substance or mixture" as defined in the
Toxic Substances Control Act, as amended, and regulations promulgated
thereunder; and

(e) petroleum products and byproducts, and asbestos.

"Indebtedness" means (i) any debt, note, bond, capitalized lease
obligation or any other indebtedness for borrowed money or for the deferred
purchase price of property or services (other than trade payables and other
current liabilities incurred in the ordinary course of

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<PAGE> 7

business), and (ii) any commitment by which a creditor is assured against loss,
including contingent reimbursement obligations and guarantees of indebtedness
of another.

"IRS" means the Internal Revenue Service of the Department of the
Treasury.

"Legal Requirement" means any requirement arising under any action,
law, treaty, rule or regulation, determination or direction of an arbitrator or
governmental entity.

"Lien" means any mortgage, pledge, security interest, charge or other
encumbrance.

"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, storing, escaping, leaching, dumping,
discarding, burying, abandoning or disposing into the environment.

"Schedule" means, unless the context otherwise requires, the
referenced schedule included in the Disclosure Schedules.

"Shares" means the shares of Common Stock which may be acquired by the
Seller from time to time pursuant to the exercise of the Warrant or pursuant to
the Earn-Out Amounts set forth in Section 2.4.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Subsidiary" means any corporation with respect to which another
specified corporation has the power under ordinary circumstances to vote or
direct the voting of sufficient securities to elect a majority of the
directors.

"Tax" means any federal, state, local or foreign net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties or other tax, fee, assessment or charge, including any interest, penalty
or addition thereto.

"Tax Return" means any return, declaration, report, claim for refund
or information return or statement relating to Taxes, including any schedule or
attachment thereto.

"Transaction Documents" means this Agreement, and all other
agreements, instruments, certificates and other documents to be entered into or
delivered by any party to this Agreement in connection with the transactions
contemplated to be consummated pursuant to any of the foregoing.

Section 2. Basic Transaction.

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<PAGE> 8

2.1 Purchase and Sale of Purchased Assets. On the terms
and subject to the conditions set forth in this Agreement, at the Closing the
Purchaser will purchase from the Seller, and the Seller will sell, transfer,
assign, convey and deliver to the Purchaser, all of the assets, other than the
Excluded Assets (as defined in Section 2.2), owned by the Seller (collectively,
the "Purchased Assets"), including, but not limited to, the following assets:

(a) all cash and cash equivalents, marketable securities
and short-term investments of the Seller as of the Closing Date;

(b) all accounts and notes receivable and other claims
for money due to the Seller, including such receivables arising from
the rendering of services or the sale of goods or materials in
connection with the operation of the Business, as the same exist on
the Closing Date (the "Accounts Receivable");

(c) all raw materials and supplies, manufactured and
purchased parts, work and goods in process and finished goods
inventories, unbilled revenues and other properties and rights
associated with the performance of contracts with customers of the
Business, as the same exist on the Closing Date (collectively, the
"Inventory");

(d) all rights and benefits of the Seller under all
contracts, commitments, agreements, bids and proposals to which the
Seller is a party, including those listed on Schedule 4.10 of the
Disclosure Schedules, all unfilled orders outstanding as of the
Closing Date for the purchase of raw materials, goods or services by
the Seller, and all unfilled orders outstanding as of the Closing Date
for the sale of goods or services by the Seller (collectively, the
"Contracts");

(e) all machinery, equipment, tools, test equipment,
dies, spare parts, furniture, fixtures, automobiles and trucks owned
by the Seller as of the Closing Date (and all assignable warranties
relating thereto), and all of the Seller's interest in the machinery
and equipment held by the Seller under equipment leases included in
the Contracts (collectively, the "Machinery and Equipment");

(f) all patents, patent disclosures, trademarks, service
marks, trade dress, logos, trade names (including the name "Block
China" and any related or derivative name), copyrights, mask works and
registrations, applications and associated goodwill for each of the
foregoing owned, licensed or otherwise used by the Seller, including
those listed on Schedule 4.13(a) of the Disclosure Schedules, and all
computer software, computer programs, computer data bases and related
documentation and materials, data, documentation, trade secrets,
confidential business information (including ideas, formulas,
compositions, inventions, know-how, manufacturing and production
processes and techniques, research and development information,
drawings, designs, plans, proposals and technical data, financial,
marketing and business data, pricing and cost information) and other
intellectual property rights owned, licensed or otherwise used by the
Seller as of the Closing Date (collectively, the "Intellectual
Property");

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<PAGE> 9

(g) to the extent legally assignable, all licenses,
approvals, permits, registrations, certificates and other similar
rights obtained from governmental agencies and held by the Seller as
of the Closing Date;

(h) all real property owned or leased by the Seller, and
all of the Seller's rights to all buildings and other improvements
located on such owned or leased property, and all of the Seller's
right, title and interest in and to all easements, rights of way and
all of the Seller's right, title and interest in and to all
appurtenances to such owned or leased property, including, without
limitation, all appurtenant rights on and to public streets
(collectively, the "Real Estate");

(i) the Business of the Seller as a going concern and all
goodwill of, in, related to or associated with the Business;

(j) all telephone numbers currently assigned to or used
by the Seller;

(k) all deposits, prepayments, prepaid assets, refunds,
causes of action, rights of recovery, rights of set-off and rights of
recoupment of the Seller as of the Closing Date, including any rights
of the Seller or its Affiliates under any property, casualty, workers'
compensation or other insurance policy or related insurance service
contract to the extent same relate to any Assumed Liability or any
casualty affecting any of the Purchased Assets; and

(l) all books, records, ledgers, files, documents,
correspondence, lists (including customer and supplier lists), plats,
drawings, creative materials, advertising and promotional materials,
studies, reports and other printed or written materials used by the
Seller as of the Closing Date.

2.2 Excluded Assets. Notwithstanding the provisions of
Section 2.1, the Purchased Assets will not include (i) any rights of the Seller
under this Agreement or under any other Transaction Document, (ii) all
qualifications to do business as a foreign corporation, (iii) all seals, minute
books, stock transfer books, blank stock certificates and other documents
relating to the organization, maintenance and existence of the Seller as a
corporation, (iv) any account, account receivable, note or note receivable
payable to the Seller by the Stockholder or any other stockholder or Affiliate
of the Seller, (v) that anticipated refund of prepaid Generalized System of
Preferences (GSP) duties in the approximate sum of $140,000, which may be
payable to the Seller, (vi) stock owned by the Stockholder in one of the
Seller's Polish glass suppliers, (vii) any automobiles, and (viii) any life
insurance policies covering the Stockholder or any other stockholder of the
Seller (collectively, the "Excluded Assets").

2.3 Assumption of Certain Liabilities.

(a) On the terms and subject to conditions set forth in
this Agreement, at the Closing the Purchaser will assume and become
responsible for (i) all liabilities and

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<PAGE> 10

obligations of the Seller in connection with the Business reflected on
the Interim Balance Sheet, except for any Excluded Liabilities (as
defined in Section 2.3(b)), (ii) all liabilities and obligations of
the Seller in connection with the Business which have arisen since the
date of the Interim Balance Sheet in the ordinary course of the
operation of the Business (other than any liabilities or obligations
resulting from, arising out of, relating to, or caused by any breach
of contract, breach of warranty, tort, infringement or violation of
law) which in accordance with GAAP consistent with the Seller's past
practices (so long as such practices are in accordance with GAAP)
would be accrued as liabilities of the Seller on its balance sheet as
of the Closing Date, except for any Excluded Liabilities, and (iii)
all liabilities and obligations of the Seller arising in connection
with the performance of the Assumed Contracts from and after the
Closing Date (other than any liabilities or obligations, including any
consequential or incidental damages, resulting from, arising out of,
relating to, or caused by any breach of contract, breach of warranty,
tort, infringement or violation of law by the Seller on or prior to
the Closing Date).

(b) Notwithstanding the provisions of Section 2.3(a), the
Purchaser will not assume, and will not be deemed to have assumed: (i)
any Indebtedness of the Seller, other than (A) the Indebtedness in the
aggregate amount of $3,742,017.76 to Banco Portugues do Atlantico, New
York Branch (the "Bank") (as specified in the pay-off letter of the
Bank delivered by the Seller pursuant to Section 7.1(k) hereof) and
$272,918.28 to LBS Bank-New York ("LBS") (as specified in the pay-off
letter of LBS delivered by the Seller pursuant to Section 7.1(k)
hereof) pursuant to that certain Revolving Credit and Term Loan
Agreement dated as of September 2, 1993, as amended, by and among the
Seller, the Bank and LBS (the "Loan Agreement"), (B) the promissory
notes each dated June 21, 1996, in the aggregate principal amount of
$400,000 in favor of Bernie Goldstein, (C) the promissory note dated
June 21, 1996, in the principal amount of $100,000 in favor of Alan G.
Schwartz and (D) indebtedness in the aggregate amount of $113,519.15
to CIT Group (other than in the case of each of clause (A), (B), (C)
and (D) Indebtedness in the aggregate amount of $113, 519.15 to CIT
Group any liabilities or obligations, including any consequential or
incidental damages, resulting from, arising out of, related to, or
caused by any breach of contract or violation of law by the Seller on
or prior to the Closing Date); (ii) any liabilities or obligations of
the Seller to any of its stockholders, employees, directors, officers
or any other of its Affiliates, other than the Seller's debt owed to
Betsy Block, Alan G. Schwartz and the Stockholder in the principal
amount of $122,000, $150,000 and $117,000, respectively (or such
lesser amount after any post-closing adjustment pursuant to Section
2.6); provided that the payment of each such debt shall be subject to,
and governed by, the terms of the Note in the form of Exhibit A
attached to this Agreement (each, a "Note"); (iii) any liability to
any employee of the Seller which was accrued or incurred by the Seller
at any time on, prior to or after the Closing Date, including any
severance, sick, holiday or vacation pay obligation and any
compensation required to be paid and benefits required to be provided
under any employee benefit plan; (iv) any environmental liabilities of
the Seller or any of its Affiliates arising out of events prior to the
Closing, including liabilities for

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<PAGE> 11

violations of Environmental Laws or for the generation, storage,
presence, use, handling, treatment, transportation, release or
disposal of Hazardous Materials, (v) any liabilities or obligations
(whether assessed or unassessed) of the Seller or any of its
Affiliates for any Taxes, including any Taxes arising by reason of the
transactions contemplated herein, as of or for any period ending on or
prior to the Closing Date; (vi) any liabilities or obligations of the
Seller or any of its Affiliates arising from or incurred in connection
with any litigation, proceeding or claim involving events or
activities that occurred prior to the Closing Date, (vii) any
obligation of the Seller or any of its Affiliates to indemnify any
person or entity by reason of the fact that such person was a
director, officer, employee or agent of the Seller or any of its
Affiliates or was serving at the request of the Seller or any of its
Affiliates as a partner, trustee, director, officer, employee or agent
of another entity (whether such indemnification is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses or otherwise and whether such indemnification is pursuant to
any statute, charter document, bylaw, agreement or otherwise); (viii)
any liability or obligation arising out of, resulting from or caused
by any breach of warranty or otherwise relating to any claim with
respect to products shipped or manufactured by the Seller, its
Affiliates or the Business on or before the Closing Date; (ix) any
liabilities or obligations (including any consequential or incidental
damages) resulting from, arising out of, relating to, or caused by any
breach of contract, breach of warranty, tort, infringement or
violation of law by the Seller or any of its Affiliates on or prior to
the Closing Date, (x) any liabilities or obligations of the Seller or
any of its Affiliates under (A) the Master Equipment Lease Agreement
dated January 31, 1991 by and between the Seller, as Lessee, and
Automatic Data Processing, Inc., as Lessor, Lease No. 4203 or (B) the
Master Equipment Lease Agreement dated December 16, 1994 by and
between the Seller, as Lessee, and ADP Leasing, as Lessor, Lease No.
20053, (xi) the Collective Factoring Agreement dated September 2,
1993, as amended, by and between the Seller and CIT Group, as
successor in interest to Barclay's American Commercial, Inc., or (xii)
any other obligations or liabilities of the Seller or any of its
Affiliates whatsoever other than as specifically set forth in Section
2.3(a)(with all such unassumed liabilities and obligations referred to
herein as the "Excluded Liabilities").

