<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1996 OR
[___] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO
__________
Commission file number 0-19557
SALTON/MAXIM HOUSEWARES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3777824
------------------------------- ----------------------
(State of other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
550 Business Center Drive
Mount Prospect, Illinois 60056
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(708) 803-4600
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
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Former name, former address and former fiscal year, if changed
since last year
Indicate by check mark whether this registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of May 9, 1996 - 6,508,572
shares of its $.01 par value Common Stock.
<PAGE> 2
SALTON/MAXIM HOUSEWARES, INC.
FORM 10-Q
QUARTER ENDED MARCH 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I FINANCIAL INFORMATION
---------------------
Item 1: Financial Statements
Balance Sheets-March 30, 1996
(Unaudited) and April 1, 1995 . . . . . . . . . . . . . . . . . 3
Statements of Operations
Thirteen weeks ended
March 30, 1996 and
April 1, 1995 (Unaudited)
and Thirty-Nine weeks ended
March 30, 1996 and
April 1, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows
Thirty-Nine weeks ended
March 30, 1996 and
April 1, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . 5
Notes to Financial
Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . 6
Item 2: Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 9
PART II OTHER INFORMATION
-----------------
Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . 14
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<PAGE> 3
SALTON/MAXIM HOUSEWARES, INC.
BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
March 30, July 1,
1996 1995
-------- --------
<S> <C> <C>
Current Assets:
Cash $ 8 $ 6
Accounts receivables, net of allowances 17,982 13,476
Inventories 27,146 19,441
Prepaid expenses and other current assets 1,634 1,041
-------- --------
Total current assets 46,770 33,964
Property, plant and equipment:
Molds and tooling 11,072 8,412
Warehouse equipment 282 277
Office furniture and equipment 1,847 1,650
-------- --------
13,201 10,339
Lease accumulated depreciation (8,109) (6,784)
-------- --------
5,092 3,555
Other assets (net of accumulated amortization) 3,846 3,602
-------- --------
Total assets $ 55,708 $ 41,121
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,997 $ 5,407
Accrued expenses 862 628
Revolving line of credit 24,665 17,860
Current portion -- Trillium Health Products 397
Current portion -- Subordinated debt 667 600
-------- --------
Total current liabilities 37,191 24,892
Subordinated debt 500 900
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,
1996 -- 6,508,572 shares, 1995 -- 6,508,572 shares 65 65
Additional paid-in capital 29,293 29,293
Accumulated deficit (11,341) (14,029)
-------- --------
Total stockholders' equity 18,017 15,329
-------- --------
Total liabilities and shareholders' equity $ 55,708 $ 41,121
======== ========
</TABLE>
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<PAGE> 4
SALTON/MAXIM HOUSEWARES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except earnings per share data)
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
---------------------- ----------------------
3/30/96 4/1/95 3/30/96 4/1/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $20,190 $15,264 $79,844 $62,429
Cost of goods sold 13,604 10,802 55,320 45,288
Distribution expenses 1,339 1,074 4,426 3,512
------- ------- ------- -------
Gross profit 5,247 3,388 20,098 13,629
Selling, general and administrative expenses 5,013 3,336 14,345 9,572
------- ------- ------- -------
Operating income (loss) 234 52 5,753 4,057
Interest expense 959 727 2,976 2,333
------- ------- ------- -------
Income (loss) before income taxes (725) (675) 2,777 1,724
Income taxes (20) (10) 90 20
------- ------- ------- -------
Net income (loss) $ (705) $ (665) $ 2,687 $ 1,704
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding 6,508,572 5,811,960 6,583,783 5,337,320
Net income (loss) per common and
common equivalent share:
Net income (loss) $(0.11) $(0.11) $0.41 $0.32
</TABLE>
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<PAGE> 5
SALTON/MAXIM HOUSEWARES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
39 weeks ended
---------------------
3/30/96 4/1/95
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income: $2,687 $1,704
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 1,761 1,485
Changes in assets and liabilities:
Accounts receivable (4,506) (3,705)
Inventories (7,705) 2,142
Prepaid expenses and other
current assets (593) 261
Accounts payable 5,590 1,286
Accrued expenses 234 229
Accrued class action settlement (100)
-------- --------
Net cash provided by (used in)
operating activities (2,532) 3,302
Cash flows from investing activities:
Capital expenditures (2,881) (1,462)
-------- --------
Net cash used in investing
activities (2,881) (1,462)
Cash flows from financing activities:
Proceeds from (payments to) revolving line of credit 6,805 (386)
Proceeds from (payments to) subordinated
note payable to bank (333) 1,000
Costs associated with Company refinancing (743)
Costs associated with increased Company line of credit (242)
Trillium Health Products debt (815) (1,707)
-------- --------
Net cash provided by (used in)
financing activities 5,415 (1,836)
-------- --------
Net increase in cash $2 $4
Cash, beginning of period 6 2
-------- --------
Cash, end of period $8 $6
======== ========
Cash paid during the period for:
Interest $2,693 $1,928
Income taxes $10 $20
</TABLE>
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<PAGE> 6
SALTON/MAXIM HOUSEWARES, INC.
