Salton Inc. (SFP) NYSE

Salton Inc.
Filed 9/24/99

TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE -
ACT OF 1934

FOR THE FISCAL YEAR ENDED JUNE 26, 1999 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, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 36-3777824
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION
MOUNT PROSPECT, ILLINOIS 60056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (ZIP CODE)

(847) 803-4600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)

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
--- ---

The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of September 21, 1999 was approximately $243,940,736 computed on
the basis of the last reported sale price per share ($26.00) of such stock on
the NYSE. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]

The number of shares of the Registrant's Common Stock outstanding as of
September 21, 1999 was 10,327,389. .

DOCUMENTS INCORPORATED BY REFERENCE:

PART OF FORM 10-K DOCUMENT INCORPORATED BY REFERENCE
----------------- ----------------------------------
Part III (Items 10, 11, 12 and 13) Portions of the Registrant's
Definitive Proxy Statement to be
used in connection with its 1999
Annual Meeting of Stockholders.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K, INCLUDING WITHOUT LIMITATION THE STATEMENTS
UNDER "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" ARE, OR MAY BE, FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). WITHOUT LIMITING THE FOREGOING, (I) THE WORDS
"BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS," "INTENDS," "ESTIMATES" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS AND (II)
FORWARD-LOOKING STATEMENTS INCLUDE ANY STATEMENTS WITH RESPECT TO THE POSSIBLE
FUTURE RESULTS OF THE COMPANY OR TOASTMASTER (AS DEFINED), INCLUDING ANY
PROJECTIONS OR DESCRIPTIONS OF ANTICIPATED REVENUE ENHANCEMENTS OR COST SAVINGS.
SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT
FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY
SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE
FOLLOWING:THE COMPANY'S DEGREE OF LEVERAGE; ECONOMIC CONDITIONS AND THE RETAIL
ENVIRONMENT; THE TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER ACCEPTANCE OF THE
COMPANY'S PRODUCTS; COMPETITIVE PRODUCTS AND PRICING; DEPENDENCE ON FOREIGN
SUPPLIERS AND SUPPLY AND MANUFACTURING CONSTRAINTS; THE COMPANY'S RELATIONSHIP
AND CONTRACTUAL ARRANGEMENTS WITH KEY CUSTOMERS, SUPPLIERS AND LICENSORS;
CANCELLATION OR REDUCTION OF ORDERS; THE INTEGRATION OF TOASTMASTER, INCLUDING
THE FAILURE TO REALIZE ANTICIPATED REVENUE ENHANCEMENTS AND COST SAVINGS; THE
RISKS RELATING TO PENDING LEGAL PROCEEDINGS AND OTHER FACTORS BOTH REFERENCED
AND NOT REFERENCED IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING THOSE SET FORTH
UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED THROUGHOUT
THIS ANNUAL REPORT ON FORM 10-K.
================================================================================

iii

Salton Inc.
(SFP) NYSE
INDEXED 10-K
For the fiscal year ended June 26, 1999
Return to Corporate Window
PART I

Item 1. Business

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Item 6. Selected Financial Data

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Consolidated Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

PART III

Item 10. Directors and Executive Officers of Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Signatures

Financial Index

PART I

ITEM 1. BUSINESS

We changed our name to "Salton, Inc." from "Salton/Maxim Housewares,
Inc." in January 1999. As used in this Annual Report on form 10-K, "we," "our,"
"us", "the Company", and "Salton" refer to Salton and our subsidiaries, unless
the context otherwise requires.

OVERVIEW

We are a leading domestic designer, marketer and distributor of a broad
range of branded, high quality small appliances, tabletop products, and personal
care and time products. We act as a marketing service provider by managing our
brands and product lines in a manner that allows our retail customers to
differentiate themselves to consumers. We believe we have the leading domestic
market share in toasters, juice extractors, indoor grills, bread bakers,
griddles, waffle makers and buffet ranges/hotplates and a significant market
share in other product categories. We believe that our strong market share
results from our well-known brand names, the breadth, quality and innovation of
our product offerings and our strong relationships with retailers and suppliers.
We outsource most of our production to independent manufacturers, primarily in
the Far East.

Our portfolio of well-recognized owned and licensed brand names
includes Salton(R), Toastmaster(R), Maxim(R), Breadman(R), Juiceman(R), George
Foreman Grills(R), White-Westinghouse(R), Farberware(R), Melitta(R), Block(R),
Atlantis(R), SASAKI(R), Rejuvenique(R) and Ingraham(R). We are also a leading
designer and distributor of small appliances in the U.S. under such well-known
names as Kenmore(R) and Magic Chef(R).

We predominantly sell our products to mass merchandisers, department
stores, specialty stores and mail order catalogs. We also sell certain of our
products directly to consumers through infomercials and our Internet website.
Salton's customers include many premier domestic retailers, including Kmart,
Dayton Hudson (including Target), Sears, Wal-Mart, Federated Department Stores,
May Company Department Stores, QVC, Bed Bath & Beyond, Saks Inc. and Costco. We
market and sell our products primarily in the U.S. through our own sales force
and a network of independent commissioned sales representatives.

RECAPITALIZATION

On July 11, 1996, the Company consummated a transaction (the "Windmere
Transaction") with Windmere--Durable Holdings, Inc. ("Windmere"), pursuant to a
Stock Purchase Agreement dated February 27, 1996, as amended (the "Stock
Purchase Agreement"). Windmere is a corporation engaged principally in
manufacturing and distributing a wide variety of personal care products and
household appliances. Pursuant to the Stock Purchase Agreement, Windmere
purchased from the Company 9,762,858 newly issued shares of Common Stock (the
"Purchase"), which represented 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 paid the Company: (i) $3.2 million in
cancellation of a loan, as described below; (ii) a subordinated promissory note
in the aggregate principal amount of $10.8 million (the "Note"), which Note was
payable July 11, 2001, bore interest at 8%, payable quarterly, and was 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 New York Stock Exchange. A portion of
the consideration for the Purchase was paid by the cancellation of the Company's
obligation to repay a loan in the principal amount of $3.2 million which
Windmere had made to the Company in April 1996. Windmere was also granted an
option (the "Option") to purchase up to 727,500 shares of Common Stock at $3.22
per share, which option was exercisable only if and to the extent that options
to purchase shares of Common Stock which were outstanding on February 27, 1996
were exercised. Accordingly, Windmere exercised options to purchase 39,750
shares of Common Stock during 1998.

On July 28, 1998, Salton repurchased (the "Stock Repurchase") 9,802,608
shares of Salton common stock owned by Windmere pursuant to a Stock Agreement
dated as of May 6, 1998 (the "Windmere Stock Agreement") by and among Salton,
Windmere and the executive officers of Salton. Prior to the Stock Repurchase,
Windmere owned approximately 50% of Salton's outstanding common stock. The price
for the Stock Repurchase was $12 per share in cash plus a $15.0 million
subordinated promissory note (the "Junior Subordinated Note"). The Junior
Subordinated Note, which has a term of six and one-half years and bears interest
at 4.0% per annum payable annually, is subject to offsets of 5% of the total
purchase price paid by Salton for product purchases from Windmere and its
affiliates during the term of the note. During fiscal 1999 the Company reduced
this debt and interest by approximately $1.5 million for related purchases of
products from Windmere. The principal amount of the Junior Subordinated Note is
also subject to cancellation in the event Salton's supply agreement with Kmart
is terminated for any reason.

In connection with the Stock Repurchase: (i) Windmere effectively
repaid (the "Note Repayment") the Note; (ii) Salton repurchased for
approximately $3.3 million Windmere's Option (the "Option Repurchase"); and
(iii) Windmere and Salton agreed to continue various commercial and other
arrangements, including a fee agreement relating to Salton's supply agreement
with Kmart, subject to certain modifications. The Stock Repurchase, the Option
Repurchase and the Note Repayment are collectively referred to herein as the
"Repurchase."

Salton entered into a credit agreement dated as of July 27, 1998 (the
"New Credit Agreement") among Salton, Lehman Brothers Inc., as arranger, and
Lehman Commercial Paper Inc., as syndication agent. The New Credit Agreement
provided for $215.0 million in senior secured credit facilities consisting of a
$90.0 million Tranche A Term Loan (the "Tranche A Term Loan"), a $75.0 million
Delayed Draw Term Loan (the "Delayed Draw Term Loan") and a $50.0 million
revolving credit facility (the "Revolving Credit Facility"). As further
explained below, the New Credit Agreement was amended and restated on January 7,
1999.

On July 28, 1998, Salton issued $40.0 million of Series A Voting
Convertible Preferred Stock of the Company (the "Convertible Preferred Stock")
to affiliates of Centre Partners Management LLC ("Centre Partners"). The
Convertible Preferred Stock is generally non-dividend bearing and is convertible
into 3,529,411 shares of Salton common stock (reflecting a $11.33 per share
conversion price).

The Repurchase, borrowings under the New Credit Agreement and the
Convertible Preferred Stock Issuance are collectively referred to herein as the
"Recapitalization."

SUBORDINATED NOTES

On December 16, 1998, the Company issued $125.0 million of 10 3/4%
Senior Subordinated Notes (the "Subordinated Notes") due 2005. Proceeds of the
Subordinated Notes were used to repay outstanding indebtedness and for working
capital and general corporate purposes. The Subordinated Notes contain a number
of significant covenants that, among other things, restrict the ability of the
Company to dispose of assets, incur additional indebtedness, prepay other
indebtedness, pay dividends, repurchase or redeem capital stock, enter into
certain investments, enter into sale and lease-back transactions, make certain
acquisitions, engage in mergers and consolidations, create liens, or engage in
certain transactions with affiliates, and will otherwise restrict corporate and
business activities. In addition, under the Subordinated Notes, the Company is
required to comply with a specified financial fixed charge coverage ratio.

AMENDED CREDIT AGREEMENT

certain acquisitions, engage in mergers and consolidations, create liens, or
engage in certain transactions with affiliates, and will otherwise restrict
corporate and business activities. In addition, under the Amended Credit
Agreement, the Company is required to comply with specified financial ratios and
tests, including a net average debt ratio, a net average senior debt ratio, a
consolidated fixed charge coverage ratio, and a consolidated interest coverage
ratio.

GROWTH STRATEGY

Salton's primary business objective is to increase sales and profits by
acting as a marketing service provider to our customers. Salton believes it can
accomplish this through active brand and product management. The key elements of
Salton's growth strategy include:

Introduce New Products and Product Line Extensions. Salton
plans to manage our existing and new brands through strong product
development initiatives, including introducing new products, modifying
existing products and extending existing product lines. Salton's
product designers strive to develop new products and product line
extensions which offer added value to consumers through enhanced
functionality and improved aesthetics. During fiscal 1999, Salton has
introduced 101 new SKUs in the small appliance category, 709 new SKUs
in the tabletop products category and 98 new SKUs in the personal
care/time products category.

Increase Sales to New and Existing Customers. Salton believes
that retail merchants will continue to consolidate their vendor bases
and focus on a smaller number of suppliers that can (1) provide a broad
array of differentiated, quality products, (2) efficiently and
consistently fulfill logistical requirements and volume demands and (3)
provide comprehensive product and marketing support. Salton believes
that it can increase sales to our existing customers by continuing to
introduce new products and new product categories. While Salton
currently sells to a diversified base of premier retail customers,
Salton believes that it can penetrate additional channels of
distribution. For example, Salton recently expanded our product
offerings to specialty retailing, mail order catalog, home center and
drug store channels.

Pursue Licensing Agreements and Strategic Alliances. Salton
has entered into licensing agreements and strategic alliances to
further differentiate our products and to accelerate our growth. For
example, Salton supplies products to Kmart, Sears and Wal-Mart, which
they sell under the White-Westinghouse(R), Kenmore(R) and Magic Chef(R)
brand names, respectively. In addition, Salton recently obtained
licensing rights to market certain products under the Sasaki(R),
Marilyn Monroe(TM), LooneyTunes(TM) and Melitta(R) brands.

Continue Developing Alternative Distribution Channels. Salton
expects to continue selling our products through infomercials and our
Internet website. These alternative distribution channels increase
Salton's product sales and provide it with direct contact with
consumers, assist it in creating and building brand and product
awareness and stimulate traditional retail channel demand. Salton
currently uses these alternative channels to sell certain of our
products, primarily George Foreman Grills(R), Juiceman(R) and
JuiceLady(R) fresh juice machines and the Rejuvenique(R) facial toning
system.

Enhance Growth and Profitability Through Strategic
Acquisitions. Salton anticipates that the fragmented small household
appliance industry will provide significant growth opportunities
through strategic acquisitions. Salton will focus our acquisition
strategy on businesses or brands which (1) offer expansion into related
or existing categories, (2) can be marketed through our existing
distribution channels or (3) provide a platform for growth into new
distribution channels. In January 1999, Salton acquired Toastmaster,
which has well-recognized brands in the U.S. and had 1998 sales of
approximately $146.1 million. In April 1999, Salton acquired certain
assets of Sasaki, Inc., a recognized designer of high-quality tabletop
products.

Expand International Presence. Salton intends to expand
international sales of certain of our products. For example, in March
1999, Salton entered into a five-year supply agreement with Zellers,
the leading national chain of discount department stores in Canada, to
supply a broad range of small appliances under the White-Westinghouse
brand name.

PRODUCTS

Salton's portfolio of strong brand names enables it to service the
needs of a broad range of retailers and satisfy the different tastes,
preferences and budgets of consumers. Salton's products include full-featured
and upscale models or designs as well as those which are marketed to budget
conscious consumers.

The following table sets forth the approximate amounts and percentages
of Salton's net sales by product category during the periods shown.

FISCAL YEAR ENDED
JUNE 26, 1999 JUNE 27, 1998 JUNE 28, 1997
------------- ------------- -------------
(DOLLARS IN THOUSANDS) NET SALES (2) % OF TOTAL NET SALES % OF TOTAL NET SALES % OF TOTAL
Small appliances $464,272 91.7 $280,607 91.8 $155,972 85.3
Tabletop products (1) 18,969 3.8 18,597 6.1 16,756 9.2
Personal care/time products 22,875 4.5 6,395 2.1 10,078 5.5
-------- ----- -------- ----- -------- -----

$506,116 100.0 $305,599 100.0 $182,806 100.0
======== ===== ======== ===== ======== =====

(1) Salton entered this category of business in fiscal 1997 by acquiring
substantially all of the assets and certain liabilities of Block China
Corporation, a tabletop product company, on July 1, 1996. Salton
augmented the Block(R) product line on June 19, 1997 by acquiring the
assets of Jonal Crystal Ltd. and on April 5, 1999 by acquiring certain
assets of Sasaki, Inc.

(2) Includes the sales of Toastmaster from its acquisition date of January
7, 1999.

Small Appliances. Salton designs and markets an extensive line of small
appliances under the Salton(R), Toastmaster(R), Maxim(R), Breadman(R),
Juiceman(R), George Foreman Grills(R), White-Westinghouse(R), Farberware(R) and
Melitta(R) BRAND names. At the end of fiscal 1999, Salton marketed approximately
918 SKUs under our brand names in this category. Growth within this product
category has historically been driven primarily by the introduction of new or
enhanced products and the development of the George Foreman Grills(R),
White-Westinghouse(R), Farberware(R) and other product lines.

Salton's small appliances product category includes:

o products for health conscious consumers, including thermal
indoor grills, juicers, juice extractors, rice cookers,
vegetable steamers, ice cream makers and yogurt makers;

o thermal products, including bread bakers, sandwich makers,
toasters, waffle makers, countertop ovens and irons;

o coffee and tea related products, including combination
espresso/cappuccino/drip coffee makers, coffee makers, coffee
urns, coffee percolators, iced tea/iced coffee makers and a
broad range of coffee related accessories; and

o food preparation and serving products, including electric
woks, crepe makers, mixers, can openers, blenders, hand-held
blenders, choppers and warming trays.

Tabletop Products. Tabletop products include crystal products offered
under the Block(R), Atlantis(R), Sasaki(R) and Jonal(R) brand names, fine china
and basic dinnerware in various designs and patterns under the Block(R) brand
name and ceramic products under the Block brand name. At the end of fiscal 1999,
Salton marketed approximately 2,927 SKUs under our brand names in

this product category. Salton entered this business category in fiscal 1997 to
add a complementary product line to our small appliances. Salton augmented the
Block(R) product line on June 19, 1997 by acquiring the assets of Jonal Crystal
Ltd. Jonal products include the Crystal Kiss line of glassware and giftware
featuring the famous shape of the Hershey's Chocolate Kiss.

Salton enhanced our tabletop product offerings on April 5, 1999 by
acquiring certain assets of Sasaki, Inc., a leading designer of high-quality
tabletop products and accessories for the home. The Sasaki product lines which
Salton acquired include dinnerware, barware, flatware and crystal giftware
designed by well-known tabletop and domestic designers.

Personal Care and Time Products. At the end of fiscal 1999, Salton
marketed approximately 810 SKUs in the personal care and time products category.
Salton Creations(R) hair dryers feature high quality materials, long life motors
and high air flow systems. Salton markets hair dryers in various sizes, shapes
and colors that are designed to mix form and function to enable consumers to
correctly address power and heat to hair type and styling needs.

Salton designs and markets a variety of other personal and beauty care
appliances under the Salton Creations(R) brand name, including curling irons and
brushes, make-up mirrors, massagers, manicure systems and shower radios. The Wet
Tunes(R) series of shower radios, introduced under the Salton(R) brand name in
1984, features an AM/FM radio with waterproof mylar speakers and wall mount
brackets. Wet Tunes(R) radios are offered in several different shapes, sizes and
colors. Also included in this series are Wet Reflections(R), which has a light
and fog-free mirror, Wet Cassette(R) and Wet Lantern(R). In addition to Salton
Creations(R), Salton began offering these appliances under the
White-Westinghouse(R) brand name in fiscal year 1997.

Salton's personal and beauty care appliances also include the
Rejuvenique(R) system, which Salton began marketing through infomercials in
early 1999. This system includes a facial mask with 26 contact areas that
receive electrical light impulses designed to exercise and tone the skin.

Salton also has a "gifts" program designed for department stores. Under
this program, Salton provides department stores with practical, special occasion
and small gift products. Salton's gifts programs include the mini tool kit,
calcutape, travel smoke alarm, emergency auto flasher, deluxe art kit and the
7-piece gardening kit.

Salton's time products are comprised of electric analog alarm clocks,
electric and quartz wall clocks with plastic, wood and/or metal cases, imported
key-wound clocks and L.E.D. digital clocks. Salton also manufactures household
(electromechanical) timers, which are used for, among other purposes, switching
electric lights and other appliances on and off at pre-determined times.

NEW PRODUCT DEVELOPMENT

Salton believes that the enhancement and extension of our existing
products and the development of new products are necessary for our continued
success and growth. Salton designs the style, features and functionality of our
products to meet customer requirements for quality, performance, product mix and
pricing. Salton works closely with both retailers and suppliers to identify
consumer needs and preferences and to generate new product ideas. Salton's
product design and engineering department evaluates new ideas and seeks to
develop new products and improve existing products to satisfy industry
requirements and changing consumer preferences.

During fiscal 1999, Salton has introduced 101 new SKUs in the small
appliances product category, 709 new SKUs in the tabletop products category and
98 new SKUs in the personal care/time products category. These new products and
product extensions include:

- The Taco Bell(R) product line;

- The Marilyn Monroe(R) personal care product line;

- The George Foreman Fusion Grill(R) and the Big George Rotisserie
Grill;

- Toastmaster(R) ovens with removable liners;

- The Rejuvenique(R) facial toning system;

- The Melitta(R) range of small electric coffee preparation products;

- The Sasaki(R) line of dinnerware, barware, flatware and crystal
giftware; and

- The Advantage 2000, a database Internet module for use in the
kitchen.

During fiscal 1998, Salton introduced 175 new SKUs in the small
appliances product category, 635 new SKUs in the tabletop products category and
65 new SKUs in the personal care/time products category.

MARKETING AND DISTRIBUTION

In addition to directing our marketing efforts toward retailers, Salton
sells certain of our products, primarily George Foreman Grills(R), Juiceman(R)
and JuiceLady(R) fresh juice machines and the Rejuvenique(R) facial toning
system, directly to consumers through infomercials and our Internet website.
Salton provides promotional support for our products with the aid of national
television, radio and print advertising, cooperative advertising with retailers,
and in-store displays and product demonstrations. Salton believes that these
promotional activities are important to strengthening our brand name
recognition.

Salton relies on our management's ability to determine the existence
and extent of available markets for our products. Salton's management has
extensive marketing and sales backgrounds and devotes a significant portion of
our time to marketing-related activities. Salton markets our products primarily
through our own sales force and approximately 290 independent sales
representatives. Salton's representatives are located throughout the United
States and Canada and are paid a commission based upon sales in their respective
territories. Salton's sales representative agreements are generally terminable
by either party upon 30 days' notice.

Salton directs our marketing efforts toward retailers and believes that
obtaining favorable product placement at the retail level is an important factor
in our business, especially when introducing new products. In an effort to
provide our retail customers with the highest level of customer service, Salton
has an advanced electronic data interchange system to receive customer orders
and transmit shipping and invoice information electronically. This system is
also used by management to monitor point-of-sale information at certain
accounts.

Salton also emphasizes the design and packaging of our products in
order to increase their appeal to consumers and to stand out among other brands
on retailers' shelves. Salton believes that distinctive packaging, designed to
answer consumers' questions concerning our products, has resulted in increased
shelf space and greater sales.

Salton's net sales to our five largest customers were approximately 50%
and 47% of our total net sales in fiscal 1999 and 1998 respectively. In 1997,
Salton entered into a seven-year supply agreement with Kmart for Kmart to
purchase, distribute, market and sell a broad range of small appliances under
the White-Westinghouse(R) brand name. Kmart is the exclusive United States
discount department store to market these White-Westinghouse(R) products. The
supply agreement provides Kmart sole distribution rights to the
White-Westinghouse(R) brand name for the mass merchandiser market, but allows
distribution through other retail channels under certain conditions. Sales to
Kmart approximated 16%, and 19% of total net sales of the Company in fiscal
years 1999 and 1998, respectively.

The supply agreement with Kmart provides for minimum purchases by
Kmart, which increase through the term of the supply agreement, and for the
payment of penalties for shortfalls. In the event that aggregate U.S. retail
sales in the consumer electronics industry for any specified category decrease
by more than 10% in any year from that sold in the prior year, Kmart has the
right to reduce the minimum purchase requirements for such category to an amount
not less than 80% of the minimum for such period. Salton pays Windmere a fee
based upon Salton's net sales less specified costs and expenses relating to the
Kmart supply agreement in consideration of Windmere's guarantee of Salton's
obligations under the supply agreement.

SOURCES OF SUPPLY

Most of Salton's products are manufactured to Salton's specifications
by over 45 unaffiliated manufacturers located primarily in Far East locations,
such as Hong Kong, the People's Republic of China and Taiwan, and in Europe.
Many of these suppliers are ISO 9000 certified. Salton believes that it
maintains good business relationships with our overseas manufacturers.

Salton does not maintain long-term purchase contracts with
manufacturers and operates principally on a purchase order basis. Salton
believes that it is not currently dependent on any single manufacturer for any
of our products. However, during fiscal 1999, one manufacturer located in China
accounted for approximately 57.3%, of Salton's product purchases. During fiscal
1998, three manufacturers located in China accounted for approximately 13%, 12%
and 10% respectively, of Salton's product purchases. Salton believes that the
loss of any one manufacturer would not have a long term material adverse effect
on our business because other manufacturers with which it does business would be
able to increase production to fulfill our requirements. However, the loss of a
supplier could, in the short term, adversely effect Salton's business until
alternative supply arrangements were secured.

Salton's purchase orders are generally made in United States dollars in
order to maintain continuity in our pricing structure and to limit exposure to
currency fluctuations. Salton's policy is to maintain an inventory base to
service the seasonal demands of our customers. In certain instances, Salton
places firm commitments for products from six to twelve months in advance of
receipt of firm orders from customers.

Quality assurance is particularly important to Salton and our product
shipments are required to satisfy quality control tests established by our
internal product design and engineering department. Salton employs independent
agents to perform quality control inspections at the manufacturers' factories
during the manufacturing process and prior to acceptance of goods.

MANUFACTURING

Although most of Salton's products are outsourced to overseas vendors,
Salton is currently continuing to manufacture certain Toastmaster(R) toasters,
toaster-oven-broilers and electric heating elements at our plant in Macon,
Missouri and Ingraham(R) time products at our plant in Laurinburg, North
Carolina. Salton also manufactures and assembles woks and warming trays in our
plant located in Kenilworth, New Jersey.

Most of the component parts and raw materials purchased by Salton for
our manufacturing operations, such as finished and aluminized steels, phenolic
resins and molded parts are available from numerous suppliers. Salton does not
believe that it is dependent on any single source for any significant portion of
our component purchases or raw materials, the loss of which may have a material
adverse effect on Salton. Salton has not experienced any significant raw
material or component shortages.

COMPETITION

Salton's industry is mature and highly competitive. Competition is
based upon price, access to retail shelf space, product features and
enhancements, brand names, new product introductions and marketing support and
distribution approaches.

Salton competes with established companies, some of which have
substantially greater facilities, personnel, financial and other resources than
those of Salton. Salton believes that our success is dependent on our ability to
offer a broad range of existing products and to continually introduce new
products and enhancements to existing products which have substantial

consumer appeal based upon price, design, performance and features. Salton also
believes that our brand names are important to our ability to compete
effectively and give it the capability to provide consumers with appealing, well
priced products to meet competition.

EMPLOYEES

At the end of June 26, 1999, Salton employed approximately 1,129
persons, of whom approximately 56 persons, who work at Salton's Kenilworth, New
Jersey facility, were covered by a collective bargaining agreement, which
expires on February 28, 2002. Salton generally considers our relationship with
our employees to be satisfactory and has never experienced a work stoppage.

REGULATION

Salton is subject to federal, state and local regulations concerning
consumer products safety. In general, Salton has not experienced difficulty
complying with such regulations and compliance has not had an adverse effect on
Salton's business. Most of Salton's products are listed by UL.

BACKLOG

Salton's backlog consists of commitments to order and orders for
Salton's products, which are typically subject to change and cancellation until
shipment. Customer order patterns vary from year to year, largely because of
annual differences in consumer acceptance of product lines, product
availability, marketing strategies, inventory levels of retailers and
differences in overall economic conditions. As a result, comparisons of backlog
as of any date in a given year with backlog at the same date in a prior year are
not necessarily indicative of sales for that entire given year. As of June 26,
1999, Salton had a backlog of approximately $303.6 million compared to
approximately $275.0 million as of June 27, 1998. Salton does not believe that
backlog is necessarily indicative of our future results of operations or
prospects.

TRADEMARKS, PATENTS AND LICENSING ARRANGEMENTS

Salton holds a number of patents and trademarks registered in the
United States and foreign countries for various products and processes. Salton
has registered certain of our trademarks with the United States Patent and
Trademark Office. Salton considers these trademarks to be of considerable value
and of material importance to our business.

Salton holds numerous United States and foreign patents, including
design patents. Salton believes that none of our product lines is dependent upon
any single patent or group of patents.

During 1996, Salton entered into license agreements with White
Consolidated Industries, Inc. ("White Consolidated") for use of the
White-Westinghouse(R) trademark for small kitchen appliances, personal care
products, fans, heaters, air cleaners and humidifiers. The license agreements
grant Salton the exclusive right and license to use the White-Westinghouse(R)
trademark in the United States and Canada in exchange for certain license fees,
royalties and minimum royalties. The license agreements also contain minimum
sales requirements which, if not satisfied, may result in the termination of the
agreements. Each of these license agreements is also terminable on or after the
fifth anniversary of such agreement upon one-year's notice or upon a breach by
Salton.

Salton has a joint venture agreement with George Foreman Products,
Inc., a Nevada corporation, and Benjamin H., a California corporation. The joint
venture is engaged solely in the business of acquiring, selling and distributing
a thermal household grill product under the name "George Foreman's Lean Mean Fat
Reducing Grilling Machine." Mr. Foreman is both a former Olympic champion and a
former World Boxing Organization's heavyweight champion of the world.