(c) The Seller (or, if applicable, its Affiliates) shall
continue to be responsible for all of the Excluded Liabilities,
whether fixed or contingent, known or unknown. It is expressly agreed
and understood that the Purchaser is not assuming any obligation or
liability of Seller or its Affiliates or the Business of any kind or
nature whatsoever, whether fixed or contingent, known or unknown,
other than the Assumed Liabilities. The Seller and the Stockholder,
jointly and severally, on the one hand, and the Purchaser, on the
other hand, hereby agrees to indemnify, defend and hold harmless the
other party, and its respective successors and assigns, from and
against all damages, costs and expenses, including reasonable
attorney's fees, litigation expenses, and other professional fees
incurred by the other as a result of the assertion against the
indemnified party of any liability or obligation which by virtue of
this Section 2.3 has been assumed or retained by the indemnifying
party, as the case may be.

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<PAGE> 12

(d) The assumption by the Purchaser of liabilities of the
Seller pursuant to this Agreement shall in no way expand the rights or
remedies of any third party against the Purchaser or the Seller as
compared to the rights and remedies which such third party would have
had against the Seller had the Purchaser not assumed such liabilities.
Without limiting the generality of the foregoing, the assumption by
the Purchaser of liabilities of the Seller pursuant to this Agreement
shall not create any third party beneficiary rights.

2.4 Purchase Price.

(a) On the terms and subject to the conditions set forth
in this Agreement, and subject to the purchase price adjustment set
forth in Section 2.6, the Purchaser shall pay the purchase price for
the Purchased Assets (the "Purchase Price") as follows:

(i) on the Closing Date, the Purchaser shall
cause to be delivered $1,485,000 by wire transfer of
immediately available funds to an account designated in
writing by the Seller;

(ii) on the Closing Date, the Purchaser shall
issue to the Seller a warrant to purchase 25,000 shares of
Common Stock, par value $.01 per share, of the Company (the
"Common Stock") in the form of Exhibit B attached to this
Agreement (the "Warrant");

(iii) on the Closing Date, the Purchaser shall
assume the Assumed Liabilities; and

(iv) within five business days after each
applicable Payment Date, the Purchaser shall pay the Seller
the following additional consideration, if any (the "Earn-Out
Amounts"):

(A) $83,333 and 25,000 shares of Common
Stock upon the earliest to occur of: (i) the Gross
Margin of the Business for Year One equaling or
exceeding $2,989,000; (ii) the cumulative Gross
Margin of the Business for Year One and Year Two
equaling or exceeding $6,287,000; or (iii) the
cumulative Gross Margin of the Business for Year One,
Year Two and Year Three equaling or exceeding
$9,920,000;

(B) an additional $83,333 and 25,000
shares of Common Stock upon the earliest to occur of:
(i) the Gross Margin of the Business for Year One
equaling or exceeding $3,165,000 for Year One; (ii)
the cumulative Gross Margin of the Business for Year
One and Year Two equaling or exceeding $6,656,000; or
(iii) the cumulative Gross Margin of the Business for
Year One, Year Two and Year Three equaling or
exceeding $10,504,000;

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<PAGE> 13

(C) an additional $83,333 and 25,000
shares of Common Stock upon the earliest to occur of:
(i) the Gross Margin of the Business for Year Two
equaling or exceeding $3,297,000; or (ii) the
cumulative Gross Margin of the Business for Year Two
and Year Three equaling or exceeding $6,931,000;

(D) an additional $83,333 and 25,000
shares of Common Stock upon the earliest to occur of:
(i) the Gross Margin of the Business for Year Two
equaling or exceeding $3,491,000; or (ii) the
cumulative Gross Margin of the Business for Year Two
and Year Three equaling or exceeding $7,339,000;

(E) an additional $83,333 and 25,000
shares of Common Stock if the Gross Margin of the
Business for Year Three equals or exceeds $3,634,000;
and

(F) an additional $83,333 and 25,000
shares of Common Stock if the Gross Margin of the
Business for Year Three equals or exceeds $3,848,000.

(b) Not later than 90 days after the end of Year One,
Year Two and Year Three, respectively, the Purchaser shall prepare, in
conjunction with its independent public accountants, and deliver to
the Seller a detailed statement of earnings for the Business for the
applicable Year setting forth the Purchaser's determination of the
Gross Margin of the Business for such Year. If the Seller chooses, it
may cause its independent accountants to audit the Purchaser's
determination of the Gross Margin of the Business for such Year (at
the Seller's expense), and the Seller will deliver to the Purchaser
not later than 120 days after the end of such Year a detailed
statement describing its objections (if any) to the Purchaser's
determination of the Gross Margin of the Business for such Year. If
the Seller does not so object, the Purchaser's determination of the
Gross Margin of the Business for such Year will be conclusive and
binding upon the parties. The Purchaser and the Seller will use
reasonable efforts to resolve any such disputes, but if a final
resolution is not obtained within 60 days after the Seller has
submitted its objections, any remaining disputes will be resolved by
an accounting firm mutually agreeable to the Purchaser and the Seller
(the fees and expenses of such firm to be shared equally by the
Purchaser and the Seller). If the Purchaser and the Seller are unable
to mutually agree on such an accounting firm, a "big-six" accounting
firm will be selected by lot after eliminating one firm designated as
objectionable by each of the Purchaser and the Seller. The
determination of any accounting firm so selected will be conclusive
and binding upon the parties. The costs and expenses of such
accounting firm shall be allocated based upon the percentage which the
portion of the contested amount not awarded to each party bears to the
amount actually contested by such party. For example, if the Seller
claims the Gross Margin of the Business is $1,000 greater than the
amount determined by the Purchaser, and the

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<PAGE> 14

Purchaser contests only $500 of the amount claimed by the Seller, and
if the accounting firm ultimately resolves the dispute by awarding the
Seller $300 of the $500 contested, then the costs and expenses of such
accounting firm will be allocated 60% (i.e., 300 / 500) to the
Purchaser and 40% (i.e., 200 / 500) to the Seller.

(i) "Cost of Goods Sold" for a given
Year shall mean the aggregate landed cost of goods
sold of the Business, prepared in accordance with
GAAP consistent with Seller's past practices.
Without limiting the generality of the foregoing,
"Cost of Goods Sold" shall be determined on a
first-in first-out basis and shall include the
following costs: product costs, ocean freight, air
freight, brokerage fees, duty, freight in, marine
insurance, molds and samples, outside buying
services, buying salaries, payroll taxes, buying
commissions and design costs.

(ii) "Gross Margin of the Business" for a
given Year shall mean Net Sales minus Cost of Goods
sold minus Selling Expenses.

(iii) "Net Sales" for a given Year shall
mean the aggregate sales of the Business prepared in
accordance with GAAP consistent with Seller's past
practices, less (i) returned goods (including freight
or handling incurred thereon), discounts, refunds,
credits and allowances made or allowed to customers
and (ii) sales and excise taxes actually paid.

(iv) "Payment Date" shall mean the date
on which the Gross Margin of the Business for Year
One, Year Two or Year Three, as the case may be, is
finally and conclusively determined in accordance
with Section 2.4(b).

(v) "Selling Expenses" for a given Year
shall mean the aggregate selling and advertising
expenses of the Business including, without
limitation, the Stockholder's salary, salesmen
salaries, payroll taxes, employee benefits,
compensation insurance, commissions, promotion
salaries, freight out, freight charged to customers,
advertising (local, co-op, etc.), photos, promotion,
royalties, showroom expenses (rent, electric, etc.),
show expenses, travel expenses-sales,
depreciation-auto, entertainment expenses and local
travel.

(vi) "Year One" shall mean the twelve
(12) month period commencing on July 1, 1996 and
ending on June 30, 1997.

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<PAGE> 15

(vii) "Year Two" shall mean the twelve
(12) month period commencing on July 1, 1997 and
ending on June 30, 1998.

(vi) "Year Three" shall mean the twelve
(12) month period commencing on July 1, 1998 and
ending on June 30, 1999.

(d) Notwithstanding anything herein to the contrary, the
number of shares of Common Stock which may be issued to the Seller
pursuant to Section 2.4(a) shall be equitably adjusted to the extent
that such adjustment is necessary to preserve the economic value of
such shares in the event of a stock dividend, stock split, reverse
stock split, share combination, recapitalization, merger,
consolidation, asset spin-off, split-off or similar event, of or by
the Purchaser before the date such shares are issued. The Purchaser
agrees to give the Seller prompt written notice of the occurrence of
any event set forth in this Section 2.4(d).

(e) The Purchaser and the Stockholder each agree to use
reasonable efforts to cause the Business to continue to operate in the
ordinary course of business and to take such actions as are necessary
or appropriate to enhance the profitability and long-term value of the
Business. Without limiting the generality of the foregoing, neither
the Purchaser nor the Stockholder shall cause the Business to take any
action outside of the ordinary course of the Business that would have
the effect of shifting revenues into or expenses out of any Year from
periods in which such revenues or expenses would otherwise be
recognized.

2.5 Tax Treatment of Acquisition and Allocation of
Purchase Price. The parties hereto hereby agree that for federal and state
income tax purposes they shall treat the acquisition herein contemplated as an
asset purchase agreement and not as a tax free reorganization under Section 368
of the Code. The parties hereto agree that the Purchase Price shall be
allocated to the Purchased Assets as provided in the Tax Allocation Schedule
attached hereto. Neither the Purchaser, on the one hand, nor the Seller and
the Stockholder, on the other hand, shall perform any act or permit any
omission in any tax filing or otherwise which is inconsistent with the tax
treatment referred to in the first sentence of this Section 2.5 or with the
allocation set forth in the Tax Allocation Schedule. Additionally, the
Purchaser, on the one hand, and the Seller and the Stockholder, on the other
hand, shall cooperate with the other in any filings required under Section 1060
of the Code. Notwithstanding the foregoing, the parties hereto hereby agree
that the Purchase Price allocation set forth in the Tax Allocation Schedule
shall be revised and modified as appropriate to reflect any adjustments made to
the Purchase Price pursuant to Section 2.6 below.

2.6 Post-Closing Adjustment of Purchase Price. Within
sixty (60) days following the Closing Date, the Purchaser shall cause a firm of
certified public accountants to prepare (in accordance with GAAP applied
consistently with the Seller's past practices (so long as such practices are in
accordance with GAAP)) and deliver to the Seller a balance sheet of the
Purchased Assets and the Assumed Liabilities as of the Closing Date (the
"Closing Date Balance

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<PAGE> 16

Sheet"); provided that the amount of accounts receivable reflected on the
Closing Date Balance Sheet shall be determined net of a $650,000 allowance for
doubtful accounts. To the extent the book value of the Purchased Assets less
the Assumed Liabilities as reflected on the Closing Date Balance Sheet is less
than ($129,000) (minus up to $25,000 of reasonable, documented legal and
accounting fees and expenses incurred by the Seller in connection with the
negotiation of the Transaction Documents), the Purchase Price shall be
decreased by the amount of such deficiency. In the event of any such
deficiency, the Purchaser shall first deduct the amount of such deficiency from
the principal amount of any or all of the Notes to the Stockholder, Alan G.
Schwartz or Betsy Block (in such order and provided that any such deduction(s)
shall be deemed effective as of the Closing Date) and any deficiency amounts in
excess of the principal amount of such Notes shall be promptly paid by the
Seller to the Purchaser within five (5) days after the Seller's receipt of the
Closing Date Balance Sheet. Any such payment shall be made by wire transfer or
delivery of other immediately available funds. The Seller and the Stockholder
shall be jointly and severally liable for any amounts due and owing to the
Purchaser pursuant to this Section 2.6.

