EXHIBIT 3
[SALTON, INC. LETTERHEAD]
July 9, 2004
To Our Stockholders:
Your Board of Directors declared a dividend of Preferred Share Purchase
Rights ("Rights") on June 28, 2004. The Rights are payable to stockholders of
record as of the close of business on July 9, 2004 and will expire in ten years.
This letter and the enclosed Summary of Stockholder Rights Agreement describe
the Rights Agreement and explain the Board's reasons for adopting it.
Many other companies have issued Rights similar to the kind we approved
today. We consider these Rights to be the best means currently available of
protecting the full value of your investment in Salton. The Rights Agreement
contains provisions designed to protect stockholders from certain unfair and
coercive tactics that have been used in takeovers and open market stock
accumulations. The Board determined that the adoption of the Rights Agreement
would be beneficial to the Company and its stockholders because it helps assure
that the Board has adequate time to evaluate inquiries from third parties
regarding possible transactions involving the Company, and if the Board
determines that pursuing any such inquiry is in the best interests of the
Company's stockholders, to negotiate favorable terms on behalf of the
stockholders.
Issuance of the Rights does not in any way weaken the financial strength
of Salton or interfere with its business plans. The issuance of the Rights has
no dilutive effect, will not affect reported earnings per share, is not taxable
to the Company or to you, and will not change the way in which the Company's
Common Stock is traded. While the Rights dividend is not currently taxable to
you or the Company, stockholders may, depending upon their individual
circumstances, recognize taxable income when the Rights become exercisable.
In addition to authorizing the Rights, your Board today authorized a new
series of junior participating preferred stock which could be issued in the
event that the Rights become exercisable. The dividend, liquidation and voting
rights, as well as the non-redemption feature, of the junior participating
preferred shares are designed so that the value of a one one-thousandth interest
in a preferred share will approximate the economic value of one share of the
Company's Common Stock.
These actions are more fully described in the enclosed Summary of
Stockholder Rights Agreement. As the Summary indicates, the Rights will
initially trade together with the Company's Common Stock, will be represented by
Company Common Stock certificates, do not have any voting power, are not
currently exercisable and do not become exercisable unless certain acquisition
events occur.
In declaring the Rights dividend, we have expressed our confidence in the
Company's future and our commitment to giving you, our stockholders, every
opportunity to participate fully in that future.
On behalf of the Board of Directors.
Xxxxxxx Xxxxxxxx
Chief Executive Officer
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UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS HELD
BY A PERSON WHO IS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR
ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND
CERTAIN TRANSFEREES THEREOF, WHETHER CURRENTLY HELD BY OR ON BEHALF OF
SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, SHALL BECOME NULL AND VOID.
SALTON, INC.
SUMMARY OF STOCKHOLDER RIGHTS AGREEMENT
Background. On June 28, 2004, the Board of Directors of Salton, Inc., a
Delaware corporation (the "Company"), declared a dividend of one preferred share
purchase right ("Right") on each outstanding share of the Company's common
stock, $.01 par value per share (the "Common Shares"), payable to stockholders
of record at the close of business on July 9, 2004 (the "Record Date"). Except
as described below, each Right, when exercisable, entitles the holder thereof to
purchase from the Company one one-thousandth of a share of Series B Junior
Participating Preferred Shares, par value $.01 per share (the "Preferred
Shares"), of the Company at an exercise price of $45.00 per one one-thousandth
of a Preferred Share (the "Purchase Price"), subject to adjustment. The terms of
the Rights are set forth in a Rights Agreement (the "Rights Agreement") between
the Company and UMB Bank, N.A., as Rights Agent.
Distribution Date. Until the earlier to occur of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
has become an "Acquiring Person" (as defined below) or (ii) 10 business days (or
such later date as may be determined by action of the Board of Directors prior
to such time as any person or group becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in a person or group
becoming an Acquiring Person (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced by Common Share certificates.
Acquiring Person. An "Acquiring Person" is a person or group of affiliated
or associated persons who have acquired beneficial ownership of 20% or more of
the outstanding Common Shares, other than the Company, any subsidiary of the
Company, or any employee benefit plan of the Company or its subsidiaries
("Exempt Persons"); provided, however that (i) in no event shall any Exempt
Person be deemed to be an Acquiring Person, (ii) no person shall become an
Acquiring Person as the result of an acquisition of Common Shares by the Company
which increases the proportionate number of shares beneficially owned by such
person and its affiliates and associates to 20% or more of the Common Shares
then outstanding (provided, however, that if such person becomes the beneficial
owner of 20% or more of the Common Shares then outstanding by reason of share
acquisitions by the Company and, after such share acquisitions, (A) acquires
beneficial ownership of an additional number of Common Shares which exceeds
0.25% of the then-outstanding Common Shares and (B) beneficially owns after such
acquisition 20% or more of the aggregate number of Common Shares then
outstanding, then such person shall be deemed to be an Acquiring Person), (iii)
no person who, together with its affiliates and associates, was the beneficial
owner of 20% or more of the aggregate number of Common Shares of the Company
outstanding as of 5:00 p.m., New York time, on June 28, 2004 shall be deemed an
Acquiring Person (provided, however, that if such person or any of its
affiliates and associates, after 5:00 p.m., New York time, on June 28, 2004, (A)
acquires beneficial ownership of an additional number of Common Shares which
exceeds 0.25% of the then-outstanding Common Shares and (B) beneficially owns
after such acquisition 20% or more of the aggregate number of Common Shares of
the Company then outstanding, then such person shall be deemed to be an
Acquiring Person), and (iv) if the Board of Directors of the Company determines
in good faith that a person who would otherwise be an
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Acquiring Person has become such inadvertently, and such person divests as
promptly as practicable a sufficient number of Common Shares so that such person
would no longer be an Acquiring Person, then such person shall not be deemed to
be an Acquiring Person for any purposes of the Rights Agreement.
Trading of Rights. The Rights Agreement provides that, until the
Distribution Date (or earlier redemption or expiration of the Rights), the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for Common Shares will also constitute the transfer of the
Rights associated with the Common Shares represented by such certificate. As
soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Common Shares as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.
Exercisability. The Rights are not exercisable until the Distribution
Date. The Rights will expire on June 28, 2014 (the "Final Expiration Date"),
unless the Rights are earlier redeemed or exchanged by the Company, as described
below.
Exercise Price. The Purchase Price payable, and the number of Preferred
Shares or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then-current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of
indebtedness, assets or capital stock (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in Preferred
Shares) or of subscription rights or warrants (other than those referred to
above). With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. The Company will not be required to issue fractional Common
Shares or Preferred Shares (other than fractions which are integral multiples of
one one-thousandth of a Preferred Share, which may, at the election of the
Company, be evidenced by depositary receipts) and in lieu thereof, an adjustment
in cash may be made based on the market price of the Common Shares or Preferred
Shares on the last trading day prior to the date of exercise.
Preferred Shares. Because of the nature of the Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-thousandth interest in a
Preferred Share purchasable upon exercise of each Right should approximate the
value of one Common Share. Preferred Shares purchasable upon exercise of the
Rights will not be redeemable. Each Preferred Share will be entitled to the
greater of (1) a preferential quarterly dividend payment of $1.00 per share, or
(2) an aggregate dividend of 1,000 times the dividend declared per Common Share.
In the event of liquidation, the holders of the Preferred Shares will be
entitled to a preferential liquidation payment of $1,000 per share, plus an
amount equal to 1,000 times the aggregate amount to be distributed per Common
Share. Each Preferred Share will have 1,000 votes, voting together with the
Common Shares except as otherwise required by law. Finally, in the event of any
merger, consolidation or other transaction in which Common Shares are exchanged,
each Preferred Share will be entitled to receive 1,000 times the amount received
per Common Share. These rights are protected by customary antidilution
provisions.
Flip-In. If any person or group becomes an Acquiring Person, then each
holder of a Right (other than Rights beneficially owned by the Acquiring Person,
any Associate or Affiliate thereof (as such terms are defined in the Rights
Agreement), and certain transferees thereof, which will be void) will have the
right to receive upon exercise of such Right that number of Common Shares (or,
in certain circumstances,
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cash, property or other securities of the Company) having a market value of two
times the exercise price of the Right.
Flip-Over. If at any time after the time that any person or group becomes
an Acquiring Person, the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder of a Right
(other than Rights beneficially owned by the Acquiring Person, any Associate or
Affiliate thereof, and certain transferees thereof, which will be void) will
thereafter have the right to receive, upon the exercise thereof at the
then-current exercise price of the Right, that number of shares of common stock
of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right.
Exchange of Rights. At any time after the time that any person or group
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding Common Shares, the Board of Directors of the
Company may exchange the Rights (other than Rights beneficially owned by such
person or group, any Associate or Affiliate thereof, and certain transferees
thereof, which will be void), in whole or in part, at an exchange ratio of one
Common Share or one one-thousandth of a Preferred Share (or of a share of a
class or series of the Company's preferred stock having equivalent rights,
preferences and privileges) per Right (subject to adjustment).
Redemption of Rights. At any time prior to the time that any person
becomes an Acquiring Person, the Board of Directors of the Company may redeem
the Rights in whole, but not in part, at a price of $.01 per Right, subject to
adjustment (the "Redemption Price"), which may (at the option of the Company) be
paid in cash, Common Shares or other consideration deemed appropriate by the
Board of Directors. The redemption of the Rights may be made effective at such
time, on such basis and with such conditions as the Board of Directors in its
sole discretion may establish; provided, however, that no redemption will be
permitted or required after the time that any person becomes an Acquiring
Person. Immediately upon any redemption of the Rights, the right to exercise the
Rights will terminate and the only right of the holders of the Rights will be to
receive the Redemption Price.
Amendment. The terms of the Rights may be amended by the Board of
Directors of the Company without the consent of the holders of the Rights,
except that from and after such time as any person becomes an Acquiring Person
no such amendment may make the Rights redeemable if the Rights are not then
redeemable in accordance with the terms of the Rights Agreement or may adversely
affect the interests of the holders of the Rights.
No Rights as Stockholder. Until a Right is exercised, the holder thereof,
as such, will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.
Rights Agreement Governs. This Summary is subject to all of the terms,
provisions and conditions of the Rights Agreement, as the same may be amended
from time to time, which terms, provisions and conditions are hereby
incorporated herein by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. A copy of
the Rights Agreement has been filed with the Securities and Exchange Commission
as an exhibit to a Registration Statement on Form 8-A dated June __, 2004.
Copies of the Rights Agreement are also on file at the principal executive
offices of the Company and the principal office of the Rights Agent.
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