In the second quarter of fiscal 1997, Salton obtained the exclusive,
worldwide right to distribute Farberware(R) small electric appliances.
Farberware(R) is a time-honored trade name in the cookware and small electric
appliance industry.

Salton has a license agreement with Aesthetics, Inc. The license covers
the manufacturing, marketing and distributing of the Rejuvenique(R) facial
product lines.

In the fourth quarter of fiscal 1999, Salton obtained the exclusive
right to manufacture, market and distribute throughout the United States small
electrical coffee preparation products, including drip coffee makers,
percolators, espresso machines, coffee grinders, and coffee mills, under the
Melitta(R) brand name.

Salton has other licensing arrangements with various other companies to
market products bearing the trademark or likeness of the subject matter of the
license. These licenses include the right to market various products under
Sasaki(R), Timex(TM), Indiglo(TM), Gino's East Pizza(R), Gear(R), Taco Bell(R),
Hershey Kiss(R), Looney Tunes(R), Andy Warhol, Marilyn MONROE(TM), James Dean
and Campbell Soup(R). Salton believes that these other license arrangements help
to demonstrate our creativity and versatility in product design and the
enhancement of existing products.

In general, Salton's joint venture and licensing arrangements place
marketing obligations on Salton in exchange for varying fees and royalties based
upon net sales or profits. Typically, each of these agreements may be terminated
if Salton does not satisfy minimum sales obligations or breaches the agreement.

WARRANTIES

Salton's products are generally sold with a limited one-to-three year
warranty from the date of purchase. A limited number of products are sold with a
lifetime warranty. In the case of defects in material or workmanship, Salton
agrees to replace or repair the defective product without charge.

RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS ANNUAL REPORT ON
FORM 10-K, IN EVALUATING THE COMPANY AND OUR BUSINESS BEFORE PURCHASING OUR
SECURITIES. IN PARTICULAR, PROSPECTIVE INVESTORS SHOULD NOTE THAT THIS ANNUAL
REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT AND THAT
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
STATEMENTS. SEE "DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS." THE FACTORS
LISTED BELOW REPRESENT CERTAIN IMPORTANT FACTORS THE COMPANY BELIEVES COULD
CAUSE SUCH RESULTS TO DIFFER. THESE FACTORS ARE NOT INTENDED TO REPRESENT A
COMPLETE LIST OF THE GENERAL OR SPECIFIC RISKS THAT MAY AFFECT THE COMPANY. IT
SHOULD BE RECOGNIZED THAT OTHER RISKS MAY BE SIGNIFICANT, PRESENTLY OR IN THE
FUTURE, AND THE RISKS SET FORTH BELOW MAY AFFECT THE COMPANY TO A GREATER EXTENT
THAN INDICATED. BUSINESS AND OTHER RISKS DESCRIBED HEREIN AS APPLICABLE TO
SALTON ARE GENERALLY ALSO APPLICABLE TO TOASTMASTER.

IF WE ARE UNABLE TO INTEGRATE TOASTMASTER EFFECTIVELY, OUR BUSINESS COULD BE
ADVERSELY AFFECTED.

We cannot assure you that we will successfully integrate Toastmaster
with our business operations. We must integrate the administrative, finance,
purchasing, product development and sales and marketing activities of Salton and
Toastmaster in order to realize the full benefits from our acquisition of
Toastmaster. The integration also requires the implementation of appropriate
operational, financial and management systems and controls. We may encounter
difficulties in expanding our financial controls and reporting systems to meet
our future needs. If we fail to successfully integrate the operations of Salton
and Toastmaster, or if anticipated revenue enhancements and cost savings are not
realized, our business, results of operations and financial condition would be
materially adversely affected.

WE DEPEND ON OUR MAJOR CUSTOMERS.

Our success depends on our sales to our significant customers. Our
total net sales to our five largest customers during the fiscal 1999 were
approximately 50% of net sales, with Kmart representing approximately 16% of our
net sales and Dayton Hudson (including Target and Mervyn's) representing
approximately 10% of our net sales. Our total net sales to our five largest
customers during fiscal 1998 were approximately 47% of net sales, with our
largest customer, Kmart, representing approximately 19% of our net sales. Except
for our supply agreements with Kmart and Zellers, we do not have long-term
agreements with our major customers, and purchases are generally made through
the use of individual purchase orders. A significant reduction in purchases by
any of these major customers or a general economic downturn in retail sales
could have a material adverse effect on our business, financial condition and
results of operations.

THE TERMINATION OF OUR SUPPLY AGREEMENT WITH KMART COULD ADVERSELY AFFECT OUR
BUSINESS.

In January 1997, we entered into a seven-year supply agreement with
Kmart. Under this agreement, Kmart is the exclusive discount department store in
the United States to market and sell a broad range of small appliances under the
White-Westinghouse(R) brand name.

The initial term of our agreement with Kmart expires on June 30, 2004.
However, Kmart may terminate the agreement without cause after June 30, 2002, or
if the supply agreement between Kmart and Windmere relating to consumer
electronic products sold under the White-Westinghouse(R) name is terminated.
Kmart may also terminate our agreement on the basis of any claim which Kmart
reasonably believes impairs or would impair Kmart's ability to receive the
benefits of its supply agreement with Windmere or us. The trademark litigation
described in the next risk factor existed prior to the execution of our supply
agreement with Kmart. However, if Kmart were to view such litigation as a claim
which it reasonably believes would impair its ability to receive the benefits of
its agreement with Windmere or us, it could terminate our supply agreement.

Sales to Kmart approximated 16%, 19% and 16% of total net sales of the
Company in fiscal years 1999, 1998 and 1997, respectively. The termination or
any significant modification of our supply agreement with Kmart could have a
material adverse effect on our business, financial condition and results of
operations.

AN ADVERSE DECISION IN LITIGATION AND ARBITRATION PROCEEDINGS COULD ADVERSELY
AFFECT OUR BUSINESS.

We are a party to several litigation and arbitration proceedings
described below. An adverse decision in either of these proceedings could have a
material adverse effect on our business, financial condition and results of
operations.

In November 1996, White Consolidated filed suit for injunctive relief
and damages against Westinghouse Electric Corporation (now known as CBS
Corporation) in the United States District Court for the Northern District of
Ohio alleging that CBS's grant of licenses to the Westinghouse(TM) name for use
on lighting products, fans and electrical accessories for use in the home
violates White Consolidated's rights to the Westinghouse(TM) name and
constitutes a breach of the agreements under which CBS's predecessor sold White
Consolidated its appliance business and licensed certain trademark rights in
1975. In response to that suit, CBS filed a related action in December 1996 in
the United States District Court for the Western District of Pennsylvania,
naming White Consolidated, Windmere, Salton and certain other parties as
defendants. The two actions were consolidated in the Pennsylvania court. CBS
sought an injunction prohibiting us, Windmere and White Consolidated from using
the White-Westinghouse(R) name on products not specifically enumerated in the
sale documents between CBS's predecessor and White Consolidated, and unspecified
damages and attorneys' fees.

On September 22, 1999, CBS and White Consolidated finalized a
settlement agreement relating to the ownership of the White-Westinghouse(R) name
for certain consumer products. Under the settlement, we retain our existing
rights under our license from White Consolidated for the use of the
White-Westinghouse(R) name.

In September, 1999, Linda Evans Fitness Centers, Inc. (the "Fitness
Centers"), Mark Golub and Thomas Gergley filed suit against the Company and its
principal executive officers alleging that the Company tortiously interfered
with a contract between the Fitness Centers and Ms. Evans by hiring Ms. Evans
to act as a spokesperson for the Rejuvenique(TM) facial toning system. Before
Ms. Evans was hired by the Company, Ms. Evans had brought suit against the
Fitness Centers seeking a determination that her contract with the Fitness
Centers had been terminated on the basis of fraud and the failure of the
Fitness Centers to make certain payments. The Company believes that it has valid
defenses against the claims made against it by the Fitness Centers. Ms. Evans
has agreed to indemnify the Company against matters relating to her services to
the Company.

On April 20, 1999, an individual filed a notice of arbitration
asserting a breach of contract claim against Salton due to Salton's alleged
failure to pay royalties to this individual for the sale of certain juice
extractors and related health products. This individual also asserts various
other causes of action for an accounting, breach of covenant of good faith and
fair dealing, forgery, trademark infringement, unfair competition, permanent
injunction, fraud, negligent misrepresentation, age discrimination, Lanham Act
violations, breach of fiduciary duty and rescission of contract, and is seeking
compensatory and punitive damages of $15 million. An initial arbitration hearing
solely with respect to the forgery claim has been scheduled for October 21,
1999.

Salton believes that these claims are without merit, and Salton intends
to vigorously defend itself in the arbitration proceeding.

A SIGNIFICANT DECLINE IN SALES OF OUR GEORGE FOREMAN GRILLS, JUICEMAN OR
BREADMAN PRODUCT LINES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

Our George Foreman Grills(R), Juiceman(R) and Breadman(R) product
lines, which include approximately 172 SKUs in the aggregate, have been
important to Salton's growth to date. Our total net sales of these product lines
were approximately 55.4% of our total net sales for fiscal 1999 and
approximately 62% of our total net sales in fiscal 1998. As a result, a
significant decline in the sales of any of these product lines would have a
material adverse effect on our business, results of operations and financial
condition.

WE DEPEND ON THE DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS.

We believe that our future success will depend in part upon our ability
to continue to introduce innovative designs in our existing products and to
develop, manufacture and market new products. We may not successfully introduce,
market and manufacture any new products or product innovations or develop and
introduce in a timely manner innovations to our existing products which satisfy
customer needs or achieve market acceptance. If we fail to develop products and
introduce them successfully and in a timely manner, our business, financial
condition and results of operations could be materially adversely affected.

OUR DEPENDENCE ON FOREIGN SUPPLIERS COULD ADVERSELY AFFECT OUR BUSINESS.

We depend upon unaffiliated foreign companies for the manufacture of
most of our products. During fiscal 1999, one supplier located in China
accounted for approximately 57.3% of our product purchases. During fiscal 1998,
three manufacturers located in China accounted for approximately 13%, 12% and
10%, respectively, of our product purchases. We believe that the loss of any one
or more of our suppliers would not have a long-term material adverse effect on
our business, financial condition and results of operations, because other
manufacturers with whom we do business would be able to increase production to
fulfill our requirements. However, the loss of certain of our suppliers could,
in the short term, adversely affect our business until alternative supply
arrangements were secured.

Our arrangements with our manufacturers are subject to the risks of
doing business abroad, including:

o import duties;
o trade restrictions;
o production delays due to unavailability of parts or
components;
o increase in transportation costs and transportation delays;
o work stoppages;
o foreign currency fluctuations; and
o political instability.

These risks could adversely affect our business, financial condition and results
of operations.

China currently enjoys most-favored-nation ("MFN") trading status
granted by the United States, pursuant to which the United States imposes the
lowest applicable tariffs on Chinese exports to the United States. The United
States annually reconsiders the renewal of MFN trading status for China. We
cannot assure you that China's MFN trading status will be renewed in the future.
If MFN status for goods produced in China were removed, there would be a
substantial increase in tariffs imposed on goods of Chinese origin entering the
United States, including those manufactured for us, which could have a material
adverse impact on our business, financial condition and results of operations.

COMPETITION COULD ADVERSELY IMPACT OUR PERFORMANCE.

The markets for our products are highly competitive. We believe that
competition is based upon several factors, including:

o price;
o access to retail shelf space;
o product features and enhancements;
o brand names;
o new product introductions; and
o marketing support and distribution approaches.

We compete with established companies, a number of which have
substantially greater facilities, personnel, financial and other resources than
we have. Significant new competitors or increased competition from existing
competitors may adversely affect our business, financial condition and results
of operations.

OUR PERFORMANCE CAN FLUCTUATE WITH THE FINANCIAL CONDITION OF THE RETAIL
INDUSTRY.

We sell our products to consumers through major retail channels,
primarily mass merchandisers, department stores, specialty stores and mail order
catalogs. As a result, our business and financial results can fluctuate with the
financial condition of our retail customers and the retail industry. Certain of
our retail customers, such as Service Merchandise and Caldor, have filed for
bankruptcy protection in recent years. We continually monitor and evaluate the
credit status of our customers and attempt to adjust sales terms as appropriate.
Despite these efforts, a bankruptcy filing by, or other adverse change in the
financial condition of, a significant customer could have a material adverse
effect on our business, financial condition and results of operations.

POTENTIAL FUTURE ACQUISITIONS AND ACQUISITION FINANCING COULD ADVERSELY AFFECT
OUR BUSINESS AND FINANCIAL CONDITION.

We continue to seek opportunities to acquire businesses and product
lines that fit within our acquisition strategy. We may not successfully identify
acceptable acquisition candidates or integrate any acquired operations. Any
future acquisitions may materially and adversely affect our business, financial
condition and results of operations. Opportunities for growth through
acquisitions, future operating results and the success of acquisitions may be
subject to the effects of, and changes in, United States and foreign trade and
monetary policies, laws and regulations, political and economic developments,
inflation rates, and the effect of taxes and operating conditions.

Our acquisitions of additional businesses and product lines may require
additional capital and the consent of our lenders and may have a significant
impact on our financial position and results of operations. We may finance
acquisitions with internally generated funds, bank borrowings, public offerings
or private placements of debt or equity securities, or through a combination of
these sources. This may have the effect of increasing our debt and reducing our
cash available for other purposes.

Acquisitions may also require substantial attention from, and place
substantial additional demands upon, our senior management. This may divert
their attention away from our existing businesses, making it more difficult to
manage effectively. In addition, unanticipated events or liabilities relating to
these acquisitions or the failure to retain key personnel could have a material
adverse effect on our business, results of operations and financial condition.

OUR INDEBTEDNESS MAY RESTRICT OUR ABILITY TO PURSUE OUR GROWTH STRATEGY.

We may incur additional indebtedness in the future, including through
additional borrowings under our credit agreement, subject to the satisfaction of
certain financial tests.

The degree to which we are leveraged could:

o make it more difficult for us to satisfy our obligations;
o make us more vulnerable to general adverse economic and
industry conditions;
o limit our ability to obtain additional financing to fund
future working capital, capital expenditures or other general
corporate requirements;
o require us to dedicate a substantial portion of our cash flow
from operations to the payment of principal of, and interest
on, our indebtedness, thereby reducing the availability of
such cash flow to fund working capital, capital expenditures
or other general corporate purposes;
o limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we compete; and
o place us at a competitive disadvantage with less leveraged
competitors.

The terms of our credit agreement and senior subordinated notes impose
significant restrictions on our ability to, among other things, borrow and make
investments, acquire other businesses, make capital expenditures and pay
dividends. In addition, our credit agreement requires us to satisfy specified
financial covenants. Our ability to comply with these provisions depends, in
part, on factors over which we may have no control. These restrictions could
adversely affect our ability to pursue our growth strategy. If we breach any of
our financial covenants or fail to make scheduled payments, our creditors could
declare all amounts owed to them to be immediately due and payable. We may not
have available funds sufficient to repay the amounts declared due and payable,
and we may have to sell assets to repay those amounts. Our credit agreement is
secured by substantially all of our assets. If we cannot repay all amounts that
we have borrowed under our credit agreement, our lenders could proceed against
our assets.

OUR MANUFACTURING FACILITIES EXPOSE US TO THE RISKS OF POTENTIAL RAW MATERIAL
SHORTAGES AND ENVIRONMENTAL LIABILITIES.

We manufacture our Toastmaster(R) toasters, countertop ovens and
electric heating elements at our owned plant in Macon, Missouri. We also
manufacture Ingraham(R) time products at our owned plant in Laurinburg, North
Carolina. Although we have begun to outsource certain of our Toastmaster(R)
products with overseas vendors, we are currently continuing to manufacture
certain products at these plants. We may not be able to manufacture products
successfully and in a cost effective manner. Our manufacture of these products
exposes us to additional risks, including those relating to the price and
availability of raw materials and potential liabilities for environmental damage
that our manufacturing facilities may have caused or may cause nearby land
owners. During the ordinary course of its operations, Toastmaster has received,
and we expect that we may in the future receive, citations or notices from
governmental authorities asserting that the manufacturing facilities are not in
compliance with, or require investigation or remediation under, applicable
environmental statutes and regulations. Toastmaster has generally worked with,
and we expect to generally work with, the authorities to resolve the issues
raised by the citations or notices. However, we may not always be successful in
this regard and such citations or notices could have a material adverse effect
on our business, results of operations and financial condition.

LOSS OF KEY PERSONNEL COULD IMPAIR OUR SUCCESS.

Our continued success will depend significantly on the efforts and
abilities of our executive officers: David C. Sabin, Chairman; Leonhard
Dreimann, Chief Executive Officer; and William B. Rue, President and Chief
Operating Officer. Although we have entered into employment agreements with
these executive officers, they may not remain in our employment. The loss of the
services of one or more of these individuals could have a material adverse
effect on our business. In addition, as our business

develops and expands, we believe that our future success will depend greatly on
our ability to attract and retain highly qualified and skilled personnel. We do
not have, and do not intend to obtain, key-man life insurance on our executive
officers.

OWNERSHIP BY A SIGNIFICANT STOCKHOLDER MAY ADVERSELY AFFECT THE MARKET FOR OUR
COMMON STOCK.

Centre Partners and entities directly or indirectly controlled by
Centre Partners beneficially own in the aggregate 28.4% of our common stock.
Centre Partners is able to exercise significant influence with respect to the
election of directors or major corporate transactions such as a merger or sale
of all or substantially all of our assets. 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 Salton and one director as long as it and its
affiliates own at least 7.5% of the total voting power of Salton. The interests
of Centre Partners may conflict with the interests of other stockholders.

THE SEASONAL NATURE OF OUR BUSINESS COULD ADVERSELY IMPACT OUR OPERATIONS.

Our business is highly seasonal, with operating results varying from
quarter to quarter. We have historically experienced higher sales during the
months of August through November primarily due to increased demand by customers
for our products attributable to holiday sales. This seasonality has also
resulted in additional interest expense for us during this period due to an
increased need to borrow funds to maintain sufficient working capital to finance
product purchases and customer receivables for the seasonal period. Lower sales
than expected by us during this period, a lack of availability of product, a
general economic downturn in retail sales or the inability to service additional
interest expense due to increased borrowings could have a material adverse
effect on our business, financial condition and results of operations.

PRODUCT RECALLS OR LAWSUITS RELATING TO DEFECTIVE PRODUCTS COULD ADVERSELY
IMPACT OUR FINANCIAL RESULTS.

We face exposure to product recalls and product liability claims in the
event that our products are alleged to have manufacturing or safety defects or
to have resulted in injury or other adverse effects. Although we maintain
product liability insurance in amounts that we believe are reasonable, we cannot
assure you that we will be able to maintain our product liability insurance on
acceptable terms, if at all, in the future or that product liability claims will
not exceed the amount of our insurance coverage. We do not maintain product
recall insurance. As a result, we cannot assure you that product recalls and
product liability claims will not have a material adverse effect on our
business, financial condition and results of operations.

THE INFRINGEMENT OR LOSS OF OUR PROPRIETARY RIGHTS COULD HAVE AN ADVERSE EFFECT
ON OUR BUSINESS.

We regard our copyrights, trademarks, service marks and similar
intellectual property as important to our success. We rely on copyright and
trademark laws in the United States and other jurisdictions to protect our
proprietary rights. We seek to register our trademarks in the United States and
elsewhere. These registrations could be challenged by others or invalidated
through administrative process or litigation. If any of these rights were
infringed or invalidated, our business could be materially adversely affected.
In addition, our business activities could infringe upon the proprietary rights
of others, who could assert infringement claims against us.

We license various trademarks and tradenames from third parties for use
on our products. These licenses generally place marketing obligations on us in
exchange for various fees and royalties based on net sales or profits.
Typically, each license may be terminated if we fail to satisfy minimum sales
obligations or if we breach the license. The termination of these licensing
arrangements could adversely affect our business, financial condition and
results of operations.

GOVERNMENT REGULATIONS COULD ADVERSELY IMPACT OUR OPERATIONS.

Most federal, state and local authorities require Underwriters
Laboratory, Inc. ("UL"), an independent, not-for-profit corporation engaged in
the testing of products for compliance with certain public safety standards, or
other safety regulation certification prior to marketing electrical appliances.
Our products, or additional electrical appliances which may be developed by us,
may not meet the specifications required by these authorities. A determination
that we are not in compliance with such

rules and regulations could result in the imposition of fines or an award of
damages to private litigants. These and other initiatives could have a material
adverse effect on our business, financial condition and results of operations.

YEAR 2000 ISSUES MAY DISRUPT OUR OPERATION.

We believe that all of our systems are Year 2000 compliant. However, if
any of our systems are not compliant or if our customers or suppliers fail to
achieve Year 2000 compliance, we may experience the following adverse
consequences:

o We may be unable to receive our products due to failures by
our suppliers;
o Our customers may be unable to place orders with us due either
to our system failures or those of our customers;
o We may be unable to deliver our products on a timely basis;
and
o Our customers may be unable to receive and/or pay for our
products on a timely basis.

For a description of our Year 2000 compliance efforts you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issues."

TAKEOVER DEFENSE PROVISIONS MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
STOCK.

Various provisions of Delaware corporation law and of our corporate
governance documents may inhibit changes in control not approved by our board of
directors and may have the effect of depriving stockholders of an opportunity to
receive a premium over the prevailing market price of our common stock in the
event of an attempted hostile takeover or may deter takeover attempts by third
parties. In addition, the existence of these provisions may adversely affect the
market price of our common stock. These provisions include:

o a classified board of directors;
o a prohibition on stockholder action through written consents;
o a requirement that special meetings of stockholders be called
only by the board of directors; o availability of "blank
check" preferred stock.

WE DO NOT ANTICIPATE PAYING DIVIDENDS.

We have not paid dividends on our common stock and we do not anticipate
paying dividends in the foreseeable future. We intend to retain future earnings,
if any, to finance the expansion of our operations and for general corporate
purposes, including future acquisitions. In addition, our credit agreement and
senior subordinated notes prohibit us from paying dividends on our capital
stock.

OUR FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A VARIETY OF FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM CURRENT BELIEFS.

This document includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including without limitation the statements under
"Business Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." The words
"believes," "anticipates," "plans," "expects," "intends," "estimates" and
similar expressions are intended to identify forward-looking statements. These
forward looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following:

o the integration of Toastmaster, including the failure to
realize anticipated revenue enhancements and cost savings;

o our relationship and contractual arrangements with key
customers, suppliers and licensors;
o the risks relating to pending legal proceedings;
o cancellation or reduction of orders;
o the timely development, introduction and customer acceptance
of our products;
o dependence on foreign suppliers and supply and manufacturing
constraints;
o competitive products and pricing;
o economic conditions and the retail environment;
o the availability and success of future acquisitions;
o our degree of leverage;
o the risks related to intellectual property rights;
o year 2000 issues; and
o other factors both referenced and not referenced in this
prospectus.

ITEM 2. PROPERTIES

A summary of Salton's leased properties is as follows:

LOCATION DESCRIPTION AREA (SQ. FT.) LEASE EXPIRATION
-------- ----------- -------------- ----------------
Mt. Prospect, IL Executive office, warehouse
and repair facility 34,600 June 30, 2001
Rancho Dominguez, CA Warehouse and distribution
facility and retail outlet 340,672 October 31, 2002
Harrison, NJ Warehouse and distribution
facility and retail outlet 146,555 May 31, 2002
Kenilworth, NJ Manufacturing and warehouse/
distribution facilities 97,800 March 31, 2000
Boonville, MO Warehouse 27,000 Month to month
New York, NY Sales office 12,000 December 31,2001
New York, NY Sales office 11,500 December 31, 2001
Gurnee, IL Retail outlet 6,141 January 31, 2000
Westend, NJ Retail outlet 2,400 May 31, 2004
Troy, MI Sales office 1,435 May 31, 2004
Chicago, IL Retail store 560 October 31, 2007

Salton owns all of the facilities listed below, which it acquired in
connection with the acquisition of Toastmaster in January 1999. These facilities
have been pledged as collateral to secure payment of Salton's debt obligations.
The following table sets forth the location and approximate square footage of
each of Salton's significant owned facilities.

LOCATION USE SQUARE FEET
-------- --- ------------
Boonville, Missouri........................... Warehouse and service center 169,000
Macon, Missouri............................... Manufacturing facility 171,000
Laurinburg, NC................................ Manufacturing and warehouse facility 223,000
Columbia, Missouri............................ Warehouse 107,000
Columbia, Missouri............................ Warehouse 65,000
Moberly, Missouri............................. Warehouse 134,000
Columbia, Missouri............................ Administrative offices 62,000
Boonville, Missouri........................... Idle facility 58,000
Kirksville, Missouri.......................... Warehouse 114,000

Salton believes that its facilities generally are suitable and adequate
for its current level of operations and provide sufficient productive capacity
for its foreseeable needs without the need for material capital expenditures.

ITEM 3. LEGAL PROCEEDINGS

Trademark Litigation

parties as defendants. The two actions were consolidated in the Pennsylvania
court. CBS sought an injunction prohibiting Salton, Windmere and White
Consolidated from using the White-Westinghouse(R) name on products not
specifically enumerated in the sale documents between CBS's predecessor and
White Consolidated, and unspecified damages and attorneys' fees.

On September 22, 1999, CBS and White Consolidated finalized a
settlement agreement relating to the ownership of the White-Westinghouse(R) name
for certain consumer products. Under the settlement, we retain our existing
rights under its license from White Consolidated for the use of the
White-Westinghouse(R) name.

Environmental

Salton is participating in environmental remediation activities at four
sites which it owns or operates. As of June 26, 1999, Salton has accrued
approximately $300,000 for the anticipated costs of investigation, remediation
and/or operation and maintenance costs at these sites. Although such costs could
exceed that amount, Salton believes that any such excess will not have a
material adverse effect on the financial condition or annual results of
operations of Salton.

Arbitration

punitive damages of $15 million. An initial arbitration hearing solely with
respect to the forgery claim has been scheduled for October 21, 1999.

Salton believes that these claims are without merit, and Salton intends
to vigorously defend itself in the arbitration proceeding.

Other

Salton is a party to various other actions and proceedings incident to
its normal business operations. Salton believes that the outcome of such
litigation will not have a material adverse effect on the financial condition or
annual results of operations of Salton. Salton also has product liability and
general liability insurance policies in amounts it believes to be reasonable
given its current level of business.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Not applicable

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The registrant's common stock has traded on the New York Stock Exchange
under the symbol "SFP" since February 26, 1999. From October 1991 until February
25, 1999, our common stock traded on the Nasdaq National Market under the symbol
"SALT". The following table sets forth, for the periods indicated, the high and
low sales prices for the common stock as reported on the Nasdaq National Market
prior to February 26, 1999 and on the New York Stock Exchange after such date,
in each case adjusted for the three-for-two stock split effected on July 28,
1999.

HIGH LOW
---- ---
FISCAL 1997

First Quarter......................... $ 5.75 $ 3.00
Second Quarter........................ $ 5.83 $ 4.17
Third Quarter......................... $ 6.00 $ 3.75
Fourth Quarter........................ $ 5.50 $ 4.25

FISCAL 1998
First Quarter......................... $ 6.67 $ 4.33
Second Quarter........................ $ 7.33 $ 4.83
Third Quarter......................... $ 7.50 $ 5.33
Fourth Quarter........................ $ 9.25 $ 6.58

FISCAL 1999
First Quarter......................... $ 11.17 $ 7.67
Second Quarter........................ $ 15.50 $ 5.92
Third Quarter......................... $ 22.83 $ 14.00
Fourth Quarter........................ $ 33.58 $ 14.67

We have not paid dividends on our common stock and we do not anticipate
paying dividends in the foreseeable future. We intend to retain future earnings,
if any, to finance the expansion of our operations and for general corporate
purposes, including future acquisitions. We are also prohibited from declaring
or paying cash dividends on our capital stock under our terms of our credit
agreement and senior subordinated notes.

As of September 18, 1999, there were approximately 370 holders of
record of the common stock of the Company. The Company has paid no dividends on
the Common stock and it is the Company's present intention to retain earnings to
finance the expansion of its business. The Company's New Credit Agreement
further restricts its ability to pay dividends.