Section 3. Closing and Closing Date. The consummation
of the transactions contemplated by this Agreement (the "Closing") will take
place at the offices of Sonnenschein Nath & Rosenthal, 8000 Sears Tower,
Chicago, Illinois 60606, at 10:00 a.m., Chicago time, on the date hereof (the
"Closing Date"), or at such other place or on such other date as the Purchaser
and the Seller may agree.

Section 4. Representations and Warranties of the
Stockholder and the Seller. Each of the Stockholder and the Seller, jointly
and severally, represent and warrant to the Purchaser that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 4).

4.1 Organization; No Subsidiaries. Except as set forth
on Schedule 4.1 of the Disclosure Schedules, the Seller is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and is duly qualified and has all requisite
power and authority to own, lease and operate its properties and to conduct its
business, including without limitation the Business, as now conducted, in, and
is in good standing in, each jurisdiction where the conduct of its business
(including the Business) or the nature of its property (including the Purchased
Assets) requires qualification. The Seller does not own or hold any rights to
acquire any capital stock or any other security interest or investment in any
other person or entity other than investments which constitute cash or cash
equivalents. Except as expressly set forth on Schedule 4.1 of the Disclosure
Schedules, the Seller does not have, and has never had, a Subsidiary.

4.2 Authorization of Transaction. The Seller has full
power and authority (including full corporate power and authority) to execute
and deliver the Transaction Documents and to perform its obligations pursuant
to the Transaction Documents. The execution, delivery

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<PAGE> 17

and performance of the Transaction Documents by the Seller, and the
consummation by the Seller of the transactions contemplated by the Transaction
Documents, have been duly and effectively authorized by the Board of Directors
and stockholders of the Seller and no other corporate action is necessary for
the execution, delivery and performance by the Seller of the Transaction
Documents and the consummation by the Seller of the transactions contemplated
by the Transaction Documents. Each of the Transaction Documents constitutes
the valid and legally binding obligations of the Seller, enforceable in
accordance with its terms and conditions. The Stockholder has the requisite
capacity necessary to enter into, deliver and carry out his obligations
pursuant to the Transaction Documents to which he is a party. Each Transaction
Document to which the Stockholder is a party constitutes a valid and binding
obligation of such Stockholder, enforceable in accordance with its terms and
conditions.

4.3 Noncontravention. Except as expressly set forth on
Schedule 4.3 of the Disclosure Schedules, the execution, delivery and
performance of the Transaction Documents to which any of the Seller or the
Stockholder is a party, and the consummation by the Seller or the Stockholder
of the transactions contemplated by the Transaction Documents, will not (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under, (iii) result in the creation of any Lien upon
any of the Purchased Assets under, (iv) give any third party the right to
modify, terminate or accelerate any Assumed Liability or other liability or
obligation of the Seller under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or
declaration or notice to any governmental entity pursuant to, the charter or
bylaws of the Seller or any agreement, instrument or other document, or any
Legal Requirement which the Seller, the Stockholder or any of the Seller's
assets is subject. Without limiting the generality of the foregoing, except as
set forth on Schedule 4.3 of the Disclosure Schedules, neither the Seller, the
Stockholder nor any of their respective Affiliates has entered into any
agreement, or is bound by any obligation of any kind whatsoever, directly or
indirectly to transfer or dispose of (whether by sale of stock or assets,
assignment, merger, consolidation or otherwise) the Business or the Purchased
Assets (or any substantial portion thereof) to any person or entity other than
the Purchaser, and neither the Seller nor the Stockholder has entered into any
agreement or any obligation of any kind whatsoever to issue any capital stock
of the Seller to any person or entity.

4.4 Financial Statements. Set forth as Schedule 4.4 of
the Disclosure Schedules are correct and complete copies of:

(a) audited balance sheets of the Seller as of December
31, 1995, December 31, 1994 and December 31, 1993 (the "Year-End
Balance Sheets"), and the related statements of income and cash flows
for the years then ended (the "Year End Financial Statements"); and

(b) the unaudited balance sheet of the Seller as of March
30, 1996 (the "Interim Balance Sheet"), and the related statement of
income and cash flows for the one-month period then ended (the
"Interim Financial Statements").

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<PAGE> 18

(The Year-End Balance Sheets and the Interim Balance Sheet are
referred to in this Agreement collectively as the "Balance Sheets"). The
Year-End Financial Statements and the Interim Financial Statements are referred
to in this Agreement collectively as the "Financial Statements". The Balance
Sheets and the Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP, consistently applied, present fairly the
financial condition of the Seller as of the dates and for the periods, are
correct and complete, and are consistent with the books and records of the
Seller (which books and records are correct and complete), subject to normal
year-end adjustments (which will not be material individually or in the
aggregate) in the case of the Interim Balance Sheet and the Interim Financial
Statements.

4.5 Undisclosed Liabilities. As of the Closing Date, the
Seller will have no liabilities or obligations (whether absolute or contingent,
liquidated or unliquidated, known or unknown, or due or to become due), and to
the best knowledge of the Seller, there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand, except for liabilities and obligations (i) reflected on the Interim
Balance Sheet, and (ii) arising after the date of the Interim Balance Sheet in
the ordinary course of business (none of which results from, arises out of,
relates to or was caused by any breach of contract, breach of warranty, tort,
infringement or violation of law).

4.6 No Material Adverse Change. Since the date of the
Interim Balance Sheet, there has not occurred any material adverse change in
the business, financial condition, operations, results of operations or future
prospects of the Business. Without limiting the generality of the foregoing,
since such date, except as expressly set forth on Schedule 4.6 of the
Disclosure Schedules: (i) the Seller has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the ordinary course of business; (ii) the Seller has not
entered into any agreement, contract, lease or license (or series of related
agreements, contracts, leases and licenses) either involving more than $25,000
or outside the ordinary course of business; (iii) no party (including the
Seller and its Affiliates) has accelerated, terminated, modified or cancelled
any agreement, contract, lease or license (or series of related agreements,
contracts, leases and licenses) involving more than $10,000 to which the Seller
is a party or by which the Business or the Purchased Assets are bound; (iv) the
Seller has not sold or otherwise disposed of (or contracted or agreed to sell
or otherwise dispose of) any material capital assets of the Business (except
for sales of inventory in the ordinary course of business) nor has the Seller
imposed any Lien upon any of its assets, tangible or intangible (including,
without limitation, the Purchased Assets); (v) the Seller has not made any
capital expenditure (or series of related capital expenditures) either
involving more than $10,000 or outside the ordinary course of business; (vi)
the Seller has not delayed or postponed the payment of accounts payable or
other liabilities or obligations; (vii) the Seller has not cancelled,
compromised, waived or released any right or claim (or series of related rights
and claims) either involving more than $20,000 or outside the ordinary course
of business; (viii) the Seller has not declared, set aside or paid any dividend
or made any distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased or otherwise acquired any of its capital stock;
(ix) the Seller has not experienced any material or substantial damage,
destruction or loss (whether or not covered by insurance) to its property and
has maintained the

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<PAGE> 19

Purchased Assets (including any leased properties) in good operating condition
and repair; (x) except for interest payments due in the ordinary course, the
Seller has not made any payment of any intercompany debt, loan or other
Indebtedness to any of its Affiliates (including that certain "Loan
payable-officer" of $413,031 reflected on the Interim Balance Sheet) or paid
any amount to any third party with respect to any liability or obligation which
would not constitute an Assumed Liability if in existence as of the Closing;
(xi) to the best of Seller's knowledge, there has not been any other
occurrence, event, incident, action, failure to act, or transaction outside the
ordinary course of business, involving the Seller, the Business or the
Purchased Assets; (xii) the Seller has not made, permitted to be made or
suffered any material change in the conduct of the Business or instituted any
unusual or novel methods of manufacture, purchase, sale, lease, management,
accounting or operation or otherwise effected any material change to the
Business not in the usual and ordinary course of business and consistent with
the past operation of the Business; (xiii) the Seller has not increased the
rate or form of compensation payable to any officer, employee, partner or agent
of the Seller or the Business other than in the ordinary course of business;
(xiv) the Seller has not committed or omitted to take any act which caused (or
upon subsequent notice will cause) a termination of or material breach or
default of any material contract, commitment or obligation to which the Seller
is a party or by which its assets are bound relating to the Business, including
but not limited to the Contracts; (xv) the Seller has not disclosed any
Confidential Information to any person or entity other than the Purchaser, the
Purchaser's representatives or the Seller's attorneys, accountants or lenders;
(xvi) the Seller has not made any charitable contributions; (xvii) the Seller
has not received any indication from any material supplier of the Seller to the
effect that such supplier will stop, or materially decrease the rate of,
supplying materials, products or services to the Seller (or to the Purchaser,
if the transactions contemplated hereby are consummated); (xviii) the Seller
has not suffered or been threatened with the generality of the foregoing, the
existence or threat of any labor dispute, or a change in, or loss of, any
relationship with customers or clients; and (xix) the Seller has not committed
to any of the foregoing.

4.7 Tax Matters.

(a) The Seller has filed all Tax Returns that it was
required to file with respect to the Business or otherwise. All such
Tax Returns were correct and complete in all material respects. All
Taxes owed by the Seller with respect to the Business, the Purchased
Assets or otherwise (whether or not shown on any Tax Return), have
been paid and all current Taxes with respect to the Business, the
Purchased Assets, income, expense or credits of the Seller have been
paid or provided for or will be paid or provided for prior to the
Closing. The Seller is not currently the beneficiary of any extension
of time within which to file any Tax Return. No claim with respect to
the Business or the Purchased Assets has ever been made by an
authority in a jurisdiction where the Seller does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There
is no Lien on any of the Purchased Assets that arose in connection
with any failure (or alleged failure) to pay any Tax.

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<PAGE> 20

(b) The Seller has withheld and paid all material Taxes
with respect to the Business, the Purchased Assets or otherwise
required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor,
stockholder or other third party.

(c) There is no pending dispute or claim concerning any
tax liability of the Seller with respect to the Business or the
Purchased Assets. No Tax audits are pending or being conducted with
respect to the Seller.

(d) The Seller has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to
a Tax assessment or deficiency.

(e) A valid election to be an S Corporation (as defined
in Section 1361(d) of the Code and any corresponding provisions of
state, local or foreign law) has been in effect with respect to the
Seller at all time since January 1, 1987.

(f) The Seller is not a party to any Tax sharing or
allocation agreement, and the Seller does not have any liability for
Taxes of any person or entity under Section 1.1503-6 of the United
States Treasury Regulations promulgated pursuant to the Code (or any
similar provision of state, local or foreign law), as a transferee or
successor, by contract, or otherwise.

4.8 Accounts Receivable and Accounts Payable. The
accounts receivable reflected on the Interim Balance Sheet are, and all
accounts receivable of the Seller arising after the date of the Interim Balance
Sheet and on or prior to the Closing Date will be, bona fide receivables,
accounted for in accordance with GAAP, representing amounts due with respect to
actual transactions in the ordinary course of the operation of the Business.
To the best knowledge of the Seller, all such receivables are and will be fully
collectible by the Purchaser (without any requirement on the part of the
Purchaser to perform or provide any further work, services or goods in respect
thereof) net of the reserve set forth in the Interim Balance Sheet, which
reserve was calculated consistent with past practices. The accounts payable
reflected on the face of the Interim Balance Sheet (rather than any notes
thereto) arose, and all accounts payable arising after the date of the Interim
Balance Sheet and on or before the Closing Date will have arisen, from bona
fide transactions in the ordinary course of business and have been paid or are
not yet due and payable as of the Closing Date.

4.9 Inventory. The Inventory consists of raw materials
and supplies, manufactured and purchased parts, goods in process and finished
goods purchased for or by Seller or manufactured by Seller in the ordinary
course of the Business and consistent with the requirements of the Business and
the volumes of purchases and production thereof and orders therefore have not
been reduced or increased in anticipation of the transactions contemplated by
this Agreement. The Inventory of the Seller is merchantable and fit for the
purpose for which it was procured or manufactured, and is not slow-moving,
obsolete, damaged or defective.

