<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement.
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
SALTON, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
SALTON, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
SALTON LOGO
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of Salton, Inc., will be held on
Thursday, January 13, 2000 at 3:00 p.m. local time, at the Four Seasons Hotel,
120 E. Delaware Place, Chicago, Illinois.
The purposes of the Annual Meeting are:
1. To elect two Class II Directors for a term expiring in 2002;
2. To vote on an amendment to our Restated Certificate of Incorporation to
increase the number of authorized shares of common stock from 20,000,000 to
40,000,000 shares;
3. To ratify the appointment of Deloitte & Touche LLP as our auditors for
the 2000 fiscal year; and
4. To transact any other business that may properly be presented at the
meeting.
You must be a holder of Common Stock or Series A Voting Convertible
Preferred Stock of record at the close of business on November 17, 1999 to vote
at the Annual Meeting.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE VOTE BY SIGNING AND RETURNING THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE. RETURNING THE PROXY CARD WILL NOT AFFECT YOUR RIGHT TO ATTEND THE
MEETING AND VOTE.
By Order of the Board of Directors
David C. Sabin
David C. Sabin
Secretary
Chicago, Illinois
December 7, 1999
<PAGE> 3
SALTON, INC.
550 BUSINESS CENTER DRIVE
MOUNT PROSPECT, ILLINOIS 60056
PROXY STATEMENT
The Board of Directors of the Company solicits your proxy for use at the
Annual Meeting of Stockholders on Thursday, January 13, 2000, or at any
adjournment thereof. We will begin sending this Proxy Statement, the attached
Notice of Annual Meeting and the enclosed proxy card on or about December 7,
1999 to all stockholders entitled to vote.
INFORMATION ABOUT THE MEETING AND VOTING
WHO MAY VOTE AT THE MEETING?
Stockholders of record at the close of business on November 17, 1999 are
entitled to notice of and to vote at the Annual Meeting. At the record date,
10,343,249 shares of common stock of the Company (the "Common Stock") were
issued and outstanding. In addition, on the record date, 40,000 shares of Series
A Voting Convertible Preferred Stock of the Company (the "Series A Preferred
Stock"), were issued and outstanding, which were convertible on the record date
into 3,529,412 shares of Common Stock.
HOW MANY VOTES DO I HAVE?
Each share of Common Stock that you own entitles you to one vote. Each
share of Series A Preferred Stock that you own entitles you to 88.2 votes (the
number of shares of Common Stock into which such share of Series A Preferred
Stock is convertible on the record date). The Common Stock and the Series A
Preferred Stock vote as a single class and are identical in all respects with
respect to matters subject to the vote of stockholders.
HOW DO I VOTE BY PROXY?
Whether you plan to attend the Annual Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Annual Meeting and vote.
If you properly fill in your proxy card and send it to us in time to vote,
your "proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign the proxy card but do not make specific
choices, your proxy will vote your shares as recommended by the Board as
follows:
- "FOR" the election of the two nominees for Class II Directors,
- "FOR" the amendment to our Restated Certificate of Incorporation to
increase the number of authorized shares, and
- "FOR" ratification of the appointment of independent auditors for fiscal
2000.
If any other matter is presented, your proxy will vote in accordance with
his best judgment. At the time this Proxy Statement went to press, we knew of no
matters which needed to be acted on at the Annual Meeting, other than those
discussed in this Proxy Statement.
MAY I REVOKE MY PROXY?
If you give a proxy, you may revoke it at any time before it is exercised.
You may revoke your proxy in any one of three ways:
- You may send in another proxy with a later date.
- You may notify the Company's Secretary in writing before the Annual
Meeting that you have revoked your proxy.
- You may vote in person at the Annual Meeting.
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<PAGE> 4
HOW DO I VOTE IN PERSON?
If you plan to attend the Annual Meeting and vote in person, we will give
you a ballot when you arrive. However, if your shares are held in the name of
your broker, bank or other nominee, you must bring an account statement or
letter from the nominee indicating that you are the beneficial owner of the
shares on November 17, 1999, the record date for voting.
WHAT CONSTITUTES A QUORUM?
A quorum of stockholders is necessary to hold a valid meeting. If
stockholders entitled to cast at least a majority of all the votes entitled to
be cast at the Annual Meeting are present in person or by proxy, a quorum will
exist. Abstentions and broker non-votes (i.e., when a broker does not have
authority to vote on a specific issue) are counted as present for establishing a
quorum.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
PROPOSAL 1: ELECT TWO CLASS II
DIRECTORS The nominees for director in Class II who
receive the most votes will be elected. So, if
you do not vote for a particular nominee, or
you indicate "withhold authority to vote" for a
particular nominee on your proxy card, your
vote will not count either "for" or "against"
the nominee.
A broker non-vote will also have no effect on
the outcome since only a plurality of votes
actually cast is required to elect a director.
PROPOSAL 2: APPROVE AMENDMENT
TO
THE RESTATED CERTIFICATE OF
INCORPORATION The affirmative vote of a majority of the
outstanding shares of Common Stock (assuming
conversion of all outstanding shares of Series
A Preferred Stock into Common Stock) is
required to approve the amendment to our
Restated Certificate of Incorporation. So, if
you do not vote, or "abstain" from voting, it
has the same effect as if you voted "against"
the amendment.