PREFERRED STOCK

In connection with the Recapitalization, the Company issued 40,000
shares of the convertible preferred stock. The convertible preferred stock is
generally non-dividend bearing; however, if the Company breaches in any material
respect any of its material obligations in the preferred stock agreement or the
certificate of incorporation relating to the convertible preferred stock, the
holders of convertible preferred stock are entitled to receive quarterly cash
dividends on each share of convertible preferred stock from the date of such
breach until it is cured at a rate per annum equal to 12 1/2% of the Liquidation
Preference (as defined below). The payment of dividends is limited by the terms
of our credit agreement.

Each holder of the convertible preferred stock is generally entitled to
one vote for each share of Salton common stock which such holder could receive
upon the conversion of the convertible preferred stock. Each share of
convertible preferred stock is convertible at any time into that number of
shares of Salton common stock obtained by dividing $1,000 by the Conversion
Price in effect at the time of conversion. The "Conversion Price" is equal to
$11.33, subject to certain anti-dilution adjustments.

In the event of a Change of Control (as defined), each holder of shares
of convertible preferred stock has the right to require the Company to redeem
such shares at a redemption price equal to the Liquidation Preference plus an
amount equivalent to interest accrued thereon at a rate of 7% per annum
compounded annually on each anniversary date of July 28, 1998 for the period
from July 28, 1998 through the earlier of the date of such redemption or July
28, 2003.

In the event of a liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, holders of the Convertible Preferred
Stock are entitled to be paid out of the assets of the Company available for
distribution to its stockholders an amount in cash equal to $1,000 per share,
plus the amount of any accrued and unpaid dividends thereon (the "Liquidation
Preference"), before any distribution is made to the holders of any Salton
common stock or any other of Salton's capital stock ranking junior as to
liquidation rights to the convertible preferred stock.

The Company may optionally convert in whole or in part, the convertible
preferred stock at any time on and after July 15, 2003 at a cash price per share
of 100% of the then effective Liquidation Preference per share, if the daily
closing price per share of Salton's common stock for a specified 20 consecutive
trading day period is greater than or equal to 200% of the then current
Conversion Price. On September 15, 2008, the Company will be required to
exchange all outstanding shares of convertible preferred stock at a price equal
to the Liquidation Performance per share, payable at the Company's option in
cash or shares of Salton common stock.

As of September 21, 1998, there were 40,000 shares of the convertible
preferred stock outstanding held by 7 shareholders of record. There is no
established market for the convertible preferred stock.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below for Salton, Inc. is derived
from the Company's audited financial statements. The following selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
financial statements and related notes thereto.

STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA.)

JUNE 26, JUNE 27, JUNE 28, JUNE 29, JULY 1,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Net sales $ 506,116 $ 305,599 $ 182,806 $ 99,202 76,991
Cost of sales 285,526 179,376 121,590 66,923 55,552
Distribution expenses 21,621 12,327 7,809 5,856 4,569
----------- ----------- ----------- ----------- -----------
Gross profit 198,969 113,896 53,407 26,423 16,870
Selling, general, and administrative
expenses 129,588 84,216 42,944 21,343 13,142
----------- ----------- ----------- ----------- -----------
Operating income (loss) 69,381 29,680 10,463 5,080 3,728
Interest expense, net (15,518) (5,333) (4,063) (3,934) (3,057)
Costs associated with refinancing (1,133)
Realized gain on sale of marketable
securities 8,972
----------- ----------- ----------- ----------- -----------
Income (loss) before taxes 53,863 32,186 6,400 1,146 671
Income tax expense (benefit) 19,320 12,205 2,001 (3,450) 20
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 34,543 $ 19,981 $ 4,399 $ 4,596 $ 651
=========== =========== =========== =========== ===========

Weighted average common shares outstanding 10,760 19,594 19,260 9,764 8,445
Net income (loss) per share: Basic $ 3.21 $ 1.02 $ 0.23 $ 0.47 $ 0.08
Weighted average common shares and
Common equivalent shares outstanding 14,562 20,259 19,623 9,942 8,852
Net income (loss) per share: Diluted $ 2.37 $ 0.99 $ 0.22 $ 0.46 $ 0.07

BALANCE SHEET DATA:
Working capital $ 165,936 $ 44,768 $ 17,996 $ 12,244 $ 9,072
Total assets 328,316 141,397 102,343 59,481 41,121
Long-term debt 182,329 -- 4,933 3,754 900
Stockholders' equity 50,739 57,711 38,622 19,925 15,329

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Management's Discussion and Analysis of financial Condition and
Results of Operations may be deemed to include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that involve
risk and uncertainty. Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that its expectations
will be achieved. The important factors that could cause actual results to
differ materially from those in the forward-looking statements herein (the
"Cautionary Statements") include, without limitation: the Company's degree of
leverage; economic conditions and the retail environment; the timely
development, introduction and customer acceptance of the Company's products;
competitive products and pricing; dependence on foreign suppliers and supply and
manufacturing constraints; the Company's relationship and contractual
arrangements with key customers, suppliers and licensors; cancellation or
reduction of orders; the integration of Toastmaster, including the failure to
realize anticipated revenue enhancements and cost savings; the risks relating to
pending legal proceedings, as well as other risks referenced from time to time
in the Company's filings with the SEC.. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
The Company does not undertake any obligation to release publicly any revisions
to such forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.

OVERVIEW

Salton is a leading domestic designer, marketer and distributor of a
broad range of branded, high quality small appliances, tabletop products and
personal care/time products. Salton acts as a marketing service provider by
managing its brands and product lines in a manner that allows its retail
customers to differentiate themselves to consumers. Salton has the leading
domestic market share in toasters, juice extractors, indoor grills, bread
bakers, griddles, waffle makers and buffet ranges/hotplates and a significant
market share in other product categories. Salton outsources most of its
production to independent manufacturers, primarily in the Far East.

Salton's portfolio of well-recognized owned and licensed brand names
includes Salton(R), Toastmaster(R), Maxim(R), Breadman(R), Juiceman(R), George
Foreman Grills(R), White-Westinghouse(R), Farberware(R), Melitta(R), Block(R),
Atlantis(R), SASAKI(R), Rejuvenique(R) and Ingraham(R). Salton is also a leading
designer and distributor of small appliances in the U.S. under such well-known
names as Kenmore(R) and Magic Chef(R).

Salton predominantly sells its products to mass merchandisers,
department stores, specialty stores and mail order catalogs. Salton also sells
certain of its products directly to consumers through infomercials and its
Internet website. Salton markets and sells its products primarily in the U.S.
through its own sales force and a network of independent commissioned sales
representatives.

In July 1998, Salton completed a recapitalization by issuing $40.0
million of its convertible preferred stock to affiliates of Centre Partners and
repurchasing 9,802,608 shares of its common stock owned by Windmere for $8 per
share plus a $15.0 million junior subordinated note. In December 1998, Salton
issued $125.0 million of 10 3/4% senior subordinated notes, primarily to repay
certain indebtedness.

On January 7, 1999, Salton acquired Toastmaster, a Columbia, Missouri
based manufacturer and marketer of kitchen and small appliances and time
products. Through Toastmaster, Salton designs, manufactures, markets and
services a wide array of kitchen and small appliances and time products under
the brand names Toastmaster(R) and Ingraham(R).

Salton believes that through its proven ability to source products
overseas, it can achieve significant cost savings through more favorable product
pricing and other terms. Although Salton is currently continuing to produce
certain Ingraham(R)

time products at its Laurinburg, North Carolina plant and certain Toastmaster(R)
small appliances at its Macon, Missouri plant, Salton is implementing its
strategy of outsourcing certain appliances to overseas vendors. Other
anticipated cost savings identified by Salton include advertising, ocean
freight, warehousing and corporate overhead expenses.

Salton's ability to successfully integrate Toastmaster will depend upon
its ability to achieve revenue enhancements and recognize cost savings and on
other factors, including economic conditions and the retail environment.

Salton's operating results for fiscal 1999 include the operating
results of Toastmaster from its acquisition date of January 7, 1999.

The following table sets forth Salton's results of operations as a
percentage of net sales for the period indicated:

FISCAL YEAR ENDED
-----------------
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
-------- -------- ---------
Net sales .............................. 100.0% 100.0% 100.0%
Cost of goods sold ..................... 56.4 58.7 66.5
Distribution expenses .................. 4.3 4.0 4.3
------- ------- -------
Gross profit ........................ 39.3 37.3 29.2
Selling, general and administrative
expenses .............................. 25.6 27.6 23.5
------- ------- -------
Operating income .................... 13.7% 9.7% 5.7%
======= ======= =======

YEAR ENDED JUNE 26, 1999 COMPARED TO YEAR ENDED JUNE 27, 1998

Net Sales. Net sales for the fiscal year ended June 26, 1999 were
$506.1 million, an increase of approximately $200.5 million or 65.6% compared to
net sales of $305.6 million for the fiscal year ended June 27, 1998. This
increase is primarily attributable to increased sales of products within the
George Foreman Grills(R) product line, White-Westinghouse(R) sales under the
Kmart program, sales by our newly acquired wholly-owned subsidiary Toastmaster,
and sales of our Farberware(R) products. Net sales of White-Westinghouse(R)
products to Kmart approximated 16% of net sales in fiscal 1999 compared to 19%
of net sales in fiscal 1998.

Gross Profit. Gross profit in fiscal 1999 was $199.0 million or 39.3%
of net sales as compared to $113.9 million or 37.3% in fiscal 1997. Cost of
goods sold during the period decreased to 56.4% of net sales compared to 58.7%
in fiscal 1998. Distribution expenses were $21.6 million or 4.3% of net sales in
fiscal 1999 compared to $12.3 million or 4.0% of net sales in fiscal 1998. Gross
profit and costs of goods sold in fiscal 1999 as a percentage of net sales
improved primarily due to a more favorable mix of sales in their respective
channels of distribution when compared to fiscal 1998.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $129.6 million or 25.6% of net sales in
fiscal 1999 compared to $84.2 million or 27.6% of net sales in fiscal 1998.
Expenditures for television, certain media and cooperative advertising coverages
and royalty expenses were $88.0 million or 17.4% of net sales in fiscal 1999
compared to $58.3 million or 19.1% of net sales in fiscal 1998. Through
increased leverage of fixed costs, the remaining selling, general and
administrative costs decreased to 8.2% of net sales or $41.6 million in fiscal
1999 compared to 8.5% of net sales or $25.9 million in fiscal 1998.

Operating Income. As a result of the foregoing, operating income
increased by $39.7 million or 133.8%, to $69.4 million in fiscal 1999 from $29.7
million in fiscal 1998. Operating income as a percentage of net sales increased
to 13.7% in fiscal 1999 from 9.7% in fiscal 1998, primarily as a result of
higher net sales and the increased leverage of fixed costs.

Net Interest Expense. Net interest expense was approximately $15.5
million for fiscal 1999 compared to $5.3 million in fiscal 1998. Salton's rate
of interest on amounts outstanding was a weighted average annual rate of 9.2% in
fiscal 1999 compared to 9.5% in fiscal 1998. The average amount of all debt
outstanding was $155.7 million for fiscal 1999 compared to $52.4 million for the
same period in fiscal 1998. This increase was used to complete Salton's
recapitalization, complete the acquisition of Toastmaster and to finance higher
net sales.

Subsequent to the year ended June 27, 1998, Salton consummated the
recapitalization. In connection therewith, Salton used a portion of the proceeds
it received from the new credit agreement to refinance all outstanding
indebtedness under Salton's prior credit agreement. Accordingly, at June 27,
1998, Salton had incurred expense with the early termination of the prior credit
agreement of approximately $1.1 million.

During fiscal 1998, Salton sold shares of Windmere common stock it held
as marketable securities during the period. The sale of these shares provided a
realized gain of approximately $9.0 million.

Income Tax Expense. Salton had tax expense of $19.3 million in fiscal
1999 as compared to tax expense of $12.2 million in fiscal 1998.

Net income. Net income increased 72.9% to $34.5 million in fiscal 1999,
compared to $20.0 million in fiscal 1998. Excluding a non-recurring after tax
gain of approximately $5.4 million ($9.0 million before taxes) from the sale of
marketable securities by Salton, and after-tax costs of approximately $681,000
($1.1 million before taxes) associated with the refinancing of Salton's credit
facility, net income increased 126.1% in fiscal 1999.

Earnings per share. Basic earnings per common share were $3.21 per
share on weighted average common shares outstanding of 10,760,455 in fiscal 1999
compared to earnings of $1.02 per share on weighted average common shares
outstanding of 19,593,698 in the same period in fiscal 1998. Diluted earnings
per common share were $2.37 per share on weighted average common shares
outstanding, including dilutive common stock equivalents, of 14,561,964 in
fiscal 1999 compared to earnings of $0.99 per share on weighted average common
shares outstanding, including dilutive common stock equivalents, of 20,259,395
in the same period in fiscal 1998. All share counts reflect a 3-for-2 split of
Salton's common stock effective July 28, 1999, for stockholders of record at the
close of business on July 14, 1999.

YEAR ENDED JUNE 27, 1998 COMPARED TO YEAR ENDED JUNE 28, 1997

Net Sales. Net sales for the fiscal year ended June 27, 1998 were
$305.6 million, an increase of approximately $122.8 million or 67.2% compared to
net sales of $182.8 million for the fiscal year ended June 28, 1997. This
increase is primarily attributable to increased sales of the Juiceman(R) juice
extractors and George Foreman Grills(R), Farberware(R) products, and
White-Westinghouse(R) sales under the Kmart supply agreement. Net sales of
White-Westinghouse(R) products to Kmart approximated 19% and 16% of net sales in
fiscal 1998 and fiscal 1997, respectively.

Gross Profit. Gross profit in fiscal 1998 was $113.9 million or 37.3%
of net sales as compared to $53.4 million or 29.2% in fiscal 1997. Cost of goods
sold during the period decreased to 58.7% of net sales compared to 66.5% in
fiscal 1997. Distribution expenses were $12.3 million or 4.0% of net sales in
fiscal 1998 compared to $7.8 million or 4.3% of net sales in fiscal 1997. Gross
profit and costs of goods sold in fiscal 1998 as a percentage of net sales
improved primarily due to a more favorable mix of sales in their respective
channels of distribution when compared to fiscal 1997.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $84.2 million or 27.6% of net sales in
fiscal 1998 compared to $42.9 million or 23.5% of net sales in fiscal 1997.
Expenditures for television, certain media and cooperative advertising coverages
and royalty expenses were $58.3 million or 19.1% of net sales in fiscal 1998
compared to $25.7 million or 14.1% of net sales in fiscal 1997. The remaining
selling, general and administrative costs were $25.9 million or 8.5% of net
sales in fiscal 1998 compared to $17.2 million or 9.4% of net sales in fiscal
1997. The dollar increase was primarily attributable to higher costs for
additional personnel, trade show expenses, sales commissions and various other
costs related to the higher level of sales.

During fiscal 1998, certain of Salton's customers, namely HomePlace
Stores, Inc. and Venture Stores, filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. These customers owed Salton amounts aggregating
approximately $2.4 million. A provision of approximately $1.0 million was made
for the estimated potential losses from these Chapter 11 bankruptcy filings.

Operating Income. As a result of the foregoing, operating income
increased by $19.2 million or 183.7%, to $29.7 million in fiscal 1998 from $10.5
million in fiscal 1997. Operating income as a percentage of net sales increased
to 9.7% in fiscal 1998 from 5.7% in fiscal 1997.

Net Interest Expense. Net interest expense was approximately $5.3
million for fiscal 1998 compared to $4.1 million in fiscal 1997. Salton's rate
of interest on amounts outstanding was a weighted average annual rate of 9.5% in
fiscal 1998 compared to 10.5% in fiscal 1997. The average amount outstanding
under Salton's revolving line of credit increased about $22.2 million when
compared to the average amount outstanding a year ago. This increase was used
primarily to finance higher net sales and a seasonal build in inventory.
Interest expense during the period was offset by interest income earned on the
promissory note from Windmere issued to Salton in July 1996.

Salton sold shares of Windmere common stock it held as marketable
securities during the period. The sale of these shares provided a realized gain
of approximately $9.0 million.

Income Tax Expense. Salton had tax expense of $12.2 million in fiscal
1998 as compared to tax expense of $2.0 million in fiscal 1997. Net operating
loss carryforwards and resultant deferred tax assets were used in both periods
to significantly offset current income taxes payable.

Net income. Net income increased to $20.0 million in fiscal
1998,compared to $4.4 million in fiscal 1997, including a non-recurring after
tax gain of approximately $5.4 million ($9.0 million before taxes) from the sale
of marketable securities by Salton, and after-tax costs of approximately
$681,000 ($1.1 million before taxes) associated with the refinancing of Salton's
credit facility.

Earnings per share. Basic earnings per common share were $1.02 per
share on weighted average common shares outstanding of 19,593,698 in fiscal 1998
compared to earnings of $0.23 per share on weighted average common shares
outstanding of 19,260,418 in the same period in fiscal 1997. Diluted earnings
per common share were $0.99 per share on weighted average common shares
outstanding, including dilutive common stock equivalents, of 20,259,395 in
fiscal 1998 compared to earnings of $0.22 per share on weighted average common
shares outstanding, including dilutive common stock equivalents, of 19,623,381
in the same period in fiscal 1997. All share counts reflect a 3-for-2 split of
Salton's common stock effective July 28, 1999, for stockholders of record at the
close of business on July 14, 1999.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 1999, Salton provided net cash of $15.2 million from
operating activities and used $113.5 million in investing activities. This usage
was primarily for the acquisition of Toastmaster, as well as increased
investment in capital assets, primarily tooling. Financing activities provided
net cash of $108.9 million. This net cash came primarily from borrowings of
$90.0 million under the Tranche A Term Loan, the issuance of $125.0 million of
senior subordinated notes, $75.0 million under the Amended Credit Agreement
(consisting of $30.0 million under the Revolving Credit Facility and $45.0
million under the Term Loan), and the issuance of $40.0 million of convertible
preferred stock, offset by $70.8 million used for the stock repurchase, $90.0
million repayment of the Tranche A Term Loan, $50.5 million repayment of the
revolving line of credit under

a previously existing credit agreement, and approximately $11.1 million in costs
paid for the issuance of the senior subordinated notes, the credit agreement and
the issuance of the convertible preferred stock.

At June 26, 1999, Salton had debt outstanding of $214.6 million and had
the ability to borrow up to an additional $50.0 million under the revolving
credit facility. Typically, given the seasonal nature of Salton's business,
Salton's borrowings tend to be the highest in mid-summer to fall.

On July 28, 1998, Salton repurchased 9,802,608 shares of Salton common
stock owned by Windmere. Prior to this stock repurchase, Windmere owned
approximately 50% of the outstanding Salton common stock. Salton paid Windmere
$8 per share in cash plus a $15.0 million junior subordinated note. The junior
subordinated note matures on January 31, 2005 and bears interest at 4.0% per
annum payable annually. This note is subject to offsets of interest and
principal equal to 5% of the total purchase price paid by Salton for product
purchases from Windmere and its affiliates during the term of the note. During
fiscal 1999, Salton purchased approximately $32.3 million of products from
Windmere. The principal amount of the junior subordinated note is also subject
to reduction in the event Salton's supply agreement with Kmart is terminated for
any reason.

In connection with this stock repurchase:

o Windmere effectively repaid in full a promissory note in the
principal amount of approximately $10.8 million which Windmere
had issued to Salton in July, 1996;
o Salton purchased for approximately $3.3 million an option to
purchase up to 687,750 shares of Salton common stock which
Salton had granted to Windmere in July, 1996; and
o Windmere and Salton agreed to continue various commercial and
other arrangements, including a fee agreement relating to
Salton's supply agreement with Kmart, subject to certain
modifications.

On July 28, 1998, Salton entered into a credit agreement among Salton,
Lehman Brothers Inc., as arranger, and Lehman Commercial Paper Inc., as
syndication agent. The credit agreement provided for $215.0 million in senior
secured credit facilities consisting of a $90.0 million tranche A term loan, a
$75.0 million delayed draw term loan and a $50.0 million revolving credit
facility.

On July 28, 1998, Salton also issued $40.0 million of Salton
convertible preferred stock to affiliates of Centre Partners Management LLC. The
convertible preferred stock is generally non-dividend bearing and is currently
convertible into 3,529,412 shares of Salton common stock, reflecting a $11.33
per share conversion price.

Salton used borrowings of $90.0 million under the tranche A term loan
and the net proceeds from the issuance of the convertible preferred stock to:

o pay the $70.8 million cash portion of the purchase price for
the 9,802,608 shares of Salton common stock, which amount is
net of $10.8 million due and owing by Windmere under its
promissory note to Salton, which note was cancelled at the
closing of the stock repurchase; and net of the issuance of a
six and one-half year $15,000 subordinated promissory note
which bears interest at 4% per annum and was recorded at its
fair value of $9,096;
o refinance all outstanding indebtedness under Salton's prior
loan agreement in an amount equal to approximately $51.7
million; and
o pay fees and expenses of the stock repurchase and the
financing of such repurchase.

On December 16, 1998, Salton issued in a private offering $125.0
million of 10 3/4% senior subordinated notes due 2005. Salton used the aggregate
gross proceeds of this offering:

o to repay a total of approximately $110.0 million of
outstanding indebtedness under the new credit agreement,
consisting of $90.0 million under the tranche A term loan and
approximately $20.0 million under the revolving

credit facility, together with accrued interest of
approximately $0.8 million with respect to the indebtedness
being repaid;
o to pay fees and expenses incurred in connection with the
offering; and
o for working capital and general corporate purposes.

Upon the repayment of the tranche A term loan, this facility was
permanently terminated. In March 1999, Salton exchanged the $125.0 million of 10
3/4% senior subordinated notes for an equal aggregate principal amount of
publicly-registered notes.

The senior subordinated notes contain a number of significant covenants
that, among other things, restrict the ability of Salton to:

o dispose of assets;
o incur additional indebtedness;
o prepay other indebtedness;
o pay dividends;
o repurchase or redeem capital stock;
o make certain investments;
o enter into sale and lease-back transactions;
o make certain acquisitions;
o engage in mergers and consolidation;
o create liens; or
o engage in certain transactions with affiliates.

In addition, under the senior subordinated notes, Salton is required to
comply with a specified financial fixed charge coverage ratio.

On January 7, 1999, Salton amended and restated the credit agreement
to, among other things, replace the delayed draw term loan with a $45.0 million
tranche B term loan and increase the revolving credit facility from $50.0
million to $80.0 million.

The credit agreement as amended and restated provides for $125.0
million in a senior secured credit facility consisting of a $45.0 million
tranche B term loan at an established base rate equivalent to the prime rate of
interest plus an applicable margin of 225 basis points or, at Salton's election,
a eurodollar rate equivalent to the LIBOR rate plus an applicable margin of 325
basis points maturing in twenty-four consecutive quarterly installments
commencing on March 26, 1999; and a $80.0 million revolving credit facility at
an established base rate equivalent to the LIBOR rate plus an applicable margin
of 300 basis points based on a range of ratios of total debt to earnings before
interest, taxes, depreciation and amortization maturing on January 7, 2004. The
credit agreement is secured by a first lien on substantially all Salton's
assets. Credit availability is based on a formula related to trade accounts
receivable, inventories and outstanding letters of credit.

The credit agreement contains a number of significant covenants that
are substantially the same as those in the senior subordinated notes. In
addition, Salton is required to comply with specified financial ratios and
tests, including a minimum net worth test, a minimum fixed charge coverage
ratio, a minimum interest coverage ratio and a maximum leverage ratio.

On January 7, 1999, Salton acquired all of the stock of Toastmaster and
paid Toastmaster shareholders $7.00 per share in cash, for a total purchase
price of approximately $53.2 million. In addition, Salton repaid Toastmaster's
outstanding debt of $57.8 million in connection with the acquisition. The
acquisition was accounted for as a purchase; accordingly the purchase price was
preliminarily allocated to the underlying assets and liabilities based on their
respective estimated fair value at the date of the acquisition.

Salton's ability to make scheduled payments of principal of, or to pay
the interest or liquidated damages, if any, on, or to refinance, its
indebtedness, or to fund planned capital expenditures, will depend upon its
future performance, which, in turn, is subject to general economic, financial,
competitive and other factors that are beyond its control. Based upon the
current level of operations and anticipated growth, management believes that
future cash flow from operations, together with available borrowings under the
credit agreement, will be adequate to meet Salton's anticipated requirements for
capital expenditures, working capital, interest payments and scheduled principal
payments. There can be no assurance, however, that Salton's business will
continue to generate sufficient cash flow from operations in the future to
service its debt and make necessary capital expenditures after satisfying
certain liabilities arising in the ordinary course of business. If unable to do
so, Salton may be required to refinance all or a portion of its existing debt or
to sell assets or to obtain additional financing. There can be no assurance that
any such refinancing would be available or that any such sales of assets or
additional financing could be obtained.

ACCOUNTING PRONOUNCEMENTS

During the first quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." This statement requires that the Company report the change in its net
assets during the period from non-owner sources. For the period ended June 26,
1999 components of other comprehensive income (loss) include foreign currency
translation gains and minimum pension liability, net of tax.

During the fourth quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires public business
enterprises to report certain information about operating segments, their
products and services, the geographic areas in which they operate, and their
major customers. The effect of this new statement is limited to the form and
content of disclosures.

During the fourth quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting Standards, No. 132, "Employer's Disclosures about
Pensions and other Post-Retirement Benefits." The effect of this new statement
is limited to the form and content of disclosures.

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which was
amended in June 1999 with the issuance of SFAS No. 137. SFAS No. 137 delayed the
effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000.
SFAS No. 133 will change accounting and disclosure requirements for derivative
instruments and hedging activities. Salton is in the process of determining the
effect that this new standard will have on its consolidated financial statements
and/or disclosures.

EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE

The results of operations for the periods discussed have not been
significantly affected by inflation or foreign currency fluctuation. Salton
generally negotiates its purchase orders with its foreign manufacturers in
United States dollars. Thus, Salton's cost under any purchase order is not
subject to change after the time the order is placed due to exchange rate
fluctuations. However, the weakening of the United States dollar against local
currencies could result in certain manufacturers increasing the United States
dollar prices for future product purchases.

YEAR 2000 ISSUES

The Year 2000 issue is the result of computer programs being written to
use two digits to define year dates. Computer programs running date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in systems failure or miscalculations causing
disruptions of operations. Salton currently uses information technology
throughout its operations.

Management believes that Salton's systems are Year 2000 compliant.
Salton has upgraded and substantially completed the internal testing of its
information technology systems and will continue to monitor such systems
throughout 1999. Salton has also specifically addressed internally its
non-information technology related systems and believes that there will be no
significant

operational problems relating to the Year 2000 issue. Salton has not obtained,
and does not intend to obtain, an independent verification and validation of its
Year 2000 compliance status.

Although Salton believes it has substantially completed its Year 2000
project by upgrading its systems, Salton cannot make any assurances that the
upgraded systems will be free of defects. If any such risks materialize, Salton
could experience material adverse consequences to its business, financial
condition and results of operations.

Year 2000 compliance may also adversely affect Salton's business,
financial condition and results of operations indirectly by causing
complications of, or otherwise affecting, the operations of any one or more of
its suppliers and customers. Salton has contacted its significant suppliers and
certain of its customers in an attempt to identify any potential Year 2000
compliance issues with them. Salton currently believes that its major suppliers
have made significant progress with respect to Year 2000 compliance issues.
Salton is currently unable to anticipate the magnitude of the operational or
financial impact on it of Year 2000 compliance issues with its customers even
though Salton believes that these customers have implemented significant
programs with respect to Year 2000 compliance issues.

Notwithstanding Salton's progress to date, there are several ways in
which its systems could still be affected by the Year 2000 problem. First, the
software code Salton uses in its information systems may not in fact be Year
2000 compliant in all instances. Second, Salton may be unable to fully test and
monitor the upgrades, making it difficult for Salton to identify and remedy any
problems that might exist. Third, Salton's customers, suppliers and shippers may
be unable to achieve Year 2000 compliance in time.