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<PAGE> 21

4.10 Contracts.

(a) Except for the Contracts specifically listed on
Schedule 4.10 of the Disclosure Schedules, the Seller is not a party
to, and neither the Seller, the Business or the Purchased Assets are
otherwise bound by or subject to, any written or oral contract,
agreement, instrument or other understanding or arrangement of any
kind or, nature whatsoever, including, without limitation, any
mortgage, indenture, note, guarantee, letter of credit, purchase or
sale agreement or order, purchase commitment, license agreement,
independent sales representative or distributorship agreement, lease
or sublease agreement, employment or consulting agreement, collective
bargaining agreement, severance agreement, employee benefit, welfare
or stock plan or arrangement, joint venture or partnership agreement,
license or sublicense agreement, or non-competition or
non-solicitation agreement.

(b) The Seller has delivered or made available to the
Salton correct and complete copies of each Contract listed on Schedule
4.10 of the Disclosure Schedules, as amended to date. Each Contract
is a valid, binding and enforceable obligation of the Seller and the
other party or parties thereto (subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and
subject as to enforceability to general principles of equity), and is
in full force and effect. Except as expressly set forth on Schedule
4.10 of the Disclosure Schedules, (i) neither the Seller nor the other
party or parties thereto is in breach of any term of any Contract or
has repudiated any term of any Contract, (ii) no event, occurrence or
condition exists which, with the lapse of time or the giving of
notice, would become a default under any Contract by the Seller or any
other party thereto, (iii) the Seller has not released any of its
rights under any Contract, (iv) no Contract requires from the Seller
(or will require from the Purchaser by virtue of its assumption
thereof), the payment or performance of material considerations by the
Seller (or the Purchaser by virtue of its assumption thereof) on or
after the Closing Date without receipt by the Purchaser of
consideration of commensurate value, (v) no advance payments have been
made under any Contract, and (vi) no consents, releases or agreements
of any other party are necessary to permit the Seller's assignment of
all of its right, title and interest under the Contracts to the
Purchaser.

4.11 Machinery and Equipment. No machinery, equipment,
fixtures or other tangible asset is needed for the conduct of the Business as
presently conducted except for that which is owned by the Seller (and included
in the Purchased Assets) or leased by the Seller pursuant to a Contract. Each
such tangible asset (including the Purchased Assets) has been maintained in
accordance with normal industry practice and is in good operating condition and
repair (subject to normal wear and tear).

4.12 Title to Assets. The Seller has good and marketable
title to, or a valid leasehold interest in, the properties and assets
(including the Purchased Assets) used by the Business, shown on the Interim
Balance Sheet or acquired after the date thereof, and each item

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<PAGE> 22

of Machinery and Equipment purported to be owned by it, free and clear of all
Liens, except for properties and assets disposed of in the ordinary course of
business since the date of the Interim Balance Sheet.

4.13 Intellectual Property.

(a) Schedule 4.13(a) of the Disclosure Schedules lists
each patent, registered trademark, registered service mark, trade
dress, logo, trade name, copyright, mask work and registration or
application for any of the foregoing owned by or licensed to the
Seller for use in connection with the Business. Except as
specifically set forth on Schedule 4.13(a) of the Disclosure
Schedules, the Seller has good and marketable title to each item of
Intellectual Property purported to be owned by it, free and clear of
any Liens, existing or pending. The Seller owns or has the right to
use pursuant to licenses, sublicenses, agreements or permission all
patents, trademarks, service marks, trade dress, trade secrets, logos,
trade names, copyrights and mask works necessary for the operation of
the Business as presently conducted.

(b) The Seller has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
property rights of third parties, and neither the Seller nor the
directors and officers (and employees with responsibility for
Intellectual Property matters) of the Seller have ever received any
charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation, violation or adverse
claims of ownership (including any claim that the Seller must license
or refrain from using any Intellectual Property rights of any third
party). To the best of Seller's knowledge, no third party has
interfered with, infringed upon, misappropriated or otherwise come
into conflict with any Intellectual Property rights of the Seller.

4.14 Litigation. Schedule 4.14 of the Disclosure
Schedules sets forth each instance in which the Seller, the Purchased Assets or
any Contract is (i) subject to any unsatisfied judgment, order, decree,
stipulation, injunction or charge, or (ii) a party to or is threatened to be
made a party to any charge, complaint, action, suit, proceeding, hearing or
investigation of or in any court of quasi-judicial or administrative agency or
any federal, state, local or foreign jurisdiction. None of the actions, suits,
proceedings, hearings and investigations set forth on Schedule 4.14 of the
Disclosure Schedules could result in any material adverse change in the
business, financial condition, operations, results of operations or future
prospects of the Business or otherwise have a material adverse effect on any of
the Purchased Assets or any of the Seller's rights or benefits under any
Contract.

4.15 Product Warranty. Each product manufactured, sold,
leased or delivered by the Seller has been in conformity with all applicable
contractual commitments and all express and implied warranties, and the Seller
does not have any liability (and there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against it giving rise to any liability) for replacement or repair
thereof or other damages

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<PAGE> 23

in connection therewith except for such replacements or repairs which are
consistent with the Seller's past practices.

4.16 Product Liability. The Seller has no liability (and,
to the best knowledge of the Seller, there is no basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against it giving rise to any liability) arising out of any
injury to individuals or property as a result of the ownership, possession or
use of any product manufactured, sold, leased or delivered by the Seller.

4.17 ERISA. Except as set forth on Schedule 4.17 of the
Disclosure Schedule:

(a) with respect to all current employees (including
those on lay-off, disability or leave of absence), former employees,
and retired employees of the Seller (the "Seller Employees"), the
Seller does not maintain or contribute to any (a) employee welfare
benefit plans (as defined in Section 3(1) of ERISA) ("Employee
Welfare Plans"), or (b) any plan, policy or arrangement which provides
nonqualified deferred compensation, bonus or retirement benefits,
severance or "change of control" (as set forth in Code Section 280G)
benefits, or life, disability accident, vacation, tuition
reimbursement or other material fringe benefits ("Other Plans");

(b) the Seller does not maintain, contribute to, or
participate in any defined benefit plan or defined contribution plan
which are employee pension benefit plans (as defined in Section 3(2)
of ERISA) ("Employee Pension Plans");

(c) the Seller does not contribute to or participate in
any multiemployer plan (as defined in Section 3(37) of ERISA) (a
"Multiemployer Plan");

(d) the Seller does not maintain or have any obligation
to contribute to or provide any post-retirement health, accident or
life insurance benefits to any Seller Employee, other than limited
medical benefits required to be provided under Code 4980B;

(e) all Plans (and all related trusts and insurance
contracts) comply in form and in operation in all respects with the
applicable requirements of ERISA and the Code; and

(f) with respect to each Plan, all contributions,
premiums or payments which are due on or before the Closing Date have
been paid to such Plan.

The "Plans" means all Employee Pension Plans, Employee Welfare Plans,
Other Plans and Multiemployer Plans to which the Seller contributes or
is a party.

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<PAGE> 24

4.18 Real Estate.

(a) Owned Properties. Seller does not own any real
property.

(b) Leased Property. Schedule 4.18(b) of the Disclosure
Schedules lists and describes briefly all real property leased or
subleased to the Seller and all other real property which is used in
the Business and not owned by the Seller (the "Leased Real
Property"). The Seller has delivered to the Purchaser correct and
complete copies of the leases and subleases listed on Schedule 4.18(b)
of the Disclosure Schedules (collectively, the "Leases"). With
respect to the Leased Real Property and each of the Leases:

(i) with respect to the Seller, and, to the best
knowledge of the Seller, with respect to the other party or
parties to such Leases, such Lease is legal, valid, binding,
enforceable, and in full force and effect;

(ii) such Lease is fully assignable to the
Purchaser and will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby and the commencement of the operation of the Business
by the Purchaser;

(iii) no party to such Lease is in breach or
default, and no event has occurred which, with notice or lapse
of time, would constitute a breach or default or permit
termination, modification, or acceleration of such lease or
sublease;

(iv) no party to such Lease has repudiated any
provision thereof;

(v) there are no disputes, oral agreements, or
forbearance programs in effect as to such Lease;

(vi) the Seller has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold created pursuant to
such Lease;

(vii) none of the Leases has been modified in any
respect, except to the extent that such modifications are in
writing and have been delivered or made available to
Purchaser; and

(viii) to the best knowledge of Seller, all
buildings, improvements and other structures located upon the
Leased Real Property have received all approvals or
governmental authorities, including licenses and permits,
required in connection with the operation of the Business
thereon.

4.19 Labor Relations. Except as set forth on Schedule
4.19 of the Disclosure Schedules, there are no controversies pending or
threatened between the Seller and any employee

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<PAGE> 25

of the Business or any labor or other collective bargaining unit representing
or seeking to represent any employee of the Business. The Seller has not
committed any unfair labor practice. The Seller is not aware of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employee of the Business. There are no collective
bargaining agreements relating to any employees of the Business.

4.20 Legal Compliance. The Seller and its Affiliates have
complied with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges thereunder) of
federal, state, local and foreign governments and all agencies thereof (other
than such laws, rules and regulations where the failure to so comply would not
have a material adverse effect on the Seller, the Business or the Purchased
Assets), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand or notice has been filed or commenced against the
Seller or its Affiliates alleging any failure to so comply.

4.21 Environmental Matters. The Seller is in compliance
with all Environmental Laws in connection with the ownership, use, maintenance
and operation of the real property relating to the Business and otherwise in
connection with the operation of the Business, (ii) the Seller has no
liability, whether contingent or otherwise, under any Environmental Law with
respect to the operations or properties of the Business (including any of the
Purchased Assets), (iii) no notices of any violation or alleged violation of,
non-compliance or alleged non- compliance with, or any liability under, any
Environmental Law relating to the operations or properties of the Business
(including any of the Purchased Assets) have been received by the Seller during
the past five years, (iv) there are no administrative, civil or criminal
actions, suits, claims, proceedings or investigations pending or, to the best
knowledge of the Seller, threatened, relating to compliance with or liability
under any Environmental Law affecting the Business (including any of the
Purchased Assets), and (v) no underground tank or other underground storage
receptacle for Hazardous Materials is located on any real property, leased or
occupied by the Seller or any of its Affiliates.

4.22 Brokers' Fees. Neither the Seller nor any of its
Affiliates has any liability or obligation to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.

4.23 Transactions with Affiliates. Except as specifically
set forth in Schedule 4.23 of the Disclosure Schedules, the Seller has not been
involved in any business arrangement or relationship with any of its
stockholders or Affiliates within the past 12 months, and none of its
stockholders or Affiliates own any assets, tangible or intangible (including
the Purchased Assets), or provides any service which is used in the Business.

4.24 Investment. The Seller (i) understands that the
Warrant and the Shares have not been, and will not be, registered under the
Securities Act or under any state securities laws, are being offered and sold
in reliance upon federal and state exemption, for transactions not involving
any public offering, and may not be sold, transferred or otherwise disposed of

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<PAGE> 26

unless, among other things, they are registered under the Securities Act or are
exempt from such registration, (ii) understands that the Purchaser is only
obligated to register the Shares in accordance with the terms of Section 9
hereunder, (iii) is acquiring the Warrant and the Shares solely for its own
account for investment purposes, and not with a view to the distribution
thereof, (iv) is a sophisticated investor with knowledge and experience in
business and financial matters, (v) has received certain information concerning
the Purchaser (including, without limitation, the Purchaser's Annual Report on
Form 10-K for the fiscal year ended July 1, 1995, the Purchaser's 1995 Annual
Report to Stockholders, the Proxy Statement prepared by the Purchaser for use
in connection with its 1995 Annual Meeting of Stockholders and its Special
Meeting of Stockholders to be held on June 25, 1996 and the Purchaser's
Quarterly Reports on Form 10-Q for the quarters ended September 30, December
30, 1995 and March 30, 1996 respectively) and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the risks
inherent in holding the Shares, (vi) is able to bear the economic risk and lack
of liquidity inherent in holding the Shares, (vii) understands that the
certificates for the Shares will bear restrictive legends which, among other
things, restrict the transfer of the Shares, and (viii) is an accredited
investor (within the meaning of Regulation D promulgated under the Securities
Act) for the reasons set forth on Schedule 4.24 of the Disclosure Schedules.
Except as specifically set forth in Schedule 4.24 of the Disclosure Schedules,
neither the Seller nor any of its Affiliates currently owns nor at any time
within the calendar year 1995 or 1996 has owned any shares of capital stock of
the Salton.