PROPOSAL 3: RATIFY SELECTION
OF
AUDITORS The affirmative vote of a majority of the votes
cast at the Annual Meeting is required to
ratify the selection of independent auditors.
So, if you "abstain" from voting, it has the
same effect as if you voted "against" this
proposal.
THE EFFECT OF BROKER NON-VOTES If your broker does not vote your shares on
Proposal 3, such "broker non-votes" do not
count as "shares present." This means that a
broker non-vote would reduce the number of
affirmative votes that are necessary to approve
each of these proposals.
For Proposal 2, a broker non-vote has the same
effect as a vote "against" this proposal.
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES?
The Company will pay all the costs of soliciting these proxies. In addition
to mailing proxy soliciting material, our directors and employees may also
solicit proxies in person, by telephone or by other electronic means of
communication. We will ask banks, brokers and other institutions, nominees and
fiduciaries to forward the proxy material to their principals and to obtain
authority to execute proxies. We will then reimburse them for expenses. We have
also retained Georgeson Shareholder Communications Inc. to assist us in the
distribution and solicitation of proxies. We have agreed to pay them a fee of
approximately $4,000 plus out-of-pocket expenses.
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<PAGE> 5
HOW DO I OBTAIN AN ANNUAL REPORT ON FORM 10-K?
IF YOU WOULD LIKE A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED JUNE 26, 1999, THAT WE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WE WILL SEND YOU ONE WITHOUT CHARGE. PLEASE WRITE TO:
SALTON, INC.
550 BUSINESS CENTER DRIVE
MOUNT PROSPECT, ILLINOIS 60056
ATTENTION: WILLIAM B. RUE
PRESIDENT AND CHIEF OPERATING OFFICER
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<PAGE> 6
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, having three-year
terms that expire in successive years. The Board is comprised of three Class I
Directors (David C. Sabin, William B. Rue and Robert A. Bergmann), two Class II
Directors (Bert Doornmalen and Bruce G. Pollack) and two Class III Directors
(Leonhard Dreimann and Frank Devine).
We are seeking your vote on the selection of two Class II Directors at this
Annual Meeting. The Class I and III Directors are not up for election this year
and will continue in office for the remainder of their term.
The Board of Directors has nominated Messrs. Doormalen and Pollack to stand
for reelection as the Class II Directors. The term of the Class II Directors
ends upon the election of Class II Directors at the 2002 annual meeting of
stockholders.
We know of no reason why any nominee may be unable to serve as a director.
If any nominee is unable to serve, your proxy may vote for another nominee
proposed by the Board, or the Board may reduce the number of directors to be
elected.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
---- --- ------------------------- --------------
<S> <C> <C> <C>
CLASS II DIRECTORS: (NOMINEES)
Bert Doornmalen...................... 55 Director 1994
Bruce G. Pollack..................... 40 Director 1998
CLASS III DIRECTORS:
Leonhard Dreimann.................... 51 Chief Executive Officer and 1988
Director
Frank Devine......................... 55 Director 1994
CLASS I DIRECTORS:
David C. Sabin....................... 50 Chairman of the Board of 1988
Directors
William B. Rue....................... 52 President, Chief Operating 1998
Officer and Director
Robert A. Begmann.................... 33 Director 1998
</TABLE>
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
CLASS II DIRECTORS
BERT DOORNMALEN has been a Director of the Company since July 1994. Mr.
Doornmalen is the former Managing Director of Markpeak Ltd., a Hong Kong company
which represents the Company in the purchase and inspection of products in the
Far East, since 1981.
BRUCE G. POLLACK has been a Director of the Company since August 1998. Mr.
Pollack has been a Managing Director of Centre Partners Management LLC since
1995. Mr. Pollack is also a Partner of Centre Partners L.P. which he joined in
1991. Mr. Pollack serves as a director of KIK Corporation Holdings Inc.,
Rembrandt Photo Services and a number of other private corporations.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THESE NOMINEES.
DIRECTORS CONTINUING UNTIL 2000 ANNUAL MEETING
CLASS III DIRECTORS
LEONHARD DREIMANN has served as Chief Executive Officer and a director of
the Company since its inception in August 1988 and is a founder of the Company.
From 1988 to July 1998, Mr. Dreimann served as President of the Company. From
1987 to 1988, Mr. Dreimann served as president of the Company's predecessor
Salton, Inc., a wholly-owned subsidiary of SEVKO, Inc. Prior to 1987, Mr.
Dreimann served as managing director of Salton Australia Pty. Ltd., a
distributor of Salton brand kitchen appliances. From 1988
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<PAGE> 7
to December 1993, Mr. Dreimann served as an officer and a director of Glacier
Holdings, Inc., a publicly-held company, and as a director of its wholly-owned
subsidiary Glacier Water Systems, Inc. from 1987 to December 1993. Glacier Water
developed, manufactured and marketed an in-home water filtration system. From
1989 to December 1993, Mr. Dreimann served as an officer and a director of
Salton Time. During 1994, Glacier Holdings and its subsidiaries ceased
operations and were liquidated.
FRANK DEVINE has been a director of the Company since December 1994. Mr.