The most reasonably likely worst-case scenario resulting from Salton's
inability, or the inability of its suppliers, customers or shippers, to become
Year 2000 compliant, includes the following adverse effects:

o Salton would be unable to receive products due to Year
2000-related failure on the part of its suppliers causing
Salton to be unable to fulfill the orders of many of its
customers for Salton's products.
o Salton's customers would be unable to place their orders with
Salton because of its own system failure or those of its
customers resulting in delayed or potentially lost orders for
Salton's products.
o Salton would be unable to deliver ordered products to its
customers on a timely basis due to a system failure at Salton
or at one of its product shippers leading to delays in arrival
of Salton's products and possibly dissatisfied customers.
o Salton's customers would be unable to receive and/or pay for
Salton products on a timely basis.

Salton is currently reviewing the implementation of contingency plans
relating to the Year 2000 compliance problems in its own systems or those of its
suppliers, customers or shippers.

Salton has incurred approximately $900,000 to date to resolve and test
Salton's Year 2000 compliance issues. All expenses incurred in connection with
Year 2000 compliance are expensed as incurred, other than acquisitions of new
software or hardware, which are capitalized. Salton currently estimates that the
aggregate incremental cost of its Year 2000 compliance efforts will not exceed
$250,000.

Salton's assessment of its Year 2000 compliance is based on numerous
assumptions about future events, including third party modification plans and
other factors. However, there can be no guarantee that this assessment is
correct and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.

SEASONALITY

Salton's business is highly seasonal, with operating results varying
from quarter to quarter. Salton has historically experienced higher sales during
the months of August through November primarily due to increased demand by
customers for

Salton's products attributable to holiday sales. This seasonality has also
resulted in additional interest expense to Salton during this period due to an
increased need to borrow funds to maintain sufficient working capital to finance
product purchases and customer receivables for the seasonal period.

ITEM 7A. QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISKS

The following tables provide information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement." The
Company's major market risk exposure is changing interest rates in the United
States. The Company's policy is to manage interest rates through the use of a
combination of fixed and variable rate debt. The fair value of the Company's
long-term, fixed rate debt was estimated based on dealer quotes. The carrying
amount of short-term debt and long-term variable-rate debt approximates fair
value. All items described in the tables are non-trading.

(DOLLARS IN THOUSANDS)
FISCAL YEAR 1999 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR
VALUE

Liabilities:
Revolver $30,000 $ 30,000 $ 30,000
Average interest rates 7.98%
Jr. subordinated note payable $14,126 $ 14,126 $ 8,949
Average interest rate 8%
Long-term debt, including current
portion
Fixed rate amount $125,000 $125,000 $125,000
Average interest rates 10.75%
Variable rate amount $ 500 $ 500 $ 500 $ 500 $11,000 $ 31,875 $ 44,875 $ 44,875
Average interest rates 8.25% 8.25% 8.25% 8.25% 8.29% 8.31%

FISCAL YEAR 1998 1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
Liabilities:
Revolver $ 50,475 $50,475 $50,475
Average interest rates 9.48%

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following pages contain the Financial Statements and Supplementary
Data as specified by Item 8 of Part II of Form 10-K.

FINANCIAL STATEMENTS:

Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Quarterly Financial Information
Report of Independent Auditors

Back to Table of Contents

Return to financial index
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Salton, Inc.
Mount Prospect, Illinois

We have audited the accompanying consolidated balance sheets of Salton,
Inc. (the "Company") as of June 26, 1999 and June 27, 1998 and the related
consolidated statements of earnings, of stockholders' equity and of cash flows
for each of the three years in the period ended June 26, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14 of the
Annual Report on Form 10-K. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Salton, Inc. as of June 26,
1999 and June 27, 1998 and the results of its operations and its cash flows for
each of the three years in the period ended June 26, 1999 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

Deloitte & Touche LLP

September 3, 1999
Chicago, Illinois

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SALTON, INC.
CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS Except Share Data)

JUNE 26, JUNE 27,
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS:
Cash ......................................................... $ 11,240 $ 661
Accounts receivable, less allowance:
1999--$6,102; 1998--$3,000 ............................... 96,179 43,225
Inventories .................................................. 144,124 76,506
Prepaid expenses and other current assets .................... 6,350 2,940
Deferred income taxes ........................................ 3,134 4,605
------------ ------------
Total current assets ................................... 261,027 127,937
Property Plant and Equipment::
Land ......................................................... 928
Buildings .................................................... 4,696
Molds and tooling ............................................ 26,364 16,787
Warehouse equipment .......................................... 6,142 453
Office furniture and equipment ............................... 6,097 5,342
------------ ------------
...................................................... 44,227 22,582
Less accumulated depreciation ................................ (19,576) (14,267)
------------ ------------
...................................................... 24,651 8,315
Intangibles, net of accumulated amortization, and other non-
current assets ............................................... 42,638 5,145
------------ ------------
TOTAL ASSETS .................................................... $ 328,316 $ 141,397
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit and other current debt .............. $ 32,229 $ 50,475
Accounts payable ............................................. 40,997 18,960
Accrued expenses ............................................. 21,865 7,235
Income taxes payable ......................................... 6,499
------------ ------------
Total current liabilities .............................. 95,091 83,169
Non-current deferred income taxes ............................... 157 517
Long-term Debt .................................................. 182,329
------------ ------------
Total liabilities ...................................... 277,577 83,686
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized,
2,000,000 shares, 40,000 shares issued
Common stock, $.01 par value; authorized,
20,000,000 shares; shares issued and outstanding:
1998--10,251,828; 1997--19,649,466 ....................... 201 197
Treasury stock - at cost ..................................... (90,804)
Additional paid-in capital ................................... 91,900 53,415
Note receivable .............................................. (10,848)
Accumulated other comprehensive income ....................... (48)
Retained earnings ............................................ 49,490 14,947
------------ ------------
Total stockholders' equity ............................. 50,739 57,711
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................... $ 328,316 $ 141,397
============ ============

See Notes to Consolidated Financial Statements.

Return to financial index
SALTON, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JUNE 26, 1999, JUNE 27, 1998, AND JUNE 28, 1997

(IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 1997
------------ ------------ ------------
Net sales ........................................ $ 506,116 $ 305,599 $ 182,806
Cost of goods sold ............................... 285,526 179,376 121,590
Distribution expenses ............................ 21,621 12,327 7,809
------------ ------------ ------------
Gross profit ..................................... 198,969 113,896 53,407
Selling, general and administrative expenses ..... 129,588 84,216 42,944
------------ ------------ ------------
Operating income ................................. 69,381 29,680 10,463
Interest expense, net ............................ (15,518) (5,333) (4,063)
Costs associated with refinancing ................ (1,133)
Realized gain on marketable securities ........... 8,972
------------ ------------ ------------
Income before income taxes ....................... 53,863 32,186 6,400
Income tax expense ............................... 19,320 12,205 2,001
------------ ------------ ------------
Net income ....................................... $ 34,543 $ 19,981 $ 4,399
============ ============ ============

Weighted average common shares outstanding ....... 10,760 19,594 19,260

Weighted average common and common
equivalent shares outstanding ................ 14,562 20,259 19,623

Net income per common share: Basic ............... $ 3.21 $ 1.02 $ 0.23
============ ============ ============

Net income per common share: Diluted ............. $ 2.37 $ 0.99 $ 0.22
============ ============ ============

See Notes to Consolidated Financial Statements.

Return to financial index
Salton, Inc.
Consolidated Statement of Stockholders' Equity
Years Ended June 29, 1996 Through June 26, 1999

COMMON PREFERRED ADDITIONAL RETAINED
SHARES SHARES COMMON PREFERRED PAID IN EARNINGS TREASURY
(in thousands) OUTSTANDING OUTSTANDING STOCK STOCK CAPITAL (DEFICIT) STOCK
------------ ----------- -------- ---------- --------- -------- --------
Balance, June 29, 1996
As previously reported 6,509 $ 65 $ 29,293 $ (9,433)
3-for-2 stock split effective
July 28, 1999 3,254 33 (33)
-------- -------- -------- -------- -------- -------- --------
Balance, June 29, 1996 9,763 -- 98 -- 29,260 (9,433) --
Net income 4,399
Other comprehensive income:
Unrealized gain on securities
available for sale
net of tax of $720
Total Comprehensive Income
Issuance of Common Stock 9,763 98 23,618
Issuance of Warrants 82
Stock options exercised 18 11
-------- -------- -------- -------- -------- -------- --------
Balance, June 28, 1997 19,544 -- 196 -- 52,971 (5,034) --
-------- -------- -------- -------- -------- -------- --------
Net income 19,981
Other comprehensive income:
Unrealized gains
reclassifiaction adjustment
net of tax of $720
Total Comprehensive Income
Issuance of common stock 38 300
Stock options exercised 68 1 144
-------- -------- -------- -------- -------- -------- --------
Balance, June 27, 1998 19,650 -- 197 -- 53,415 14,947 --
-------- -------- -------- -------- -------- -------- --------
Net income 34,543
Other comprehensive income
Minimum pension liability
net of tax of $28
Foreign currency translation
Total comprehensive income
Issuance of preferred stock 40 37,000
Purchase of treasury stock (9,803) (90,804)
Stock options exercised 405 4 1,485
-------- -------- -------- -------- -------- -------- --------
Balance, June 26, 1999 10,252 40 201 -- $ 91,900 $ 49,490 $(90,804)
======== ======== ======== ======== ======== ======== ========

ACCUMULATED
OTHER TOTAL TOTAL
COMPREHENSIVE NOTE STOCKHOLDERS' COMPREHENSIVE
(in thousands) INCOME RECEIVABLE EQUITY INCOME
------------- ---------- ------------- -------------
Balance, June 29, 1996
As previously reported $ 19,925
3-for-2 stock split effective
July 28, 1999
------- --------- --------
Balance, June 29, 1996 - - 19,925
Net income 4,399 $ 4,399
Other comprehensive income:
Unrealized gain on securities
available for sale
net of tax of $720 $ 1,337 1,337 1,337
-------
Total Comprehensive Income $ 5,736
=======
Issuance of Common Stock $ (10,848) 12,868
Issuance of Warrants 82
Stock options exercised 11
------- --------- --------
Balance, June 28, 1997 1,337 (10,848) 38,622
------- --------- --------
Net income 19,981 $19,981
Other comprehensive income:
Unrealized gains
reclassifiaction adjustment

net of tax of $720 (1,337) (1,337) (1,337)
--------
Total Comprehensive Income $ 18,644
========
Issuance of common stock 300
Stock options exercised 145
------- --------- --------
Balance, June 27, 1998 - (10,848) 57,711
------- --------- --------
Net income 34,543 $34,543
Other comprehensive income
Minimum pension liability
net of tax of $28 (50) (50) (50)
Foreign currency translation 2 2 2
--------
Total comprehensive income $ 34,495
========
Issuance of preferred stock 37,000
Purchase of treasury stock 10,848 (79,956)
Stock options exercised 1,489

Balance, June 26, 1999 $ (48) - $ 50,739
======= ========= ========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Return to financial index
SALTON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 26, 1999, JUNE 27, 1998, AND JUNE 28, 1997

(IN THOUSANDS)

1999 1998 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 34,543 $ 19,981 $ 4,399
Adjustments to reconcile net income
to net cash from operating activities:
Gain on sale of marketable securities ........................ (8,972)
Deferred income taxes ........................................ 4,109 (1,428) 822
Depreciation and amortization ................................ 7,301 4,301 3,136
Purchase reduction of note payable and other
non-cash items ............................................. (208)
Changes in assets and liabilities, net of acquisition:
Accounts receivable .......................................... (12,176) (17,578) (9,776)
Inventories .................................................. (26,406) (34,537) (13,680)
Prepaid expenses and other current assets .................... (1,365) 1,881 (2,888)
Accounts payable .......................................... 14,716 1,599 7,304
Taxes payable ................................................ (4,290) 6,406 81
Accrued expenses ............................................. (1,032) 3,245 1,636
------------ ------------ ------------
Net cash from operating activities ........................ 15,192 (25,102) (8,966)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................................... (5,390) (4,565) (4,608)
Proceeds from the sale of marketable securities .............. 19,072
Acquisition of businesses .................................... (108,126) (1,739)
------------ ------------ ------------
Net cash from investing activities ........................ (113,516) 14,507 (6,347)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayment) proceeds from revolving line of credit ....... (20,475) 12,498 13,882

Repayment of long-term debt .................................. (90,125)
Proceeds from long-term debt ................................. 260,000
(Repayment) proceeds from subordinated debt and
other debt ................................................. (125) (5,433) 4,516
Costs associated with refinancing ............................ (8,065) 1,133
Common stock issued .......................................... 1,489 445 11
Preferred stock issued ....................................... 40,000
Purchase of treasury stock ................................... (70,799)
Costs associated with preferred stock issuance ............... (2,999)
Offering costs associated with stock issuance................. (486)
------------ ------------ ------------
Net cash from financing activities ........................ 108,901 8,643 17,922
------------ ------------ ------------
The effect of exchange rate changes on cash .................. 2
------------
Net (decrease) increase in cash .............................. 10,579 (1,952) 2,609
Cash--Beginning of year ...................................... 661 2,613 4
------------ ------------ ------------
Cash--End of year ............................................ $ 11,240 $ 661 $ 2,613
============ ============ ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .................................................. $ 14,046 $ 5,893 $ 3,939
Income taxes .............................................. $ 25,022 $ 5,799 $ 1,698

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

In the quarter ended September 26,1998, the Company repurchased 9,803
shares of the Company's common stock from Windmere--Durable Holdings Inc.
("Windmere") for a total purchase price of $90,804. The purchase price included
the issuance of a six and one-half year $15,000 subordinated promissory note
which bears interest at 4% per annum recorded at its fair value of $9,096 and
the effective repayment of Windmere's promissory note to Salton for the
principal amount of $10,848.

See Notes to Consolidated Financial Statements.

Return to financial index
SALTON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 26, 1999, JUNE 27, 1998, AND JUNE 28, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Salton, Inc. ("Salton" or the "Company") is a leading domestic
designer, marketer and distributor of a broad range of branded, high quality
small appliances, tabletop products and personal care/time products. The Company
manufactures small electrical kitchen and household appliances and time products
sold under the Toastmaster(R) and Ingraham(R) labels. The Company has
manufacturing facilities in Missouri and North Carolina.

The Company's portfolio of well-recognized owned and licensed brand
names includes Salton(R), Toastmaster(R), Maxim(R), Breadman(R), Juiceman(R),
George Foreman Grills(R), White-Westinghouse(R), Farberware(R), Melitta(R),
Block(R) China, AtLANTIS(R) Crystal, Sasaki(R), Gear(R), Rejuvenique(R), Salton
Creations(R), Marilyn Monroe(TM), Taco Bell(R), Looney Tunes(R), Salton TIME(R),
Ingraham(R), Timex(R), and Indiglo(R).

Principles of Consolidation--The consolidated financial statements
include the accounts of Salton and its subsidiaries, Toastmaster Inc.,
Toastmaster de Mexico S.A. de C.V., Home Creations Direct, Ltd. and Salton Hong
Kong, Ltd. Intercompany balances and transactions are eliminated in
consolidation.

Use of Estimates--In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates
include the allowance for doubtful accounts, reserve for returns and allowances,
and depreciation and amortization, among others.

Accounting Period--The Company's fiscal year ends on the Saturday
closest to June 30. The fiscal years ended June 26, 1999, June 27, 1998 and June
28, 1997 each consisted of 52 weeks and are referred to as "fiscal 1999",
"fiscal 1998", and "fiscal 1997", respectively.

Inventories--Inventories are stated at the lower of cost or market.
Cost is determined by the last-in, first-out (LIFO) method, for approximately
32% of the Company's inventories. All remaining inventory cost is determined on
the first-in, first-out basis. See Note 3 "Inventories."

Property, Plant and Equipment--Property, plant and equipment are stated
at cost. Expenditures for maintenance costs and repairs are charged against
income. Depreciation is provided on the straight-line basis over the estimated
useful lives of the assets, which range from three to forty years. For tax
purposes, assets are depreciated using accelerated methods.

Intangible and Non-current Assets--Intangible assets, which are
amortized over their estimated useful lives, and other non-current assets
consist of:

USEFUL LIFE JUNE 26, JUNE 27,
(IN THOUSANDS) (IN YEARS) 1999 1998
----------- --------- ---------
Goodwill ............................... 10-40 $ 32,768 $ 2,117
Financing and organization costs ....... 2-7 7,051 109
Patents and trademarks ................. 5-20 2,711 2,919
Other non-current assets ............... 108
Intangible assets, net, and other --------- ---------
non-current assets ................... $ 42,638 $ 5,145
========= =========

Accumulated amortization of intangible assets was $6.7 million at June
26,1999, and $4.7 million at June 27, 1998.

Long-Lived Assets--Long-lived assets are reviewed for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. If such review indicates
that the carrying amount of long-lived assets is not recoverable, the carrying
amount of such assets is reduced to the estimated recoverable value.

Revenue Recognition--The Company recognizes revenues when goods are
shipped to its customers. Provision is made for estimated costs, returns,
warranties, and product liability claims.

Distribution Expenses--Distribution expenses consist primarily of
freight, warehousing, and handling costs of products sold.

Advertising--The Company sponsors various programs under which it
participates in the cost of advertising and other promotional efforts for
Company products undertaken by its retail customers. Advertising and promotion
costs associated with these programs are recognized in the period in which the
advertising or other promotion by the retailer occurs.

The Company's tradenames and, in some instances, specific products,
also are promoted from time to time through direct marketing channels, primarily
television. Advertising and promotion costs are expensed in the period in which
direct customer response occurs.

Self-insurance--The Company maintains a self-insurance program for
health claims and workers' compensation claims for certain covered employees.
The Company accrues estimated future costs that will be incurred for existing
employee claims. The Company does not provide any post-retirement health care
benefits.

Income Taxes--The Company accounts for income taxes using the asset and
liability approach. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
management does not expect to be realized.

Net Income Per Common and Common Equivalent Share--On June 28, 1999,
the Company's Board of Directors authorized a 3-for-2 split of its common stock
effective July 28, 1999, for stockholders of record at the close of business on
July 14, 1999. All share and per-share amounts in the accompanying financial
statements have been restated to give effect to the split.

The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS 128) in fiscal 1998. Basic net income per
common share is computed based upon the weighted average number of common shares
outstanding. Diluted net income per common share is computed based upon the
weighted average number of common shares outstanding, adjusted for dilutive
common stock equivalents applying the treasury stock method. All earnings per
share data presented in these financial statements have been restated to conform
with SFAS 128.

Fair Value of Financial Instruments--The carrying values of financial
instruments included in current assets and liabilities approximate fair values
due to the short-term maturities of these instruments. The fair value of the
Company's long-term, fixed rate debt was estimated based on dealer quotes and
approximates the carrying value recorded. The carrying amount of short-term debt
and long-term variable-rate debt approximates fair value. During fiscal 1997,
the investment in Windmere common stock was accounted for as "available for
sale" and was carried at fair value. The stock was sold during fiscal 1998. See
Note 4 "Windmere Transaction."

Accounting Pronouncements-- During the first quarter of fiscal 1999,
the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income." This statement requires that the Company
report the change in its net assets during the period from non-owner sources.
For the period ended June 26, 1999 components of other comprehensive income
(loss) include foreign currency translation gains and minimum pension liability,
net of tax, respectively.

During the fourth quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting Standards No. 132, "Employer's Disclosures about
Pensions and other Post-Retirement Benefits." The effect of this new statement
is disclosed in Note 7 "Employee Benefit Plans".

2. ACQUISITIONS

On July 1, 1996, the Company acquired substantially all of the assets
and certain liabilities of Block China Corporation, a tabletop product company,
in a transaction accounted for as a purchase. The Block China Division of the
Company designs and markets tabletop products, including china, crystal and
glassware. The consideration paid by the Company consisted of $1,485,000 in cash
and a warrant to purchase 25,000 shares of Common Stock with an exercise price
of $4.75. The consideration also included an earn-out of up to $500,000 and
150,000 shares of Common Stock based on financial performance over a three-year
period of the Division. The operating results of Block China before its
acquisition by the Company are not material. During fiscal 1998, the Company
paid $83,333 and issued 25,000 shares of common stock to Block China under the
earn-out.

On January 7, 1999, the Company acquired the stock of Toastmaster Inc.
("Toastmaster"), a Columbia, Missouri based manufacturer and marketer of kitchen
and small household electrical appliances and time products (the "Toastmaster
Acquisition"). The Company paid Toastmaster shareholders $7.00 per share in
cash, for a total purchase price of approximately $53.2 million. In addition,
Toastmaster's outstanding debt of $57.8 million was paid by the Company in
connection with the acquisition. The acquisition was accounted for as a
purchase. The purchase price has been preliminarily allocated based upon
estimated fair market values at the date of acquisition, pending final
determination of certain acquired assets and liabilities. Accordingly, the
purchase price allocation may change in subsequent periods. The excess of the
purchase price over the fair values of the net assets acquired has been recorded
as goodwill and is being preliminarily amortized on a straight-line basis over
forty years.

The operating results of Toastmaster have been included in the
consolidated statements of earnings from the date of acquisition. The following
unaudited pro forma results of operations assume the transaction occurred at the
beginning of the periods presented:

JUNE 26, 1999 JUNE 27, 1998
------------- -------------
(IN THOUSANDS)
Net sales.............................................. $ 597,140 $ 465,201
Operating income....................................... 67,350 38,327
Net income............................................. 27,052 14,317
Net income per share:
Basic............................................. $ 2.51 $ 0.73
Diluted........................................... $ 1.86 $ 0.71

The pro forma results are for informational purposes only and do not
purport to represent what the Company's results of operations would have
actually been had the transaction been consummated for the periods indicated.

On March 31, 1999, the Company bought certain assets of Sasaski, Inc.,
a well known designer and manufacturer of high-quality tabletop products and
accessories for the home, from Sasaki Glass Company Ltd. Under the terms of the
transaction, Salton purchased Sasaki's inventory, except for the Christian Dior
tabletop product line, in addition to licensing the Sasaki(R) brand name for a
period of twenty years, with an option to renew on mutually agreed upon terms.
As part of the transaction, Salton agreed to assume certain minor liabilities.

3. INVENTORIES

A summary of inventories is as follows:

JUNE 26, 1999 JUNE 27, 1998
------------- -------------
(IN THOUSANDS)
Raw materials.................................................................. $ 5,359 $ -
Work-in-process................................................................ 1,238 -
Finished goods................................................................. 137,527 76,506
-------------- --------------
Total................................................................. $ 144,124 $ 76,506
============== ==============

If the first-in, first-out (FIFO) method of inventory valuation had
been used to determine cost for 100% of the Company's inventories at June 26,
1999, they would have been approximately $1.7 million lower than reported.

4. WINDMERE TRANSACTION

During fiscal 1998, the Company sold 748,112 shares of Windmere's
common stock, realizing a gain of approximately $8.9 million.

On July 28, 1998, Salton repurchased (the "Stock Repurchase") 9,802,608
shares of Salton common stock owned by Windmere pursuant to a Stock Agreement
dated as of May 6, 1998 (the "Windmere Stock Agreement") by and among Salton,
Windmere and the executive officers of Salton. Prior to the Stock Repurchase,
Windmere owned approximately 50% of Salton's outstanding common stock. The price
for the Stock Repurchase was $8 per share in cash plus a $15.0 million
subordinated promissory note (the "Junior Subordinated Note"). The Junior
Subordinated Note, which has a term of six and one-half years and bears interest
at 4.0% per annum payable annually, is subject to offsets of 5% of the total
purchase price paid by Salton for product purchases from Windmere and its
affiliates during the term of the note. During fiscal 1999 the Company reduced
this debt and interest by approximately $1.5 million for related purchases of
products from Windmere. The principal amount of the Junior Subordinated Note is
also subject to cancellation in the event Salton's supply agreement with Kmart
is terminated for any reason.

Effective upon the closing of the Repurchase, each of the persons who
had been designated by Windmere to serve on Salton's Board of Directors resigned
from Salton's Board of Directors.

5. REVOLVING LINE OF CREDIT, LETTERS OF CREDIT AND LONG-TERM DEBT

Salton amended and restated the New Credit Agreement on January 7, 1999
(the "Amended Credit Agreement"). The Amended Credit Agreement, among Salton,
Lehman Brothers Inc., as arranger, Lehman Commercial Paper Inc., as syndication
agent and administration agent, and a syndicate of banks, provides for $125.0
million in a senior secured credit facility consisting of a $45.0 million Term
Loan (the "Term Loan") at an established base rate (equivalent to the prime rate
of interest) plus an applicable margin of 225 basis points or, at the Company's
election, a eurodollar rate (equivalent to the LIBOR rate) plus an applicable
margin of 325 basis points maturing in twenty-four consecutive quarterly
installments commencing on March 15, 1999; and a $80.0 million revolving credit
facility (the "Revolving Credit Facility") at an established base rate
(equivalent to the prime rate of interest) plus an applicable margin of 200
basis points or, at the Company's election, a eurodollar rate (equivalent to the
LIBOR rate plus an applicable margin of 300 basis points) based on a range of
ratios of total debt to earnings before interest, taxes, depreciation and
amortization maturing on March 26, 2003. The Amended Credit Facility is secured
by a first lien on substantially all the Company's assets. Credit availability
is based on a formula related to trade accounts receivable, inventories and
outstanding letters of credit. The Amended Credit Agreement contains a number of
significant covenants that, among other things, restrict the ability of the
Company to dispose of assets, incur additional indebtedness, prepay other
indebtedness, pay dividends, repurchase or redeem capital stock, enter into
certain investments, enter into sale and lease-back transactions, make certain
acquisitions, engage in mergers and consolidations, create liens, or engage in
certain transactions with affiliates, and will otherwise restrict corporate and
business activities. In addition, under the Amended Credit Agreement, the
Company is required to comply with specified financial ratios and tests,
including a net average debt ratio, a net average senior debt ratio, a
consolidated fixed charge coverage ratio, and a consolidated interest coverage
ratio. At June 26, 1999, the Company was in compliance with all of the covenants
described above. At June 26, 1999, the base rate plus applicable margin on the
Term Loan was 10.0% and the eurodollar rate plus applicable margin was 8.5% and
the base rate plus applicable margin on the Revolving Credit Facility was 9.75%
and the eurodollar rate plus applicable margin was 8.3%

Information regarding short-term borrowings under the Revolving Credit
Facility is:

JUNE 26, 1999 JUNE 27, 1998
------------- -------------
(IN THOUSANDS)
Balance at end of fiscal period................................................ $ 30,000 $ 50,475
Interest rate at end of fiscal period.......................................... 8.29% 9.43%
Maximum amount outstanding at any month-end.................................... $ 50,000 $ 68,522
Average amount outstanding..................................................... $ 25,655 $ 56,374
Weighted average interest rate during fiscal period............................ 7.98% 9.48%
Outstanding letters of credit at end of fiscal period.......................... $ 9,414 $ 5,567
Unused letters of credit at end of the fiscal period........................... $ 586 $ 1,433

Notes payable consist of the Junior Subordinated Note to Windmere (see Note 4),
and certain other notes payable created in connection with the Toastmaster
acquisition.

Long-term debt matures as follows:

(IN THOUSANDS)

FISCAL YEAR SUBORDINATED JUNIOR OTHER NOTES
ENDED NOTES TERM LOAN SUBORDINATED NOTE PAYABLE TOTAL
2000 $ 500 $ 500
2001 500 $1,000 1,500
2002 500 500 1,000
2003 500 500 1,000
2004 11,000 $8,949 500 20,449
THEREAFTER $125,000 31,875 $1,505 158,380
-------- ------- ------ ------- --------
$125,000 $44,875 $8,949 $4,005 $182,829
======== ======= ====== =======
Less current maturities (500)
========
$182,329
========

In addition to the preceding maturity schedules, the Company is
required to make additional mandatory payments of 50% of the defined annual
excess cash flow of the Company, 100% of the net proceeds of any sale or
disposition of certain assets, and 100% of the net proceeds of the incurrence of
certain indebtedness. All such amounts are first applied to the prepayment of
outstanding term loans and secondly to the reduction of the Revolving Credit
Facility.