4.25 Insurance. Schedule 4.25 of the Disclosure Schedules
contains a description of each insurance policy maintained by the Seller with
respect to its properties, assets or business, and each such policy is in full
force and effect. The Seller is not in default of any obligation pursuant to
any insurance policy maintained by it.

4.26 Completeness of Disclosure. No representation or
warranty by the Seller or the Stockholder in, or required by, the Transaction
Documents or any certificate, schedule, document or instrument delivered or to
be delivered to the Purchaser upon the execution of the Transaction Documents,
upon the Closing or otherwise in connection with the transactions contemplated
by the Transaction Documents contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make any statement herein or therein
not misleading. There is no fact that the Seller or the Stockholder have not
disclosed to the Purchaser in writing that the Seller or the Stockholder
presently believes has or will have (i) a material adverse effect on the
Business or (ii) a material adverse effect on the ability of the Seller or the
Stockholder to perform their obligations under the Transaction Documents to
which they are party.

Section 5. Representations and Warranties of the
Purchaser. The Purchaser represents and warrants to the Seller that the
statements contained in this Section 5 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 5).

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<PAGE> 27

5.1 Organization of the Purchaser. The Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.

5.2 Authorization of Transaction. The Purchaser has full
power and authority (including full corporate power and authority) to execute
and deliver the Transaction Documents and to perform its obligations pursuant
to the Transaction Documents. The execution, delivery and performance of the
Transaction Documents by the Purchaser and the consummation by the Purchaser of
the transactions contemplated by the Transaction Documents, have been duly and
effectively authorized by its Board of Directors and no other corporate action
is necessary for the execution, delivery and performance by the Purchaser of
the Transaction Documents and the consummation by the Purchaser and Salton of
the transactions contemplated by the Transaction Documents. Each of the
Transaction Documents constitutes the valid and legally binding obligations of
the Purchaser, enforceable in accordance with its terms and conditions.

5.3 Noncontravention. Except as specifically set forth
on Schedule 5.3 of the Disclosure Schedules, the execution and the delivery of
the Transaction Documents to which the Purchaser is a party, and the
consummation by the Purchaser of the transactions contemplated by the
Transaction Documents, will not (i) conflict with or result in the breach of
the terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the violation of, or (iv) require any authorization, consent,
approval, exemption or other action by or declaration or notice to any
governmental entity pursuant to, the charter or bylaws of the Purchaser or any
agreement, instrument or other document or any Legal Requirement to which the
Purchaser or any of its assets are subject.

5.4 Shares. The Shares, upon issuance and delivery as
provided hereunder, will be validly issued, fully paid, and non-assessable,
free and clear of any options, redemption agreements, preemptive rights,
restrictions or other Liens, other than those created, described or otherwise
provided for in this Agreement.

5.5 Brokers' Fees. Except as set forth in Section 5.5 of
the Disclosure Schedules, the Purchaser does not have any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.

Section 6. Post-Closing Covenants. The parties agree as
follows as of and with respect to the period following the Closing Date:

6.1 Further Assurances.

(a) From time to time after the Closing Date, the Seller
(and if necessary, the Stockholder) will execute and deliver such
other instruments of conveyance, assignment, transfer and delivery and
will take such other actions as the Purchaser may reasonably request
in order to more effectively transfer, convey, assign, and deliver to
the Purchaser, and to place the Purchaser in possession and control
of, any of the Business

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<PAGE> 28

or the Purchased Assets, or to enable the Purchaser to exercise and
enjoy all rights and benefits of the Seller and the Stockholder (if
any) with respect thereto.

(b) From and after the Closing Date the Purchaser may use
any promotional or other literature, packaging, advertising or other
documents, or other Purchased Assets transferred to it by Seller
pertaining to the Business which includes the name "Block China" or
any names similar thereto. From and after the Closing Date, neither
Seller, the Stockholder nor any of their respective Affiliates shall
use any such name or any names similar thereto. On the Closing Date,
the Seller shall deliver to the Purchaser such forms and other
documents as are necessary to change its name to a name which bears no
resemblance to its present name.

6.2 Post-Closing Consents; Nonassignable Contracts.

(a) If requested by the Purchaser after the Closing Date
with respect to any Contract, the Seller and the Stockholder will
cooperate with the Purchaser to obtain any third party consents with
respect to such Contract that was not obtained prior to the Closing
Date and that is required to transfer and assign such Contract to the
Purchaser in connection with the transactions contemplated by this
Agreement. To the extent that the transfer or attempted transfer of
any Contract would constitute a breach or a violation of any law, rule
or regulation, nothing in this Agreement will constitute a transfer or
an attempted transfer thereof or the assumption by the Purchaser of
any liabilities or obligations arising thereunder or otherwise
relating thereto (the parties hereby agreeing that all such
liabilities and obligations shall be deemed to be Excluded Liabilities
and shall not constitute an Assumed Liability, anything herein to the
contrary notwithstanding).

(b) In the event that any required consent with respect
to a Contract is not obtained on or prior to the Closing Date or
pursuant to Section 6.2(a) above, upon the request of the Purchaser
with respect to any such Contract, the Seller and the Stockholder will
use their best efforts to (i) provide to the Purchaser the benefits of
the applicable Contract, (ii) cooperate in any reasonable and lawful
arrangement designed to provide such benefits to the Purchaser without
incurring any obligation to any other party other than to provide such
benefits to the Purchaser, and (ii) enforce at the request of the
Purchaser, and for the account of the Purchaser, any rights of the
Seller arising from any such Contract (including the right to elect to
terminate such Contract in accordance with the terms thereof upon the
request of the Purchaser).

6.3 Litigation Support.

In the event and for so long as any party is contesting or
defending against any charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand in connection with (i) any transaction
contemplated under this Agreement or (ii) any fact, situation, circumstances,
status, condition, activity, practice, plan, occurrence, event, incident,
action,

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<PAGE> 29

failure to act or transaction on or prior to the Closing Date involving the
Business, the other parties will cooperate with the contesting or defending
party and its counsel in the contest or defense, make available its personnel,
and provide such testimony and access to their books and records as may be
necessary in connection with the contest or defense, at the sole cost and
expense of the contesting or defending party (unless the contesting or
defending party is entitled to indemnification therefor under Section 8).

6.4 Agreements Regarding Tax Matters.

(a) The Seller and the Purchaser will each provide the
other party with such assistance as may reasonably be requested in
connection with the preparation of any Tax Return, audit or other
examination by any taxing authority, or judicial or administrative
proceeding relating to liability for Taxes, will each retain and
provide to the other party all records and other information which may
be relevant to any such Tax Return, audit or examination, proceeding
or determination, and will each provide the other party with any final
determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax
Return of the other party for any period. Without limiting the
generality of the foregoing, each of the Purchaser and the Seller will
retain, until the expiration of the applicable statutes of limitation
(including any extensions thereof) copies of all Tax Returns,
supporting work schedules and other records relating to tax periods or
portions thereof ending prior to or on the Closing Date.

(b) The Purchaser and the Seller agree that the
transactions contemplated by this Agreement constitutes a sale of a
trade or business within the meaning of Section 41(f)(3) of the Code.
The Seller agrees to provide to the Purchaser upon request all
information necessary in order to permit the Purchaser to apply the
provisions of Section 41(f)(3)(A) of the Code and an affidavit of the
Seller's non-foreign status pursuant to Section 1445(b)(2) of the
Code. The Seller agrees to furnish to the Purchaser upon request
clearance certificates or similar documents that may be required by
any state, local or other taxing authority in order to relieve the
Purchaser of any obligations to withhold any portion of the Purchase
Price.

6.5 Confidential Information. The Seller, the
Stockholder and their respective Affiliates will treat and hold as such, and
will not use for the benefit of themselves or others, any Confidential
Information; provided that this Section 6.5 will not apply to the disclosure by
the Seller or the Stockholder of any information (i) which, at the time of
disclosure, is available publicly through no fault of the Seller, the
Stockholder or any their Affiliates, or (ii) which is required to be disclosed
under any applicable statute, rule, regulation or order of a court of competent
jurisdiction, or (iii) which is disclosed on a confidential basis to the
Seller's attorneys, accountants or investment bankers.

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<PAGE> 30

6.6 No Solicitation; Non-Compete.

(a) For a period of three years after the Closing Date,
each of the Seller, the Stockholder and their respective Affiliates
will not, directly or indirectly, solicit any employee of the Business
or encourage any employee of the Business to leave the employment of
the Business.

(b) Each of the Seller and the Stockholder hereby
covenants and agrees, jointly and severally, that for a period of
sixty (60) months from and after the Closing Date (the "Non-Compete
Period") neither they, nor any of their respective Affiliates, shall,
directly or indirectly, whether as a principal, partner, shareholder,
joint venturer, consultant, agent, proprietor, creditor or otherwise,
engage in any commercial activity or pursuit whatsoever which may in
any way be in competition or conflict with any business which competes
with the products and business which comprised the Business as of the
Closing Date or at any time during the 60 month period preceding the
Closing Date in any market or geographic area in which the Seller or
its Affiliates is then conducting the Business or has conducted the
Business at any time during the immediately preceding five year
period. Except as provided in the immediately preceding sentence,
each of the Seller and the Stockholder hereby further covenants and
agrees, jointly and severally, that during the Non-Compete Period,
neither they, nor any of their respective Affiliates, shall, directly
or indirectly, on their behalf or on behalf of any other person, firm,
partnership or corporation pursue any party which is at that time or
was at any time during the prior 60 month period a customer of the
Seller or its Affiliates for the purpose of soliciting and/or
providing to any such party products, goods and services of the nature
and type provided or sold by the Seller or its Affiliates. Nothing
herein shall prohibit the Stockholder from owning any stock of the
Purchaser or from being employed by the Purchaser.

6.7 Injunctive Relief. The Seller and the Stockholder
agree that the prohibitions and restrictions of Sections 6.5 and 6.6 are
reasonable under the circumstances and necessary to protect the economic
position of the Purchaser regarding the purchase of the Purchased Assets, and
that the remedy at law for any breach by any of them would be inadequate and
the Purchaser would be entitled to injunctive relief in such a case.

6.8 Termination of Employees. As of 12:00 midnight on
the Closing Date, the Seller will terminate all employees of the Business, and
the Purchaser in its discretion may hire all, some or none of such employees on
such terms as the Purchaser is able to negotiate. If requested by the
Purchaser, the Seller will cooperate with the Purchaser in negotiating with and
hiring said employees and will not in any way attempt to dissuade any employee
from accepting employment with the Purchaser or otherwise interfere with the
Purchaser employing such employee. The Seller agrees to provide all of the
Seller's affected employees the notice required by ERISA Section 606 ("COBRA
Notice") and any applicable rights granted under ERISA Sections 601 through
609. The COBRA Notice shall be provided in a timely manner to comply with
current law.

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<PAGE> 31

6.9 Property Taxes. Real and personal property Taxes for
a taxable period that includes the Closing Date shall be prorated between the
Seller and the Purchaser according to the number of days in such taxable period
after the Closing Date. The period to which a Tax paid in advance or paid in
arrears relates shall be determined under applicable federal, state, local or
foreign Tax law. As and when such real and personal property Taxes become due
and payable, the Purchaser shall pay the Seller's portion on behalf of the
Seller provided, however, that the Seller shall promptly reimburse the
Purchaser for the amount of such payment upon written notice from the
Purchaser. The Seller and the Stockholder shall be jointly and severally
liable for any amounts due and owing to the Purchaser pursuant to this Section
6.9.