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 Salton/Maxim
Housewares, Inc. 1995 Annual Report to Shareholders and the Annual Report on
Form 10-K. The results of operations for the interim periods should not be
considered indicative of results to be expected for the full year.
2. EARNINGS (LOSS) PER COMMON SHARE.
Net income (loss) per common share is computed based upon the weighted average
number of common and common equivalent shares outstanding. The shares shown as
outstanding in the Statements of Operations have been adjusted for dilutive
common stock equivalents applying the treasury stock method.
3. EVENTS OF THE FIRST NINE MONTHS ENDED MARCH 30, 1996.
On September 19, 1995, the Company and its lender amended their revolving line
of credit agreement (the "Facility") to increase the Facility from $25,000,000
to $45,000,000 on substantially the same terms as the old Facility. The new
Facility has a stated maturity date of September 30, 1997, whereupon it can be
renewed successively on an annual basis. The Company paid a one time closing
fee of $200,000 to the lender for the new Facility. Further, since the Company
achieved minimum operating income of at least $3,000,000 for the year ended
July 1, 1995, the new Facility has an interest rate per annum of 2% over the
prime rate.
On February 27, 1996, the Company entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") with Windmere Corporation ("Windmere"), a
corporation engaged principally in manufacturing and distributing a wide
variety of personal care products and household appliances. Subject to the
terms and conditions of the Stock Purchase Agreement, Windmere will purchase
from the Company 6,508,572 newly issued shares of Common Stock (the
"Purchase"), which will represent 50% of the
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<PAGE> 7
outstanding shares of Common Stock of the Company on February 27, 1996 after
giving effect to the Purchase. As consideration for the purchase, Windmere
would provide the Company: (i) $3,254,286 in cash; (ii) a subordinated
promissory note in the aggregate principal amount of $10,847,620, which note
would be secured by certain assets of Windmere and its domestic subsidiaries
and guaranteed by such domestic subsidiaries; and (iii) 748,112 shares of
Windmere's common stock. Windmere's common stock is traded on the NYSE. The
note is payable five years from the closing date of the Purchase and bears
interest at 8% per annum payable quarterly. Windmere would also be granted an
option to purchase up to 485,000 shares of Common Stock at $4.83 per share,
which option is exercisable only if and to the extent that options to purchase
shares of Common Stock which are outstanding on February 27, 1996 are
exercised.
The closing of the Purchase, currently anticipated in the middle of 1996,
remains subject to a number of conditions, including approval of the Purchase
by the stockholders of the Company. The Company plans on holding a special
meeting of stockholders to consider the Purchase on June 25, 1996. There can
be no assurance that the Purchase will be consummated.
In the event the Purchase is consummated, Windmere and the Company would enter
into a Marketing Cooperation Agreement, pursuant to which the parties would
agree to participate in a variety of mutually satisfactory marketing
cooperation efforts.
Windmere and the Company would also enter into a Stockholder Agreement (the
"Stockholder Agreement") and a Registration Rights Agreement (the "Registration
Agreement") in the event the Purchase is consummated. Pursuant to the
Stockholder Agreement, Windmere would be entitled to designate for election, so
long as its ownership does not fall below 15%, that percentage of the Company's
directors as is proportionate to its stock ownership percentage; provided that
the number of directors designated by Windmere will in no event exceed 50% of
the total number of directors. The Stockholder Agreement also contains
provisions which, subject to specified time periods and exceptions, restrict
the disposition by Windmere of shares of Common Stock and restrict purchases by
Windmere of additional shares of Common Stock that would increase its
percentage ownership interest. Subject to the foregoing restrictions on
disposition of shares, the Registration Agreement would give Windmere certain
demand and piggyback registration rights with respect to its shares of Common
Stock.
Windmere and the Company have entered into an agreement dated April 8, 1996
pursuant to which Windmere has agreed to extend to the Company a credit line of
up to $1,000,000 until the closing of the Purchase. Such credit line is to be
used exclusively for the purpose of purchasing products manufactured and sold
by
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<PAGE> 8
Windmere's wholly-owned subsidiary, Durable Electrical Metal Factory, Ltd.
("Durable"). Windmere has agreed that, after the closing of the Purchase, such
credit line will be increased to $2,500,000; provided, however, that Windmere
may increase or decrease such credit line from time to time as it, in its sole
discretion, deems necessary or desirable. The Company is required to pay in
full the total amount of each invoice from Durable within thirty days from the
date of such invoice.
Windmere and the Company have also entered into a loan agreement dated April 8,
1996 pursuant to which Windmere loaned $3,254,286 to the Company (the "Loan"),
the proceeds of which are to be used by the Company for working capital and
other corporate purposes. The principal balance of the Loan, together with all
interest accrued thereon at 8% per annum, is due and payable upon the closing
of the Purchase; provided, however, that upon the request of the Company,
Windmere will apply the $3,254,286 cash portion of the consideration to be paid
by Windmere in connection with the Purchase against the total amount
outstanding and due under the Loan upon such closing. In the event that the
Stock Purchase Agreement is terminated for any reason, then (i) the entire
principal balance of the Loan, together with interest accrued thereon, will be
due and payable on September 30, 1996, and (ii) the Company will issue to
Windmere options to purchase up to 75,000 shares of Common Stock, which options
will be immediately exercisable at an exercise price of $3.00 per share.