6. CAPITAL STOCK

The Company has authorized 20,000,000 shares of $.01 par value common
stock. On June 28, 1999, the Company's Board of Directors authorized a 3-for-2
split of its common stock effective July 28, 1999, for stockholders of record at
the close of business on July 14, 1999. All share and per-share amounts in the
accompanying financial statements and notes thereto have been restated to give
effect to the split. At June 26, 1999 there were 10,251,828 shares issued and
outstanding. As more fully described in Note 4 "Windmere Transaction," on July
28,1998, Salton repurchased from Windmere 9,802,608 shares of common stock which
represented 50% of the outstanding shares of common stock of the Company at that
time.

On July 28, 1998, the Company issued $40 million of convertible
preferred stock in connection with a Stock Purchase Agreement dated July 15,
1998. The convertible preferred stock is generally non-dividend bearing and is
convertible into 3,529,411 shares of Salton common stock (reflecting a $11.33
per share conversion price). The holders of the convertible preferred stock are
entitled to one vote for each share of Salton common stock that the holder would
receive upon conversion of the convertible preferred stock.

In connection with the convertible preferred stock issuance, two
individuals representing the purchasers of the preferred stock were appointed to
serve on the Company's Board of Directors.

7. EARNINGS PER SHARE

(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 26, 1999 JUNE 27, 1998 JUNE 28, 1997
------------- ------------- -------------
Net Income*................................................................ $ 34,543 $ 19,981 $ 4,399
Average common shares outstanding....................................... 10,760 19,594 19,260
Earnings per share-basic................................................ $ 3.21 $ 1.02 $ 0.23
Dilutive stock equivalents.............................................. 3,802 665 363
Average common and common equivalent
shares outstanding................................................... 14,562 20,259 19,623
Earnings per share-diluted.............................................. $ 2.37 $ 0.99 $ 0.22

* Net income is the same for purposes of calculating basic and diluted EPS

Options to purchase 212,160 and 195,000 shares of common stock at prices of
$8.17 and $8.00 per share were outstanding at June 27, 1998 and June 28, 1997,
respectively, but were not included in the computation of diluted EPS because
the options exercise prices were greater than the average market price of the
common shares.

8. EMPLOYEE BENEFIT PLANS

The Company has two 401(k) defined contribution plans that cover eligible
employees. The employees are eligible for benefits upon completion of a
specified number of years of service. Under the terms of the plans the Company
currently matches a portion of the employee contributions. The Company's
discretionary matching contribution is based on a portion of a participants'
eligible wages, as defined, up to a maximum amount ranging from two percent to
six percent. The Company's matching contributions were approximately $95,000,
$97,000, and $69,000 in 1999, 1998, and 1997, respectively.

The Company has two defined benefit plans that were assumed in the 1999
acquisition of Toastmaster and cover substantially all of the employees of
Toastmaster. The plans' assets consist of a balanced portfolio of investments in
money market, common stock, bond and real estate funds. The Company uses March
31 as the measurement date for determining pension plan assets and obligations.
Effective June 26, 1999, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pension and Other Postretirement Benefits" SFAS No. 132
requires the disclosure of the information presented below:

(IN THOUSANDS) JUNE 26, 1999
--------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 11,589
Service cost 315
Interest cost 408
Actuarial loss (401)
Benefits paid and expenses (163)
----------
Benefit obligation at end of year $ 11,748
==========

Change in plan assets:
Fair value of plan assets at beginning of year $ 10,808
Actual return on plan assets 47
Employer contribution 359
Benefits paid from plan assets (163)
----------
Fair value of plan assets at end of year $ 11,050
==========

Funded status $ (698)
Unrecognized net actuarial loss 92
Unrecognized transitional asset --
Unrecognized prior service cost --
Additional pension liability in excess of
Unrecognized prior service cost (78)
----------
Accrued pension cost recorded in other accrued
liabilities in the accompanying consolidated balance sheet $ (684)
==========

Weighted average assumptions:
Discount rate 7%
Rate of increase in compensation 5%
Expected return on plan assets 9%
=======

Components of net periodic pension cost:
Service cost-benefits earned during the year $ 315
Interest cost on projected benefit obligation 408
Actuarial return on plan assets (480)
Net amortization and deferral --
-------

Net pension cost $ 243
=======

Under the requirements of SFAS No. 87 "Employers' Accounting for
Pensions", an additional minimum pension liability for one plan, representing
the excess of accumulated benefits over the plan assets and accrued pension
costs, was recognized at June 26, 1999. The minimum pension liability, net of
tax, of $50,000 is included in accumulated other comprehensive income as a
reduction of stockholder's equity.

9. STOCK OPTION PLANS

In October 1995, SFAS No. 123, "Accounting For Stock-Based
Compensation," was issued and is effective for financial statements for fiscal
years beginning after December 15, 1995. As permitted by the statement, the
Company continues to measure compensation cost for stock option plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting For
Stock Issued to Employees." Accordingly, no compensation cost has been
recognized for the Company's fixed stock option plans. Had compensation cost for
the Company's stock option plans been determined consistent with the fair value
method outlined in SFAS No. 123, the impact on the Company's net income and
earnings per common share would have been as follows:

(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
---- ---- ----
Net Income ............................. $ 34,543 $ 19,981 $ 4,399
As reported ............................ $ 33,241 $ 18,941 $ 4,193
Pro forma
Net income per common share: Basic ..... $ 3.21 $ 1.02 $ 0.23
As reported ........................... $ 3.09 $ 0.97 $ 0.22
Pro forma
Net income per common share: Diluted
As reported ........................... $ 2.37 $ 0.99 $ 0.22
Pro forma ............................. $ 2.28 $ 0.93 $ 0.21

Options to purchase common stock of the Company have been granted to
employees under the 1992, 1995, and 1998 stock option plans at prices equal to
the fair market value of the stock on the dates the options were granted.
Options have also been granted to non-employee directors of the Company, which
are exercisable one year after the date of grant. All options granted expire 10
years from the date of grant.

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The following assumptions were
used during the respective years to estimate the fair value of options granted:

1999 1998 1997
Dividend yield 0.0% 0.0% 0.0%
Expected volatility 60.60% 61.74% 65.96%
Risk-free interest rate 6.16% 5.38% 6.11%
Expected life of options 7.81 years 7.42 years 7.92 years

In addition, on July 11, 1996, Windmere was granted an option to
purchase up to 727,500 shares of common stock at $3.22 per share. This option
was exercisable only if and to the extent that options to purchase shares of
common stock which were outstanding on February 27, 1996 were exercised. During
fiscal 1998, Windmere exercised their option to purchase 39,750 shares of Salton
common stock. The Company repurchased the remaining options held by Windmere.
See Note 4 "Windmere Transaction." A summary of the Company's fixed stock
options for the fiscal years ended June 26, 1999, June 27, 1998 and
June 28, 1997 is as follows:

1999 1998 1997
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE PRICE SHARES EXERCISE
(000) PRICE (000) (000) PRICE
Outstanding at beginning of year 1,689 $ 6.06 1,449 $ 3.27 727 $ 3.22
Granted 505 16.74 308 7.21 740 3.25
Exercised (405) 5.47 (68) 2.07 (18) 0.59
Expired or Canceled (688)
-------- -------- -------- -------- -------- --------
Outstanding at end of year 1,101 $ 8.31 1,689 $ 4.04 1,449 $ 3.27
Options exercisable at end of year 1,101 $ 5.54 1,677 $ 4.03 1,437 $ 3.25
Weighted-average fair value of
options granted during the year $ 12.09 $ 5.43 $ 3.03

The following information summarizes the stock options outstanding at
June 26, 1999:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
RANGE OF EXERCISE PRICES (000) LIFE (YEARS) PRICE (000) PRICE
----- ------------ ----- ----- -----
$0.583 - $1.667................................ 239 5.84 $ 1.61 239 $ 1.61
$2.292 - $2.904................................ 27 8.28 2.84 27 2.84
$5.333 - $8.167................................ 532 7.55 7.34 532 7.34
$13.917-$15.917................................ 303 2.61 15.79 303 15.79
------ -------- --------- ------ ---------
$0.583 - $15.917............................... 1,101 N/A N/A 1,101 $ 5.54

10. RELATED PARTY TRANSACTIONS

The Company purchased inventory from Windmere of approximately
$32,340,000, $27,068,000, and $23,511,000, in fiscal years ended June 26, 1999,
June 27, 1998, and June 29, 1997, respectively.

The Company purchased inventory and paid commissions to Markpeak, Ltd.,
("Markpeak") a Hong Kong company, of approximately $187,925,000, $15,971,000,
and $8,247000 in fiscal years 1999, 1998, and 1997, respectively. A director of
the Company is the Managing Director of Markpeak. The company had a receivable
from Markpeak of approximately $13,685,000 and $126,000 at June 26, 1999 and
June 27, 1998, respectively. The Company owed Markpeak approximately $3,075,000
at June 26, 1999. Markpeak acts as a buying agent on behalf of the Company with
certain suppliers in the Far East.

The Company paid Shapiro, Devine and Craparo, Inc. ("SDC"), a
manufacturers representation firm, commissions of approximately $498,000,
$290,000, and $241,000 in 1999, 1998 and 1997, respectively. A director of the
Company was a co-founder of SDC. At June 26, 1999, the Company owed SDC
approximately $42,000 for current commissions.

11. COMMITMENTS AND CONTINGENCIES

The Company leases certain facilities and equipment under long-term
operating leases. Rental expense under all leases was approximately $3,474,000,
$1,183,000, and $665,000, for the fiscal years ended June 26, 1999, June 27,
1998, and June 28, 1997, respectively.

The future minimum rental commitments as of June 26, 1999 were as
follows:

FISCAL YEAR ENDED (DOLLARS IN THOUSANDS)
----------------- ----------------------
2000................................................ $ 3,765
2001................................................ 3,591
2002................................................ 3,131
2003................................................ 1,209
2004................................................ 444
Thereafter.......................................... 155
---------------
Total............................................... $ 12,295
===============

The Company has employment agreements with its three executive officers
that are in effect until June 30, 2001. Such agreements provide for minimum
salary levels as well as for incentive bonuses that are payable if the Company
achieves specified target performance goals. The agreements also provide for
lump sum severance payments upon termination of employment under certain
circumstances. The Company's aggregate annual commitment for future salaries at
June 26, 1999, excluding bonuses, was approximately $1,350,000.

The Company has license agreements with White Consolidated Industries,
Inc. ("White Consolidated"), which require minimum royalty payments through the
year 2011. The current level of royalty payments are in excess of the minimum
requirements. The Company also has various license agreements with other parties
for periods usually not exceeding three years. The agreements are then typically
renewable upon mutual consent. These license agreements require royalty payments
based on the sales of licensed product in the period. Total royalties paid under
these agreements, including the White Consolidated Industries, Inc. agreement,
were $43,918,000 in fiscal year 1999, $20,266,000 in fiscal year 1998, and
$6,300,000 in fiscal year 1997.

12. LEGAL PROCEEDINGS

Trademark Litigation

In November 1996, White Consolidated filed suit for injunctive relief
and damages against CBS in the United States District Court for the Northern
District of Ohio alleging that CBS's grant of licenses to the Westinghouse(R)
name for use on lighting products, fans and electrical accessories for use in
the home violates White Consolidated's rights to the Westinghouse(R) name and
constitutes a breach of the agreements under which CBS's predecessor sold White
Consolidated its appliance business and licensed certain trademark rights in
1975. In response to that suit, CBS filed a related action in December 1996 in
the United States District Court for the Western District of Pennsylvania,
naming White Consolidated, Windmere, Salton and certain other parties as
defendants. The two actions were consolidated in the Pennsylvania court. CBS
sought an injunction prohibiting Salton, Windmere and White Consolidated from
using the White-Westinghouse(R) name on products not specifically enumerated in
the sale documents between CBS's predecessor and White Consolidated, and
unspecified damages and attorneys' fees.

On June 30, 1999, CBS and White Consolidated entered into a settlement
agreement relating to the ownership of the White-Westinghouse name for certain
consumer products. Under the settlement Salton retains its existing rights
under its license from White Consolidated for the use of the White-Westinghouse
name. (See Note 16 Subsequent Events.)

In September, 1999, Linda Evans Fitness Centers, Inc. (the "Fitness
Centers"), Mark Golub and Thomas Gergley filed suit against the Company and its
principal executive officers alleging that the Company tortiously interfered
with a contract between the Fitness Centers and Ms. Evans by hiring Ms. Evans
to act as a spokesperson for the Rejuvenique(TM) facial toning system. Before
Ms. Evans was hired by the Company, Ms. Evans had brought suit against the
Fitness Centers seeking a determination that her contract with the Fitness
Centers had been terminated on the basis of fraud and the failure of the
Fitness Centers to make certain payments. The Company believes that it has
valid defenses against the claims made against it by the Fitness Centers.
Ms. Evans has agreed to indemnify the Company against matters relating to her
services to the Company.

Environmental

Arbitration

On April 20, 1999, an individual filed a notice of arbitration
asserting a breach of contract claim against Salton due to Salton's alleged
failure to pay royalties to this individual for the sale of certain juice
extractors and related health products. This individual also asserts various
other causes of action for an accounting, breach of covenant of good faith and
fair dealing, forgery, trademark infringement, unfair competition, permanent
injunction, fraud, negligent misrepresentation, age discrimination, Lanham Act
violations, breach of fiduciary duty and rescission of contract, and is seeking
compensatry and punitive damages of $15 million. An initial arbitration
hearing solely with respect to the forgery claim has been scheduled for
October 21, 1999.

Salton believes that these claims are without merit, and Salton intends
to vigorously defend itself in the arbitration proceeding.

Other

13. OPERATING SEGMENTS

The Company consists of a single operating segment that designs,
markets and distributes housewares, including small appliances, tabletop
products and personal care/time products. This segmentation is appropriate
because the Company makes operating decisions and assesses performance based
upon brand management, and such brand management encompasses a wide variety of
products and types of customers. Most of the Company's products are procured
through independent manufactures, primarily in the Far East, and are distributed
through similar distribution channels.

Product Information - Net Sales

JUNE 26, 1999 JUNE 27, 1998 JUNE 28, 1997
------------- ------------- -------------
(IN THOUSANDS)

Small appliances........................................................... $ 464,272 $ 280,607 $ 155,972
Tabletop products.......................................................... 18,969 18,597 16,756
Personal care/time products................................................ 22,875 6,395 10,078
----------- ---------- -----------
Total ..................................................................... $ 506,116 $ 305,599 $ 182,806
========== ========== ===========

Major Customers and Suppliers

The Company entered into a major supply contract with Kmart Corporation
("Kmart") on January 31, 1997. Under the contract, the Company supplies Kmart
with small kitchen appliances, personal care products, heaters, fans and
electrical air cleaners and humidifiers under the White-Westinghouse(R) brand
name. Sales to Kmart approximated 16%, 19% and 16% of total net sales of the
Company in fiscal years 1999, 1998 and 1997, respectively.

On March 30, 1999, Salton entered into a five-year supply agreement
with Zellers, the leading national chain of discount department stores in
Canada. Under the contract, the Company supplies Zellers with small kitchen
appliances under the White-Westinghouse(R) brand name. The agreement has a
minimum purchase requirement by Zellers of approximately $17 million, over an
initial period of five years, with rights to extend the contract for additional
one-year periods.

The Company's net sales in the aggregate to its five largest customers
during the fiscal years ended June 26, 1999, June 27, 1998 and June 28, 1997
were 50%, 47% and 47% of total net sales in these periods, respectively. In
addition to Kmart, one customer accounted for 10%, 7%, and 9%, of total net
sales during the fiscal years ended June 26, 1999, June 27, 1998, and June 28,
1997, respectively.

Although the Company has long-established relationships with many of
its customers, with the exception of Kmart Corporation and Zellers, it does not
have long-term contracts with any of its customers. A significant concentration
of the Company's business activity is with department stores, upscale mass
merchandisers, specialty stores, and warehouse clubs whose ability to meet their
obligations to the Company is dependent upon prevailing economic conditions
within the retail industry.

During fiscal 1999, one supplier located in China accounted for
approximately 57.3% of our product purchases. During fiscal 1998, three
manufacturers located in China accounted for approximately 13%, 12%, and 10%,
respectively, of our product purchases.

14. INCOME TAXES

Federal, state and foreign taxes were approximately as follows:

FISCAL YEARS ENDED
------------------
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
Federal
Current............................... $ 9,788 $ 10,080 $ 371
Deferred.............................. 3,605 (1,134) 822
State
Current............................... 2,529 2,699 303
Deferred.............................. 504 (294)

Foreign
Current............................... 2,904 854
Deferred.............................. -- -- --
----------------- --------------- ---------------
Total ...................................... $ 19,320 $ 12,205 $ 2,001
================= =============== ===============

Deferred taxes based upon differences between the financial statement
and tax bases of assets and liabilities and available tax carryforwards
consisted of:

JUNE 26, 1999 JUNE 27, 1998
-------------- ---------------
(IN THOUSANDS)
Allowance for doubtful accounts....................................... $ 1,161 $ 1,309
Depreciation and amortization......................................... (2,017) (1,100)
Other deferred items, net............................................. 268 176
Net operating loss carry-forwards..................................... 2,547 1,764
Accrued liabilities................................................... 2,362
Inventory reserves and capitalization................................. (1,566) 1,939
AMT credit carryforward............................................... 222 --
--------------- ---------------
Net deferred tax asset................................................ $ 2,977 $ 4,088
=============== ===============

The Company has net loss carry-forwards at June 26, 1999 expiring as
follows:

YEAR CARRY-FORWARD EXPIRES AMOUNT
-------------------------- ------
(IN THOUSANDS)
2009............................................................................................. $ 1,434
2010............................................................................................. 60
2011............................................................................................. 45
2018............................................................................................. 4,924
----------------
Total............................................................................................ $ 6,463
================

As a result of certain transactions, the Company's ability to utilize
its net operating loss carryforwards to offset otherwise taxable income is
limited annually under Internal Revenue Code Section 382. While the annual
limitations are calculated on a separate company basis, the combined limitation
for the Company is approximately $5,000,000.

A reconciliation of the statutory federal income tax rate to the
effective rate is as follows:

FISCAL YEARS ENDED
------------------
JUNE 26, JUNE 27, JUNE 28,
1999 1998 1997
------ ------ ------
Statutory federal income tax rate ...... 35.0% 35.0% 35.0%
Effective state tax rate ............... 3.5 4.9 4.8
Permanent differences .................. 0.2 0.3 2.3
Effect of foreign tax rate ............. (1.9) (2.1) (8.8)
Other .................................. (0.9) (0.2) (2.0)
------ ------ ------
Effective income tax rate .............. 35.9% 37.9% 31.3%
====== ====== ======

U.S. income taxes were not provided on certain unremitted earnings of
Salton Hong Kong, Ltd. which the Company considers to be permanent investments.
The cumulative amount of U.S. income taxes which have not been provided totaled
approximately $1,319,000 at June 26, 1999.

Return to financial index
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Unaudited quarterly financial data is as follows (amounts in thousands,
except per share data).

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
1999
Net sales ......................... $ 104,388 $ 142,684 $ 124,340 $ 134,704
Gross profit ...................... 45,775 53,390 43,352 56,452
Net income ........................ 10,819 11,682 5,154 6,888
Earnings per share: Basic ......... 0.82 1.19 0.52 0.68
Earnings per share: Diluted ....... 0.68 0.83 0.36 0.48

1998
Net sales ......................... $ 65,773 $ 102,153 $ 68,099 $ 69,574
Gross profit ...................... 24,797 35,029 26,159 27,911
Net income ........................ 4,124 5,448 2,778 7,631
Earnings per share: Basic ......... 0.21 0.27 0.14 0.39
Earnings per share: Diluted ....... 0.20 0.27 0.14 0.37

16. SUBSEQUENT EVENTS

Acquisition

On August 30, 1999, Salton agreed to purchase approximately 21% of the
outstanding shares of Amalgamated Appliance Holdings Limited, a leading
manufacturer and distributor of a wide range of branded consumer electronics and
appliances in South Africa, for approximately $6 million. Based in South Africa,
Amalgamated is a publicly held company, listed on the Johannesburg Stock
Exchange, which owns the rights to the Salton brand name in South Africa. In
conjunction with this transaction, the Chief Executive Officer of Salton, Inc.,
will be added to Amalgamated's Board of Directors. The completion of the
purchase is subject to a number of conditions including approval by Amalgamated
Appliance Holdings' shareholders.

Legal Proceedings (Unaudited)

On September 22, 1999, CBS and White Consolidated finalized a
settlement agreement relating to the ownership of the White-Westinghouse(R)
name for certain consumer products. Under the settlement, we retain our
existing rights under its license from White Consolidated for the use of the
White-Westinghouse(R) name.

*****

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Toastmaster Inc.:

We have audited the accompanying consolidated balance sheets of
Toastmaster Inc. as of December 31, 1998 and 1997 and the related consolidated
statements of operations, stockholders' equity, comprehensive income (loss), and
cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Toastmaster
Inc. at December 31, 1998 and 1997 and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1998, in conformity with generally accepted accounting principles.

KPMG LLP

March 16, 1999
Kansas City, Missouri

TOASTMASTER INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997

1998 1997
------------- -------------
ASSETS
CURRENT ASSETS:
Cash ...................................................................... $ 173,088 $ 178,030
Accounts receivable, less allowances for doubtful accounts,
sales discounts, and returns of $3,723,000 in 1998
and $2,714,000 in 1997 (notes 3 and 7) ................................ 41,950,447 42,396,253
Inventories (notes 2 and 3) ............................................... 38,667,753 31,825,621
Prepaid expenses and other current assets ................................. 2,076,524 2,144,645
Income taxes receivable ................................................... 2,505,787 4,070,503
------------- -------------
Total current assets ............................................. 85,373,599 80,615,052
------------- -------------
PROPERTY, PLANT, AND EQUIPMENT, AT COST (NOTE 3):
Land ...................................................................... 927,584 927,584
Buildings ................................................................. 10,599,793 9,884,855
Machinery and equipment ................................................... 38,748,529 45,660,717
------------- -------------
50,275,906 56,473,156
Less accumulated depreciation .................................................. 33,874,758 37,210,559
------------- -------------
Net property, plant, and equipment ............................................. 16,401,148 19,262,597
------------- -------------
Goodwill, net of accumulated amortization of $1,395,812
in 1998 and $1,283,192 in 1997 ............................................ 3,152,879 3,265,499
Other assets ................................................................... 3,219,125 3,148,340
------------- -------------
$ 108,146,751 106,291,488
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt (note 3) ........................... $ 3,694,031 2,104,149
Accounts payable .......................................................... 4,134,150 4,382,729
Accrued advertising ....................................................... 3,369,132 2,528,768
Accrued warranty and product liability .................................... 4,971,660 4,630,160
Accrued vacation .......................................................... 1,137,235 1,161,698
Other accrued liabilities ................................................. 4,729,538 4,616,748
Deferred income taxes (note 4) ............................................ 400,010 1,455,992
------------- -------------
Total current liabilities ........................................ 22,435,756 20,880,244
Long-term debt, excluding current installments (note 3) ........................ 49,686,015 42,597,072
Deferred income taxes (note 4) ................................................. 745,921 800,607
Other liabilities .............................................................. 839,418 695,448
------------- -------------
Total liabilities ................................................ 73,707,110 64,973,371
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued . -- --
Common stock, $.10 par value; 20,000,000 shares
authorized, 7,596,775 shares issued ................................... 759,677 759,677
Additional paid-in capital ................................................ 25,339,958 25,343,543
Retained earnings ......................................................... 9,000,537 15,877,723
Accumulated other comprehensive income .................................... (429,348) (375,311)
------------- -------------
34,670,824 41,605,632
Treasury stock, at cost, 43,525 shares in 1998 and 57,325 shares in 1997 ....... (231,183) (287,515)
------------- -------------
Total stockholders' equity ....................................... 34,439,641 41,318,117
COMMITMENT AND CONTINGENCIES (note 6)
$ 108,146,751 $ 106,291,488
============= =============

See accompanying notes to consolidated financial statements.

TOASTMASTER INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

1998 1997 1996
------------- ------------- -------------

Net sales ................................................ $ 146,091,426 $ 154,346,785 $ 163,049,140
Cost of sales (note 9) ................................... 126,020,417 125,464,731 142,458,084
------------- ------------- -------------
Gross profit ............................... 20,071,009 28,882,054 20,591,056
Selling, general, and administrative expenses ............ 23,401,897 22,669,161 23,640,864
------------- ------------- -------------
Operating income (loss) .................... (3,330,888) 6,212,893 (3,049,808)
Other expense--interest .................................. 4,128,632 4,062,561 4,392,994
Other income--interest ................................... 31,318 638,669 32,247
------------- ------------- -------------
Income (loss) before income taxes .......... (7,428,202) 2,789,001 (7,410,555)
Income tax expense (benefit) (note 4) .................... (1,009,145) 899,251 (2,719,913)
------------- ------------- -------------
Net income (loss) .......................... $ (6,419,057) $ 1,889,750 $ (4,690,642)
============= ============= =============
Basic and diluted earnings (loss) per common share ....... $ (0.85) $ 0.25 $ (0.62)
============= ============= =============
Weighted average shares used in computation:
Basic earnings per common share ..................... 7,547,743 7,538,455 7,538,250
Diluted earnings per common share ................... 7,547,743 7,545,794 7,538,250
============= ============= =============

See Accompanying Notes to Consolidated Financial Statements.

TOASTMASTER INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

1998 1997 1996
------------ ------------ ------------

Common stock--beginning and end of year .................... $ 759,677 $ 759,677 $ 759,677
------------ ------------ ------------
Additional paid-in capital:
Beginning of year ..................................... 25,343,543 25,339,958 25,339,958
Sale of 13,800 and 1,200 shares of treasury stock ..... (3,585) 3,585 --
------------ ------------ ------------
End of year ........................................... 25,339,958 25,343,543 25,339,958
------------ ------------ ------------
Retained earnings:
Beginning of year ..................................... 15,877,723 14,591,056 19,885,776
Net income (loss) ..................................... (6,419,057) 1,889,750 (4,690,642)
Cash dividends ($.06, $.08 and $.08 per share) ........ (458,129) (603,083) (604,078)
------------ ------------ ------------
End of year ........................................... 9,000,537 15,877,723 14,591,056
------------ ------------ ------------
Accumulated other comprehensive income:
Beginning of year ..................................... (375,311) (238,987) (275,727)
Other comprehensive income (loss) ..................... (54,037) (136,324) 36,740
------------ ------------ ------------
End of year ........................................... (429,348) (375,311) (238,987)
------------ ------------ ------------
Treasury stock:
Beginning of year ..................................... (287,515) (288,054) (288,054)
Sale of 13,800 and 1,200 shares of treasury stock ..... 56,332 539 --
------------ ------------ ------------
End of year ........................................... (231,183) (287,515) (288,054)
------------ ------------ ------------
Total--end of year ................................ $ 34,439,641 $ 41,318,117 $ 40,163,650
============ ============ ============

See accompanying notes to consolidated financial statements.

TOASTMASTER INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

1998 1997 1996
------------ ------------ ------------

Net income (loss) .............................. $ (6,419,057) $ 1,889,750 $ (4,690,642)
------------ ------------ ------------
Other comprehensive income, net of tax:
Minimum pension liability adjustment,
net of tax expense (benefit) of
$11,040, $(82,616), and $25,418,
in 1998, 1997, and 1996, respectively
(note 5) .................................. 17,268 (129,533) 39,757
Foreign currency translation adjustments,
net of tax benefit of $(45,588),
$(4,341), and $(1,929) in 1998, 1997,
and 1996, respectively .................... (71,305) (6,791) (3,017)
------------ ------------ ------------
Other comprehensive income (loss) .............. (54,037) (136,324) 36,740
------------ ------------ ------------
Comprehensive income (loss) .................... $ (6,473,094) $ 1,753,426 $ (4,653,902)
============ ============ ============

See Accompanying Notes to Consolidated Financial Statements.