Devine serves as a business consultant for various entities. He has founded or
co-founded Bachmann-Devine, Incorporated, a venture capital firm, American Home,
Inc., an importer of hand-loomed rugs and decorative accessories, World Wide
Digital Vaulting, Inc., an on-line digital data storage company and Shapiro,
Devine & Craparo, Inc., a household goods manufacturers representation company
serving the retail industry. Mr. Devine also serves on the board of directors of
these companies.
DIRECTORS CONTINUING UNTIL 2001 ANNUAL MEETING
CLASS I DIRECTORS
DAVID C. SABIN has served as Chairman of the Company since September 1991
and has served as Secretary and a director of the Company since its inception in
August 1988 and is a founder of the Company. Mr. Sabin served as the president
and a director of Glacier Holdings from December 1988 through May 1994 and as a
director of Salton Time Inc., a wholly-owned subsidiary of Glacier Holdings,
since 1989. Salton Time was an importer and distributor of quartz wall and alarm
clocks. From 1991 through May 1994, Mr. Sabin was an officer and a director of
Stylemaster, Inc., a wholly-owned subsidiary of Glacier Holdings, which was
engaged in the manufacture and distribution of plastic housewares articles.
Stylemaster, Inc. filed for protection under Chapter 11 of the United States
Bankruptcy Code in March 1994. During 1994, Glacier Holdings and its
subsidiaries ceased operations and were liquidated.
WILLIAM B. RUE has been a director of the Company since August 1998. Mr.
Rue has served as President of the Company since August 1998, as Chief Operating
Officer of the Company since December, 1994 and as Chief Financial Officer and
Treasurer of the Company from September, 1988 to January 1999. From 1985 to
1988, he was Treasurer of SEVKO, Inc. and from 1982 to 1984 he was Vice
President-Finance of Detroit Tool Industries Corporation. Prior to that time,
Mr. Rue had been employed since 1974 by the accounting firm of Touche Ross & Co.
ROBERT A. BERGMANN has been a director of the Company since August 1998.
Mr. Bergmann has been a Managing Director of Centre Partners Management LLC
since 1995. From 1989 to 1991 and from 1993 to 1995, Mr. Bergmann was an
Associate of Centre Partners L.P. Mr. Bergmann serves as a director of Rembrandt
Photo Services and a number of other private corporations.
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company held six meetings during the fiscal
year ended June 26, 1999.
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee held two meetings during fiscal 1999. The Compensation
Committee held two meetings during fiscal 1999. The Committees received their
authority and assignments from the Board of Directors and report to the Board of
Directors. Each director attended at least 75% of the meetings of the Board of
Directors and 75% of the meetings of the Committees on which he served.
The Audit Committee recommends the engagement of the Company's independent
auditors and is primarily responsible for approving the services performed by
the Company's independent auditors. The Committee also reviews and evaluates the
Company's accounting principles and its system of internal accounting controls.
The Committee currently consists of Frank Devine, Bert Doormalen and Bruce
Pollack.
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<PAGE> 8
The Compensation Committee reviews and approves the Company's executive
compensation policy, makes recommendations concerning the Company's employee
benefit policies for executives, and has authority to administer the Company's
stock option plans. The Committee currently consists of Frank Devine and Bert
Doornmalen.
COMPENSATION OF DIRECTORS
We compensate directors who are not employees of the Company with a fee in
the amount of $7,500 per annum and $1,000 per meeting he or she attends (plus
reimbursement for out-of-pocket expenses incurred in connection with attending
such meetings).
EXECUTIVE OFFICERS' COMPENSATION
The following table shows the total compensation received by the Company's
Chief Executive Officer and its other executive officers for each of the fiscal
years ending June 26, 1999, June 27, 1998 and June 28, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- --------------------- -------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ LTPP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR $ $ ($)(1) ($) (#) ($) ($)
------------------ ---- ------- ------- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonhard Dreimann........ 1999 500,000 625,000 48,642 -- 94,768(2) -- --(6)
(Chief Executive 1998 350,000 191,552 55,364 -- 70,721(3) -- 37,500
Officer) 1997 282,000 150,000 54,000 -- -- -- --
David C. Sabin........... 1999 500,000 625,000 20,295 -- 94,768(2) -- --(6)
(Chairman and 1998 350,000 191,552 11,087 -- 70,721(3) -- 37,500
Secretary) 1997 251,000 150,000 17,000 -- -- -- --
William B. Rue........... 1999 370,000 437,500 13,886 -- 94,768(2) -- --(6)
(President and Chief 1998 240,000 142,296 11,453 -- 70,721(5) -- 34,423
Operating Officer) 1997 192,000 50,000 17,000 -- -- -- --
John E. Thompson(4)...... 1999 90,000 -- -- -- 7,500(5) -- --
(Chief Financial
Officer)
</TABLE>
- ---------------
(1) Consists primarily of reimbursement for costs associated with use and
maintenance of an automobile.
(2) Options were awarded on December 18, 1998 under the Company's 1998 Employee
Stock Option Plan at an exercise price equal to the fair market value of the
Common Stock on the date of grant ($13.92).
(3) Options were awarded on May 6, 1998 under the Company's 1995 Employee Stock
Option Plan at an exercise price equal to the fair market value of the
Common Stock on the date of grant ($8.16).
(4) Mr. Thompson joined the Company on January 7, 1999.
(5) Options were awarded on January 7, 1999 under the Company's 1998 Employee
Stock Option Plan at an exercise price equal to the fair market value of the
Common Stock on the date of grant ($15.92).
(6) Represents retroactive adjustment to compensation to December 19, 1997 in
accordance with the executives' employment agreements.
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<PAGE> 9
The following table sets forth certain information concerning options
granted to the named executive officers during the fiscal year ended June 26,
1999.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
--------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ---------- ------------- --------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Leonhard Dreimann............ 94,768(1) 23.3% 13.92 12/18/08 $829,628 $2,102,418
David C. Sabin............... 94,768(1) 23.2 13.92 12/18/08 829,628 2,102,418
William B. Rue............... 94,768(1) 23.2 13.92 12/18/08 829,628 2,102,418
John E. Thompson............. 7,500(2) 1.8 15.92 01/07/09 75,090 190,293
</TABLE>
- ---------------
(1) Options vest 33 1/3% on each anniversary of December 19, 1997.
(2) Options are fully vested.
The following table sets forth certain information with respect to the
unexercised options to purchase the Common Stock held by the named executive
officers at June 26, 1999. None of the named executive officers exercised any
stock options during the fiscal year ended June 26, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT
OPTIONS/SARS AT FY-END (#) FY-END ($)(1)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Leonhard Dreimann...................... 162,825 55,160 $3,594,520 $1,156,267
David C. Sabin......................... 215,324 55,160 5,544,551 1,156,267
William B. Rue......................... 245,324 55,160 6,274,151 1,156,267
John E. Thompson....................... 7,500 -- 123,750 --
</TABLE>
- ---------------
(1) Based on the fair market value of the Common Stock on June 26, 1999 ($32.42
share) less the option exercise price.
EMPLOYMENT AGREEMENTS
David C. Sabin (Chairman of the Board), Leonhard Dreimann (Chief Executive
Officer), and William B. Rue (President, Chief Operating Officer), have each
entered into employment agreements (the "Employment Agreements"), effective as
of December 19, 1997, which provide for their continued employment in their
present capacities with the Company through December 31, 2001.
Messrs. Sabin and Dreimann are entitled to an annual salary at the rate of
$500,000. Mr. Rue is entitled to an annual salary at the rate $425,000,
effective as of January 7, 1999. In addition, each of the executives is entitled
to an annual bonus each calendar year during the term of the Employment
Agreements ranging from 25% of his base salary (if the Company achieves
threshold performance goals) to 100% of his salary (if the Company achieves
target performance goals) to 125% of his salary (if the Company achieves maximum
performance goals).
Under the terms of the Employment Agreements, if the executive is
terminated without cause or resigns with good reason, he is entitled to receive
a lump-sum payment equal to his salary for the remainder of the term, plus the
bonuses he would have received if the Company achieved target performance goals
for the remainder of the term and other benefits which he would have been
entitled to for the remainder of the term.
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<PAGE> 10
The termination of employment by the executive during the 30-day period
immediately following the one-year anniversary of a change of control
constitutes good reason under the executive's Employment Agreement. In addition,
if the executive voluntarily terminates his employment within two years after a
change of control of the Company, he is entitled to receive a lump sum payment
equal to his salary and other benefits for the remainder of the term. The
termination without cause of the executive or resignation for good reason by the
executive constitutes good reason for the other the executives to resign under
the Employment Agreements.
Under the Employment Agreements, the Company granted to each of the
executives on December 18, 1998 options to purchase 94,769 shares of Common
Stock with an exercise price equal to $13.92 per share and has agreed to grant
to each of the executives options to purchase an additional 94,769 shares of
Common Stock with an exercise price equal to the closing price of the Common
Stock on the NYSE on December 17, 1999. Upon a change of control prior to the
granting of such options, each executive may elect to receive in lieu of the
exercise of such options a lump sum payment equal to (1) the difference between
(x) the average of the closing price of the Common Stock on the NYSE for the
five trading days immediately preceding the change of control and (y) $10.17,
multiplied by (2) the number of shares of the Common Stock subject to such
options.
John E. Thompson (Chief Financial Officer) entered into an employment
agreement effective as of November 24, 1999 which provides for his continued
employment in his present capacity with the Company through December 31, 2001.
Mr. Thompson is entitled to an annual salary at the rate of $200,000 and annual
bonuses at the discretion of the Board. If Mr. Thompson is terminated without
cause or resigns with good reason, he is entitled to receive a lump-sum payment
equal to his salary for the remainder of the term and other benefits which he
would have been entitled to for the remainder of the term. The termination of
employment by Mr. Thompson during the 30-day period immediately following the
one-year anniversary of a change of control constitutes good reason. In
addition, if Mr. Thompson voluntarily terminates his employment within two years
after a change of control of the Company, he is entitled to receive a lump sum
payment equal to his salary and other benefits for the remainder of the term.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for administering the
compensation program for the executive officers of the Company.
Set forth below is a discussion of the Company's compensation philosophy,
together with a discussion of the factors considered by the Committee in
determining the compensation of the Company's Chief Executive Officer and other
executive officers for the fiscal year ended June 26, 1999.
OBJECTIVES AND POLICIES. The Company's executive compensation program is
designed to enable the Company to recruit, retain and motivate the high quality
employees it needs. As a result, the Committee has determined that executive
compensation opportunities, including those for Mr. Dreimann, should create
incentives for superior performance and consequences for below target
performance.
The Company's executive compensation mix includes a base salary, annual
cash bonus awards and long-term compensation in the form of stock options.
Through this compensation structure, the Company aims to:
- attract and retain highly qualified and talented executives,
- provide appropriate incentives to motivate those individuals to maximize
stockholder returns by producing sustained superior performance, and
- reward them for outstanding individual contributions to the achievement
of the Company's near-term and long-term business objectives.
The Committee's policy is that a significant portion of the executive's
compensation opportunities must be tied to achievement of annual objectives of
the Company.
BASE SALARY. The base salary for Mr. Dreimann and the other executive
officers are established by employment agreements between the Company and these
executives. The Board of Directors approved the
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<PAGE> 11
Employment Agreements entered into by the executives effective December 19, 1997
after reviewing data derived from compensation surveys and other advisory
services provided by an independent consultant and other publicly available
competitive compensation data. The Committee may in its discretion make salary
increases based on an assessment of each executive's performance against the
underlying accountabilities of each executive's position.
ANNUAL CASH INCENTIVES. Payments of bonuses to executives are tied to the
Company's level of achievement of annual pretax earnings targets, establishing a
direct link between executive pay and Company profitability. Annual pretax
earnings targets are based upon the earnings budget for the Company as reviewed
by the Board of Directors. Annual incentive payments are paid only when earnings
exceed those set forth in the budget. Each of Messrs. Sabin, Dreimann and Rue is
entitled to receive an annual cash bonus for each calendar year during the term
of the Employment Agreement based on achievement of performance goals.
STOCK OPTIONS. The Company's long-term incentives are in the form of stock
option awards. The objective of these awards is to advance the longer term
interests of the Company and its stockholders and complement incentives tied to
annual performance. These awards provide rewards to executives upon the creation
of incremental stockholder value and the attainment of long-term earnings goals.
Stock options only produce value to executives if the price of the Company's
stock appreciates, thereby directly linking the interests of executives with
those of stockholders. The Committee decides on the number and timing of stock
option grants to executive officers based on its assessment of the performance
of each executive. The Committee weighs any factors it considers relevant and
gives such factors the relative weight it considers appropriate under the
prevailing circumstances. The Committee does not take into account the size of
previous option grants and the number of options currently held by an executive
in determining the number of stock options granted. The executive's right to the
stock options generally vest over a period and each option is exercisable, but
only to the extent it has vested, over a ten-year period following its grant.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. Mr. Dreimann's base salary for the
fiscal year ended June 26, 1999 was based on his rights under his Employment
Agreement, as described above. The bonuses, perquisites and other benefits
received by Mr. Dreimann that are reported in the Summary Compensation Table
were provided pursuant to such Employment Agreement. The Committee awarded Mr.
Dreimann the cash bonus for calendar 1998 because the Company's financial
performance significantly exceeded budgeted performance in 1998.
LIMITS TO TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION. The Committee has
reviewed the potential consequences for the Company of Section 162(m) of the
Internal Revenue Code, which imposes a limit on tax deductions for annual
compensation in excess of one million dollars paid to any of the five most
highly compensated executive officers. The Committee is aware that this
provision could apply to the Company in years, such as fiscal 1999, when the
executives are paid bonuses based on the Company's financial performance
significantly exceeding budgeted performance. The Committee will review from
time to time in the future the potential impact of Section 162(m) on the
deductibility of executive compensation. However, the Committee intends to
maintain the flexibility to take actions that we consider to be in the best
interests of the Company and our stockholders and which may be based on
considerations in addition to tax deductibility.
Compensation Committee
Bert Doornmalen
Frank M. Devine
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Bert Doornmalen, a director of the Company, is the former Managing
Director of Markpeak, Ltd., a Hong Kong company. The Company recorded inventory
purchases and paid commissions to Markpeak, Ltd. of approximately $187,925,000,
$15,971,000 and $8,247,000 in fiscal years 1999, 1998 and 1997, respectively.
Markpeak acts as a buying agent on behalf of the Company with certain suppliers
in the Far East.
Mr. Frank M. Devine, a director of the Company, is a co-founder of the firm
Shapiro, Devine and Craparo, Inc. ("SDC"), a manufacturers representation firm.
The firm represents many major manufacturers
9
<PAGE> 12
of household products (including the Company) to the retail industry. The
Company recorded commissions with SDC of approximately $498,000, $290,000 and
$241,000 in fiscal years 1999, 1998 and 1997, respectively. Mr. Devine also
provided consulting services to the Company during fiscal 1999, for which he
received approximately $30,000.
PERFORMANCE GRAPH
The following graph compares the performance of the Company with the
performance of the Standard & Poor's 500 Stock Index (S&P 500) and the average
performance of a group consisting of the Company's peer corporations which are
industry competitors for the period from June 27, 1994 to June 26, 1999. The
corporations making up the peer companies group are Craftmade International
Inc., Helen of Troy Corp., National Presto Industries Inc., Rival Co., Singer
Co. N.V., Sunbeam-Oster Company Inc. and Windmere-Durable Holdings, Inc. The
graph assumes that the value of the investment in the Common Stock and each
index was $100 at June 27, 1994 and that all dividends, if any, were reinvested.
5 YEAR CUMULATIVE TOTAL RETURN SUMMARY
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
SALTON INC S & P 500 PEER GROUP ONLY
---------- --------- ---------------
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1995 105.53 126.07 81.18
1996 211.13 158.85 90.73
1997 361.13 213.97 189.42
1998 652.80 278.50 114.22
1999 2222.19 341.88 84.22
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
STARTING
BASIS
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Salton Inc ($) $100.00 $105.53 $211.13 $361.13 $652.80 $2,222.19
S&P 500 ($) $100.00 $126.07 $158.85 $213.97 $278.50 $ 341.88
Peer Group Only ($) $100.00 $ 81.18 $ 90.73 $189.42 $114.22 $ 84.22
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of November 17, 1999 by (i) each person known
to the Company to beneficially own 5% or more of the Common Stock, (ii) each of
the directors and executive officers of the Company and (iii) all executive
10
<PAGE> 13
officers and directors of the Company as a group. The number of shares of Common
Stock shown as owned by the persons and group named below assumes the exercise
of all currently exercisable options and the conversion of all shares of Series
A Preferred Stock held by such persons and group, and the percentage shown
assumes the exercise of such options and the conversion of such shares and
assumes that no options held by others are exercised.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL HOLDER OWNED(1) OWNED
------------------------- ------------ ------------
<S> <C> <C>
Centre Partners Group(2).................................... 3,899,762 28.1%
Mr. Leonhard Dreimann(3).................................... 965,902 6.9
Mr. William B. Rue(3)....................................... 468,776 3.3
Mr. David C. Sabin(4)....................................... 627,924 4.5
Mr. John E. Thompson(5)..................................... 15,000 *
Mr. Frank Devine(6)......................................... 45,450 *
Mr. Bert Doornmalen(6)...................................... 10,500 *
Mr. Robert A. Bergmann...................................... 0 *
Mr. Bruce G. Pollack(2)..................................... 0 *
All Directors and executive officers as a group (8
persons)(7)............................................... 2,133,552 15.4%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated below, the persons named in the table above have
sole voting and investment power with respect to the number of shares set
forth opposite their names. Beneficially owned shares include shares subject
to options exercisable within 60 days of November 17, 1999.
(2) Consists of an aggregate of 370,349 shares of Common Stock and 40,000 shares
of Series A Preferred Stock: (i) 113,994 shares of Common Stock and 12,312
shares of Series A Preferred Stock owned of record by Centre Capital
Investors II, L.P. ("Investors II"), (ii) 37,089 shares of Common Stock and
4,006 shares of Series A Preferred Stock owned of record by Centre Capital
Tax-Exempt Investors II, L.P. ("Tax-Exempt II"), (iii) 24,802 shares of
Common Stock and 2,679 shares of Series A Preferred Stock owned of record by
Centre Capital Offshore Investors II, L.P. ("Offshore II"), (iv) 1,750
shares of Common Stock and 189 of Series A Preferred Stock shares owned of
record by Centre Parallel Management Partners, L.P. ("Parallel"), (v) 19,602
shares of Common Stock and 2,117 shares of Series A Preferred Stock owned of
record by Centre Partners Coinvestment, L.P. ("Coinvestment") and (vi)
173,112 shares of Common Stock and 18,697 shares of Series A Preferred Stock
owned of record of the State Board of Administration of Florida (the
"Florida Board"). As of November 19, 1999, the 40,000 shares of Series A
Preferred Stock were convertible into 3,529,412 shares of the Common Stock.
Investors II, Tax-Exempt II and Offshore II are limited partnerships, of
which the general partner of each is Centre Partners II, L.P. ("Partners
II"), and of which Centre Partners Management LLC ("Centre Management") is
an attorney-in-fact. Parallel and Coinvestment are also limited
partnerships. In its capacity as manager of certain investments for the
Florida Board pursuant to a management agreement, Centre Management is an
attorney-in-fact of Parallel. Centre Partners II LLC is the ultimate general
partner of each of Investors II, Tax-Exempt II, Offshore II, Parallel and
Coinvestment. Bruce G. Pollack is Managing Director of Centre Management and
Centre Partners II LLC and as such may be deemed to beneficially own and
share the power to vote or dispose of the Common Stock and Series A
Preferred Stock held by Investors II, Tax-Exempt II, Offshore II, Parallel,
Coinvestment and the Florida Board. Mr. Pollack disclaims the beneficial
ownership of such Common Stock and Series A Preferred Stock.
(3) Includes, with respect to Mr. Dreimann, 284,184 shares beneficially owned as
a result of Mr. Dreimann's 40.8% ownership of Dominator Investors Group, a
Hong Kong corporation ("Dominator"), and 217,988 shares of Common Stock
which may be acquired upon the exercise of immediately exercisable options.
Includes, with respect to Mr. Rue, 62,805 shares beneficially owned as a
result of Mr. Rue's 9.0%
11
<PAGE> 14
ownership of Dominator and 300,487 shares of Common Stock which may be
acquired upon the exercise of immediately exercisable options.
(4) Includes 270,488 shares of common stock which may be acquired upon the
exercise of immediately exercisable stock options. Also includes (i) 191,601
shares owned by Duquesne Financial Corporation ("Duquesne"), a corporation
which is owned by Susan Sabin, and (ii) 60,000 shares owned by Susan Sabin.
Susan Sabin is David Sabin's wife. Mr. Sabin disclaims beneficial ownership
of all shares owned by Duquesne and Susan Sabin.
(5) Includes 7,500 shares of Common Stock which may be acquired upon the
exercise of immediately exercisable options.
(6) Includes, with respect to each of Messrs. Doornmalen and Devine, 10,500
shares and 31,500 shares, respectively, of Common Stock which may be
acquired upon the exercise of immediately exercisable options.
(7) Includes an aggregate of 838,463 shares which may be acquired by Directors
and officers of the Company upon the exercise of immediately exercisable
options. See footnotes 3 through 6 above.
The addresses of the persons shown in the table above who are beneficial
owners of more than five percent of the Company's Common Stock are as follows:
Centre Partners Management LLC, 30 Rockefeller Plaza, Suite 5050, New York, New
York 10020; and Messrs. Dreimann, Rue and Sabin, 550 Business Center Drive,
Mount Prospect, Illinois 60056.
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, and persons who own more than 10% of the outstanding Common
Stock, to file reports of ownership and changes in ownership of such securities
with the Securities and Exchange Commission. Officers, directors and
greater-than-10% beneficial owners are required to furnish the Company with
copies of all Section 16(a) forms they file. Based solely upon our review of the
copies of the forms furnished to the Company and other information, we believe
that all of these reporting persons complied with their filing requirement for
fiscal 1999, except that each of Messrs. Dreimann, Sabin and Rue filed a Form 5
to report certain dispositions of shares made during the year.
CERTAIN TRANSACTIONS
On July 28, 1998, the Company issued $40.0 million of Series A Preferred
Stock to affiliates of Centre Partners Management LLC ("Centre Partners") in
connection with a Stock Purchase Agreement dated July 15, 1998 (the "Preferred
Stock Agreement"). The Series A Preferred Stock is generally non-dividend
bearing and is currently convertible into 3,529,412 shares of Common Stock
(reflecting a $11.33 per share conversion price). Centre Partners is a private
investment firm that manages the commitments and assets of Centre Capital
Investors II, L.P. and related entities.
In connection with the issuance of the Series A Preferred Stock, the
Company paid Centre Partners a $500,000 transaction fee. The Preferred Stock
Agreement provides that Centre Partners generally has the right to designate two
directors as long as it and its affiliates own at least 12.5% of the total
voting power of the Company and one director as long as it and its affiliates
own at least 7.5% of the total voting power of the Company. Centre Partners has
designated Robert A. Bergmann and Bruce G. Pollack to serve as directors of the
Company. The affiliates of Centre Partners and the Company also entered into a
Registration Rights Agreement which grants such affiliates certain demand and
piggyback registration rights with respect to their shares of Series A Preferred
Stock and shares of the Common Stock which are issuable upon conversion thereof.
Reference is made to "Compensation Committee Interlocks and Insider
Participation" above for a discussion of the relationships between the Company
and each of Markpeak, Ltd. and Shapiro, Devine and Craparo, Inc.
The Company believes that each of the above transactions were on terms
which were no less favorable to the Company than would have been available in
similar transactions with unaffiliated third parties.
12
<PAGE> 15
PROPOSAL 2: APPROVE AMENDMENT TO THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has voted to recommend to the shareholders that the
Company amend its Restated Certificate of Incorporation to increase the number
of authorized shares of Common Stock from 20,000,000 to 40,000,000 shares (the
"Amendment"). Shares of the Company's Common Stock, including the additional
shares proposed for authorization, do not have preemptive or similar rights.
The Company currently has 20,000,000 authorized shares of Common Stock. Of
those shares, 10,343,249 are currently outstanding and 5,135,944 shares are
reserved for issuance upon exercise of stock options or conversion of the Series
A Preferred Stock. Accordingly, without the Amendment, the Company would have
the authority to issue only 4,520,807 additional shares of Common Stock.
If this Proposal No. 2 is approved, under Delaware law and the Restated
Certificate of Incorporation the Board of Directors will have the authority to
issue approximately 24,520,807 shares of Common Stock of the Company without
further shareholder action or approval. The Board of Directors does not
currently intend to seek shareholder approval for any future issuance of
additional shares of Common Stock, unless shareholder action is required in a
specific case by applicable law, by the rules of any applicable stock exchange,
or by the Restated Certificate of Incorporation or By-Laws of the Company then
in effect. Frequently, opportunities arise that require prompt action and the
Company believes that the delay necessary for shareholder approval of a specific
issuance could be detrimental to the Company and its shareholders.
The Board may choose to use the additional shares proposed for
authorization pursuant to this Proposal No. 3 for acquisitions of other
companies, the declaration of future stock dividends, future financings,
employee benefit plans for other corporate purposes. The Board of Directors
believes that the increase in the number of authorized shares of Common Stock
will give the Company flexibility in meeting possible future needs of the
Company's business and ensure prompt availability of shares for issuance should
the occasion arise.
The additional shares of Common Stock authorized for issuance pursuant to
this Proposal No. 3, if and when issued, will have all of the rights and
privileges which the presently outstanding shares of Common Stock possess under
the Company's Restated Certificate of Incorporation. The increase in authorized
shares would not affect the terms or rights of holders of existing shares of
Common Stock. All outstanding shares of Common Stock would continue to have one
vote per share on all matters to be voted on by the shareholders, including the
election of directors.
The issuance of any additional shares of Common Stock by the Company may,
depending on the circumstances under which those shares are issued, reduce
shareholders' equity per share and may reduce the percentage ownership of Common
Stock of existing shareholders. In addition, although not intended to, the
proposed increase in the authorized but unissued number of shares of Common
Stock could be used to make more difficult a change in control of the Company.
For example, the issuance of shares of Common Stock in a public or private sale,
merger, or similar transaction would increase the number of outstanding shares,
and possibly dilute the interest of a party attempting to obtain control of the
Company. The Company is not aware, however, of any pending or threatened efforts
to obtain control of the Company and the Board of Directors has no current
intention to use the additional shares of Common Stock in order to impede a
takeover attempt.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION.
PROPOSAL 3. INDEPENDENT AUDITORS
We are asking you to ratify the Board selection of Deloitte & Touche LLP as
independent auditors for fiscal 2000.
Deloitte & Touche LLP has audited the Company's financial statements for
each fiscal year since the fiscal year ended July 1, 1989. Representatives of
Deloitte & Touche LLP are expected to be present at the
13
<PAGE> 16
meeting with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANY'S AUDITORS FOR FISCAL 2000.
INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to submit proposals to be included in our 2000 proxy statement,
we must receive them on or before July 16, 2000. Please address your proposals
to: WILLIAM B. RUE, PRESIDENT AND CHIEF OPERATING OFFICER, SALTON, INC., 550
BUSINESS CENTER DRIVE, MOUNT PROSPECT, ILLINOIS 60056.
Under our By-laws, if you wish to nominate directors or bring other
business before the stockholders:
- You must notify the Secretary in writing not less than 60 days nor more
than 90 days before the first anniversary of the preceding year's annual
meeting. If, however, the date of the annual meeting is advanced by more
than 30 days or delayed by more than 60 days from such anniversary date,
you may notify us not earlier than 90 days before such annual meeting and
not later than the later of (1) the 60th day prior to such annual meeting
or (2) 10 days after the first public announcement of the meeting date.
- Your notice must contain the specific information required in our
By-laws.
Please note that these requirements relate only to matters you wish to
bring before your fellow stockholders at an annual meeting. They are separate
from the SEC's requirements to have your proposal included in our proxy
statement.
If you would like a copy of our By-laws, we will send you one without
charge. Please write to the Secretary of the Company.
By Order of the Board of Directors
/s/ David C. Sabin
---------------------------
David C. Sabin
Secretary
December 7, 1999
14
<PAGE> 17
PROXY PROXY
SALTON, INC.
ANNUAL MEETING/JANUARY 13, 2000
SOLICITED BY THE BOARD OF DIRECTORS
Leonhard Dreimann, David C. Sabin and William B. Rue, or any one or more of
them, each with power of substitution, are authorized to vote the shares of the
undersigned at the annual meeting of stockholders of Salton, Inc. to be held
January 13, 2000 and at any adjournment of that meeting. They shall vote on the
matters described in the proxy statement accompanying the notice of meeting in
accordance with the instructions on the reverse side of this card, and in their
discretion on such other matters as may come before the meeting.
IF NO SPECIFIC INSTRUCTIONS ARE PROVIDED, THIS PROXY WILL BE VOTED FOR THE
NOMINEES FOR DIRECTORS AND FOR PROPOSALS 2, 3 AND 4.
PLEASE SIGN ON THE REVERSE SIDE
- --------------------------------------------------------------------------------
SALTON, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
(CONTINUED FROM REVERSE SIDE)
[ ]
IF NO SPECIFIC INSTRUCTIONS ARE PROVIDED, THIS PROXY WILL BE VOTED FOR THE
NOMINEES FOR DIRECTORS AND FOR PROPOSALS 2, 3 AND 4.
<TABLE>
<CAPTION>
<S> <C>
For For All
1. Election of Class II Directors All Withhold Except 2. Approval of the Amendment to For Against Abstain
Nominees: Bert Doornmalen, Bruce G. Pollack [ ] [ ] [ ] the Restated Certificate of [ ] [ ] [ ]
FOR all nominees; Incorporation
Withhold my vote from nominees; or For all nominees
except any whose name I have crossed out 3. Ratification of the selection For Against Abstain
of Deloitte & Touche LLP as [ ] [ ] [ ]
independent accountants
4. In their discretion, on any For Against Abstain
other matter that may properly [ ] [ ] [ ]
come before the meeting
Dated: ,
--------------------------------------- --------
-------------------------------------------------
-------------------------------------------------
(Signature(s))
Please sign exactly as your name appears above and
return this proxy immediately in the enclosed reply
envelope. If signing for a corporation or partnership,
or as agent, attorney or fiduciary, indicate the
capacity in which you are signing.
- ------------------------------------------------------------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED ENVELOPE.
</TABLE>