The Loan is subordinated to the Company's indebtedness to its senior lenders
and, subject to such subordination, is secured by all of the inventory,
equipment, fixtures, accounts receivable and general intangibles of the
Company.
-8-
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 30, 1996 COMPARED WITH THIRTEEN WEEKS ENDED
APRIL 1, 1995.
Net sales in the third quarter of fiscal year 1996 were $20.2 million,
an increase of approximately $4.9 million, or 32.0%, compared to net sales of
$15.3 million in the third quarter of fiscal year 1995. This increase in sales
is primarily attributable to sales of the Breadman(TM) and Juiceman(TM)
products.
Gross profit in the third quarter of 1996 was $5.2 million or 26.0% of
net sales as compared to $3.4 million or 22.2% of net sales in the third
quarter of 1995. Cost of goods sold during the period decreased to 67.4% of
net sales compared to 70.8% in 1995. Distribution expenses were approximately
$1.3 million or 6.6% of net sales in 1996 as compared to $1.1 million or 7.0%
of net sales in the same period in 1995. Freight out expenses increased to
$636,000 in 1996 from $497,000 in 1995 due to the increase in net sales.
However, gross profit and cost of goods sold in 1996 as a percentage of net
sales were improved primarily due to a more favorable mix of sales of higher
gross margin items when compared to 1995.
Selling, general and administrative expenses increased to $5.0 million
for the period compared to $3.3 million for the same period in 1995.
Advertising costs for certain media and cooperative coverages of the Company
and its products increased about $1.0 million in 1996 compared to 1995.
Selling, general and administrative expenses were 24.8% of net sales compared
to 21.9% of net sales last year. This 2.9% increase was primarily a result of
the increase in advertising costs.
Operating income increased to $234,000 in the quarter compared to
$52,000 one year ago. This increase is attributable to higher net sales and
gross profit in the third quarter of 1996 compared to the third quarter of 1995
offset by the increase in selling, general and administrative expenses.
Interest expense for the quarter was approximately $959,000 compared
to $727,000 in the same period in 1995. The average amount outstanding under
the Company's revolving line of credit increased about $9.9 million when
compared to the average amount outstanding in the same period a year ago. This
increase was used primarily as working capital to finance higher sales and
higher levels of inventory which resulted from late cancellations of orders by
retailers in the second quarter. These
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<PAGE> 10
cancellations were brought about by a generally soft retail market during the
Christmas season.
The Company had a loss before income taxes of $725,000 in the third
quarter of 1996 compared to a loss before income taxes of $675,000 in the third
quarter of 1995. Net loss in the third quarter of 1996 was $705,000 compared
to $665,000 in the third quarter of 1995. Net loss per share was $.11 based on
weighted average common shares outstanding of 6,508,572, in the third quarter
of 1996 compared to $.11 per share on weighted average common shares
outstanding of 5,811,960 in the third quarter of 1995.
THIRTY-NINE WEEKS ENDED MARCH 30, 1996 COMPARED WITH THIRTY-NINE WEEKS
ENDED APRIL 1, 1995.
Net sales for the first nine months of fiscal year 1996 were $79.8
million, an increase of approximately $17.4 million, or 27.9%, compared to net
sales of $62.4 million in the first nine months of fiscal year 1995. This
increase in sales is primarily attributable to sales of the Breadman(TM) and
Juiceman(TM) products.
Gross profit for the first nine months of 1996 was $20.1 million or
25.2% of net sales as compared to $13.6 million or 21.8% of net sales in the
first nine months of 1995. Cost of goods sold during the period decreased to
69.3% of net sales compared to 72.6% in 1995. Distribution expenses were
approximately $4.4 million or 5.5% of net sales in 1996 as compared to $3.5
million or 5.6% of net sales in the same period in 1995. Freight out expenses
increased to $2.2 million in 1996 from $1.9 million in 1995 due to the increase
in net sales. However, gross profit and cost of goods sold in 1996 as a
percentage of net sales were improved primarily due to a more favorable mix of
sales of higher gross margin items when compared to 1995.
Selling, general and administrative expenses increased to $14.3
million for the period compared to $9.6 million for the same period in 1995.
Advertising costs for certain media and cooperative coverages of the Company
and its products increased about $2.7 million in 1996 compared to 1995.
Selling, general and administrative expenses were 18.0% of net sales compared
to 15.3% of net sales last year. This 2.7% increase was primarily a result of
the increase in advertising costs.
Operating income was $5.8 million in 1996, an increase of $1.7
million, or 42%, compared to $4.1 million in 1995. This increase was
attributable to higher net sales and gross profit in the first nine months of
1996 when compared to 1995.