TOASTMASTER INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

1998 1997 1996
------------- ------------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................ $ (6,419,057) $ 1,889,750 $ (4,690,642)
------------- ------------- -------------
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization ................ 3,891,869 3,621,668 4,148,456
(Gain) loss on sale of property,
plant, and equipment ........................ 63,612 (25,209) (13,671)
Deferred income taxes ........................ (1,120,382) 4,029,737 (1,933,677)
Restructuring charge ......................... -- 122,547 7,600,000
Changes in assets and liabilities:
Accounts receivable ......................... 445,806 307,592 21,800,263
Inventories ................................. (6,842,132) 1,797,453 (1,137,300)
Prepaid expenses and other current assets ... 68,121 (1,350,541) (207,460)
Other assets ................................ (70,785) (120,081) (65,033)
Accounts payable ............................ (248,579) 627,598 (2,188,267)
Accrued advertising and other
current liabilities .................... 1,441,143 (513,815) (2,475,806)
Income taxes ................................ 1,564,716 (3,302,075) (2,109,089)
------------- ------------- -------------
Total adjustments ...................... (806,611) 5,194,874 23,418,416
------------- ------------- -------------
Net cash flows (used in) provided
by operating activities .............. (7,225,668) 7,084,624 18,727,774
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment ...... (1,670,756) (4,372,380) (4,484,999)
Proceeds from sale of property, plant,
and equipment ................................ 689,344 28,567 29,895
------------- ------------- -------------
Net cash flows used in investing activities ...... (981,412) (4,343,813) (4,455,104)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit agreements .... 161,781,588 155,588,324 172,649,840
Repayments of revolving credit agreements .... (151,060,109) (155,505,295) (188,213,335)
Proceeds from long-term debt ................. 64,168 -- 4,119,052
Repayments of long-term debt ................. (2,106,822) (2,137,526) (2,165,933)
Dividends on common stock .................... (458,129) (603,083) (604,078)
Sale of treasury stock ....................... 52,747 4,124 --
------------- ------------- -------------
Net cash flows provided by
(used in) financing activities ....... 8,273,443 (2,653,456) (14,214,454)
Foreign currency translation adjustment ...... (71,305) (6,791) (3,017)
------------- ------------- -------------
Net (decrease) increase in cash ........ (4,942) 80,564 55,199
Cash at beginning of year ........................ 178,030 97,466 42,269
------------- ------------- -------------
Cash at end of year .............................. $ 173,088 $ 178,030 $ 97,468
============= ============= =============
Cash paid during the year for:
Interest ..................................... $ 4,019,000 $ 3,996,000 $ 4,393,000
Income taxes ................................. -- 222,000 1,323,000
============= ============= =============

See Accompanying Notes to Consolidated Financial Statements.

TOASTMASTER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Financial Statement Presentation

The consolidated financial statements include the accounts of
Toastmaster Inc. and its wholly-owned subsidiary, Toastmaster de Mexico S.A. de
C.V., referred to collectively herein as the (Company). All significant
intercompany transactions and balances have been eliminated in the accompanying
consolidated financial statements.

(b) Operations

The Company manufactures small electrical kitchen and household
appliances and time products sold under the Toastmaster(R) and Ingraham(R)
labels. The Company has manufacturing facilities in Missouri and North Carolina.
Although THE Company has long-established relationships with many of its
customers, the Company does not have long-term contracts with any of its
customers. A significant concentration of the Company's business activity is
with entities whose ability to meet their obligations with the Company is
dependent upon prevailing economic conditions within the retail industry.

The Company recognizes sales revenue when products are shipped. Net
sales reflect a reduction of amounts related to product returns, sales discount
programs, outbound freight, and certain allowances for advertising, the latter
of which are accounted for by certain competitors as "advertising" expense. The
Company views these amounts as price reductions, thereby reducing net sales and
lowering gross profits, as well as selling, general, and administrative expense.

Inventories are valued at the lower of cost, determined by the last-in,
first-out (LIFO) method, or market.

(d) Property, Plant, and Equipment

Property, plant, and equipment are stated at cost of acquisition or
construction. Maintenance and repairs are charged to operations as incurred.
Renewals and betterments are capitalized as additions to the appropriate asset
accounts. Upon sale or retirement of assets, the cost and related accumulated
depreciation applicable to such assets are removed from the accounts and any
resulting gain or loss is reported in the consolidated statements of operations.

(e) Depreciation

The Company depreciates property, plant, and equipment over the useful
lives of the various assets which range from three to forty years, using
principally the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes.

(f) Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases using enacted tax rates expected to apply to taxable income in the years
in which

those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities for subsequent changes in tax rates is
recognized in income in the period that includes the tax rate change.

(g) Research and Development

Research and development costs, which are included in selling, general,
and administrative expenses, aggregated $439,000, $457,000, and $573,000 in
1998, 1997, and 1996, respectively.

(h) Intangible Assets

The excess of the cost of the acquisition of the Company over the
estimated fair value of the net assets acquired (goodwill) is being amortized on
a straight-line basis over forty years.

Costs associated with obtaining financing arrangements are included in
other assets and are being amortized over the term of the related borrowings.

(i) Employee Benefit Plans

The Company has noncontributory retirement plans covering salaried and
hourly employees. The policy of the Company is to fund retirement costs in
amounts sufficient to satisfy the minimum funding requirements under Employee
Retirement Income Security Act (ERISA) guidelines.

(j) Product Warranties

The Company provides for estimated future costs that will be incurred
under product warranties presently in force.

(k) Self-insurance

The Company maintains a self-insurance program for health claims and
workers' compensation claims of all covered employees. The Company accrues
estimated future costs that will be incurred for existing employee claims. The
Company does not provide any postretirement health care benefits.

(l) Product Liability Claims

The Company is involved in product liability litigation arising in the
normal course of business and purchases product liability insurance coverage. A
liability is recognized for product liability claims when payment for such
claims is determined to be probable and the amount can be reasonably estimated,
after consideration of the applicable insurance coverages and deductibles.

(m) Fair Value of Financial Instruments

Estimates of fair values are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could affect the estimates.
The fair market value of the Company's financial instruments approximates the
carrying value.

(n) Foreign Currency Translation

Assets and liabilities in foreign currencies are translated into
dollars at rates prevailing at the balance sheet date. The net exchange
differences resulting from these translations are reported in stockholders'
equity. Revenues and expenses are translated at average rates for the year.
Gains and losses resulting from foreign currency transactions are included in
the consolidated

statements of operations. The net losses resulting from foreign currency
transactions were $1,134,000, $269,000, and $64,000 in 1998, 1997, and 1996,
respectively.

(o) Use of Estimates

Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.

(p) Advertising Costs

Advertising costs are expensed as incurred and amounted to $6,661,000,
$7,714,000, and $8,491,000 in 1998, 1997, and 1996, respectively.

(q) Stock Option Plans

The Company records stock options in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price of underlying
stock exceeds the exercise price. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, which allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
later years as if the fair value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the accounting provisions
of APB Opinion No. 25 and provide the pro forma disclosures under SFAS No. 123.

(r) Earnings Per Common Share

Basic earnings per share (EPS) is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue stock were exercised or
converted into common stock, or resulted in the issuance of common stock that
then shared in the earnings of the entity.

For the years ended December 31, 1998, 1997, and 1996, there are no
differences between the numerator used in computing basic and diluted earnings
per share which represents the net income (loss) of the Company. For the years
ended December 31, 1998, 1997, and 1996, the denominator used in computing basic
earnings per share represents the weighted average number of common shares
outstanding (7,547,743 shares--1998, 7,538,455 shares--1997, 7,538,250
shares--1996). The denominator used in computing diluted earnings per share
represents the weighted average number of common shares outstanding used for
purposes of the basic earnings per share computation. In years with net income,
the denominator is increased to reflect the potential dilution under the
treasury stock method of the outstanding stock options (41,918 shares in 1998,
7,339 shares in 1997, and 0 shares in 1996). The number of outstanding shares
used in the diluted earnings (loss) per share computation is not increased for
stock options in years with net losses because their inclusion would be
antidilutive.

(s) Comprehensive Income

On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income.SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components; however, the adoption
of this statement had no impact on the Company's net income or shareholders'
equity. SFAS No. 130 requires the Company's change in the minimum pension
liability and the foreign currency translation adjustments to be included in
other comprehensive income. Prior years' financial statements have been
reclassified to conform to these requirements.

(2) INVENTORIES

A summary of inventories is as follows:

1998 1997

Raw materials.................................................................. $ 5,369,193 $ 5,143,145
Work-in-process................................................................ 1,759,148 1,813,409
Finished goods................................................................. 31,539,412 24,869,067
-------------- --------------
Total................................................................. $ 38,667,753 $ 31,825,621
============== ==============

If the first-in, first-out (FIFO) method of inventory valuation had
been used, inventories at December 31, 1998 and 1997 would have been
approximately $214,000 and $652,000 higher than reported. Net income (loss) for
the years ended December 31, 1998 and 1997 would have been approximately
$289,000 and $738,000 lower (higher) than reported and net loss for the year
ended December 31, 1996 would have been approximately $71,000 higher than
reported.

During 1997 and 1996, LIFO inventory layers were reduced. These
reductions resulted in charging lower inventory costs prevailing in previous
years to cost of goods sold in 1997 and 1996, thus reducing cost of goods sold
by $114,000 and $344,000, respectively, below the amount that would have
resulted from liquidating inventory recorded at December 31, 1997 and 1996
prices, respectively.

(3) LONG-TERM DEBT

A summary of long-term debt is as follows:

1998 1997

Borrowings under revolving credit agreements................................... $ 46,008,099 $ 35,286,620
Term note, monthly payments of $154,762
plus interest, balance of $1,798,000 due in November 2001.................. 5,511,902 7,369,046
Other.......................................................................... 1,860,045 2,045,555
-------------- --------------
Total long-term debt.................................................. 53,380,046 44,701,221
Less current portion........................................................... 3,694,031 2,104,149
-------------- --------------
$ 49,686,015 $ 42,597,072
============== ==============

The borrowings under the revolving credit and term loan agreement were
paid off in January 1999 (note 11).

The Company had a revolving credit and term loan agreement which
expires in November 2001. The agreement, as modified, provided for borrowings of
up to $85,000,000 (including the balance of the term loan) from June 1 through
January 31 or $60,000,000 from February 1 through May 31, or eligible accounts
receivable and inventory, as described therein.

Borrowings under the revolving credit agreement generally bore interest
at prime plus .75% (8.5% at December 31, 1998), with the option to elect the
London Interbank Offering Rate (LIBOR) plus 1.75% (7.37875% at December 31,
1998). The Company had borrowings of $46,008,099 at December 31, 1998 under the
LIBOR option. The Company could elect to pay interest on a specified amount of
borrowings (not less than $4,000,000 or more than $12,000,000) at a fixed rate
based on the U.S. treasury note yield to maturity plus 2.5%. The interest period
for any fixed rate loan was not less than one year.

At December 31, 1998, the Company had borrowed $5,511,902 under the
term loan provisions of the agreement, $211,902 of which bore interest at 8.75%
and $5,300,000 of which bore interest at 7.46938%.

The annual interest rate on any loan under the agreement could not be
less than 5%. The Company also paid a 1/2% annual fee, paid monthly on the
unused portion of the revolving credit agreement. Advances under the revolving
credit

agreement were secured by accounts receivable, inventory, and property, plant,
and equipment. The agreement contained restrictions as to maintenance of net
worth and certain financial ratios, minimum levels of income and working
capital, payment of cash dividends or purchases of treasury stock, additions to
property, plant, and equipment, and incurrence of additional indebtedness.

Aggregate long-term debt maturities at December 31, 1998, including the
revolving credit agreement which expires in 2001, were as follows:

YEAR AMOUNT

1999.................................................................................... $ 3,694,031
2000.................................................................................... 1,880,301
2001.................................................................................... 47,805,714
--------------
$ 53,380,046
==============

The Company has obtained guarantees for letters of credit, primarily
for importing purposes, up to $8,000,000. Outstanding letters of credit at
December 31, 1998 and 1997 aggregated approximately $1,545,000 and $982,000,
respectively.

The fair market value of the Company's revolver and term notes
approximated their carrying value at December 31, 1998. Other long-term debt
with a carrying amount of $1,860,045 had a fair value of $1,944,000 at December
31, 1998.

(4) INCOME TAXES

The components of income tax expense (benefit) are shown below:

1998 1997 1996

Current:
Federal.............................................. $ 139,257 $ (2,903,272) $ (735,825)
State................................................ (28,020) (237,297) (72,774)
--------------- --------------- ---------------
Total current................................... 111,237 (3,140,569) (808,599)
--------------- --------------- ---------------
Deferred:
Federal.............................................. (1,018,285) 3,727,294 (1,757,303)
State................................................ (102,097) 312,526 (154,011)
--------------- --------------- ---------------
Total deferred.................................. (1,120,382) 4,039,820 (1,911,314)
--------------- --------------- ---------------
Total income tax expense (benefit).............. $ (1,009,145) $ 899,251 $ (2,719,913)
=============== =============== ===============

The Company generated a net operating loss for tax return purposes
during 1998. Due to a law change, this net operating loss may only be carried
back two years, 1996 and 1997. Both of these years also generated net tax
operating losses and, therefore, the net operating loss from the current year
must be carried forward. These losses expire in the year 2018. As discussed in
note 11, in January 1999 the Company was acquired, resulting in a change of
ownership that limits future utilization of the net operating losses. These
losses will be limited in their usage to the lesser of approximately $2,500,000
per year, or the amount of taxable income that the Company contributes to the
acquirer's net taxable income in future years.

The actual income tax expense (benefit) differs from the expected
expense (benefit) computed by applying the statutory federal rate of 34% to
pretax income (loss) for the following reasons:

1998 1997 1996

Computed "expected" expense (benefit).................... $ (2,525,589) $ 948,260 $ (2,519,589)
Amortization of goodwill................................. 38,291 38,291 38,291
State income tax expense (benefit), net.................. (85,877) 49,651 (112,702)
(Income) loss of foreign subsidiary...................... 75,820 (138,720) (79,214)
Other ................................................ (87,576) 1,769 (46,699)
Net operating loss....................................... 1,575,786 -- --
--------------- ------------ ---------------
Actual income tax expense (benefit)............. $ (1,009,145) $ 899,251 $ (2,719,913)
=============== ============ ===============

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and 1997 are presented below:

1998 1997
Deferred income tax assets:
Inventories .................................................... $ 1,034,340 $ 1,102,290
Accrued liabilities ............................................ 2,077,887 2,082,141
Net operating loss ............................................. 1,575,786 --
Other .......................................................... 456,182 348,998
------------ ------------
Total gross deferred assets ............................... 5,144,195 3,533,429
Valuation allowance ............................................ (1,575,786) --
------------ ------------
Net deferred assets ....................................... 3,568,409 3,533,429
------------ ------------
Deferred income tax liabilities:
Property, plant, and equipment ................................. (752,300) (800,607)
Inventories .................................................... (3,242,483) (3,389,671)
Allowances for doubtful accounts,
sales discounts, and returns .............................. (523,117) (1,393,652)
Interest receivable ............................................ (196,440) (206,098)
------------ ------------
Total gross deferred liabilities .......................... (4,714,340) (5,790,028)
------------ ------------
Net deferred tax liability ................................ $ (1,145,931) $ (2,256,599)
============ ============

A valuation allowance of $1,575,786 for certain deferred tax assets was
established at December 31, 1998.

(5) EMPLOYEE BENEFIT PLANS

Substantially all of the Company's employees are covered by two defined
benefit pension plans. The plans' assets consist of a balanced portfolio of
investments in money market, common stock, bond, and real estate funds.
Effective December 31, 1998, the Company adopted SFAS No. 132, Employers'
Disclosures About Pensions and Other Postretirement Benefits.The disclosures
required by SFAS No. 132 supersede previous disclosure requirements without
affecting measurement or recognition criteria. Accordingly, all disclosures for
prior periods shown below have been revised to conform to the disclosure
requirements of SFAS No. 132:

1998 1997

Change in benefit obligation:
Benefit obligation at beginning of year ........................ $ 10,128,711 $ 8,384,636
Service cost ................................................... 695,837 632,271
Interest cost .................................................. 786,703 675,117
Actuarial loss ................................................. 665,283 949,543
Benefits paid and expenses ..................................... (687,154) (512,856)
------------ ------------
Benefit obligation at end of year .............................. $ 11,589,380 $ 10,128,711
============ ============
Change in plan assets:
Fair value of plan assets at beginning of year ................. $ 9,119,571 $ 7,564,007
Actual return on plan assets ................................... 1,565,491 1,244,075
Employer contribution .......................................... 824,022 824,345
Benefits paid from plan assets ................................. (576,247) (346,532)
Expenses ....................................................... (125,085) (166,324)
------------ ------------
Fair value of plan assets at end of year ....................... $ 10,807,752 $ 9,119,571
============ ============
Funded status ...................................................... $ (781,628) $ (1,009,140)
Unrecognized net actuarial loss .................................... 157,933 236,418
Unrecognized transitional asset .................................... (248,654) (323,288)
Unrecognized prior service cost .................................... 8,038 9,728
Additional pension liability in excess of
unrecognized prior service cost ................................ (537,273) (565,817)
------------ ------------
Accrued pension cost recorded in other
accrued liabilities in the accompanying
consolidated balance sheets .................................... $ (1,401,584) $ (1,652,099)
============ ============
Weighted average assumptions as of December 31:
Discount rate .................................................. 7.0% 7.0%
Rate of increase in compensation ............................... 5.0 5.0
Expected return on plan assets ................................. 9.0 9.0
============ ============

1998 1997 1996
Components of net periodic benefit cost:
Service cost--benefits earned during the year ......... $ 695,837 $ 632,271 $ 555,874
Interest cost on projected benefit obligation ......... 786,703 675,117 612,287
Actuarial return on plan assets ....................... (1,565,491) (1,244,075) (788,136)
Net amortization and deferral ......................... 685,001 493,786 124,964
----------- ----------- -----------
Net pension cost ................................. $ 602,050 $ 557,099 $ 504,989
=========== =========== ===========

Under the requirements of SFAS No. 87, Employers' Accounting for
Pensions, an additional minimum pension liability for one plan, representing the
excess of accumulated benefits over plan assets and accrued pension costs, was
recognized at December 31, 1998 and 1997. A corresponding amount of $(6,861) and
$(9,603) was recognized as an intangible asset at December 31, 1998 and 1997 to
the extent of unrecognized prior service cost and unrecognized transition
obligation, with the balance recorded as a separate reduction of stockholders'
equity, net of the deferred tax effect.

The Company has a cash incentive program for certain key employees.
Under the terms of the plan, cash awards are made based upon the achievement of
certain corporate and individual performance goals. Awards in total are limited
to not more than 5% of the Company's earnings before interest and taxes. No
awards were earned under the program in 1998, 1997, or 1996.

The Company maintains a defined contribution savings plan covering
substantially all employees. The plan is funded through employee and voluntary
employer contributions. The Company accrued contributions of $130,000, $140,000,
and $140,000 for the years ended December 31, 1998, 1997, and 1996,
respectively.

The Company has adopted an incentive stock option plan (the ISO Plan),
a Nonemployee Director Stock Option Plan (the Directors' Plan) and a
Non-Statutory Stock Option Plan (the Non-Statutory Plan). Under the ISO Plan,
options to acquire a total of 111,000 shares of the Company's common stock were
granted to certain employees, 46,000 in 1993, 52,500 in 1994, and 12,500 in
1997. The options vest over five years, with 20% cumulative vesting each year,
and expire six years after the date of grant. The options granted in 1997 allow
the holders to acquire stock for $3.4375 per share, which was the fair market
value of the stock when the options were granted. In 1997, the exercise price
and exercise period for options granted in 1993 and 1994 and still held by
active employees were amended. The exercise price was reduced to $3.4375 per
share, which was the fair market value of the stock on the effective date of the
amendment, and the exercise period was extended an additional year to six years.
Under the Directors' Plan, options to acquire a total of 15,000 shares of common
stock were granted to nonemployee directors in 1993. The options vested
immediately and allowed the holders to acquire stock for $7.375 per share, which
was the fair market value of the stock when the options were granted. The 1993
options expired in 1998. Also under the Directors' Plan, options to acquire a
total of 15,000 additional shares of common stock were granted to nonemployee
directors in 1997. The options vest immediately, expire five years after the
date of grant, and allow the holders to acquire stock for $3.4375 per share,
which was the fair market value of the stock when the options were granted. At
December 31, 1998 and 1997, there were options on 86,000 shares and 93,000
shares outstanding, respectively, of which 59,700 shares and 55,700 shares,
respectively, are exercisable under the ISO Plan. At December 31, 1998, there
were options on 15,000 shares outstanding and exercisable at $3.4375 per share
under the Directors' Plan. At December 31, 1997, there were options on 30,000
shares outstanding and exercisable (15,000 at $3.4375 per share and 15,000 at
$7.375 per share) under the Directors' Plan. No options have been granted under
the Non-Statutory Plan.

In 1994, the Company adopted a supplemental executive retirement plan
(SERP) for certain officers of the Company who were unable to participate in the
Company's qualified defined benefit plan beginning January 1, 1989, because of
changes in the tax laws which imposed certain antidiscrimination requirements
upon qualified plans. The SERP provides for a normal retirement benefit for each
of the officers. Early retirement benefits under the SERP would be actuarially
adjusted to reflect the earlier commencement of the benefit. The SERP is funded
by the purchase of life insurance policies to be held in trust. The Company
reimburses the participants for the current tax recognition resulting from
insurance policy purchases. The respective costs are being amortized over a
five-year vesting employment period of the participants. The expense for this
plan was approximately $434,000, $407,000, and $401,000 for 1998, 1997, and
1996, respectively. The SERP benefits were accelerated in January 1999 (see note
11).

(6) COMMITMENTS AND CONTINGENCIES

(a) Leases

The Company leases certain equipment under operating lease agreements.
Rent expense was approximately $1,202,000, $1,250,000, and $1,139,000 for the
years ended December 31, 1998, 1997, and 1996.

Future lease commitments under long-term noncancelable operating leases
are as follows:

YEAR AMOUNT

1999.................................................................................... $ 713,000
2000.................................................................................... 574,000
2001.................................................................................... 489,000
2002.................................................................................... 461,000
2003.................................................................................... 398,000
Thereafter.............................................................................. 163,000
--------------
$ 2,798,000
==============

It is expected that in the normal course of business, leases that
expire will be renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will not be less than the
amounts shown for 1999.

(b) Contingencies

The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.

The Company is a party to environmental proceedings at two sites and is
investigating the need for remediation at two additional facilities of the
Company. The Company has accrued approximately $300,000 for the anticipated
future costs of investigation and remediation. Although such costs could exceed
that amount, the Company believes that any such excess will not have a material
impact on the Company's financial position or results of operations.

(7) CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES

One customer accounted for approximately 32%, 27%, and 27% of net sales
for the years ended December 31, 1998, 1997, and 1996, respectively. As of
December 31, 1998, accounts receivable from a single customer comprised 24% of
total accounts receivable, and accounts receivable denominated in foreign
currencies amounted to approximately $4.3 million.

Income (loss) before income taxes attributable to Toastmaster de
Mexico S.A. de C.V. amounted to $(223,000) in 1998, $408,000 in 1997, and
$236,000 in 1996.

(8) UNAUDITED QUARTERLY FINANCIAL DATA

Unaudited quarterly financial data is as follows (amounts in thousands,
except for per share data):

QUARTER
FIRST SECOND THIRD FOURTH
1998:
Net sales .......................................... $ 25,626 $ 29,441 $ 37,855 $ 53,169
Gross profit ....................................... 4,308 4,270 4,251 7,241
Loss before income taxes ........................... (1,524) (1,523) (2,375) (2,006)
Net loss ........................................... (882) (1,012) (1,623) (2,902)
Basic and diluted loss per common share ............ (0.12) (0.13) (0.21) (0.39)
======== ======== ======== ========

1997:
Net sales .......................................... $ 26,315 $ 27,757 $ 44,209 $ 56,066
Gross profit ....................................... 4,134 4,967 8,639 11,142
Income (loss) before income taxes .................. (1,782) (1,131) 2,123 3,579
Net income (loss) .................................. (1,141) (712) 1,410 2,333
Basic and diluted earnings (loss)
per common share ................................. (0.15) (0.09) 0.19 0.30
======== ======== ======== ========

1996:
Net sales .......................................... $ 26,738 $ 32,634 $ 49,321 $ 54,356
Gross profit ....................................... 3,359 4,282 9,573 3,377
Income (loss) before income taxes .................. (2,605) (2,042) 1,481 (4,245)
Net income (loss) .................................. (1,654) (1,312) 950 (2,675)
Basic and diluted earnings (loss)
per common share ................................. (0.22) (0.17) 0.13 (0.36)
======== ======== ======== ========

(9) RESTRUCTURING

The Company completed a restructuring of its product lines and
operations in 1997. The Company disposed of its environmental products line and
discontinued the production of certain kitchen countertop appliances and time
products. The inventory and manufacturing equipment related to these products
will be disposed of through normal channels of distribution and sale and
abandonment, respectively.

Restructuring charges incurred in the fourth quarter of 1996 consisted
of inventory valuation charges of $5,666,000, anticipated losses on the disposal
of fixed assets of $1,684,000, and accrued expenses of $250,000. Total
restructuring charges in 1996 amounted to $7,600,000 before income taxes and are
recorded in cost of sales.

Additional restructuring charges of $123,000 were incurred in 1997 for
anticipated losses on the disposal of fixed assets and are recorded in cost of
sales. At December 31, 1998 and 1997, accrued restructuring expense amounted to
$0 and $127,000, respectively.

(10) ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its plans. Accordingly,
no compensation expense has been recognized for its stock-based compensation
plans. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for 1997 awards and
amendments under these plans consistent with the methodology presented in SFAS
No. 123, Accounting for Stock-Based Compensation, the Company's net loss for
1998 would have been increased by approximately $41,000 or $0.01 for basic and
diluted earnings per common share, and net income for 1997 would have been
reduced by approximately $47,500 or $0.01 for basic and diluted earnings per
common share. The fair value of the options granted and amended during 1997 is
estimated at values ranging from $0.39 to $1.11 on the dates of grant or
amendment using the Black-Scholes option-pricing model with the following
assumptions: dividend rate of $0.02 per share, volatility of 36.60% risk-free
interest rate ranging between 5.39% and 6.23%, and an expected life ranging
between 0.5 and 3.5 years.

Pro forma net income reflects only options granted or amended since
December 31, 1994. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above because compensation cost is reflected over the
options vesting period, and compensation cost for options granted prior to
January 1, 1995 is not considered.

(11) SUBSEQUENT EVENTS

On January 7, 1999, Salton, Inc. (Salton) completed the purchase of all
outstanding common stock of the Company for $7.00 per share. Salton also assumed
the assets and liabilities of the Company, and subsequently paid off the
borrowings under the revolving credit agreements (note 3).

The Company was obligated for severance pay and accelerated retirement
benefits upon a change in controlling ownership under certain contractual
agreements with executive officers. Those obligations aggregated $2,511,235 and
were paid in January and February 1999, and will be recorded by the Company as
1999 transactions.

The Company continues to operate as a wholly-owned subsidiary of
Salton.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item 10 as to the Directors of the
Company is incorporated herein by reference to the information set forth under
the caption "Election of Directors" in the Company's definitive Proxy Statement
for the 1998 Annual Meeting of Stockholders, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A. Information
required by this Item 10 as to the executive officers of the Company is included
in Part I of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated by reference
to the information set forth under the caption "Compensation of Directors and
Executive Officers" in the Company's definitive Proxy Statement for the 1998
Annual Meeting of Stockholders, since such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the Company's fiscal year pursuant to Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item 12 is incorporated by reference
to the information set forth under the caption "Stock Ownership of Principal
Holders and Management" in the Company's definitive Proxy Statement for the 1998
Annual Meeting of Stockholders, since such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the Company's fiscal year pursuant to Regulation 14A.

ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS

The information required by this Item 13 is incorporated by reference
to the information set forth under the caption "Certain Transactions" in the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders, since such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON REPORT 8-K

(a)(1) FINANCIAL STATEMENTS

The following Financial Statements of the registrant and its
subsidiaries are included in Part II, Item 8:

PAGE
SALTON
Independent Auditors' Report 32
Consolidated Balance Sheets as of June 26, 1999 and June 27, 1998 33
Consolidated Statements of Earnings for the Years Ended
June 26, 1999, June 27, 1998 and June 28, 1997 34
Consolidated Statements of Stockholders' Equity for the Years Ended
June 26, 1999, June 27, 1998 and June 28, 1997 35
Consolidated Statements of Cash Flows for the Years Ended June 26, 1999,
June 27, 1998 and June 28, 1997 36
Notes to the Consolidated Financial Statements 37
TOASTMASTER
Years ended December 31, 1998, 1997 and 1996
Independent Auditors' Report.............................................................................. 52
Consolidated Balance Sheets as of December 31, 1998 and 1997.............................................. 53
Consolidated Statements of Operations for the Years ended December 31, 1998, 1997 and 1996................ 54
Consolidated Statements of Stockholders' Equity for the Years ended December 31, 1998, 1997 and 1996...... 55
Consolidated Statements of Comprehensive Income (Loss) for the Years ended
December 31, 1998, 1997 and 1996.......................................................................... 56
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996................ 57
Notes to Consolidated Financial Statements................................................................ 58

(a)(2) FINANCIAL STATEMENTS SCHEDULES

The following Financial Statement Schedules of the Registrant are
included in Item 14 hereof.

PAGE

Schedule VIII-Valuation and Qualifying Accounts 73

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.

(a)(3) EXHIBITS

See Exhibit Index for the Exhibits filed as part of or
incorporated by reference into this Report.

(b) REPORTS ON FORM 8-K

(i) Current Report on Form 8-K dated June 26, 1998 reporting
under Item 5 Other Events, The Company's giving of written
notice to Windmere of its intention to consumate the stock
repurchase.

(ii) Current Report on Form 8-K dated July 2, 1998 reporting under
Item 5, Other Events, the Company's obtaining a commitment
letter from Lehman Brothers, Inc. for a senior secured credit
facility of up to $215 million.

(iii) Current Report on Form 8-K dated July 15, 1998 reporting
under Item 5, Other Events, the Company's entering into the
Preferred Stock Agreement.

(iv) Current Report on Form 8-K dated July 28, 1998 reporting
under Item 5, Other Events, the consummation of the stock
repurchase.

(v) Current Report on Form 8-K dated August 26, 1998 reporting
under Item 5, Other Events, the Company's entering into a
definitive merger agreement to acquire Toastmaster.

(vi) Current Report on Form 8-K dated January 15, 1999 reporting
under Item 5, Other Events, consumation of the acquisition of
Toastmaster.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on the 22st day of
September, 1999.

SALTON, INC.

By: /s/ Leonhard Dreimann
-----------------------------
Leonhard Dreimann
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on September 21, 1999:

SIGNATURE

/s/ LEONHARD DREIMANN Chief Executive Officer and Director
--------------------- (Principal Executive Officer)
Leonhard Dreimann

/s/ WILLIAM B. RUE President and Chief Operating Officer
---------------------
William B. Rue

/s/ JOHN E. THOMPSON Senior Vice President and Chief Financial Officer
--------------------- (Principal Accounting and Financial Officer)
John E. Thompson

/s/ DAVID C. SABIN Director
---------------------
David C. Sabin

/s/ FRANK DEVINE Director
---------------------
Frank Devine

/s/ BERT DOORNMALEN Director
---------------------
Bert Doornmalen

/s/ ROBERT A. BERGMANN Director
----------------------
Robert A. Bergmann

/s/ BRUCE G. POLLACK Director
---------------------
Bruce G. Pollack

The following pages contain the Financial Statement Schedules as specified by
12(a) and 14(a)(2) of Part IV of Form 10-K. The report of Deloitte & Touche LLP
with respect to the schedule required by 14(a)(2) appears at page 32 of this
Form 10-K

71
EXHIBIT 12(A)

COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
SALTON, INC.

YEAR ENDED
(THOUSANDS, EXCEPT RATIOS) 1999 1998 1997 1996 1995
------- ------- ------- ------- -------

Fixed Charges
Interest and amortization of debt issuance costs on
all indebtedness $15,864 $ 7,336 $ 4,967 $ 3,934 $ 3,057

Add interest element implicit in rentals 1,158 521 394 222 211
------- ------- ------- ------- -------

Total fixed charges $17,022 $ 7,857 $ 5,361 $ 4,156 $ 3,268
======= ======= ======= ======= =======

Income
Income before income taxes $53,863 $32,186 $ 6,400 $ 1,146 $ 671

Add fixed charges 17,022 7,857 5,361 4,156 3,295
------- ------- ------- ------- -------

Income before fixed charges and income taxes $70,885 $40,043 $11,761 $ 5,302 $ 3,939
======= ======= ======= ======= =======

Ratio of earnings to fixed charges 4.16 5.10 2.19 1.28 1.21

SALTON, INC.

VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED JUNE 26, 1999

CHARGED TO
BEGINNING COSTS AND ENDING
BALANCE EXPENSES DEDUCTIONS BALANCE
-------- ---------- ---------- -------

YEAR ENDED JUNE 28, 1997:
Allowance for returns,
allowances and doubtful accounts $1,900,000 $15,244,000 $(14,744,000) $2,400,000
YEAR ENDED JUNE 27, 1998:
Allowance for returns,
allowances and doubtful accounts $2,400,000 $21,752,000 $(21,152,000) $3,000,000
YEAR ENDED JUNE 26, 1999:
Allowance for returns,
allowances and doubtful accounts $3,000,000 $31,606,000 $(28,504,000) $6,102,000

EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- -----------------------

2.1 Agreement and Plan of Merger, dated August 26, 1998, among
the Registrant, Columbia Acquisition Corp. and Toastmaster
Inc. Incorporated by reference to the Registrant's Current
Report on Form 8-K dated August 26, 1998.

2.2 Shareholders Agreement, dated August 26, 1998, between the
Registrant and certain shareholders of Toastmaster.
Incorporated by reference to the Registrant's Current Report
on Form 8-K dated August 26, 1998.

3.1 Amended and Restated Certificate of Incorporation of
Registrant. Incorporated by reference to the Registrant's
Registration Statement on Form S-1 (Registration No.
33-42097).

3.2 By-laws of the Registrant. Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (Registration
No. 33-42097).

3.3 Certificate of Designation for the Series A Convertible
Preferred Stock of the Registrant. Incorporated by reference
to the Registrant's Current Report on Form 8-K dated July
28,1998.

4.1 Specimen Certificate for shares of Common Stock, $.01 par
value, of the Registrant. Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (Registration
No. 33-42097).

4.2 Form of Note for Registrant's 10 3/4% Senior Subordinated
Notes. Incorporated by reference to the Registrant's
Registration Statement on Form S-4 (Registration No.
333-70169)

4.3 Indenture dated December 16,1998 between Norwest Bank
National Association, as Issuer, and the Registrant relating
to the Registrant's 10 3/4% Senior Subordinated Notes.
Incorporated by reference to the Registrant's Registration
Statement on Form S-4 (Registration No. 333-70169)

10.1 Salton/Maxim Housewares, Inc. Stock Option Plan. Incorporated
by reference to the Registrant's Registration Statement on
form S-1 (Registration No. 33-42097).

10.2 Stockholders Agreement, dated August 6, 1991, by and among
the Registrant, Braddock Financial Corporation, Financo
Investors Fund, L.P., and Mesirow Private Equity, Inc.
(successor to Mesirow Venture Capital, Inc.) as the
authorized representative of Mesirow Capital Partners III,
Mesirow Capital Partners IV, Mesirow Capital Partners V and
Allied Investment Corporation. Incorporated by reference to
the Registrant's Registration Statement on Form S-1
(Registration No. 33-42097).

10.3 Form of Sales Representative Agreement generally used by and
between the Registrant and its sales representatives.
Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-42097).

10.4 Stock Registration Rights Agreement, dated as of August 6,
1991, by and between the Registrant, Braddock Financial
Corporation, Financo Investors Fund, L.P., Mesirow Capital
Partners II, Mesirow Capital Partners IV, Mesirow Capital
Partners V and Allied Investment Corporation. Incorporated by
reference to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-42097).

10.5 Salton/Maxim Housewares, Inc. 1995 Employee Stock Option
Plan. Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended December 30,
1995.

10.6 Salton/Maxim Housewares, Inc. Non-Employee Directors Stock
Option Plan. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
December 30, 1995.

10.7 Asset Purchase Agreement dated July 1, 1996 by and among the
Registrant, Block China Corporation and Robert C. Block
Incorporated by reference from the Company's Current Report
on Form 8-K dated July 1, 1996.

10.8 License Agreement dated as of February 1, 1996 by and between
White Consolidated Industries Inc. and the Registrant.
Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q/A for the fiscal quarter ended December
28, 1996.

10.9 License Agreement dated as of May 21, 1996 by and between
White Consolidated Industries Inc. and the Registrant.
Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q/A for the fiscal quarter ended December
28, 1996.

10.10 Purchase, Distribution and Marketing Agreement dated as of
January 27, 1997 between the Registrant and Kmart
Corporation. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q/A for the fiscal quarter ended
December 28, 1996.

10.11 Employment Agreement dated as of December 19, 1997 between
the Registrant and Leonhard Dreimann. Incorporated by
reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 27, 1998.

10.12 Employment Agreement dated as of December 19, 1997 between
the Registrant and David C. Sabin. Incorporated by reference
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 27, 1998.

10.13 Employment Agreement dated as of December 19, 1997 between
the Registrant and William B. Rue. Incorporated by reference
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 27, 1998.

10.14 Stock Agreement, dated as of May 6, 1998, by and between the
Registrant, Windmere-Durable Holdings, Inc. and the Salton
Executive Related Parties (as defined therein). Incorporated
by reference to the Registrant's Current Report on Form 8-K
dated May 6, 1998.

10.15 Note, dated July 27, 1998, issued by the Registrant to
Windmere-Durable Holdings, Inc. Incorporated by reference to
the Registrant's Current Report on Form 8-K dated July 28,
1998.

10.16 Agreement dated July 27, 1998, between the Registrant to
Windmere-Durable Holdings, Inc. Incorporated by reference to
the Registrant's Current Report on Form 8-K dated July 28,
1998.

10.17 Credit Agreement dated July 27, 1998 among the Registrant,
the several lenders from time to time parties thereto, Lehman
Brothers Inc., as arranger, Lehman Commercial Paper Inc., as
syndication agent, and Lehman Commercial Paper Inc., as
administrative agent. Incorporated by reference to the
Registrant's Current Report on Form 8-K dated July 28, 1998.

10.18 Stock Purchase Agreement dated July 15, 1998 by and among the
Registrant and Centre Capital Investors III, L.P.,Centre
Capital Tax-Exempt Investors II, L.P., Centre Capital
Offshore Investors, L.P., The State Board of Administration
of Florida, Centre Parallel Management Partners, L.P. and
Centre Partners Coinvestment, L.P. Incorporated by reference
to the Registrant's Current Report on Form 8-K dated July15,
1998.

10.19 Registration Rights Agreement dated July 15, 1998 by and
among the Registrant and Centre Capital Investors II,
L.P.,Centre Capital Tax-Exempt Investors II, L.P., Centre
Capital Offshore Investors II, L.P., The State Board of
Administration of Florida, Centre Parallel Management
Partners, L.P. and Centre Partners Coinvestment, L.P.
Incorporated by reference to the Registrant's Current
Reporton Form 8-K dated July 28, 1998.

10.20 The Salton, Inc. 1998 Employee stock option plan.

21.1 Subsidiaries of the Company. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 27, 1998.

23.1 Consent of KPMG

25.1 Financial Data Schedule

EXHIBIT 10.20

SALTON/MAXIM HOUSEWARES, INC.
1998 STOCK OPTION PLAN

THE PLAN. Salton/Maxim Housewares, Inc. (the "Company") hereby establishes the
Salton/Maxim Housewares, Inc. 1998 Stock Option Plan (the "Plan") as set forth
in this document, as it may be amended from time to time. The Plan is effective
as of the Effective Date.

SECTION 1. PURPOSE. The purposes of the Plan are to encourage employees
of the Company and its Affiliates to acquire a proprietary and vested interest
in the growth and performance of the Company and to increase their incentive to
contribute to the Company's future success and prosperity, thus enhancing the
value of the Company for the benefit of shareowners, and enhancing the ability
of the Company and its Affiliates to attract and retain individuals of
exceptional talent upon whom, in large measure, the sustained progress, growth
and profitability of the Company depends.

SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall
have the meanings set forth below:

(a) "Affiliate" shall mean (i) any Person that directly, or through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Company or (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.

(b) "Alternative Tandem SAR" shall mean a SAR issued in connection with
a related Option and (i) which is exercisable only within such time and to the
extent that the related Option is exercisable, (ii) under which exercise of the
SAR or applicable portion thereof will terminate the related Option or
applicable portion thereof, and (iii) which will terminate upon and to the
extent of exercise or termination of the related Option, except that an
Alternative Tandem SAR granted with respect to less than the full number of
Shares covered by the related Option shall not be reduced until the exercise or
termination of the related Option exceeds the number of Shares not covered by
the Alternative Tandem SAR.

(c) "Award" shall mean any Option, SAR, Restricted Stock Award,
Performance Share, Performance Unit, Other Stock Unit Award, or any other right,
interest, or option relating to Shares granted pursuant to the provisions of the
Plan.

(d) "Award Agreement" shall mean the written agreement, contract, or
other instrument or document by which every Award shall be evidenced.

(e) "Board" shall mean the Board of Directors of the Company.

(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.

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(g) "Committee" shall mean the Compensation Committee of the Board.

(h) "Company" shall mean Salton/Maxim Housewares, Inc.

(i) "Cumulative Tandem SAR" shall mean a SAR issued in connection with
a related Option and (i) which is exercisable only within such time and to the
extent that the related Option is exercisable, (ii) which is exercised
automatically upon and to the extent of exercise of the related Option, and
(iii) which provides payment in addition to the Shares delivered upon exercise
of the related Option.

(j) "Effective Date" means July 30, 1999, the date this Plan is adopted
by the Board.

(k) "Employee" shall mean any employee of the Company or of any
Affiliate.

(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

(m) "Fair Market Value" shall mean, with respect to a Share, (i) the
closing price of the Shares on the NASDAQ Stock Market's National Market, or any
other national stock exchange on which the Shares are then traded, or if no such
reported sale of Shares shall have occurred on such date, on the next preceding
date on which there was such a reported sale; or (ii) if the Shares are not
listed for trading on a national securities exchange or authorized for quotation
on the NASDAQ Stock Market's National Market, the average of the closing bid and
asked prices as reported by the National Association of Securities Dealers
Automated Quotation System or, if no such prices shall have been reported for
such date, on the next preceding date for which such prices were so reported.

(n) "Freestanding SAR shall mean a SAR other than a Cumulative Tandem
SAR or an Alternative Tandem SAR.

(o) "Incentive Stock Option" shall mean an Option granted pursuant to
Section 6(h) hereof that is intended to meet the requirements of Section 422 of
the Code or any successor provision thereto.

(p) "Limited Right" shall mean an Alternative Tandem SAR which is
exercisable only for a limited period after a Change in Control as provided in
Section 7(f).

(q) "Mature Shares" shall mean Shares to which the holder thereof has
good title, free and clear of all liens and encumbrances, and which such holder
either (i) has held for at least six months or (ii) has purchased on the open
market.

(r) "Nonstatutory Stock Option" shall mean an Option granted to a
Participant pursuant to Section 6 hereof that is not intended to be an Incentive
Stock Option.

(s) "Option" shall mean any right granted to a Participant under the
Plan allowing such Participant to purchase Shares at such price or prices and
during such period or periods as the Committee shall determine.

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(t) "Optionee" shall mean any Participant to whom an Option has been
granted under the Plan.

(u) "Option Price" shall mean the per share purchase price of Shares
subject to an Option.

(v) "Other Stock Unit Award" shall mean any right granted to a
Participant by the Committee pursuant to Section 10 hereof.

(w) "Participant" shall mean an Employee who is selected by the
Committee to receive an Award under the Plan.

(x) "Performance Award" shall mean any Award of Performance Shares or
Performance Units pursuant to Section 9 hereof.

(y) "Performance Period" shall mean that period established by the
Committee at the time any Performance Award is granted or at any time thereafter
during which any performance goals specified by the Committee with respect to
such Award are to be measured.

(z) "Performance Share" shall mean any grant pursuant to Section 9
hereof of a unit valued by reference to a designated number of Shares, which
value may be paid to the Participant by delivery of such property as the
Committee shall determine, including, without limitation, cash, Shares, or any
combination thereof, upon achievement of such performance goals during the
Performance Period as the Committee shall establish at the time of such grant or
thereafter.

(aa) "Performance Unit" shall mean any grant pursuant to Section 9
hereof of a unit valued by reference to a designated amount of property other
than Shares, which value may be paid to the Participant by delivery of such
property as the Committee shall determine, including, without limitation, cash,
Shares, or any combination thereof, upon achievement of such performance goals
during the Performance Period as the Committee shall establish at the time of
such grant or thereafter.

(bb) "Permitted Transferee" shall mean any member of the Immediate
Family of the Participant, any trust of which all of the primary beneficiaries
are the Participant or members of the Immediate Family of a Participant, or any
partnership of which all of the partners are the Participant or members of the
Immediate Family of the Participant. For purposes of this definition, the
"Immediate Family" of the Participant consists of the Participant's spouse,
children, stepchildren, grandchildren, parents, stepparents, siblings,
grandparents, nieces and nephews.

(cc) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.

(dd) "Reload Option" shall mean an Option granted pursuant to Section
6(k) hereof.

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(ee) "Restricted Stock" shall mean any Share issued with the
restriction that the holder may not sell, transfer, pledge, or assign such Share
and with such other restrictions as the Committee, in its sole discretion, may
impose (including, without limitation, any restriction on the right to vote such
Share, and the right to receive any cash dividends), which restrictions may
lapse separately or in combination at such time or times, in installments or
otherwise, as the Committee may deem appropriate.

(ff) "Restricted Stock Award" shall mean an Award of Restricted Stock
pursuant to Section 8 hereof.

(gg) "SAR" shall mean any right granted to a Participant pursuant to
Section 7 hereof to receive, upon exercise by the Participant, an amount equal
to the number of Shares with respect to which the right is granted multiplied by
the excess of (i) the Fair Market Value of one Share on the date of exercise or,
if the Committee shall so determine in the case of any such right other than one
related to any Incentive Stock Option, at any time during a specified period
before the date of exercise, over (ii) the grant price of the right as specified
by the Committee.

(hh) "Shares" shall mean shares of the common stock of the Company.

(ii) "Tandem SAR" shall mean an Alternative Tandem SAR or a Cumulative
Tandem SAR.

SECTION 3. ADMINISTRATION.

(a) General. The Plan shall be administered by the Committee. A
majority of the members of the Committee may determine its actions and fix the
time and place of its meetings. The Committee may appoint agents (who may be
employees of the Company) to assist in the administration of the Plan, and may
authorize such persons to execute agreements or other documents on its behalf.
The Committee may employ such legal counsel, consultants and agents as it may
deem desirable for the administration of the Plan, and may rely upon any opinion
received from any such counsel or consultant and any computation received from
any such consultant or agent. All expenses incurred in the administration of the
Plan, including for the engagement of any counsel, consultant or agent, shall be
paid by the Company. No member of the Committee shall be liable for any action
or determination made with respect to the Plan or any Award.

(b) Power and Authority of Committee. The Committee shall have full
power and authority, in its sole discretion subject to the provisions of the
Plan, to:

(i) determine the Employees of the Company and its Affiliates to
whom Awards may from time to time be granted hereunder;

(ii) determine the type or types of Award to be granted to each
Participant hereunder;

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(iii) determine the number of Shares or other amount to be covered
by each Award granted hereunder, subject to the limitations of Section
4.

(iv) determine the terms and conditions, not inconsistent with the
provisions of the Plan, of any Award granted hereunder;

(v) determine whether, to what extent and under what
circumstances Awards may be settled in cash, Shares or other property
or canceled or suspended;

(vi) determine whether, to what extent and under what
circumstances cash, Shares and other property and other amounts payable
with respect to an Award under this Plan shall be deferred either
automatically or at the election of the Participant;

(vii) determine the existence or nonexistence of any fact or status
relevant to Awards or the rights of Participants thereunder, including
without limitation whether a Termination of Employment occurs by reason
of cause, retirement, death or disability;

(viii) construe and interpret the Plan, any Award Agreement, and any
other instrument or agreement entered into under the Plan;

(ix) adjust performance award criteria or the terms and conditions
of other Awards in recognition of unusual or nonrecurring events
affecting the Company or its financial statements or changes in
applicable laws, regulations or accounting principles;

(x) make such other determinations and waive such requirements as
may be required or permitted by Sections 6, 7, 8, 9, 10 and 11 or other
provisions of the Plan;

(xi) administer the Plan and establish such rules and regulations,
approve and prescribe such forms, and appoint such agents as it shall
deem appropriate for the proper administration of the Plan;

(xii) correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent
it shall deem desirable to carry it into effect;

(xiii) make any other determination and take any other action that
the Committee deems necessary or desirable for administration of the
Plan.

In making such determinations, the Committee may take into
consideration the value of the services rendered by the respective individuals,
their present and potential contributions to the success of the Company and its
Affiliates and such other factors which the Committee may deem relevant in
accomplishing the purposes of the Plan. The Committee's determinations under the
Plan need not be uniform. The Committee may make such determinations selectively
among persons who receive, or are eligible to receive, Awards (whether or not
such persons are similarly situated). Decisions of the Committee shall be final,

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conclusive and binding upon all Persons, including the Company, any Participant,
any stockholder, and any employee of the Company or of any Affiliate.

SECTION 4. SHARES SUBJECT TO THE PLAN.

(a) Aggregate Limit. Subject to adjustment as provided in Section 15(h)
a total of 600,000 Shares are reserved for grant pursuant to Awards under the
Plan. Any Shares issued hereunder may consist, in whole or in part, of
authorized and unissued Shares or treasury Shares. Shares shall be charged
against the foregoing limit upon the grant of each Award (other than a
Performance Unit or Other Stock Unit not denominated in Shares) but if such
Shares are thereafter forfeited or such Award otherwise terminates without the
issuance of such Shares or of other consideration in lieu of such Shares, the
Shares so forfeited or related to the terminated portion of such Award shall be
restored to the foregoing limit and shall again be available for Awards under
the Plan. If Shares are applied to pay the Option Price upon exercise of an
Option or to pay federal, state and local taxes upon exercise of an Option or
other receipt of payment under an Award, the Shares so applied shall be added to
the foregoing limit and shall be available for Awards under the Plan.

(b) Individual Annual Limits. Awards to any one individual in any one
calendar year shall be subject to the following limits:

(i) Options. The maximum number of Shares with respect to which
Options may be granted during a calendar year to any Participant is
200,000 Shares; provided, however, that if Reload Options are granted,
the limitation of this subsection shall be equal to the sum of 200,000
Shares plus the number of Shares subject to Reload Options granted to
the Participant in such year, but in no event more than 400,000 Shares;

(ii) SARs. The maximum number of SARs (other than Alternative
Tandem SARs) that may be granted during a calendar year to any
Participant is 200,000;

(iii) Aggregate Options and SARs. The sum of the number of Shares
with respect to which Options may be granted and the number of SARs
(other than Alternative Tandem SARs) that may be granted in total
during a calendar year to any Participant is 200,000; provided,
however, that if Reload Options are granted and if Cumulative Tandem
SARs are granted with respect to the Reload Options, the limitation of
this subsection shall be equal to the sum of 200,000 plus the number of
Cumulative Tandem SARs granted with respect to Reload Options to the
Participant in such year, but in no event more than 400,000;

(iv) Other Share-Denominated Awards. The maximum number of Shares
with respect to which Restricted Stock, Performance Shares, and Other
Stock Units denominated in Shares in total may be granted during a
calendar year to any Participant is 100,000 Shares;

(v) Dollar-Denominated Awards. The maximum dollar amount of
compensation that may be represented by Performance Units and Other
Stock Units not

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denominated in Shares awarded during calendar year to any Participant
is 150% of the Participant's annual base salary in effect on the date
of the award multiplied by the number of years (and fractions thereof)
in the Performance Period for Performance Units; and

(vi) Alternative Tandem SARs. Alternative Tandem SARs shall be
subject to the limit on the Shares covered by the Options to which the
Alternative Tandem SARs relate.

SECTION 5. ELIGIBILITY. The Committee may grant Awards to any Employee
(excluding any member of the Committee). An Employee may be granted more than
one Award, but only on the terms and subject to the restrictions hereinafter set
forth.

SECTION 6. STOCK OPTIONS.

(a) Issuance. The Committee may grant Options hereunder to Participants
either alone or in addition to other Awards granted under the Plan.

(b) Award Agreements. Any Option granted to a Participant under the
Plan shall be evidenced by an Award Agreement in such form as the Committee may
from time to time approve. The Committee may require that any Participant shall,
as consideration for the grant of the Option, agree in writing to remain in the
employ of the Company or of one of Affiliates, at the pleasure of the Company or
of such Affiliate, for at least one (1) year from the date of the granting of
such Option or until earlier termination of the Participant's employment
effected or approved by the Company or by such Affiliate, in which event if the
Participant violates such agreement, any Options still held by such person at
the time of such violation shall automatically terminate. The Committee may
waive this requirement in the case of any Participant. Any Option shall also be
subject to the following terms and conditions and to such additional terms and
conditions, not inconsistent with the provisions of the Plan, as the Committee
shall deem desirable.

(c) Date of Granting of Options. The date of grant of a Reload Option
shall be determined in accordance with Section 6(k)(v). The date of grant of all
other Options shall be the date designated by the Committee as the date of
grant, provided that in no event shall the date of grant be earlier than the
date on which the Committee approves the grant.

(d) Option Price. The Option Price per Share shall be determined by the
Committee in its sole discretion; provided that the Option Price shall not be
less than 100% of the Fair Market Value of a Share on the date of the grant of
the Option. The proceeds received by the Company from the sale of Shares subject
to an Option shall be added to the general funds of the Company and used for its
corporate purposes.

(e) Option Period. The term of each Option shall be fixed by the
Committee in its sole discretion and set forth in the Award Agreement, provided
that the Option and any related SAR shall not be exercisable after the
expiration of ten years from the date the Option was granted.

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(f) Exercisability. Options shall be exercisable either in full or in
installments at such time or times as determined by the Committee at or
subsequent to grant, and set forth in the Award Agreement; provided that the
Committee may in its sole discretion subsequent to grant waive any restriction
on the exercise of an Option.

(g) Method of Exercise. An Option shall be exercised by the delivery to
the Company (or an agent of the Company) during the period in which such Option
is exercisable of (x) written notice of exercise in a form acceptable to the
Committee for a specific number of Shares subject to the Option and (y) payment
in full of the Option Price of such specific number of Shares. Payment for the
Shares with respect to which an Option is exercised may be made by any one or
more of the following means:

(i) cash, negotiable personal check or electronic funds
transfer;

(ii) the Committee in its sole discretion may permit payment
through tender of Mature Shares, valued at their Fair Market Value on
the date of exercise; provided that the Committee may impose whatever
restrictions it deems necessary or desirable with respect to such
method of payment;

(iii) the Committee in its sole discretion may permit payment by
submitting acceptable certification to the Committee of the ownership
of Mature Shares, valued at their Fair Market Value on the date of
exercise; in which event the Shares issued to the Optionee for the
portion of any Option so exercised by shall not exceed the number of
Shares covered by the such portion of the Option less the number of
Shares for which proof of ownership is submitted in full or partial
payment; or

(iv) the Committee in its sole discretion may permit payment
through the sale of the Shares acquired on exercise of the Option
through a broker-dealer to whom the Optionee has submitted an
irrevocable notice of exercise and irrevocable instructions to deliver
promptly to the Company the amount of sale or loan proceeds sufficient
to pay for such Shares, together with, if requested by the Committee,
the amount of federal, state, local or foreign withholding taxes
payable by Optionee by reason of such exercise.

(h) Incentive Stock Options. At the time of the grant of any Option,
the Committee may designate in the Award Agreement that such Option shall be an
Incentive Stock Option, which shall be subject to the following terms and
conditions.

(i) Option Term. The term of an Incentive Stock Option shall not
exceed ten (10) years (five (5) years in the case of a 10% Owner) from
the grant date, and shall be subject to earlier termination as provided
in the Plan or in the applicable Award Agreement.