6.10 Collection of Accounts Receivable.

(a) Promptly after the Closing, the Seller shall prepare and
deliver to the Purchaser a list of all Accounts Receivable outstanding on the
Closing Date. For a period of five (5) months after the Closing Date (the
"Collection Period"), the Purchaser shall use its reasonable efforts to collect
the Accounts Receivable. The Purchaser may, but shall not be obligated to, use
a collection agency or commence legal actions in connection with such
collection efforts. The Purchaser agrees to consult with the Stockholder prior
to commencing any such legal actions. The Purchaser shall maintain complete
records of all customer payments received by the Purchaser. The Seller may,
but shall not be obligated to, use a collection agency or commence legal
actions in an effort to collect the Accounts Receivable during the Collection
Period upon reasonable notice to the Purchaser. In the event that (i) the
amount of Accounts Receivable collected by the Purchaser as of the end of the
Collection Period is less than the book value of the Accounts Receivable (net
of reserves) as set forth on the Closing Date Balance Sheet and (ii) the
substitution of the amount of Accounts Receivable actually collected for the
book value of the Accounts Receivable (net of reserves) as set forth on the
Closing Date Balance Sheet would have caused the book value of the Purchased
Assets less the Assumed Liabilities as reflected on the Closing Date Balance
Sheet to be less than ($129,000) or increased the amount by which the book
value was less than ($129,000), then the Seller shall pay to the Purchaser the
amount of such deficiency or increased deficiency within five (5) days after
the Seller's receipt of written notice from the Purchaser setting forth in
reasonable detail the calculation of such amount.

(b) In the event that any payment received by the Purchaser during
the Collection Period is remitted by a customer which is indebted under both
Accounts Receivable and an account receivable arising out of the sale of
inventory in the ordinary course of business after the Closing Date (a "New
Receivable"), such payments shall first be applied to the Accounts Receivable
due from such customer and the balance remaining after payment in full of all
Accounts Receivable due from such customer shall be applied to the New
Receivable; provided, however, that (i) with respect to any Account Receivable
being contested or disputed by the payor thereof no portion of the amount in
dispute shall be deemed to have been collected by the Purchaser in respect of
the Account Receivable due from such customer (unless otherwise directed by the
customer) until all amounts owed by such customer to the Purchaser for New
Receivables have been paid or such dispute has been resolved, whichever occurs
first (it being

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<PAGE> 32

understood that undisputed amounts of Accounts Receivable shall be applied in
accordance with the priorities set forth above in this Section) and (ii) the
foregoing priorities shall not apply to sums received by the Purchaser which
are specifically identified by the customer as being tendered in payment of a
New Receivable.

(c) The Seller hereby authorizes the Purchaser to open any and all
mail addressed to the Seller (if delivered to the Purchaser) if received on or
after the Closing Date and prior to the expiration of the Collection Period and
hereby grants to the Purchaser a power of attorney to endorse and cash any
checks or instruments made payable or endorsed to the Seller or its order and
received by the Purchaser.

(d) The Seller agrees that it will forward promptly to the
Purchaser any monies, checks or instruments received by the Seller after the
Closing with respect to the Accounts Receivable.

(e) The Seller and the Stockholder shall be jointly and severally
liable for any amounts due and owing to the Purchaser pursuant to this Section
6.10.

6.11 Repayment of Debt. The Purchaser agrees that
promptly after the Closing, and in any event within five (5) days after the
Closing, the Purchaser will repay each of the Bank and LBS all amounts due and
owing such lender pursuant to the Loan Agreement as set forth in the pay-off
letter to be delivered by such lender pursuant to Section 7.1(k).

6.12 Moving Expense. The Seller agrees to promptly pay
the Purchaser $25,000 in the event that Purchaser relocates the New Jersey
warehouse facility currently used by the Business within one year from the
Closing Date. The Seller and the Stockholder shall be jointly and severally
liable for any amounts due and owing to the Purchaser pursuant to this Section
6.12.

6.13 Transition Employees. The Seller agrees that it
will, for up to 90 days after the Closing Date and at the request of the
Purchaser, maintain on its payroll at current salary and benefit levels up to
ten current employees of the Seller which the Purchaser desires to perform
services for the Business. The Purchaser agrees to reimburse the Seller for
the salary, social security, taxes and other benefits which are paid by the
Seller to such employees for such services which are performed after the
Closing Date; provided, however, that the Purchaser will in no event be
responsible for any vacation or severance payments to such employees.

Section 7. Closing Conditions.

7.1 Conditions to Obligation of the Purchaser. The
obligation of the Purchaser to consummate the transactions to be performed by
them in connection with the Closing is subject to satisfaction of the following
conditions:

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<PAGE> 33

(a) the representations and warranties of the Seller and
the Stockholder set forth in the Agreement and in any Disclosure
Schedules or any other documents delivered by the Seller, the
Stockholder or any of their respective Affiliates, agents or
representatives to the Purchaser or its agents or representatives
pursuant to, in contemplation of or otherwise in connection with the
transactions contemplated hereunder will be true and correct in all
material respects at and as of the Closing Date;

(b) there will not have been any material adverse change
in or affecting the Seller subsequent to the date of the Interim
Balance Sheet;

(c) the Seller and the Stockholder will have performed
and complied with all of their covenants hereunder or under any other
agreements or documents delivered by them in connection with or in
contemplation of the transactions provided for hereunder in all
material respects through the Closing;

(d) the consummation of the transactions contemplated by
this Agreement will not be prohibited by any Legal Requirement of any
arbitrator or governmental entity or subject the Purchaser, the
Business or the Purchased Assets to any penalty or liability arising
under any applicable Legal Requirement or imposed by any governmental
entity;

(e) no action, suit or proceeding will be pending or
threatened before any governmental entity the result of which could
prevent or prohibit the consummation of the transactions contemplated
by this Agreement or adversely affect the Purchaser's right to acquire
or hold the Purchased Assets or conduct the Business or the Seller's
performance of its obligations pursuant to this Agreement, and no
judgment, order, decree, stipulation, injunction or charge having any
such effect will exist;

(f) all filings, notices, licenses, consents,
authorizations, accreditations, waivers, approvals and the like of, to
or with any governmental entity or any other person or entity that are
required for the consummation of the transactions contemplated by this
Agreement or the ownership of the Purchased Assets or the conduct of
the Business by the Purchaser thereafter will have been duly made or
obtained;

(g) the Seller will have delivered to the Purchaser a
certificate signed by its principal executive and principal financial
officer to the effect that each of the conditions specified in Section
7.1(a), (b),(c) and (f) are satisfied in all respects;

(h) the Seller will have delivered to the Purchaser the
Bill of Sale in the form of Exhibit C attached to this Agreement;

(i) the Stockholder shall have entered into an Employment
Agreement with Salton in the form of Exhibit D attached to this
Agreement;

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(j) counsel to the Seller and the Stockholder, Johnson &
Bell, Ltd., will have delivered to the Purchaser an opinion in form
and substance as set forth in Exhibit E, dated as of the Closing Date;

(k) the Seller will have obtained from each of the Bank
and LBS: (i) a pay-off letter with respect to all amounts due and
owing such lender pursuant to the Loan Agreement as of the Closing
Date; and (ii) a letter in the form of Exhibit F executed by such
lender and Form UCC-3 releasing all liens on the Seller's assets
executed by such lender to be delivered upon payment by the Purchaser
to such lender of amounts due and owing such lender pursuant to the
pay-off letter;

(l) the Seller will have obtained from the CIT Group: (i)
a letter terminating without penalty its Factoring Agreement with the
Seller and reassigning to the Seller all of its rights or interests in
the Seller's accounts receivables; and (ii) Form UCC-3 releasing all
liens on the Seller's assets;

(m) the Seller will have delivered to the Purchaser
copies, certified by the Secretary or an Assistant Secretary of the
Seller, of resolutions of the Board of Directors of the Seller
authorizing the execution, delivery and performance of this Agreement
and the other Transaction Documents and the transactions contemplated
hereby and thereby;

(n) the Seller will have delivered to the Purchaser a
certificate (dated not less than five (5) business days prior to the
Closing) of the Secretary of State of the State of New York as to the
good standing of the Seller in the State of New York; and

(o) all actions to be taken by the Seller and the
Stockholder in connection with consummation of the transactions
contemplated hereby and all certificates, instruments and other
documents required to effect the transactions contemplated hereby,
including documents acceptable for recordation in the United States
Patent and Trademark Office, the United States Copyright Office and
any other similar government entity, will be reasonably satisfactory
in form and substance to the Purchaser.

The Purchaser may waive any condition specified in this Section 7.1 if they
execute a writing so stating at or prior to the Closing.

7.2 Conditions to Obligation of the Seller and the
Stockholder. The obligation of each of the Seller and the Stockholder to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:

(a) the representations and warranties set forth in
Section 5 will be true and correct in all material respects at and as
of the Closing Date;

(b) the Purchaser will have performed and complied with
all of its respective covenants hereunder in all material respects
through the Closing;

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<PAGE> 35

(c) the consummation of the transactions contemplated by
this Agreement will not be prohibited by any Legal Requirement of any
arbitrator or governmental entity;

(d) no action, suit or proceeding will be pending or
threatened before any governmental entity the result of which could
prevent or prohibit the consummation of the transactions contemplated
by this Agreement;

(e) the Purchaser will have delivered to the Seller a
certificate signed by its principal executive officer and principal
financial officer to the effect that each of the conditions specified
in Section 7.2(a) and (b) are satisfied in all respects;

(f) the Purchaser will have delivered to the Seller the
Assumption Agreement in the form of Exhibit G attached to this
Agreement;

(g) counsel to the Purchaser, Sonnenschein Nath &
Rosenthal, will have delivered to the Seller and the Stockholder an
opinion in form and substance as set forth in Exhibit H, dated as of
the Closing Date;

(h) the Purchaser will have delivered to the Seller
copies, certified by the Secretary or an Assistant Secretary of the
Purchaser, of resolutions of the Board of Directors of the Purchaser
authorizing the execution and delivery of this Agreement and the other
Transaction Documents and the consummation of the transactions
contemplated hereby and thereby; and

(i) all actions to be taken by the Purchaser in
connection with consummation of the transactions contemplated hereby
and all certificates, instruments and the documents required to effect
the transactions contemplated hereby will be reasonably satisfactory
in form and substance to the Seller and the Stockholder.

The Seller and the Stockholder may waive any condition specified in this
Section 7.2 if they execute a writing so stating at or prior to the Closing.

Section 8. Remedies for Breaches of this Agreement.

8.1 Survival. All of the representations and warranties
of the parties contained in this Agreement, in any document to be delivered
pursuant to this Agreement, in any document delivered in connection with the
Closing, or in any other document delivered or to be delivered in connection
with the transactions contemplated hereunder will survive the Closing,
regardless of any investigation made by any of the parties hereto.

8.2 Indemnification.

(a) The Seller and the Stockholder, jointly and
severally, agree to indemnify and hold each of the Purchaser and its
Affiliates, stockholders, officers, directors,

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employees, agents and successors and assigns (collectively, the
"Purchaser Indemnitees") harmless against and in respect of (i) all
obligations and liabilities of the Seller or the Stockholder, whether
accrued, absolute, fixed, contingent or otherwise, not expressly
assumed by the Purchaser pursuant to this Agreement, (ii) any loss,
liability or damage incurred or sustained by any Purchaser Indemnitee
as a result of any breach by the Seller or the Stockholder of this
Agreement, including, without limitation, any breach of any of the
representations, warranties and covenants contained herein or in
certificates or other documents delivered hereunder or pursuant hereto
or otherwise in connection with the transactions contemplated hereby,
(iii) any loss, liability, penalties, interest or other damage
incurred in connection with this Agreement under any bulk sales law,
(iv) any loss, liability, penalties, interest or other damage incurred
or sustained by any Purchaser Indemnitee with respect to any matters
disclosed in Schedule 4.1 of the Disclosure Schedules, and (v) all
reasonable out-of-pocket costs and expenses (including reasonable
attorneys' and accountants' fees) incurred by any Purchaser Indemnitee
in connection with any action, suit, proceeding, demand, assessment or
judgment incident to any of the matters indemnified against in this
Section 8.2(a).

(b) The Purchaser agrees to indemnify and hold each of
the Seller, the Stockholder, and their respective Affiliates,
stockholders, officers, directors, employees, agents and successors
and assigns (collectively, the "Seller Indemnitees") harmless against
and in respect of (i) all obligations and liabilities arising under
the Assumed Liabilities from and after the Closing Date, (ii) any
loss, liability or damage incurred or sustained by any Seller
Indemnitee as a result of any breach by the Purchaser of this
Agreement, including, without limitation, any breach of any of the
representations, warranties and covenants contained herein or in
certificates or the documents delivered hereunder or pursuant hereto
or otherwise in connection with the transactions contemplated hereby,
and (iii) all reasonable out-of-pocket costs and expenses (including
reasonable attorneys' and accountants' fees) incurred in connection
with any action, suit, proceeding, demand, assessment or judgment
incident to any of the matters indemnified against in this Section
8.2(b).

(c) Any amounts required to be paid hereunder by the
Seller or the Stockholder to any Purchaser Indemnitee, on the one
hand, or by the Purchaser to any Seller Indemnitee, on the other hand,
shall be paid by delivery of certified or official bank check within
fifteen (15) business days after written demand therefor from the
party entitled hereunder to such payment and, if not paid within such
period, shall accrue interest until paid at the rate of 2% over the
prime rate announced from time to time by the LaSalle National Bank.
Notwithstanding anything to the contrary contained in this Agreement,
in the event the Seller or the Stockholder fails, for any reason
whatsoever, to pay any amount or amounts required to be paid hereunder
by the Seller or the Stockholder to any Purchaser Indemnitee within
the period set forth in the immediately preceding sentence, the
Purchaser shall have the absolute right (in addition to all other
rights or remedies available to them and any Purchaser Indemnitee with
respect to such failure) to deduct such amount or amounts from any
amounts payable by it to Seller, the

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Stockholder or any of their Affiliates at any time under the terms of
this Agreement or any other agreement or contract entered into
pursuant to this Agreement or otherwise in connection with the
transactions contemplated hereunder, including without limitation any
amounts payable by the Purchaser under Section 2.4 or pursuant to the
Note. Any such deduction shall not constitute a default by either the
Purchaser under any of the other terms and conditions of this
Agreement or such other agreements or contracts.

(d) In connection with any claim giving rise to indemnity
hereunder resulting from or arising out of any claim or legal
proceeding by a person or entity who is not a party to this Agreement,
the indemnifying party at its sole cost and expense may, upon written
notice to the indemnified party, assume the defense of any such claim
or legal proceeding with counsel reasonably satisfactory to the party
asserting such indemnification claim if the indemnifying party
acknowledges in writing its obligations to indemnify the indemnified
party with respect to all elements of such claim. The indemnified
party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense.
Notwithstanding the foregoing, the indemnifying party will pay the
reasonable fees and expenses of legal counsel retained by the
indemnified party if (i) the indemnified party reasonably believes
that there exists or could arise a conflict of interest which, under
applicable principles of legal ethics, could prohibit a single legal
counsel from representing both the indemnified party and the
indemnifying party, or (ii) the indemnifying party has failed or is
failing to prosecute or defend vigorously such claim. If the
indemnifying party does not assume the defense of any such claim or
litigation resulting therefrom, (a) the indemnified party may defend
against such claim or litigation, in such manner as it may deem
appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to the indemnifying party,
on such terms as the indemnified party may deem appropriate, and (b)
the indemnifying party shall be entitled to participate in (but not
control) the defense of such action, with its counsel and at its own
expense.

(e) Anything in this Section 8.2 to the contrary
notwithstanding, no party shall be entitled to indemnification under
this Section 8.2 unless the claim therefor is made in writing to the
party from whom such indemnification is being sought on or before
12:00 midnight on the date which is the second anniversary of the
Closing Date, except for indemnification claims hereunder by any
Purchaser Indemnitee for or in respect of any of the following: (i)
any environmental liabilities of the Seller or its Affiliates arising
out of events prior to the Closing, including liabilities for
violations of Environmental Laws or for the generation, storage,
presence, use, handling, treatment, transportation, release or
disposal of Hazardous Materials; (ii) any liabilities or obligations
(whether assessed or unassessed) of the Seller, the Stockholder or any
of their respective Affiliates for any Taxes, including any Taxes
arising by reason of the transactions contemplated herein, as of or
for any period ending on or prior to the Closing Date; or (iii) any
matter which is based on willful fraud by the Seller or the
Stockholder. The remedies in this Section 8.2 shall be in addition to
and not in lieu of any other remedies available to the parties under
this Agreement or otherwise by law.

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(f) Anything in this Section 8.2 to the contrary
notwithstanding, (i) neither the Seller and the Stockholder, on the
one hand, nor the Purchaser, on the other hand, shall be obligated to
indemnify the Purchaser Indemnitees or the Seller Indemnitees,
respectively, pursuant to this Section 8 except and only to the extent
that claims for indemnification by such Indemnitees under this Section
8 exceed in the aggregate $25,000; and (ii) in the event (A) that the
amount of Accounts Receivable actually collected pursuant to Section
6.2 exceeds the book value of the Accounts Receivable (net of
reserves) as set forth on the Closing Date Balance Sheet and (B) the
substitution of the amount of Accounts Receivable actually collected
for the book value of the Accounts Receivable (net of reserves) as set
forth on the Closing Date Balance Sheet would have caused the book
value of the Purchased Assets less the Assumed Liabilities as
reflected on the Closing Date Balance Sheet to be greater than
($129,000) or increased the amount by which the book value was greater
than ($129,000), then the amount of such excess or increased excess
shall be set-off against any claim for indemnification under this
Section 8 resulting from a breach of Section 4.9.

Section 9. Piggyback Registrations.

9.1 Request for Registration. At any time after the date
hereof that the Purchaser proposes to register any Common Stock for sale solely
for cash, either for its own account or for the account of a stockholder or
stockholders (a "Salton Registration"), the Purchaser shall give the Seller
written notice of its intention to do so and of the intended method of sale
(the "Registration Notice") not fewer than fifteen (15) days prior to the
anticipated filing date of the registration statement effecting such Salton
Registration. The Seller may request inclusion of any Shares in such Salton
Registration by delivering to the Purchaser, within ten (10) days after receipt
of the Registration Notice, a written notice (the "Piggyback Notice") stating
the number of Shares proposed to be included and that such Shares are to be
included in any underwriting only on the same terms and conditions as the
shares of Common Stock otherwise being sold through underwriters under such
Registration. The Purchaser shall use its reasonable efforts to cause all
Shares specified in the Piggyback Notice to be included in the Salton
Registration and any related offering, all to the extent requisite to permit
the sale by the Seller of such Shares in accordance with the method of sale
applicable to the other shares of Common Stock included in the Salton
Registration. The Seller shall furnish to the Purchaser such information
regarding the distribution of the Shares and such other information concerning
the Seller which is required to be disclosed in the Registration as the
Purchaser may from time to time reasonably request.

9.2 Limitations on Piggyback Registrations. The
Purchaser's obligation to include Shares in the Salton Registration pursuant to
Section 9.1 shall be subject to the following limitations:

(a) The Purchaser shall not be obligated to include any
Shares in a registration statement (i) filed on Form S-4 or Form S-8 or such
other similar successor forms then in effect

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under the Securities Act, (ii) pursuant to which the Purchaser is offering to
exchange its own securities, or (iii) relating to dividend reinvestment plans.

(b) If the managing underwriter(s), if any, of an offering
related to Salton Registration determines in its reasonable judgment that
marketing factors require a limitation of the number of shares of Common Stock
that can be included in such offering, the managing underwriter(s) may exclude
the appropriate number of shares of Common Stock held by the stockholders of
the Purchaser, including the Seller, from such registration. If the managing
underwriter(s) determines to exclude from such offering any Shares that the
Seller desires to include or any shares of Common Stock that other stockholders
of the Purchaser with applicable registration rights desire to include, the
Seller and such other stockholders of the Purchaser (except for such person or
persons, if any, upon whose demand such Registration is being made) shall share
pro rata in the portion of such offering available to them (the "Available
Portion"), with the Seller and each such other stockholder of the Purchaser
entitled to include in such Salton Registration and related offering a number
of shares of Common Stock equal to the product of (i) the Available Portion and
(ii) a fraction, the numerator of which is the total number of Shares (in the
case of the Seller) or shares of Common Stock entitled to inclusion in such
Salton Registration and related offering (in the case of other stockholders of
the Purchaser desiring inclusion), and the denominator of which is the total of
the number of Shares and shares of Common Stock entitled to inclusion in such
Salton Registration and related offering owned by stockholders of the Purchaser
other than the Seller desiring inclusion.

(c) Notwithstanding anything to the contrary set forth
herein, the Seller's rights under this Section 9 shall terminate on the first
to occur of: (i) with respect to any Shares sold or otherwise transferred or
disposed of by the Seller, the date of such sale, transfer or disposition or
(ii) with respect to any Shares, the date on which the Seller, in the written
opinion of legal counsel of the Purchaser, would be free to sell, in a single
transaction, under Rule 144 or other applicable rule, regulation or exemption,
all of such Shares without registration under the Securities Act.

9.3 Selection of Underwriter. Any Salton Registration
and related offering shall be managed by the Purchaser; the Purchaser shall
have the power to select the managing underwriter(s) for such offering, and
shall in consultation with the managing underwriter(s) have the power to
determine the offering price, the underwriting discounts and commissions, the
terms of the underwriting agreement and the timing of the registration and
related offering. To the extent that the Seller participates in a Salton
Registration and related offering pursuant to Section 9.1, the Seller shall
enter into, and sell its Shares only pursuant to, the underwriting arranged by
the Purchaser, and shall either commit to attend the closing of the offering
and take such other actions as may be reasonably necessary to effect the
Seller's participation in the offering and to provide any assurances reasonably
requested by the Purchaser and the managing underwriter(s) in that regard, or
shall deliver to the Purchaser in custody certificates representing all Shares
to be included in the registration and shall execute and deliver to the
Purchaser a custody agreement and a power of attorney, each in form and
substance appropriate for the purpose of effecting the Seller's participation
in Salton Registration and related offering and

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otherwise reasonably satisfactory to the Purchaser. If the Seller disapproves
of the features of Salton Registration and related offering, the Seller may
withdraw therefrom (in whole or part) by written notice to the Purchaser and
the managing underwriter(s) delivered no later than ten (10) days prior to the
effectiveness of the applicable registration statement and the Shares of the
Seller shall thereupon be withdrawn from such registration.

9.4 Expenses. In connection with the registration of the
Shares made pursuant to this Section 9, the Purchaser shall pay all costs and
expenses of the registration. The Seller, however, shall be solely responsible
for (i) any underwriting discounts, commission, fees, expenses or other costs
(including any taxes) relating to the sale of the Shares, and (ii) any legal
fees or other professional fees incurred by it or its Affiliates in connection
with the review by its legal counsel and other professionals of the
registration statement and other documents and materials prepared, delivered
and/or executed in connection therewith.

9.5 Transfer of Shares and Assignment of the Registration
Rights to the Stockholder. The Seller may transfer any of the Shares to (or
instruct the Purchaser that the Shares should be issued to) the Stockholder and
may assign its rights under this Section 9 to the Stockholder provided that
upon such transfer or issuance, the Stockholder agrees, in writing, to be bound
by and subject to all of the terms and conditions of this Section 9.

Section 10. Miscellaneous.

10.1 Press Releases and Announcements. No party will
issue any press release or announcement relating to the subject matter of this
Agreement prior to the Closing Date without the prior written approval of the
other parties; provided that any party may make any public disclosure it
believes in good faith is required by law or regulation (in which case the
disclosing party will advise the other parties prior to making such
disclosure).

10.2 Expenses. Except as otherwise expressly provided by
this Agreement, each of the parties hereto will bear all legal, accounting,
investment banking and other expenses incurred by it or on its behalf in
connection with the transactions contemplated by this Agreement, whether or not
such transactions are consummated; provided that the Stockholder will be
responsible for any such expenses incurred by the Seller which exceed $25,000.
The Seller and the Purchaser shall each be responsible for 50% of all sales or
similar taxes required to be paid by reason of the transfer by the Seller to
the Purchaser of the Purchased Assets pursuant to this Agreement.

10.3 Arbitration Procedure.

(a) The Purchaser and Seller agree that the arbitration
procedure set forth below shall be the sole and exclusive method for resolving
and remedying claims for money damages arising out of the provisions of Section
8 (the "Disputes"). Nothing in this Section 10.3 shall prohibit a party hereto
from instituting litigation to enforce any Final Determination (as defined
below). The parties hereby acknowledge and agree that, except as

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otherwise provided in this Section 10.3 or in the Commercial Arbitration Rules
of the American Arbitration Association as in effect from time to time, the
arbitration procedures and any Final Determination hereunder shall be governed
by, and shall be enforced pursuant to the Illinois Arbitration Act.

(b) In the event that any party asserts that there exists
a Dispute, such party shall deliver a written notice to each other party
involved therein specifying the nature of the asserted Dispute and requesting a
meeting to attempt to resolve the same. If no such resolution is reached
within ten business days after such delivery of such notice, the party
delivering such notice of Dispute (the "Disputing Person") may, within 30
business days after delivery of such notice, commence arbitration hereunder by
delivering to each other party involved therein a notice of arbitration (a
"Notice of Arbitration"). Such Notice of Arbitration shall specify the matters
as to which arbitration is sought, the nature of any Dispute, the claims of
each party to the arbitration and shall specify the amount and nature of any
damages, if any, sought to be recovered as a result of any alleged claim, and
any other matters required by the Commercial Arbitration Rules of the American
Arbitration Association as in effect from time to time to be included therein,
if any.

(c) The Purchaser and the Seller each shall elect one
non-neutral arbitrator expert in the subject matter of the Dispute (the
arbitrators so selected shall be referred to herein as the "Purchaser's
Arbitrator" and the "Seller's Arbitrator," respectively). In the event that
either party fails to select an arbitrator as set forth herein within 20 days
from the delivery of a Notice of Arbitration, then the matter shall be resolved
by the arbitrator selected by the other party. Seller's Arbitrator and
Purchaser's Arbitrator shall select a third independent, neutral arbitrator
expert in the subject matter of the dispute, and the three arbitrators so
selected shall resolve the matter according to the procedures set forth in this
Section 10.3. If Seller's Arbitrator and Purchaser's Arbitrator are unable to
agree on a third arbitrator within 20 days after their selection, Seller's
Arbitrator and Purchaser's Arbitrator shall each prepare a list of three
independent arbitrators. Seller's Arbitrator and Purchaser's Arbitrator shall
each have the opportunity to designate as objectionable and eliminate one
arbitrator from the other arbitrator's list within seven days after submission
thereof, and the third arbitrator shall then be selected by lot from the
arbitrators remaining on the lists submitted by Seller's Arbitrator and
Purchaser's Arbitrator.

(d) The arbitrator(s) selected pursuant to paragraph (c)
will determine the allocation of the costs and expenses of arbitration based
upon the percentage which the portion of the contested amount not awarded to
each party bears to the amount actually contested by such party. For example,
if the Purchaser submits a claim for $1,000 and if the Seller contests only
$500 of the amount claimed by the Purchaser, and if the arbitrator(s)
ultimately resolves the dispute by award the Purchaser $300 of the $500
contested, then the costs and expenses of arbitration will be allocated 60%
(i.e., 300 / 500) to the Seller and 40% (i.e., 200 / 500) to the Purchaser.

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(e) The arbitration shall be conducted in Chicago,
Illinois under the Commercial Arbitration Rules of the American Arbitration
Association as in effect from time to time, except as modified by the agreement
of all of the parties to this Agreement. The arbitrator(s) shall conduct the
arbitration so that a final result, determination, finding, judgment and/or
award (the "Final Determination") is made or rendered as soon as practicable,
but in no event later than 90 business days after the delivery of the Notice of
Arbitration nor later than 10 days following completion of the arbitration.
The Final Determination must be agreed upon and signed by the sole arbitrator
or by at least two of the three arbitrators (as the case may be). The Final
Determination shall be final and binding on all parties and there shall be no
appeal from or reexamination of the Final Determination, except for fraud,
perjury, evident partiality or misconduct by an arbitrator prejudicing the
rights of any party and to correct manifest clerical errors.

(f) The Purchaser and the Seller may enforce any Final
Determination in any state or federal court located in Chicago, Illinois. For
the purpose of any action or proceeding instituted with respect to any Final
Determination, each party hereto hereby irrevocably submits to the jurisdiction
of such courts, irrevocably consents to the service of process by registered
mail or personal service and hereby irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter have as to
personal jurisdiction, the laying of the venue of any such action or proceeding
brought in any such court and any claim that any such action or proceeding
brought in any court has been brought in an inconvenient forum.

(g) Any party required to make a payment pursuant to this
Section 10.3 shall pay the party entitled to receive such payment within three
days of the delivery of the Final Determination to such responsible party. If
any party shall fail to pay the amount of damages, if any, assessed against it
within ten (10) days of the delivery to such party of such award, the unpaid
amount shall bear interest from the date of such delivery at the rate of 2%
over the prime rate announced from time to time by the LaSalle National Bank.
Interest on any such unpaid amount shall be compounded monthly, computed on the
basis of a 365-day year and shall be payable on demand. In addition, such
party shall reimburse the other party for any and all costs or expenses of any
nature or kind whatsoever (including but not limited to all attorneys' fees)
incurred in seeking to collect such damages or to enforce any such award.

10.4 Consent to Amendments. The provisions of this
Agreement may be amended or waived only by a written agreement executed and
delivered by the Purchaser, on the one hand, and the Seller and the
Stockholder, on the other hand. No other course of dealing between the parties
to this Agreement or any delay in exercising any rights hereunder will operate
as a waiver of any rights of such parties.

10.5 Successors and Assigns. No party hereto may assign
or delegate any of such party's rights or obligations under or in connection
with this Agreement without the written consent of the other parties hereto.
Except as otherwise expressly provided herein, all covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto will
be binding upon and enforceable against the respective successors and assigns
of such party and will

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be enforceable by and will inure to the benefit of the respective successors
and permitted assigns of such party.

10.6 Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.

10.7 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
will constitute one and the same Agreement.

10.8 Descriptive Headings. The descriptive headings of
this Agreement are inserted for conveniences only and do not constitute a part
of this Agreement.

10.9 Notices. All notices, demands or other
communications to be given or delivered under or by reason of the provisions of
this Agreement will be in writing and will be deemed to have been given when
delivered personally to the recipient or when sent to the recipient by telecopy
(receipt confirmed), one business day after the date when sent to the recipient
by reputable express courier service (charges prepaid) or two business days
after the date when mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications will be sent to the Purchaser, the Seller and the Stockholders
at the addresses indicated below:

If to the
Purchaser: Salton/Maxim Housewares, Inc.
550 Business Center Drive
Mount Prospect, IL 60056
Attention: William B. Rue
Telecopy No.: (708) 803-8080

With a copy (which
will not constitute
notice to): Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, IL 60606
Attention: Neal Aizenstein
Telecopy No.: (312) 876-7934

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If to the Seller
or the Stockholder: Block China Corporation
c/o Robert C. Block
11 East 26th Street
New York, New York 10010
Attention: Robert C. Block
Telecopy No.: (212) 532-6101

With a copy (which
will not constitute
notice to): Johnson & Bell, Ltd.
222 North LaSalle Street
Suite 2200
Chicago, Illinois 60601
Attention: Thomas W. Murphy
Telecopy No.: (312) 372-9818

10.10 No Third-Party Beneficiaries. Except as otherwise
expressly provided in this Agreement, this Agreement will not confer any rights
or remedies upon any person or entity other than the Purchaser, the Seller and
the Stockholder and their respective successors and permitted assigns.

10.11 Entire Agreement. This Agreement and the other
Transaction Documents constitute the entire agreement among the parties and
supersedes any prior understandings, agreements or representations by or among
the parties, written or oral, that may have related in any way to the subject
matter hereof.

10.12 Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
Any references to any federal, state, local or foreign statute or law will be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The use of the word "including" in this
Agreement means "including without limitation" and is intended by the parties
to be by way of example rather than limitation.

10.13 Incorporation of Exhibits and Schedules. The
Exhibits and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.

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<PAGE> 45

10.14 Governing Law. All questions concerning the
construction, validity and interpretation of this Agreement and the Exhibits
and Schedules hereto will be governed by the internal law, and not the law of
conflicts, of the State of Illinois.

IN WITNESS WHEREOF, the parties hereto have executed and
deliver this Agreement as of the date first written above.

SALTON/MAXIM HOUSEWARES, INC.

By: ____________________________
Its: ____________________________

BLOCK CHINA CORPORATION

By: ____________________________
Its: ____________________________

__________________________________
ROBERT C. BLOCK

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<PAGE> 1

EXHIBIT 99.2

SALTON/MAXIM ACQUIRES SUBSTANTIALLY ALL OF THE ASSETS OF
BLOCK CHINA CORPORATION

MOUNT PROSPECT, ILLINOIS -- Salton/Maxim Housewares, Inc. (Nasdaq-SALT)
today announced that it has acquired substantially all of the assets and certain
liabilities of Block China Corporation. Block China designs and markets table
top products, including china, crystal and glassware.

The purchase price paid by Salton/Maxim was $1.485 million in cash, which
is subject to adjustment based upon an audit, and a warrant to purchase 25,000
shares of Common Stock with an exercise price equal to $4.83 per share. The
purchase price also includes an earn-out of up to $500,000 and 150,000 shares of
Salton/Maxim common stock based on Block China's financial performance over a
three-year period.

Leonhard Dreimann, Chief Executive Officer of Salton/Maxim, stated "We
believe that the acquisition of Block China and its line of china and glassware
is a very positive addition and will complement Salton/Maxim's existing
products. The acquisition of Block China would not have been possible without
the $3.25 million loan which Salton/Maxim received from Windmere Corporation in
April 1996."

Salton/Maxim previously announced that Windmere has agreed to purchase
6,508,572 newly issued shares of common stock of Salton/Maxim (which will
represent 50% of the outstanding shares of common stock after giving effect to
such purchase) for $3,254,286, a subordinated promissory note in the aggregate
principal amount of $10,847,620 and 748,112 shares of Windmere's common stock.
The closing of this transaction, currently anticipated in the middle of July
1996, remains subject to a number of conditions, including stockholder approval
at a special meeting of Salton/Maxim's stockholders scheduled for July 10, 1996.
The $3.25 million loan made by Windmere to the Company is payable upon the
earlier of such closing (by set-off against the $3.25 million cash consideration
to be paid by Windmere) or September 30, 1996.

Salton/Maxim Housewares, headquartered in Mount Prospect, Illinois, designs
and markets small kitchen appliances and beauty care products under the
Salton(R), Maxim(R), Salton Creations(TM) and Salton Time(TM) brand names. The
Company's products also include the Breadman(TM), Juiceman(TM) and Popeil Pasta
Maker(TM) product lines. Salton/Maxim also recently announced plans to add a new
line of small kitchen appliances under the White-Westinghouse(R) name.