Interest expense for the nine months was approximately $3.0 million
compared to $2.3 million in the same period in 1995. The
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<PAGE> 11
average amount outstanding under the Company's revolving line of credit
increased about $8.0 million when compared to the average amount outstanding in
the same period a year ago. This increase was used as working capital
primarily to finance higher net sales and higher levels of inventory and
accounts receivable in 1996 when compared to 1995.
The Company had income before income taxes of $2,777,000 in the first
nine months of 1996 compared to income before income taxes of $1,724,000 in the
first nine months of 1995. Net income in the period was $2,687,000, an
increase of 57.7%, compared to $1,704,000 in the same period one year ago. Net
operating loss carryforwards were used in both periods to significantly offset
the taxes payable. Net income per share was $.41 based on weighted average
common shares outstanding of 6,588,873, after adjustment for dilutive common
stock equivalents, in the first nine months of 1996 compared to $.32 per share
on weighted average common shares outstanding of 5,337,320 in the first nine
months of 1995.
LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 1996, net cash provided by operations was
about $4.4 million. The cash was used to finance an increase in accounts
receivable of approximately $4.5 million, $7.7 million in inventory, and
$593,000 in prepaid expenses. Approximately $4.0 million was used for capital
expenditures, subordinated debt reduction and payments to Trillium Health
Products. An increase in accounts payable and accrued expenses of $5.8 million
and an increase of about $6.8 million in amounts outstanding under the
Company's line of credit supported the increase in net sales and these payments
in the period. The Company financed a higher level of inventory in the quarter
as a result of late cancellations of orders by retailers in the second quarter.
These cancellations were brought about by a soft retail market during the
Christmas season. Typically, given the seasonal nature of the Company's
business, the Company's borrowings tend to be the highest in mid-summer to
fall.
On September 19, 1995, the Company and its lender amended their
revolving line of credit agreement (the "Facility") to increase the Facility
from $25,000,000 to $45,000,000 on substantially the same terms as the old
Facility. The new Facility has a stated maturity date of September 30, 1997,
whereupon it can be renewed successively on an annual basis. The Company paid
a one time closing fee of $200,000 to the lender for the new Facility.
Further, since the Company achieved minimum operating income of at least
$3,000,000 for the year ended July 1, 1995, the new Facility has an interest
rate per annum of 2% over the prime rate.
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<PAGE> 12
On February 27, 1996, the Company entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with Windmere Corporation
("Windmere"), a corporation engaged principally in manufacturing and
distributing a wide variety of personal care products and household appliances.
Subject to the terms and conditions of the Stock Purchase Agreement, Windmere
will purchase from the Company 6,508,572 newly issued shares of Common Stock
(the "Purchase"), which will represent 50% of the outstanding shares of Common
Stock of the Company on February 27, 1996 after giving effect to the Purchase.
As consideration for the purchase, Windmere would provide the Company: (i)
$3,254,286 in cash; (ii) a subordinated promissory note in the aggregate
principal amount of $10,847,620, which note would be secured by certain assets
of Windmere and its domestic subsidiaries and guaranteed by such domestic
subsidiaries; and (iii) 748,112 shares of Windmere's common stock. Windmere's
common stock is traded on the NYSE. The note is payable five years from the
closing date of the Purchase and bears interest at 8% per annum payable
quarterly. Windmere would also be granted an option to purchase up to 485,000
shares of Common Stock at $4.83 per share, which option is exercisable only if
and to the extent that options to purchase shares of Common Stock which are
outstanding on February 27, 1996 are exercised.
The closing of the Purchase, currently anticipated in the middle of
1996, remains subject to a number of conditions, including approval of the
Purchase by the stockholders of the Company. The Company plans on holding a
special meeting of stockholders to consider the Purchase on June 25, 1996.
There can be no assurance that the Purchase will be consummated.
In the event the Purchase is consummated, Windmere and the Company
would enter into a Marketing Cooperation Agreement, pursuant to which the
parties would agree to participate in a variety of mutually satisfactory
marketing cooperation efforts.
Windmere and the Company would also enter into a Stockholder Agreement
(the "Stockholder Agreement") and a Registration Rights Agreement (the
"Registration Agreement") in the event the Purchase is consummated. Pursuant
to the Stockholder Agreement, Windmere would be entitled to designate for
election, so long as its ownership does not fall below 15%, that percentage of
the Company's directors as is proportionate to its stock ownership percentage;
provided that the number of directors designated by Windmere will in no event
exceed 50% of the total number of directors. The Stockholder Agreement also
contains provisions which, subject to specified time periods and exceptions,
restrict the disposition by Windmere of shares of Common Stock and restrict
purchases by Windmere of additional shares of Common Stock that would increase
its percentage ownership interest. Subject to the foregoing restrictions on
disposition of shares, the Registration Agreement would give Windmere certain
demand and
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<PAGE> 13
piggyback registration rights with respect to its shares of Common Stock.
Windmere and the Company have entered into an agreement dated April 8,
1996 pursuant to which Windmere has agreed to extend to the Company a credit
line of up to $1,000,000 until the closing of the Purchase. Such credit line
is to be used exclusively for the purpose of purchasing products manufactured
and sold by Windmere's wholly-owned subsidiary, Durable Electrical Metal
Factory, Ltd. ("Durable"). Windmere has agreed that, after the closing of the
Purchase, such credit line will be increased to $2,500,000; provided, however,
that Windmere may increase or decrease such credit line from time to time as
it, in its sole discretion, deems necessary or desirable. The Company is
required to pay in full the total amount of each invoice from Durable within
thirty days from the date of such invoice.
Windmere and the Company have also entered into a loan agreement dated
April 8, 1996 pursuant to which Windmere loaned $3,254,286 to the Company (the
"Loan"), the proceeds of which are to be used by the Company for working
capital and other corporate purposes. The principal balance of the Loan,
together with all interest accrued thereon at 8% per annum, is due and payable
upon the closing of the Purchase; provided, however, that upon the request of
the Company, Windmere will apply the $3,254,286 cash portion of the
consideration to be paid by Windmere in connection with the Purchase against
the total amount outstanding and due under the Loan upon such closing. In the
event that the Stock Purchase Agreement is terminated for any reason, then (i)
the entire principal balance of the Loan, together with interest accrued
thereon, will be due and payable on September 30, 1996, and (ii) the Company
will issue to Windmere options to purchase up to 75,000 shares of Common Stock,
which options will be immediately exercisable at an exercise price of $3.00 per
share.
The Loan is subordinated to the Company's indebtedness to its senior
lenders and subject to such subordination, is secured by all of the inventory,
equipment, fixtures, accounts receivable and general intangibles of the
Company.
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<PAGE> 14
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(b) The Company filed a report on Form 8-K dated February 27, 1996
reporting under Item 5 thereof regarding the Stock Purchase Agreement between
the Company and Windmere and the transactions and other documents contemplated
thereby.
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<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SALTON/MAXIM HOUSEWARES, INC.
Date: May 9, 1996 /s/WILLIAM B. RUE
------------------------------------
William B. Rue
Senior Vice President and
Chief Operating Officer
(Duly Authorized Officer
of the Registrant)
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<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description of Document
- - -------------- -----------------------
<S> <C>
10.22 Loan Agreement dated
April 8, 1996 by and
between the Registrant
and Windmere Corporation
27 Financial Data Schedule
</TABLE>
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<PAGE> 1
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT (the "Agreement") is made and entered into as of
the ____ day of April, 1996 by and between WINDMERE CORPORATION, a Florida
corporation ("Windmere"), and SALTON/MAXIM HOUSEWARES, INC., a Delaware
corporation ("Salton/Maxim"). Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings set forth in the Stock
Purchase Agreement, dated as of February 27, 1996 (the "Stock Purchase
Agreement"), by and between Windmere and Salton/Maxim.
WHEREAS, Windmere and Salton/Maxim are parties to that certain Stock
Purchase Agreement pursuant to which Windmere will acquire certain shares of
Salton/Maxim's common stock; and
WHEREAS, in connection with working capital purposes and for its other
corporate purposes, Salton/Maxim seeks to obtain, and Windmere has agreed to
provide, a loan in the principal amount of Three Million Two Hundred Fifty-Four
thousand Two Hundred Eighty-Six Dollars ($3,254,286).
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and for other good and valuable consideration, it is agreed
as follows:
SECTION 1
AMOUNT AND TERMS OF THE LOAN
----------------------------
1.1 Loan. Windmere hereby agrees, upon the terms and subject to the
conditions hereof and of the Note (as hereinafter defined), to extend a loan to
Salton/Maxim (the "Loan") in the principal amount of Three Million Two Hundred
Fifty-Four Thousand Two Hundred Eighty-Six Dollars ($3,254,286).
1.2 Repayment of Loan. On the closing Date and as a condition to
consummation of the transactions contemplated by the Stock Purchase Agreement,
the entire unpaid principal balance of the Loan, together with all interest
accrued and unpaid thereon, shall be due and payable in full; provided,
however, that, upon request from Salton/Maxim, Windmere shall apply the cash
portion of the Purchase Price against the total amount outstanding and due on
the Closing Date. In the event the Stock Purchase Agreement is terminated for
any reason in accordance with its terms, (i) the entire unpaid principal
balance of the Loan, together with all interest accrued and unpaid thereon,
shall be due and payable on September 30, 1996, and (ii) Salton/Maxim shall
issue to Windmere options to purchase up to 75,000 shares of Salton/Maxim's
common stock, which shall be immediately exercisable at an exercise price of
$3.00 per share, and which option shall be subject to such other terms and
conditions as are applicable to the options which have been granted during the
two (2) years prior to the date hereof to executive officers of Salton/Maxim
pursuant to their respective stock option agreements.
1.3. Prepayment. Salton/Maxim shall have the right to prepay all or
any portion of the outstanding principal balance of the Loan, form time to time
at any time, upon two (2) business days advance written notice to Windmere,
without premium or penalty; provided that, at the time of any such prepayment,
Salton/Maxim shall pay to Windmere all interest accrued and unpaid on that
portion of the principal balance of the Loan being prepaid.
1.4. Interest. The Loan shall bear interest at the rate of eight
percent (8%) per annum. Interest shall be calculated on the basis of a 365-day
year and actual days elapsed.
<PAGE> 2
1.5 Note and Loan Documents. All obligations of Salton/Maxim to
Windmere under the Loan shall be evidenced by a promissory note of Salton/Maxim
made payable to the order of Windmere in the principal amount of Three Million
Two Hundred Fifty-Four Thousand Two Hundred Eighty-Six Dollars ($3,254,286), in
the form attached hereto as Exhibit A (the "Note"). this Agreement and all
instruments and documents executed in connection with the Loan, including
without limitation the Note and any other agreements, contracts, security
agreements, assignments and other documents executed to secure the Loan, are
referred to in this Agreement as the "Loan Documents".
SECTION 2
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Windmere to enter into this Agreement and to make the Loan
contemplated hereby, Salton/Maxim represents and warrants to Windmere that:
2.1 Organization, Standing, Power, Etc. Salton/Maxim is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all necessary power and authority to own
its properties, to carry on its business as now being conducted and to execute,
deliver and perform this Agreement and all other Loan Documents to which it is
a party.
2.2 Authorization. The execution, delivery and performance by
Salton/Maxim of this Agreement, the borrowings hereunder and the execution,
delivery and performance of each of the Loan Documents to which it is a party:
(a) have been duly authorized by all requisite corporate
action, including, without limitation, by the Board of Directors of
Salton/Maxim;
(b) will not violate any provisions of law, or
Salton/Maxim's Certificate of Incorporation, as amended to the date hereof; and
(c) except as set forth in Schedule 2.2, will not violate
or be in conflict with, result in a breach of, or constitute a default under,
any material indenture, agreement or other instrument to which Salton/Maxim is
a party or by which Salton/Maxim or any of its properties is bound, or any
order, writ, injunction or decree of any court of governmental institution
(other than such violations, breaches and defaults as shall have been waived
prior to the funding of the Loan).
2.3 Enforceability. This Agreement and all other Loan Documents to
which Salton/Maxim is a party referred to herein, when executed and delivered
by Salton/Maxim hereunder or thereunder, will constitute legal, valid and
binding obligations of Salton/Maxim, enforceable against it in accordance with
their respective terms.
2.4 Use of Proceeds. The proceeds of the Loan shall be used for
working capital and for other corporate purposes, and Salton/Maxim will not use
any portion of such proceeds for the benefit of any person other than
Salton/Maxim and its wholly-owned subsidiaries.
- 2 -
<PAGE> 3
SECTION 3
CONDITIONS PRECEDENT
--------------------
The obligations of Windmere under this Agreement are subject to the
following conditions precedent:
3.1 Supporting Documents. Windmere shall have received from
Salton/Maxim on or prior to the date of funding under the Loan:
(a) a certificate of the Secretary of Salton/Maxim dated as
of the date of the funding under the Loan, certifying as to: (i) resolutions
of the Board of Directors of Salton/Maxim authorizing the execution, delivery
and performance of this Agreement, the borrowing hereunder, and the execution
and delivery to Windmere of the other Loan Documents to which it is a party,
and the full force and effect of such resolutions on the date of the funding
under the Loan, and (ii) the incumbency and signature of each of the officers
of Salton/Maxim signing this Agreement and the other Loan Documents to which it
is a party;
(b) the Note, duly executed by Salton/Maxim; and
(c) the Security Agreement, substantially in the form
attached hereto as Exhibit B, duly executed by Salton/Maxim.
3.2 Representations and Warranties. The representations and
warranties of Salton/Maxim contained herein shall be true and correct in all
material respects as of the date of funding under the Loan, and Windmere shall
have received from Salton/Maxim on or prior to such date a certificate of the
Chairman of the Board, the President or the Executive Vice President of
Salton/Maxim certifying to such effect.
SECTION 4
AFFIRMATIVE COVENANTS
---------------------
Salton/Maxim covenants and agrees with Windmere, that from the date
hereof and so long as this Agreement remains in effect, or any obligations
under the Note remain outstanding and unpaid, unless Windmere shall otherwise
consent in writing delivered to Salton/Maxim, it shall:
4.1 Existence. Do or cause to be done all things necessary to
preserve, renew and keep in full force and effect the existence of
Salton/Maxim.
4.2 Notice. Give prompt written notice to Windmere of all Events
of Default (as defined below) or any default of which Salton/Maxim becomes
aware, under any of the terms and provisions of this Agreement, the Loan
Documents or Senior Indebtedness (as defined below).
4.3 Books and Records. Keep and maintain full and accurate
accounts and records of its operations according to generally accepted
accounting principles consistently applied, and permit Windmere or any of its
designated officers, employees, agents and representatives, to have access
thereto, and to make examination thereof, to make audits, and to inspect and
otherwise check the properties, real, personal and mixed, of Salton/Maxim at
all reasonable times upon reasonable notice.
4.4 Guaranties by Subsidiaries. During the term hereof,
Salton/Maxim shall cause each of its subsidiaries, if and when formed, to
execute a guaranty in form and substance reasonably satisfactory to Windmere.
- 3 -
<PAGE> 4
SECTION 5
THE CLOSING
5.1 Funding Date. The funding of the Loan hereunder shall occur on
the business day designated by Salton/Maxim to Windmere in writing at least two
business days prior thereto; provided, that all conditions precedent have been
satisfied.
SECTION 6
EVENTS OF DEFAULT
6.1 Events of Default. Upon an occurrence of the following events
(each, an "Event of Deault"), the principal amount outstanding, plus all
interest accrued thereon, shall be immediately due and payable upon the
delivery by Windmere to Salton/Maxim notice hereof.
(a) Nonpayment of principal and interest hereunder when and as the
same shall become due hereunder;
(b) The failure by Salton/Maxim to observe or perform any term,
covenant or condition contained in the Loan Documents, and
such failure shall not have been cured within the period of
grace, if any, provided therein;
(c) The entry by Salton/Maxim of any agreement providing for any
merger, consolidation, reorganization, liquidation, winding
up, or dissolution (or if Salton/Maxim suffers any liquidation
or dissolution), or if Salton/Maxim conveys, sells, assigns,
leases, transfers, or otherwise disposes of, in one transaction
or a series of transactions, substantially all of its business,
property or assets, whether now owned or hereafter acquired,
except for a merger in which Salton/Maxim is the surviving
entity;
(d) Voluntary or involuntary bankruptcy, reorganization,
insolvency, arrangement, receivership or similar proceedings
are commenced by or against Salton/Maxim, and such proceedings
continue undismissed for 60 days;
(e) One or more final judgments (for which no appeal may be taken)
for the payment of money in excess of $1,000,000 in the
aggregate are outstanding against Salton/Maxim or against any
property or assets, and any such judgment has remained unpaid,
unvacated, unbonded or unstayed by appeal or otherwise for a
period of 30 days from the date of its entry; or
(f) Salton/Maxim fails to pay principal, interest or premium with
respect to any Senior Indebtedness of Salton/Maxim in an
aggregate principal amount greater than Five Hundred
Thousand Dollars ($500,000,) or fails to perform, observe
or fulfill any term or covenant contained in any agreement or
instrument under or pursuant to which any such Senior
Indebtedness may have been issued, created, assumed, guaranteed
or secured by Salton/Maxim, and such default continues beyond
the period of grace, if any, specified therein and permits the
holder of such Senior Indebtedness to accelerate the maturity
thereof.
-4-
<PAGE> 5
SECTION 7
SUBORDINATION
7.1 Subordination. Payments under this Agreement are subordinated
to repayment of all Senior Indebtedness (as defined in the next sentence), but
only to the extent and in the manner provided in this Section 7.1. "Senior
Indebtedness" shall mean all indebtedness owed by Salton/Maxim to Foothill
Capital Corporation ("Foothill") pursuant to that certain Loan and Security
Agreement, dated as of July 28, 1994, as amended (the "Foothill Facility"), by
and between Foothill and Salton/Maxim and all indebtedness owed to LaSalle
National Bank ("LaSalle") pursuant to that certain Loan and Security Agreement,
dated as of December 30, 1991, as amended (the "LaSalle Facility") by and
between LaSalle and Salton/Maxim. Salton/Maxim shall not further amend or
otherwise modify the Foothill Facility or the LaSalle Facility without the
prior written consent (which consent shall not be unreasonably withheld) of
Windmere.
(a) Upon any payment or distribution of the assets of
Salton/Maxim, whether in cash, property or securities, from any source
whatsoever, to creditors upon any dissolution, winding-up, total or partial
liquidation, reorganization, composition, arrangement or adjustment of
Salton/Maxim or its securities (whether voluntary or involuntary, or in
bankruptcy, insolvency, reorganization, liquidation or receivership
proceedings, or upon as assignment for the benefit of creditors, or any other
marshalling of the assets and liabilities of Salton/Maxim or otherwise),
Foothill and LaSalle shall be entitled to receive payment in full in cash of
all amounts due or to become due in respect of the Senior Indebteness before
any payment is made pursuant to the terms of this Agreement or the Loan
Documents.
(b) For a period, commencing on the date on which Salton
/Maxim receives from Foothill or LaSalle notice that an "Event of
Default" (as defined in the Foothill Facility or the LaSalle Facility, as the
case may be) has occurred and ending on the date on which such Event of Default
has been cured, no payment shall be made to Windmere pursuant to the terms of
this Agreement or the Loan Documents.
(c) Windmere or any subsequent holder of this Note, by its
acceptance of this Note, agrees that during any Payment Blockage Period, it
will not ask, demand, sue for, take or receive from Salton/Maxim, by set-off or
in any other manner, any money which may now or hereafter be owing by
Salton/Maxim under this Note.
SECTION 8
MISCELLANEOUS
8.1 Notices. Any notice required to be given by either party to
the other shall be deemed given if in writing and actually delivered by an
overnight courier of national repute or deposited in the United States mail in
registered or certified form with return receipt requested, postage paid,
addressed to the notified party at:
If to Windmere: Windmere Corporation
5980 Miami Lakes Drive
Miami Lakes, Florida 33014-9867
Attention: Burton A Honig,
Vice President - Finance
If to Salton/Maxim: Salton/Maxim Housewares, Inc.
550 Business Center Drive
Mount Prospect, Illinois 60056
Attention: President
-5-
<PAGE> 6
8.2 Survival of Representation. All covenants, agreements,
representations and warranties made herein and in the Loan Documents shall
survive the execution of this Agreement, and the execution and delivery to
Windmere of the Note, and shall continue in full force and effect so long as
any obligation of Salton/Maxim created hereunder is outstanding and unpaid.
8.3 Effect of Delay. Neither any failure nor any delay on the part
of Windmere in exercising any right, power or privilege hereunder or under the
Loan Documents shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of any other right,
power or privelege.
8.4 Modification and Waivers. No modification or waiver of any
provision of this Agreement nor consent to any departure by Salton/Maxim
therefrom shall in any event be effective unless the same shall be in writing
and signed by Windmere, and such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on Salton/Maxim in any case shall thereby entitle it to any other or
further notice or demand in the same, similar or other circumstances.
8.5 Disclaimer. Windmere shall incur no liability to Salton/Maxim
in acting upon any advice received by Windmere, whether oral or written, which
windmere believes in good faith to have been given by an officer or other
person authorized or act on behalf of Salton/Maxim or in otherwise acting in
good faith under this Agreement.
8.6 Remedies Cumulative. Any rights or remedies of Windmere
hereunder, or under any other writing shall be cumulative and in addition to
every other right or remedy contained therein or herein, now in existence or
existing hereafter, at law or in equity, by statute or otherwise. Upon the
occurrence of an Event of Default, Windmere, may proceed to enforce any of its
rights and remedies against Salton/Maxim, or against any collateral given as
security for the obligations of Salton/Maxim, and Windmere may enforce such
rights and remedies simultaneously, or in such order and at such time, or from
time to time, as Windmere, in its sole discretion shall determine.
8.7 Application of Payments. Payments received by Windmere from
Salton/Maxim, whether direct or otherwise, shall be applied first against
expenses, next against interest accrued on the Loan, and next in reduction of
the outstanding principal balance of the Loan, except that during the
continuance of any Event of Default, Windmere may apply such payments in any
order of priority determined by Windmere in its exclusive judgment.
8.8 Construction. This Agreement shall be governed, and construed
in accordance with the laws of the State of Florida, regardless of the laws that
might otherwise govern under the applicable principles of conflicts of law
thereof.
8.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute but one instrument, and shall
become effective when copies hereof, when taken together, bear the signatures
of Windmere and Salton/Maxim.
8.10 Severability of Provisions. Any provision of this Agreement
which is unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such unenforceablity, without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
8.11 Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
8.12 Successors and Assigns: Assignment. All of the terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns,
-6-
<PAGE> 7
except that Salton/Maxim shall not have the right to assign its rights
hereunder or any interest herein. Windmere may assign or otherwise transfer
its rights and obligations hereunder to any person or entity, and such other
person or entity shall thereon become vested with all the benefits in respect
thereof granted to Windmere herein or otherwise.
* * * *
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WINDMERE CORPORATION
BY: Harry D. Schulman
--------------------------------
Name: Harry D. Schulman
Title: Senior Vice President
SALTON/MAXIM HOUSEWARES, INC.
BY:
--------------------------------
Name:
Title:
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WINDMERE CORPORATION
BY:
--------------------------------
Name:
Title:
SALTON/MAXIM HOUSEWARES, INC.
BY: William B. Rue
--------------------------------
Name: William B. Rue
Title: Senior Vice President/COO
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summarized financial information extracted from quarterly
Statements of Operations and Balance Sheet and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> MAR-30-1996
<EXCHANGE-RATE> 1
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 17,982
<ALLOWANCES> 2,300
<INVENTORY> 27,146
<CURRENT-ASSETS> 46,770
<PP&E> 13,201
<DEPRECIATION> 8,109
<TOTAL-ASSETS> 55,708
<CURRENT-LIABILITIES> 37,191
<BONDS> 500
<COMMON> 65
0
0
<OTHER-SE> 17,952
<TOTAL-LIABILITY-AND-EQUITY> 55,708
<SALES> 79,844
<TOTAL-REVENUES> 79,844
<CGS> 55,320
<TOTAL-COSTS> 59,746
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,976
<INCOME-PRETAX> 2,777
<INCOME-TAX> 90
<INCOME-CONTINUING> 2,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,687
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