(ii) Option Price. The Option Price of an Incentive Stock Option
shall (1) not be less than 100% of the Fair Market Value on the grant
date of the Shares subject to the Option, or (2) in the case of a 10%
Owner, not be less than 110% of the Fair Market Value on the Grant Date
of the Shares subject to the Options.

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(iii) $100,000 Limit. The aggregate Fair Market Value (determined
as of the time of grant) of the Shares with respect to which Incentive
Stock Options held by any Participant which are exercisable for the
first time by such Participant during any calendar year under the Plan
(and under any other benefit plans of the Company or of any parent or
subsidiary corporation of the Company) shall not exceed $100,000 or, if
different, the maximum limitation in effect at the time of grant under
Section 422 of the Code, or any successor provision, and any
regulations promulgated thereunder. To the extent the $100,000 Limit is
exceeded, such Option shall be deemed to be a Nonstatutory Stock
Option.

(iv) Grant Date. Each Incentive Stock Option shall be granted
within 10 years from the earlier of the date the Plan is adopted or the
date the Plan is approved by the stockholders of the Company.

(v) Disqualifying Disposition. Each Incentive Stock Option shall
require the holder of Shares issued upon exercise of such Incentive
Stock Options to notify the Committee of any disposition of such Shares
under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10 days of
such disposition.

(vi) Nontransferrability. Notwithstanding Section 12, a
Participant may not transfer an Incentive Stock Option otherwise than
upon death by will or under the applicable laws of descent and
distribution or by designation of a beneficiary pursuant to Section
12(a); and during the lifetime of the Participant only the Participant
may exercise an Incentive Stock Option.

(vii) Other Requirements. The terms of any Incentive Stock Option
granted hereunder shall comply in all respects with the provisions of
Section 422 of the Code, or any successor provision, and any
regulations promulgated thereunder.

(viii) Other Terms and Conditions. Except as otherwise provided
in this subsection, all the provisions of the Plan shall apply to
Incentive Stock Options.

(i) Form of Settlement. In its sole discretion, the Committee may
provide, at the time of grant, that the Shares to be issued upon an Option's
exercise shall be in the form of Restricted Stock or other similar securities,
or may reserve the right so to provide after the time of grant.

(j) Discretionary Share Withholding. The Committee in its sole
discretion may provide that when taxes are to be withheld in connection with the
exercise of an Option by delivering Shares in payment of the exercise price, or
an exercise of an SAR for stock, or upon the lapse of restrictions on Restricted
Stock received upon the exercise of an Option (the date on which such exercise
occurs or such restrictions lapse hereinafter referred to as the "Tax Date"),
the Optionee may elect to make payment for the withholding of federal, state and
local taxes,

-9-

including Social Security and Medicare ("FICA") taxes, up to the Optionee's
marginal tax rate, by one or both of the following methods:

(i) delivering part or all of the payment in previously-owned

Mature Shares (which shall be valued at their Fair Market Value on the
Tax Date);

(ii) requesting the Company to withhold from those Shares that

would otherwise be received upon exercise of the Option, upon exercise
of an SAR for stock, or upon the lapse of restrictions on Restricted
Stock, a number of Shares having a Fair Market Value on the Tax Date
equal to the amount to be withheld.

The Committee in its sole discretion may provide that the amount of tax
withholding to be satisfied by withholding Shares from the Option exercise shall
be the minimum amount of taxes, including FICA taxes, required to be withheld
under federal, state and local law, or shall be the entire amount of taxes,
including FICA taxes, required to be paid by Optionee under federal, state and
local law. An election by Optionee under this subsection is irrevocable. Any
fractional share amount and any additional withholding not paid by the
withholding or surrender of Shares must be paid in cash. If no timely election
is made, cash must be delivered to satisfy all tax withholding requirements.

(k) Reload Options. In connection with Nonstatutory Stock Options,
including newly-granted Options or outstanding Options granted under the Plan,
the Committee may provide that an Optionee has the right to a Reload Option,
which except as otherwise provided by the Committee shall be subject to the
following terms and conditions:

(i) Grant of the Reload Option; Number of Shares, Price. Subject
to paragraphs (ii) and (iii) of this subsection and to the availability
of Shares to be optioned under the Plan, if a Participant has an Option
(the "Original Option") with reload rights and pays the Option Price by
surrendering Shares or certifying to the ownership of Shares, or if
Shares are withheld or surrendered for tax withholding, the Participant
shall receive a Reload Option for the number of Shares so surrendered,
certified or withheld with an Option Price equal to the Fair Market
Value of a Share on the date of the exercise of the Original Option.

(ii) Minimum Purchase and Other Requirements. A Reload Option
will be granted only if the exercise of the Original Option is an
exercise of at least 25% of the total number of Shares granted under
the original option (or an exercise of all the Shares remaining under
the original option if less than 25% of the Shares remain to be
exercised), and the Participant is an employee of the Company or an
Affiliate on the date of exercise of the Original Option.

(iii) Term of Option. The Reload Option shall expire on the same
date as the Original Option.

(iv) Type of Option. The Reload Option shall be a Nonstatutory
Stock Option.

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(v) Date of Grant, Vesting. The date of grant of the Reload
Option shall be the date of the exercise of the Original Option. The
Reload Option shall be exercisable in full beginning one year from date
of grant.

(vi) Other Terms and Conditions. Except as otherwise provided in
this subsection, all the provisions of the Plan shall apply to Reload
Options.

SECTION 7. STOCK APPRECIATION RIGHTS.

(a) Issuance. The Committee may grant SARs hereunder to Participants
either alone or in addition to other Awards granted under the Plan. Such SARs
may, but need not, be Tandem SARs relating to a specific Option granted under
Section 6. Any Tandem SAR related to a Nonstatutory Stock Option may be granted
at the same time such Option is granted or at any time thereafter before
exercise or expiration of such Option. Any Tandem SAR related to an Incentive
Stock Option must be granted at the same time such Option is granted. The
Committee may impose such conditions or restrictions on the exercise of any SAR
as it shall deem appropriate.

(b) Award Agreements. Any SAR granted to a Participant under the Plan
shall be evidenced by an Award Agreement in such form and the Committee may
approve (and which in the case of a Tandem SAR may be combined with the Award
Agreement under which the related Option is granted) and shall contain such
terms and conditions not inconsistent with other provisions of the Plan as shall
be determined from time to time by the Committee.

(c) Grant Price. The grant price of a SAR shall be determined by the
Committee in its sole discretion; provided that the grant price shall not be
less than the lesser of 100% of the Fair Market Value of a Share on the date of
the grant of the SAR, or the Option Price under the Nonstatutory Stock Option to
which the SAR relates.

(d) Exercise and Payment. Upon the exercise of SARs, an Optionee shall
be entitled to receive the value thereof. The Fair Market Value of a Share on
the date of exercise of SARs shall be determined in the same manner as the Fair
Market Value of a Share on the date of grant of an Option is determined. SARs
shall be deemed exercised on the date written notice of exercise in a form
acceptable to the Committee is received by the Secretary of the Company. Unless
the Award Agreement provides otherwise or reserves to the Committee or the
Participant or both the right to defer payment, the Company shall make payment
in respect of any SAR within five (5) days of the date the SAR is exercised. Any
payment by the Company in respect of a SAR may be made in cash, Shares, other
property, or any combination thereof, as the Committee, in its sole discretion,
shall determine.

(e) Tandem SARs. Each Award Agreement evidencing Tandem SARs shall
clearly identify the Options to which it relates and the Tandem SAR shall be
subject to the following terms and conditions unless the Committee determines
otherwise:

(i) A Tandem SAR shall expire no later than the expiration of
the related Option.

-11-

(ii) A Tandem SAR shall be transferable only to the extent that
the related Option is transferable pursuant to Section 12.

(iii) A Tandem SAR shall be exercisable at such time or times and
only to the extent that the related Option is exercisable, and may be
subject to further limitations on exercise as determined by the
Committee.

(f) Grant of Limited Rights.

(i) The Committee in its sole discretion may grant Limited
Rights upon or after the grant of any Option under the Plan. Each
Limited Right shall be identified with a share of Stock subject to an
Option of the Optionee. The number of Limited Rights granted to a
Optionee shall equal the number of Shares subject to the Option with
which such Limited Rights are identified. Upon the exercise,
expiration, termination, forfeiture, or cancellation of an Optionee's
Option, the Optionee's associated Limited Rights shall terminate.

(ii) Limited Rights shall become exercisable upon the occurrence
of a Change of Control. Limited Rights shall be exercised by delivery
to the Company, within 90 days after the date of such Change of
Control, of written notice of intent to exercise specific Limited
Rights. The exercise of Limited Rights shall result in the cancellation
of the Option with which such Limited Rights are identified, to the
extent of such exercise.

(iii) The Company shall notify all Optionees of the occurrence of
a Change of Control promptly after its occurrence, but any failure of
the Company so to notify shall not deprive any Optionee of any rights
accruing hereunder by virtue of a Change of Control. Any such failure
of the Company shall, if an Optionee does not otherwise know of the
Change of Control, automatically extend the 90-day period specified
above until 90 days after the Company notifies such Optionee or such
Optionee otherwise knows of the Change of Control, whichever first
occurs, but in no event beyond the maximum term of the identified
Option specified in the applicable Award Agreement.

(iv) Within five business days after the exercise of any Limited
Rights, the Company shall pay to the Optionee, in cash (except that the
Committee may cause the Company to pay such amount in Shares if it
determines that a payment in cash would cause transaction to be
ineligible for pooling of interests accounting), an amount equal to the
difference between (A) the Change of Control Value, and (B) the Option
Price of the Option.

(v) "Change of Control Value" shall mean the greater of (A) the
highest Fair Market Value of a Share during the 180-day period
preceding the date of the Company's receipt of notice of exercise of
Limited Rights, or (B) the cash amount (or fair cash value, as
determined by the Committee in its sole discretion, of consideration
other than cash), payable in respect of a Share to holders of Shares in
connection with the Change of Control.

-12-

(g) Other Limitations. The Committee may at any time impose any other
limitations upon the exercise of SARs which, in the Committee's sole discretion,
are necessary or desirable in order to comply with Section 16(b) of the Exchange
Act and the rules and regulations thereunder, or in order to obtain any
exemption therefrom.

SECTION 8. RESTRICTED STOCK.

(a) Issuance. The Committee may issue Restricted Stock Awards hereunder
to Participants, for no cash consideration or for such minimum consideration as
may be required by applicable law, either alone or in addition to other Awards
granted under the Plan. The granting of Restricted Stock shall take place on the
date the Committee determines to grant the Restricted Stock.

(b) Registration. Any Restricted Stock issued hereunder may be
evidenced in such manner as the Committee in its sole discretion shall deem
appropriate, including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of shares of Restricted Stock awarded under the Plan, such
certificate shall be registered in the name of the Participant, shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award, and shall be held in escrow by the Company. The
Participant shall execute a stock power or powers assigning the Shares of
Restricted Stock back to the Company, which stock powers shall be held in escrow
by the Company and used only in the event of the forfeiture of any of the Shares
of Restricted Stock.

(c) Forfeiture. Except as otherwise determined by the Committee, no
Restricted Stock shall become free of restrictions prior to the date of the
first anniversary of the grant of the Restricted Stock. Unrestricted Shares,
evidenced in such manner as the Committee shall deem appropriate, shall be
issued to the Optionee promptly upon lapse of the period of forfeiture, as
determined or modified by the Committee.

(d) Share Withholding. The Committee in its sole discretion may provide
that a Participant who recognizes income under the federal income tax by reason
of the lapsing of restrictions on Shares of Restricted Stock may elect Share
withholding pursuant to Section 6(j).

SECTION 9. PERFORMANCE AWARDS.

(a) Issuance. The Committee may issue Performance Awards hereunder to
Participants, for no cash consideration or for such minimum consideration as may
be required by applicable law, either alone or in addition to other Awards
granted under the Plan. Except as provided in Section 13, Performance Awards
will be paid only after the end of the relevant Performance Period. Performance
Awards may be paid in cash, Shares, other property or any combination thereof,
in the sole discretion of the Committee at the time of payment. Performance
Awards may be paid in a lump sum or in installments following the close of the
Performance Period or, in accordance with procedures established by the
Committee, on a deferred basis.

-13-

(b) Performance Measures. Unless and until the Committee proposes for
stockholder vote and stockholders approve a change in the general performance
measures set forth in this Section, the attainment of which shall determine the
degree of payout and/or vesting with respect to Awards, the performance
measure(s) to be used for purposes of such Awards shall be chosen from among the
following:

(i) Earnings either in the aggregate or on a per-share
basis, before or after taxes, before or after depreciation and
amortization, and before or after interest expense;

(ii) Net income (before or after taxes);

(iii) Operating income;

(iv) Cash flow;

(v) Return measures (including return on assets, equity,
or sales);

(vi) Share price (including growth measures and total
stockholder return or attainment by the Shares of a specified value for
a specified period of time);

(vii) Reductions in expense levels in each case where
applicable determined either in a Company-wide basis or in respect of
any one or more business units;

(viii) Net economic value; or

(ix) Economic value added

The degree of attainment of the preestablished performance goals
required for an Award and the amounts of Awards may not be adjusted after the
Award is granted, except that the Committee may retain the discretion to
decrease the amount of an Award.

SECTION 10. OTHER STOCK UNIT AWARDS.

(a) Stock and Administration. The Committee may grant other Awards of
Shares and other Awards that are valued in whole or in part by reference to, or
are otherwise based on, Shares or other property ("Other Stock Unit Awards")
hereunder to Participants, either alone or in addition to other Awards granted
under the Plan. Other Stock Unit Awards may be paid in Shares, cash or any other
form of property as the Committee shall determine. Subject to the provisions of
the Plan, the Committee shall have sole and complete authority to determine the
Employees of the Company and its Affiliates to whom and the time or times at
which such Awards shall be made, the number of Shares to be granted pursuant to
such Awards, and all other conditions of the Awards, which may include, without
limitation, attainment of goals based upon the performance measures set forth in
Section 9(b). The provisions of Other Stock Unit Awards need not be the same
with respect to each recipient.

-14-

(b) Terms and Conditions. Subject to the provisions of this Plan and
any applicable Award Agreement, Shares subject to Awards made under this Section
10 may not be sold, assigned, transferred, pledged or otherwise encumbered prior
to the date on which the Shares are issued, or, if later, the date on which any
applicable restriction, performance or deferral period lapses. Shares granted
under this Section 10 may be issued for no cash consideration or for such
minimum consideration as may be required by applicable law.

Section 11. Termination of Employment. Except as otherwise provided in
this Section, all Awards not vested shall terminate upon a Participant's
Termination of Employment. For purposes of this Section, a Participant's
Termination of Employment occurs on the last day on which the Participant
performs services for the Company or an Affiliate as an employee; or if earlier
on the date on which an Affiliate which employs the Participant ceases to be an
Affiliate (unless the Participant continues to be employed by the Company or an
Affiliate which continues to be an Affiliate).

(a) Options and SARs.

(i) Except as otherwise provided in this Section, upon a
Participant's Termination of Employment, all Options and SARs not
vested and exercisable immediately before such Termination of
Employment shall terminate and no Option or SAR may be exercised
after such Termination of Employment.

(ii) If Termination of Employment occurs for a reason other
than retirement, death, disability or cause, Options and SARS
which were vested and exercisable immediately before such
Termination of Employment shall remain exercisable for a period
of 90 days following such Termination of Employment (but not for
more than ten years from the grant date of the Option) and shall
then terminate.

(iii) If Termination of Employment occurs by reason of
retirement, death or disability, Options and SARS which were
vested and exercisable immediately before such Termination of
Employment shall remain exercisable for a period of one year
following such Termination of Employment (but not for more than
ten years from the grant date of the Option) and shall then
terminate.

(b) Restricted Stock. Except as otherwise provided in this
Section, upon a Participant's Termination of Employment, all Shares of
Restricted Stock still subject to restrictions shall be forfeited by
the Participant (and the Participant shall sign any document and take
any other action required to assign such Shares back to the Company)
and reacquired by the Company.

(i) If Termination of Employment occurs during a
Performance Period for a reason other than retirement, disability
or death, all Performance Awards shall be forfeited upon such
Termination of Employment.

-15-

(ii) If Termination of Employment occurs during a
Performance Period by reason of retirement, disability or death,
the Participant shall be entitled to payment at or after
conclusion of the Performance Period in accordance with the terms
of the Award of that portion of the Performance Award equal to
the amount that would be payable if the Participant continued in
employment for the remainder of the Performance Period multiplied
by a fraction, the numerator of which is the number of days in
the Performance Period preceding such Termination of Employment
and the denominator of which is the total number of days in the
Performance Period.

(d) Waiver by Committee. Notwithstanding the foregoing provisions
of this Section, the Committee may in its sole discretion as to all or
part of any Award as to any Participant, at the time the Award is
granted or thereafter, determine that Awards shall become exercisable
or vested upon a Termination of Employment, determine that Awards shall
continue to become exercisable or vested in full or in installments
after Termination of Employment, extend the period for exercise of
Options or SARs following Termination of Employment (but not beyond ten
years from the date of grant of the Option or SAR), or provide that any
Performance Award shall in whole or in part not be forfeited upon such
Termination of Employment.

SECTION 12. TRANSFERABILITY OF AWARDS

(a) No Award shall be transferable by the Participant otherwise than
upon death by will or under the applicable laws of descent and distribution;
except that a Participant may, by written instrument in a manner specified by
the Committee in the Award Agreement or thereafter, designate in writing a
beneficiary to exercise an Option or otherwise receive payment under any Award
after the death of the Participant. The Committee in its sole discretion may
authorize the transfer of a Nonstatutory Stock Option for no consideration to a
Permitted Transferee. If an Option is transferred under this Section, any Tandem
SAR related to such Option shall be automatically transferred together with such
Option.

(b) Following the transfer of an Option to a Permitted Transferee, the
Permitted Transferee shall have all of the rights and obligations of the
Participant to whom the Option was granted and such Participant shall not retain
any rights with respect to the transferred Option, except that (i) the payment
of any tax attributable to the exercise of the Option shall remain the
obligation of the Participant, and (ii) the period during which the Option shall
become exercisable or remain exercisable under Section 11 shall depend on the
employment status of the original Optionee.

(c) If for any reason an Option or SAR is exercised by a person other
than the original Participant, or payment or distribution under any other Award
is to be made to a person other than the original Participant, the person
exercising or receiving payment or distribution under such Award shall, as a
condition to such exercise or receipt, supply the Committee with such evidence
as the Committee may reasonably require to establish the identity of such person
and such person's right to exercise or receive payment or distribution under
such Award.

-16-

(d) No Award shall be assigned, negotiated or pledged in any way
(whether by operation of law or otherwise) except as permitted by Section 12(a),
and no Award shall be subject to execution, attachment or similar process.

SECTION 13. CHANGE IN CONTROL.

(a) In order to maintain the Participants' rights in the event of any
Change in Control of the Company, as hereinafter defined, the Committee, as
constituted before such Change in Control, may, in its sole discretion, as to
any Award, either at the time an Award is made hereunder or any time thereafter,
take any one or more of the following actions: (i) provide for the acceleration
of any time periods relating to the exercise or realization of any such Award so
that such Award may be exercised or realized in full on or before a date fixed
by the Committee; (ii) provide for the purchase of any such Award with or
without the Participant's consent for an amount of cash equal to the amount that
could have been attained upon the exercise of such Award or realization of the
Participant's rights had such Award been currently exercisable or payable or
exercisable or payable during a stipulated period prior to the Change of
Control; (iii) make such adjustment to any such Award then outstanding as the
Committee deems appropriate to reflect such Change in Control; or (iv) cause any
such Award then outstanding to be assumed, or new rights substituted therefor,
by the acquiring or surviving corporation after such Change in Control. The
Committee may, in its discretion, include such further provisions and
limitations respecting a Change in Control in any Award Agreement as it may deem
equitable and in the best interests of the Company.

(b) A "Change in Control" shall be deemed to have occurred if:

(i) for any reason at any time less than seventy-five percent
(75%) of the members of the Board shall be individuals who fall into
any of the following categories: (A) individuals who were members of
the Board on the Effective Date; or (B) individuals whose election, or
nomination for election by the Company's stockholders (other than an
election or nomination of an individual (an "Excluded Individual")
whose initial assumption of office ins in connection with an actual or
threatened "election contest" relating to the election of the directors
of the Company (as such term is used in Rule 14a-11 under the Exchange
Act), a "tender officer" (as such term is used in Section 14(d) of the
Exchange Act) or a proposed transaction described in (iii) below) was
approved by a vote of at least seventy-five percent (75%) of the
members of the Board then still in office who were members of the Board
on the Effective Date; or (C) individuals (other than Excluded
Individuals) whose election, or nomination for election, by the
Company's stockholders, was approved by a vote of at least seventy-five
percent (75%) of the members of the Board then still in office who were
elected in the manner described in (A) or (B) above; or

(ii) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) or "group" (as such term is defined in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act) shall have become
after the Effective Date,

-17-

according to a public announcement or filing, the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing thirty percent
(30%) or more (calculated in accordance with Rule 13d-3) of the
combined voting power of the Company's then outstanding voting
securities; or

(iii) the stockholders of the Company shall have approved a
merger, consolidation or dissolution of the Company, or a sale, lease,
exchange or disposition of all or substantially all of the Company's
assets, if persons who were the beneficial owners of the combined
voting power of the Company's voting securities immediately before any
such merger, consolidation, dissolution, sale, lease, exchange or
disposition do not immediately thereafter beneficially own, directly or
indirectly, in substantially the same proportions, more than 60% of the
combined voting power of the corporation resulting from any such
transaction.

(c) Notwithstanding any other provision of the Plan to the contrary,
(i) in the event that the consummation of a Change in Control is contingent on
using pooling of interests accounting methodology; the Committee may take any
action necessary to preserve the use of pooling of interests accounting, and
(ii) if the Committee determines, in its discretion exercised prior to a sale or
merger of the Company (whether or not in connection with a Change in Control)
that in the Committee's judgment is reasonably likely to occur, that the
exercise of Awards would preclude the use of pooling-of-interests accounting
("pooling") after the consummation of such sale or merger and that such
preclusion of pooling would have a material adverse effect on such sale or
merger, the Committee may (A) unilaterally cancel such Awards prior to the sale
or merger in consideration for reasonably equivalent value, (B) cause the
Company to pay the benefit attributable to such Awards in the form of Shares if
the Committee determines that such payment would not cause the transaction to
become ineligible for pooling, (C) defer the payment, distribution or exercise
date of any Award, or (D) substitute another form of Award of reasonably
equivalent value; in each case to the extent that the Committee determines that
such cancellation, payment, deferral or substitution would not cause the
transaction to become ineligible for pooling; and only in each case to the
minimum extent reasonably necessary to cause the transaction to become eligible
for pooling.

SECTION 14. AMENDMENTS AND TERMINATION. The Board may amend, alter or
discontinue the Plan, but no amendment, alteration, or discontinuation shall be
made that would impair the rights of a Participant under an Award theretofore
granted without the Participant's consent except as required to comply with
securities, tax or other laws.

The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall adversely affect the
rights of any Participant without the Participant's consent, except as provided
in subsection 9(b) or subsection 12(c) or except as required to comply with
securities, tax or other laws. The Committee may also substitute new Awards for
Awards previously granted to Participants, including without limitation
previously granted Options having higher Option prices.

-18-

SECTION 15. GENERAL PROVISIONS.

(a) The term of each Award shall be for such period of months or years
from the date of its grant as may be determined by the Committee; provided that
in no event shall the term of any Option or any SAR exceed a period of ten (10)
years from the date of its grant.

(b) No Employee or Participant shall have any claim to be granted any
Award under the Plan and there is no obligation for uniformity of treatment of
Employees or Participants under the Plan.

(c) The prospective recipient of any Award under the Plan shall not,
with respect to such Award, be deemed to have become a Participant, or to have
any rights with respect to such Award, until and unless the Committee shall have
executed an Award Agreement evidencing the Award and delivered a fully executed
copy thereof to the Participant.

(d) Nothing contained in the Plan or in any Award Agreement shall
confer upon any Participant any right with respect to continuance of employment
by the Company or its Affiliates, nor interfere in any way with the right of the
Company or its Affiliates to terminate the Participant's employment or change
the Participant's compensation at any time.

(e) All certificates for Shares delivered under the Plan pursuant to
any Award shall be subject to such stock-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Shares are then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.

(f) Receipt of an Option or other Award shall not entitle any
Participant (or Permitted Transferee) to any rights as a shareholder of the
Company unless and until such Option has been exercised or such other Award
shall have been paid and the Shares purchased or paid thereunder shall have been
duly issued and recorded in the name of the Participant (or Permitted
Transferee) on the stock transfer books of the Company; provided, however, that:

(i) Subject to the provisions of this Plan and any Award
Agreement, the recipient of an Award (including, without limitation,
any deferred Award) may, if so determined by the Committee, be entitled
to receive, currently or on a deferred basis, dividends with respect to
the number of Shares covered by the Award or interest on the amount of
an Award not denominated in Shares as determined by the Committee, in
its sole discretion, and the Committee may provide that such amounts
(if any) shall be deemed to have been reinvested in additional Shares
or otherwise reinvested; and

(ii) The recipient of a Restricted Stock Award shall be entitled
to all rights of a shareholder of the Company upon issuance of such
Restricted Stock pursuant to Section 8(b) except to the extent
otherwise provided in the restrictions or other provisions of the Award
Agreement pursuant to which such Restricted Stock Award is made.

-19-

(g) Except as otherwise required in any applicable Award Agreement or
by the terms of the Plan, recipients of Awards under the Plan shall not be
required to make any payment or provide consideration other than the rendering
of services.

(h) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, spin-off or other change in
corporate structure affecting the Shares, such adjustment shall be made in the
aggregate number and class of Shares which may be delivered under the Plan, in
the number, class and option price of Shares subject to outstanding Options
granted under the Plan, and in the value of, or number or class of Shares
subject to, Awards granted under the Plan as may be determined to be appropriate
by the Committee, in its sole discretion, provided that the number of Shares
subject to any Award shall always be a whole number. The grant of Awards stock
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes in
its capital or business structure or to merge or to consolidate or to dissolve,
liquidate, or sell or transfer all or any part of its business or assets.

(i) The Company shall be authorized to withhold from any Award granted
or payment due under the Plan or any other amount owing from the Company to the
Participant (whether or not for payment of compensation) the amount of
withholding taxes due with respect to an Award or payment hereunder and to take
such other action as may be necessary in the opinion of the Company to satisfy
all obligations for the payment of such taxes. The Company shall also be
authorized to accept the delivery of shares by a Participant in payment for the
withholding of federal, state and local taxes up to the Participant's marginal
tax rates.

(j) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements.

(k) The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the
laws of the State of Delaware and applicable Federal law.

(l) If any provision of this Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.

(m) All obligations of the Company under the Plan with respect to
Awards granted hereunder shall be binding on any successor to the Company.
Successor is the result of a direct or indirect merger, consolidation, or
otherwise of all the business of the Company.

(n) The adoption of this Plan shall not be construed to amend or
terminate the Company's 1995 Employee Stock Option Plan (the "Prior Plan") or
any outstanding option or other award thereunder; and the aggregate number of
Shares available under Section 4 of the

-20-

Plan shall not be increased or reduced by Shares available under the Prior Plan
as of the Effective Date.

SECTION 16. TERM OF PLAN. No Award shall be granted pursuant to the
Plan after 10 years from the Effective Date, but any Award theretofore granted
may extend beyond that date.

This Plan is adopted this 30th day of July, 1998. In witness whereof,
the Company has caused this Plan to be executed by a duly authorized officer.

SALTON/MAXIM HOUSEWARES, INC.

By:
------------------------------
Its:
-----------------------------

-21-

The Board of Directors
Salton, Inc.:

We consent to the inclusion of our report dated March 16, 1999, with respect to
the consolidated balance sheets of Toastmaster Inc. as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity, comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 1998, which report appears in the Form 10-K
of Salton, Inc. dated June 26, 1999.

KPMG LLP

Kansas City, Missouri
September 24, 1999

THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF OPERATIONS.

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INDEXED 10-K For the fiscal year ended June 26, 1999

FINANCIAL STATEMENTS: