Registration No. 333-35181
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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RAYOVAC CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Wisconsin 3692 22-2423556
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
601 Rayovac Drive
Madison, Wisconsin 53711-2497
(608) 275-3340
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
JAMES A. BRODERICK, ESQ.
Vice President and General Counsel
Rayovac Corporation
601 Rayovac Drive
Madison, Wisconsin 53711-2497
(608) 275-3340
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies of Communications to:
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<S> <C>
LOUIS A. GOODMAN, ESQ. VALERIE FORD JACOB, ESQ.
Skadden, Arps, Slate, Meagher & Flom LLP Fried, Frank, Harris, Shriver & Jacobson
One Beacon Street One New York Plaza
Boston, Massachusetts 02108 New York, New York 10004
(617) 573-4800 (212) 859-8000
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Aggregate Offering Aggregate Offering Amount of
Securities to be Registered Registered Price Per Share(1)(2) Price(1) Registration Fee(2)
- ---------------------------------------- -------------- ----------------------- -------------------- --------------------
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Common Stock, par value $.01 per share 7,975,000 $15.00 $119,625,000 $36,250
- -------------------------------------------------------------------------------------------------------------------------
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended, and
includes shares of Common Stock that may be purchased by the Underwriters
pursuant to an over-allotment option.
(2) The total amount of the registration fee is $36,250, all of which has been
paid.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains three separate prospectuses. The
first prospectus relates to a public offering of shares of Common Stock of
Rayovac Corporation (the "Company"), par value $.01 per share (the "Common
Stock") in the United States and Canada (the "U.S. Offering"). The second
prospectus relates to a concurrent offering of Common Stock outside the United
States and Canada (the "International Offering," and together with the U.S.
Offering, the "Underwritten Offering"). The third prospectus relates to a
concurrent offering of Common Stock by the Company to certain employee
participants in the Company's Profit Sharing and Savings Plan (the "Direct
Offering"). The prospectuses for the U.S. Offering and the International
Offering will be identical in all respects, other than the front cover page,
the "Underwriting" section and the back cover page. The prospectuses for the
Direct Offering and the U.S. Offering will be identical in all respects, other
than the front cover page, the section entitled "The Offerings," the section
entitled "Legal Matters," the section entitled "Underwriting" (which in the
prospectus for the Direct Offering will be replaced with a section entitled
"Plan of Distribution") and the back cover page. Such alternate pages for the
International Offering and the Direct Offering appear in this Registration
Statement immediately following the complete prospectus for the U.S. Offering.
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 17, 1997
PROSPECTUS
[RED HERRING]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[/RED HERRING]
6,700,000 Shares
RAYOVAC(R)
Common Stock
-----------
All of the 6,700,000 shares of Common Stock offered hereby are being sold
by Rayovac Corporation ("Rayovac" or the "Company"). Of the 6,700,000 shares of
Common Stock offered hereby, 5,360,000 shares are being offered for sale
initially in the United States and Canada by the U.S. Underwriters and
1,340,000 shares are being offered for sale initially in a concurrent offering
outside the United States and Canada by the International Managers. The initial
public offering price and the aggregate underwriting discount per share will be
identical for both Offerings. See "Underwriting."
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $13.00 and $15.00 per share. For a discussion relating to factors to be
considered in determining the initial public offering price, see
"Underwriting."
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "ROV," subject to official notice of issuance.
See "Risk Factors" beginning on page 10 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public Discount (1) Company (2)
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- --------------------------------------------------------------------------------
Per Share ......... $ $ $
- --------------------------------------------------------------------------------
Total (3) ......... $ $ $
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(1) The Company and the Over-Allotment Selling Shareholders have agreed to
indemnify the several Underwriters against certain liabilities, including
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,200,000.
(3) The Over-Allotment Selling Shareholders have granted the U.S. Underwriters
and the International Managers options to purchase up to an additional
804,000 shares and 201,000 shares of Common Stock, respectively, in each
case exercisable within 30 days after the date hereof, solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to the Over-Allotment
Selling Shareholders will be $ , $ and $ ,
respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made in New York,
New York on or about , 1997.
-----------
Merrill Lynch & Co.
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
-----------
The date of this Prospectus is , 1997.
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[Inside Front Cover]
[RAYOVAC Logo](R)
[Picture of Five Rayovac [Picture of Michael Jordan
Maximum Alkaline Battery holding a Rayovac Maximum
Packs on Gray Background] Alkaline Battery Pack]
[Picture of Six Rayovac [Picture of Rayovac [Picture of Arnold Palmer
Rechargeable Battery Battery Store Display Advertisement for Rayovac
Products on Gray Background] on Gray Background] Hearing Aid Batteries]
----------------
RAYOVAC(R), RENEWAL(R), LOUD'N CLEAR(R), POWER STATION(R),
PROLINE(R), WORKHORSE(R), ROUGHNECK(R) and SMART PACK(R) are
registered trademarks of the Company. MAXIMUM(TM), LIFEX(TM) and SMART(TM)
STRIP are trademarks of the Company. All other trademarks or tradenames
referred to in this Prospectus are the property of their respective owners.
----------------
Certain persons participating in the Offerings may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Such transactions may include stabilizing, the purchase of Common Stock to
cover syndicate short positions and the imposition of penalty bids. For a
description of these activities, see "Underwriting."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by
reference to the more detailed information and financial statements, including
the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment options have not been exercised. Upon consummation of the
Recapitalization (as defined herein) on September 12, 1996, the Company changed
its fiscal year end from June 30 to September 30. For clarity of presentation
and comparison, references to fiscal 1995 and fiscal 1996 are to the Company's
fiscal years ended June 30, 1995 and June 30, 1996, respectively, references to
the "Transition Period ended September 30, 1996" and the "Transition Period"
are to the period from July 1, 1996 to September 30, 1996 and references to
fiscal 1997 are to the Company's fiscal year ended September 30, 1997.
The Company
The Company is the leading value brand and the third largest domestic
manufacturer of general batteries (including alkaline, heavy duty and
rechargeable alkaline), and is the leading worldwide manufacturer of hearing
aid batteries. The Company is also the leading domestic manufacturer of
rechargeable household batteries, heavy duty batteries and certain other
specialty batteries, including lantern batteries and lithium batteries for
personal computer clocks and memory backup. In addition, the Company is a
leading marketer of battery-powered lighting products. Originally introduced in
1921, the Rayovac brand is a well recognized name in the battery industry. The
Company attributes the longevity and strength of its brand name to its
high-quality products and to the success of its marketing and merchandising
initiatives.
The Company has established its position as the leading value brand in the
U.S. general alkaline battery market by focusing on the mass merchandiser
channel. The Company achieved this position by (i) offering batteries with
quality and performance substantially equivalent to batteries offered by its
principal competitors at a lower price, (ii) emphasizing innovative in-store
merchandising programs, and (iii) offering retailers attractive margins. The
Company has established its position as the leader in various specialty battery
niche markets through (i) continual technological advances, (ii) creative
distribution and marketing, and (iii) strong relationships with industry
professionals and manufacturers. The Company sells and distributes its products
in several channels, including mass merchandisers, food and convenience stores,
drug and specialty retailers, hardware/home centers, department stores, hearing
aid professionals, industrial and government/OEM. The Company markets all of
its branded products under the Rayovac(R) name and selected products under
sub-brand names such as MAXIMUM(TM), Renewal(R), Loud'n Clear(R),
ProLine(R), Lifex(TM), Power Station(R), Workhorse(R), and
Roughneck(R).
Business Strategy
In September 1996, pursuant to the Recapitalization, affiliates of the
Thomas H. Lee Company acquired beneficial ownership of approximately 80% of the
outstanding Common Stock of Rayovac. David A. Jones was hired as Chief
Executive Officer of the Company to implement a new business strategy focused
on (i) reinvigorating the Rayovac brand name by raising consumer brand
awareness through, among other things, focused marketing and advertising, (ii)
growing Rayovac's market share by expanding distribution into new channels,
increasing sales to under-penetrated channels and customers, launching new
products, and selectively pursuing acquisitions and alliances, (iii) reducing
costs by rationalizing manufacturing and distribution, better utilizing
existing plant capacity, outsourcing products where appropriate, reducing
working capital, and downsizing corporate overhead, and (iv) improving employee
productivity by reorganizing workflow to support the business units,
implementing modern information systems, increasing training and education, and
implementing a pay-for-performance culture.
To implement its new strategy, the Company has undergone a significant
transformation since the Recapitalization.
Strengthened Senior Management Team. In addition to Mr. Jones, three
experienced senior managers were recruited to fill key positions: Kent J.
Hussey, Executive Vice President of Finance and Administration and Chief
Financial Officer; Merrell M. Tomlin, Senior Vice President of Sales; and
Stephen P. Shanesy, Senior Vice President of Marketing and General Manager of
General Batteries. The new senior managers have over 70 years of collective
experience in the consumer products industry. In addition, the current
management team includes several key members who served the Company prior to
the Recapitalization, providing continuity and retaining significant
3
<PAGE>
battery industry expertise. After giving effect to the Offerings, the eight
executive officers of the Company will beneficially own 12.4% of the
outstanding Common Stock on a fully diluted basis.
Reorganized Sales, Marketing and Administration by Distribution
Channel. Rayovac has realigned its marketing department, sales organization,
supply chain and support functions along major distribution channels, including
mass merchandisers, food and convenience stores, drug and specialty retailers,
hardware/home centers, department stores, hearing aid professionals, industrial
and government/OEM. The Company believes that sales to under-penetrated
channels should increase as the dedicated teams focus on implementing channel
specific marketing strategies, sales promotions and customer service
initiatives.
Launched New Sales and Marketing Programs. Rayovac has developed and is in
the process of implementing broad new marketing initiatives designed to
reinvigorate the Rayovac brand name. Major steps completed to date include: (i)
the selection of Young & Rubicam as the Company's new advertising agency and
the development of its first major national advertising campaign for general
battery products, (ii) the launch of a new and improved alkaline product line
under the MAXIMUM sub-brand, (iii) the redesign of all product graphics and
packaging to convey a high quality image and emphasize the Rayovac brand name,
(iv) the extension of the Company's existing contract with Michael Jordan to
include his representation for all Rayovac products, (v) the restructuring of
the Company's sales representative network, and (vi) the implementation of a 4%
price increase for alkaline general battery products in May 1997.
Outsourced Certain Non-Manufacturing Operations. Since the
Recapitalization, the Company has outsourced a number of non-manufacturing
operations, including mainframe computer operations, graphic design and
production, packaging design and payroll processing. As a result, the Company
has reduced costs and increased profitability, while improving services and
operations.
Rationalized Manufacturing and Other Costs. In March 1997, the Company
transferred the manufacture of round cell batteries from its Newton Aycliffe,
United Kingdom facility to its Wisconsin manufacturing plants. In August 1997,
it closed its Kinston, North Carolina facility and transferred production to
its Wonewoc, Wisconsin lighting products plant and to Far Eastern suppliers.
The Company also implemented a significant organizational restructuring in the
United States and United Kingdom and undertook additional measures to
rationalize the Company's manufacturing, distribution and other overhead costs.
Additionally, the Company eliminated costs associated with the use of a
corporate aircraft. The Company estimates these initiatives should result in
aggregate annual savings of $8.6 million. The Company believes that its current
manufacturing capacity remains sufficient to meet its anticipated production
requirements.
Reorganized Information Systems. The Company has completed an initial
reorganization of its information systems function by (i) hiring an experienced
Chief Information Officer, (ii) outsourcing mainframe computer operations,
(iii) completing an enterprise software system analysis, and (iv) retaining
Electronic Data Systems to modernize and upgrade its data processing and
telecommunications infrastructure. The Company has purchased from SAP and begun
implementing an enterprise-wide, integrated information system to upgrade and
modernize its business operations, the majority of which is expected to be
substantially completed by late 1998. When fully implemented, this system is
expected to reduce cycle times, lower manufacturing and administrative costs,
improve both asset and employee productivity and address the Year 2000 issue.
Growth Strategy
Rayovac believes it has significant growth opportunities in its businesses
and has developed corporate and market segment strategies aimed at increasing
sales, profits and market share. Key elements of the Company's growth strategy
are as follows:
Reinvigorate the Rayovac Brand Name. The brand, originally introduced in
1921, has wide recognition in all markets where the Company competes, but has
lower awareness than the more highly advertised Duracell and Energizer brands.
The Company is committed to reinvigorating the Rayovac brand name after many
years of underdevelopment. The Company has initiated an integrated advertising
campaign using significantly higher levels of TV and print media. The campaign
is designed to increase awareness of the Rayovac brand and to heighten
customers' perceptions of the quality, performance and value of Rayovac
products. The Company intends to continue building its brand name to increase
sales of all its products. In 1997, the Company launched a reformulated
4
<PAGE>
alkaline battery, Rayovac MAXIMUM, supported by new graphics, new packaging, a
new advertising campaign, and aggressive introductory retail promotions. This
focused marketing approach is specifically designed to raise consumer awareness
and increase retail sales.
Leverage Value Brand Position. Rayovac believes it has a unique position
in the general battery market as the value brand in an industry in which the
leading three brands (Duracell, Energizer and Rayovac) account for
approximately 90% of sales. The Company's strategy is to provide products of
quality and performance equal to its major competitors in the general battery
market at a lower price, appealing to a large segment of the population
desiring a value brand. To demonstrate its value positioning, Rayovac offers
comparable battery packages at a lower price or, in some cases, more batteries
for the same price.
Expand Retail Distribution. Historically the Company had focused its sales
and marketing efforts on the mass merchandiser channel which accounted for 41%
of industry sales growth in the domestic alkaline battery market over the past
five years. As a result, the Company has achieved a 19% share of domestic
alkaline battery unit sales through mass merchandisers. However, this narrow
focus contributed to much lower market share in all other retail channels which
represent a market of $1.7 billion or 70% of the general battery market. The
Company believes its value brand positioned products and innovative
merchandising programs make it an attractive supplier to these channels. The
Company has reorganized its marketing, sales, and sales representative
organizations by channel in order to grow market share by (i) gaining new
customers, (ii) penetrating existing customers with a larger assortment of
products, (iii) introducing new products, and (iv) utilizing more aggressive
and channel specific promotional programs.
Further Capitalize on Worldwide Leadership in Hearing Aid Batteries. The
Company seeks to increase its 50% worldwide market share in the hearing aid
battery segment, as it has done consistently for the past 10 years, by
leveraging its leading technology and its dedicated and focused sales and
marketing organizations. Rayovac is the only hearing aid battery manufacturer
to advertise its products and plans to continue to utilize Arnold Palmer as its
spokesperson in its print media campaign. Rayovac has also recently introduced
large multi-packs of hearing aid batteries which have rapidly gained consumer
favor.
Reposition the Renewal Rechargeable Alkaline Battery. The Company's
Renewal rechargeable battery is the only rechargeable alkaline battery in the
U.S. market, commanding a 66% market share of the rechargeable household
battery market through mass merchandisers, food and drug stores for the 52
weeks ended July 5, 1997. Since the Recapitalization, management has lowered
the price of Renewal rechargers by 33% to encourage consumers to purchase the
system and shifted Renewal's marketing message from its environmental benefits
to its money-saving benefits. Renewal batteries present a value proposition to
consumers because Renewal batteries can be recharged over 25 times, providing
10 times the energy of disposable alkaline batteries at only twice the retail
price. In addition, alkaline rechargeables are superior to nickel cadmium
rechargeables (the primary competing technology) because they provide more
energy between charges, are sold fully charged, retain their charge longer and
are environmentally safer.
Introduce New Niche Products. The Company has developed leading positions
in several important niche markets, including those for lantern batteries and
lithium coin cells for personal computer memory back-up. The Company intends to
continue selectively pursuing opportunities to exploit under-served niche
markets, as well as further develop recent initiatives including the sales and
marketing of photo and keyless entry batteries. In the lighting products
segment, the Company is introducing a number of attractively designed new
products over the next twelve months and intends to bring new products to the
market in the future on a six-month cycle. New products have been proven to be
a key element in gaining market share for lighting products.
Develop New Markets. The Company intends to leverage its existing
resources to expand its business into new markets for batteries and related
products both domestically and internationally. The Company expects to pursue a
strategy of selective acquisitions and regularly considers potential
acquisition candidates. These acquisitions may focus on expansion into new
geographic markets, technologies or product lines and, in addition, such
acquisitions may be of a significant size and could involve domestic or
international parties. See "Risk Factors--Risks Associated with Future
Acquisitions."
5
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The Offerings
The offering of 5,360,000 shares of the Company's Common Stock in the
United States and Canada (the "U.S. Offering"), the offering of 1,340,000
shares of the Common Stock outside the United States and Canada (the
"International Offering") and the offering of 270,000 shares of Common Stock to
certain employee participants in the Company's Profit Sharing and Savings Plan
(the "Direct Offering") are collectively referred to herein as the "Offerings."
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Common Stock offered by the Company(1) ...... 6,970,000 shares
Common Stock to be outstanding after the
Offerings(2) .............................. 27,551,431 shares
Use of proceeds .............................. The net proceeds to be received by the Company from the
Offerings will be used to repay indebtedness incurred in
connection with the recapitalization of the Company
completed in September 1996. See "The Recapitalization"
and "Use of Proceeds."
New York Stock Exchange symbol ............... "ROV"
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(1) Includes up to 270,000 shares of Common Stock concurrently being offered
directly by the Company in the Direct Offering.
(2) Excludes 5,426,905 shares of Common Stock reserved for sale or issuance
under the Company's employee benefit plans, of which options to purchase
2,318,127 shares have been granted and 3,108,778 shares remain available
for issuance or sale. See "Management--Stock Option Plans."
The Company is concurrently offering up to 270,000 shares of Common Stock
in the Direct Offering pursuant to a separate prospectus. The shares are being
offered at a price per share equal to the per share Price to Public as set forth
on the cover page of this Prospectus less a discount of approximately 3%
which, at the request of the administrator of the Company's Profit Sharing and
Savings Plan, addresses certain matters with respect to the administration of
the fund through which such purchases will be made. Since such shares are being
sold directly by the Company and not through the Underwriters, no underwriting
discount will be paid to the Underwriters with respect to such shares.
6
<PAGE>
Industry Market Data
External market information in this Prospectus is provided by the Company,
based on data licensed from A.C. Nielsen. The two primary sources of market
data are Nielsen Scanner Data (obtained from checkout scanners in selected food
stores, drug stores and mass merchandisers) and Nielsen Consumer Panel Data
(obtained from a group of representative households selected by A.C. Nielsen
equipped with in-home scanners). Except as set forth below, specific market
share references are obtained from Nielsen Scanner Data. Specific hearing aid
battery market share references are obtained from Nielsen Scanner Data, as
supplemented by National Family Opinion Purchase Diary Data. Information
regarding the size (in terms of both dollars and unit sales) of the total U.S.
retail battery market is based upon Nielsen Scanner Data, as supplemented by
Nielsen Consumer Panel Data. The Company has derived worldwide hearing aid
market share data and specialty battery market share data based on data from
the above noted sources, together with information relating to the Company's
sales of hearing aid batteries in Europe, the Company's estimates of
manufacturers' production levels of hearing aid products or other devices which
utilize specialty batteries and market price data.
Other industry data used throughout this Prospectus has been obtained from
a variety of industry surveys (including surveys forming a part of primary
research studies conducted by the Company) and publications but has not been
independently verified by the Company. The Company believes that information
contained in such surveys and publications has been obtained from reliable
sources, but there can be no assurance as to the accuracy and completeness of
such information.
Unless otherwise indicated, all market share estimates are Company
estimates based on the foregoing, are for the U.S. market and reflect units
sold.
Risk Factors
Purchasers of Common Stock in the Offerings should carefully consider the
risk factors set forth under the caption "Risk Factors" and the other
information included in this Prospectus prior to making an investment decision.
See "Risk Factors."
Forward-Looking Statements
This Prospectus contains certain forward-looking statements relating to,
among other things, future results of operations, growth plans, sales, capital
requirements and general industry and business conditions applicable to the
Company. These forward-looking statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from those implied by these
forward-looking statements. Important factors to consider in evaluating such
forward-looking statements include changes in external competitive market
factors, changes in the Company's business strategy or an inability to execute
its strategy due to unanticipated changes in the Company's industry or the
economy in general and various competitive factors that may prevent the Company
from competing successfully in existing or new markets. In light of these risks
and uncertainties, many of which are described in further detail under the
caption "Risk Factors," there can be no assurance that the forward-looking
statements contained in this Prospectus will in fact be realized.
---------------------
Established in 1906, the Company is a Wisconsin corporation with its
principal executive offices at 601 Rayovac Drive, Madison, Wisconsin,
53711-2497. The Company's telephone number is (608) 275-3340.
7
<PAGE>
SUMMARY FINANCIAL DATA
The following summary historical financial data as of and for the two
fiscal years ended June 30, 1996, the Transition Period ended September 30,
1996 and the fiscal year ended September 30, 1997 is derived from the audited
consolidated financial statements of the Company, together with the notes
thereto, included elsewhere in this Prospectus. The summary historical
financial data as of and for the twelve months ended September 30, 1996 is
derived from the unaudited condensed consolidated financial statements of the
Company and, in the opinion of management, includes all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of financial
position and results of operations as of the date and for the period indicated
which are not included herein. The summary historical financial data of the
Company as of and for the two fiscal years ended June 30, 1993 and June 30,
1994 is derived from audited consolidated financial statements of the Company
which are not included herein. The following summary financial data should be
read in conjunction with the Company's consolidated financial statements and
the related notes thereto and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
This financial data, as well as all other financial data set forth herein,
gives effect to the reclassification by the Company of certain promotional
expenses, previously reported as a reduction of net sales, to selling expense.
The amounts which have been reclassified are $19.0 million, $17.5 million,
$24.2 million, and $24.0 million for the fiscal years ended June 30, 1993,
1994, 1995, and 1996, respectively, $6.9 million for the Transition Period
ended September 30, 1996, $24.1 million for the twelve months ended September
30, 1996 and $28.7 million for the fiscal year ended September 30, 1997. The
Company believes that this reclassification is consistent with the method used
by other consumer products companies.
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<CAPTION>
Transition Twelve Months Fiscal Year
Fiscal Year Ended June 30, Period Ended Ended Ended
----------------------------------------- September 30, September 30, September 30,
1993 1994 1995 1996 1996 1996 1997
--------- ----------- --------- --------- --------------- --------------- --------------
(In millions, except per share data)
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Statement of Operations Data:
Net sales .................. $ 372.4 $ 403.7 $ 415.2 $ 423.4 $ 101.9 $ 417.9 $ 432.6
Gross profit ............... 171.0 168.8 178.1 184.0 42.6 180.0 198.0
Income from operations before
non-recurring charges(1) 31.2 21.9 31.5 30.3 4.7 27.0 37.5
Income (loss) from
operations(2)(3)(4) ...... 31.2 10.9 31.5 30.3 (23.7) (1.4) 34.5
Interest expense ............ 6.0 7.7 8.6 8.4 4.4 10.5 24.5
Net income (loss)(5) ...... 15.0 4.4 16.4 14.3 (20.9) (10.2) 6.2
Pro Forma Operations Data(6):
Income before provision for
income taxes ............ $ 17.5
Provision for income taxes 6.5
---------
Pro forma net income ...... $ 11.0
=========
Pro forma net income per
common and common
equivalent share ......... $ 0.38
Weighted average common and
common equivalent shares 29.2
Other Financial Data:
Depreciation ............... $ 7.4 $ 10.3 $ 11.0 $ 11.9 $ 3.3 $ 12.1 $ 11.3
Capital expenditures(7) ... 30.3 12.5 16.9 6.6 1.2 8.4 10.9
Cash flows from operating
activities ............... 15.8 (18.7) 35.5 17.8 (1.1) 26.0 35.7
EBITDA(8) .................. 39.3 21.2 41.3 42.2 (20.4) 10.7 45.8
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997
------------------------
(In millions)
Actual As Adjusted
Balance Sheet Data(9): --------- ------------
<S> <C> <C>
Working capital ..................... $ 33.8 $ 35.1
Total assets ........................ 236.9 236.9
Total debt ........................... 207.3 120.9
Shareholders' equity (deficit) ...... (80.6) 7.1
</TABLE>
(footnotes on following page)
8
<PAGE>
- ----------------
(1) Income (loss) from operations includes expenses incurred during the
Fennimore Expansion, and Recapitalization and other special charges in
fiscal 1994, the Transition Period Ended September 30, 1996, and the
fiscal year ended September 30, 1997. Income from operations before these
non-recurring charges was as follows:
<TABLE>
<CAPTION>
Transition Twelve Months Fiscal Year
Fiscal Year Ended June 30, Period Ended Ended Ended
-------------------------------- September 30, September 30, September 30,
1993 1994 1995 1996 1996 1996 1997
------- -------- ------- ------- --------------- --------------- --------------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from operations ............... $31.2 $ 10.9 $31.5 $30.3 $ (23.7) $ (1.4) $ 34.5
Fennimore Expansion ........................... -- 9.5 -- -- -- -- --
Recapitalization and other special charges ..... -- 1.5 -- -- 28.4 28.4 3.0
------ ------- ------ ------ ------- ------ -------
Income from operations before non-
recurring charges ........................... $31.2 $ 21.9 $31.5 $30.3 $ 4.7 $ 27.0 $ 37.5
====== ======= ====== ====== ======= ====== =======
</TABLE>
(2) Income from operations in fiscal 1994 was impacted by increased selling
expenses due to higher advertising and promotion expenses related to the
Renewal Introduction (as defined herein). In addition, income from
operations was impacted by non-recurring costs of $9.5 million in
connection with the Fennimore Expansion (as defined herein) including $8.4
million of increased cost of goods sold and $1.1 million of increased
general and administrative expenses, and other special charges of
approximately $1.5 million related to a plan to reduce the Company's cost
structure and to improve productivity through an approximate 2.5%
reduction in headcount on a worldwide basis. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations--Introduction."
(3) During the Transition Period, the Company recorded charges of $12.3 million
directly related to the Recapitalization and other special charges of
$16.1 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(4) In the fiscal year ended September 30, 1997, the Company recorded other
special charges of $5.9 million offset by a special credit of $2.9 million
which was related to the curtailment of the Company's defined benefit
pension plan covering all domestic non-union employees. The special
charges related to organizational restructuring in the United States, the
discontinuation of certain manufacturing operations at the Company's
Newton Aycliffe, United Kingdom facility and the discontinuation of
operations at the Company's facility in Kinston, North Carolina.
(5) The Recapitalization of the Company included repayment of certain
outstanding indebtedness, including prepayment fees and penalties. Such
prepayment fees and penalties of $2.4 million, net of income tax benefit
of $0.8 million, has been recorded as an extraordinary item in the
Combined Consolidated Statement of Operations for the Transition Period
and the twelve months ended September 30, 1996.
(6) The unaudited pro forma operations data gives effect to the sale by the
Company of 6,970,000 shares of Common Stock offered in the Offerings (at
an assumed initial public offering price of $14.00 per share and after
deducting the underwriting discounts and estimated offering expenses), and
the application of the net proceeds therefrom as if they had occurred at
the beginning of the fiscal year ended September 30, 1997. The pro forma
adjustments are based upon available data and certain assumptions that the
Company believes are reasonable. The unaudited pro forma operations data
does not purport to represent what the Company's results of operations
would actually have been had the sale by the Company of 6,970,000 shares
of Common Stock in fact occurred at such prior time or to project the
Company's results of operations for or at any future period or date. The
pro forma adjustments for the fiscal year ended September 30, 1997 record
(i) the reduction in interest expense of $7.9 million to give effect to
the sale by the Company of 6,970,000 shares of Common Stock offered in the
Offerings (after deduction for the underwriting discounts and estimated
offering expenses) and the application of the net proceeds therefrom; and
(ii) the incremental income tax expense of $3.1 million relating to the
pro forma interest adjustment (computed using an effective income tax rate
of 39%). Interest expense was calculated using the following average
rates: (i) Revolving Credit Facility (as defined herein), 8.4%; (ii) Term
Loan Facility (as defined herein), 8.4% to 9.2%; and (iii) Notes (as
defined herein), 10.25%.
The Company will use approximately $38.2 million of the net proceeds to
redeem or repurchase approximately $35.0 million principal amount of the
Notes, including a $3.2 million premium. The $3.2 million premium charge
which will be reported as an extraordinary item, net of applicable income
tax, was not reflected in the pro forma operations data presented.
(7) From fiscal 1993 through fiscal 1995 the Company invested an aggregate of
$32.7 million in connection with the Fennimore Expansion, including $19.7
million incurred in fiscal 1993. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Introduction."
(8) EBITDA represents income from operations plus depreciation and amortization
(excluding amortization of debt issuance costs) and reflects an adjustment
of income from operations to eliminate the establishment and subsequent
reversal of two reserves ($0.7 million established in fiscal 1993 and
reversed in fiscal 1995, and $0.5 million established in fiscal 1992 and
reversed in fiscal 1995). The Company believes that EBITDA and related
measures are commonly used by certain investors and analysts to analyze
and compare, and provide useful information regarding, the Company's
ability to service its indebtedness. However, the following factors should
be considered in evaluating such measures: EBITDA and related measures (i)
should not be considered in isolation, (ii) are not measures of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), (iii) should not be construed as alternatives or
substitutes for income from operations, net income or cash flows from
operating activities in analyzing the Company's operating performance,
financial position or cash flows (in each case, as determined in
accordance with GAAP) and (iv) should not be used as indicators of the
Company's operating performance or measures of its liquidity.
Additionally, because all companies do not calculate EBITDA and related
measures in a uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled measures of
other companies.
(9) As adjusted to give effect to the sale by the Company of 6,970,000 shares
of Common Stock offered in the Offerings (at an assumed initial public
offering price of $14.00 per share and after deducting the underwriting
discounts and estimated offering expenses) and the application of the net
proceeds therefrom. See "Use of Proceeds."
9
<PAGE>
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus, including the risk factors set forth below.
Competition
The industries in which the Company participates are very competitive.
Competition is based upon brand name recognition, perceived quality, price,
performance, product packaging and product innovation, as well as creative
marketing, promotion and distribution strategies. In the U.S. battery industry,
the Company competes primarily with two well established companies, Duracell
International Inc. ("Duracell"), a subsidiary of The Gillette Company, and
Eveready Battery Company, Inc., a subsidiary of Ralston Purina Company and
producer of Energizer brand batteries ("Energizer"), each of which has
substantially greater financial and other resources and greater overall market
share than the Company. In addition, the Company believes that Duracell and
Energizer may have lower costs of production and higher profit margins in
certain key product lines than the Company. The Company competes with these
competitors for the limited shelf space that retailers allot to battery
products and for the promotional efforts of such retailers.
Although foreign battery manufacturers historically have not been
successful in penetrating the U.S. retail market to any significant extent,
they have, from time to time, attempted to establish a significant presence in
the U.S. battery market. There can be no assurance that these attempts will not
be successful in the future or that the Company will be able to compete
effectively with current or prospective participants in the U.S. battery
industry. In addition, the battery-powered lighting device industry is highly
competitive and includes a greater number of competitors than the U.S. battery
industry, some of which have greater financial and other resources than the
Company. See "Business--Competition."
Dependence on Key Customers
Wal-Mart Stores, Inc. ("Wal-Mart"), the Company's largest retailer
customer, accounted for 20% of the Company's net sales in fiscal 1997. In
addition, the Company's three largest retailer customers, including Wal-Mart,
together accounted for 29% of the Company's net sales in fiscal 1997. The
Company does not have long-term agreements with any of its major customers, and
sales are generally made to them through the use of individual purchase orders,
consistent with industry practice. There can be no assurance that there will
not be a significant reduction in purchases by any of the Company's three
largest retailer customers, which could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business--Sales and Distribution."
Substantial Leverage
As of September 30, 1997, the Company had total indebtedness of $207.3
million and total shareholders' deficit of $80.6 million. After giving effect
to the Offerings and the application of the net proceeds to the Company
therefrom, as of September 30, 1997, the Company would have had total
indebtedness of $120.9 million and total shareholders' equity of $7.1 million.
Subject to the restrictions contained in the Company's Credit Agreement (as
defined herein) and the indenture (the "Indenture") relating to the Company's
10-1/4% Series B Senior Subordinated Notes due 2006 (the "Notes"), the Company
may incur additional indebtedness from time to time to finance acquisitions or
capital expenditures or for other corporate purposes. A significant portion of
cash flow from operations must be dedicated to the payment of principal of and
interest on the Company's indebtedness, thereby reducing the amount of funds
available for working capital, capital expenditures and other purposes. The
Company's ability to make scheduled payments on its outstanding indebtedness
will depend on its future operating performance which, in turn, will be
affected by prevailing economic conditions and financial, competitive,
regulatory and similar factors. The Credit Agreement and the Indenture impose
operational and financial restrictions on the Company. See "Description of
Certain Indebtedness." Although the Company believes that, based on current
levels of operations, its cash flow from operations, together with external
sources of liquidity, will be adequate to make required payments on its debt,
whether at or prior to maturity, finance anticipated capital expenditures and
fund working capital requirements, there can be no assurance in this regard.
10
<PAGE>
Risks Associated with Future Acquisitions
An element of the Company's growth strategy is to pursue increased market
penetration through strategic acquisitions, which could be of significant size
and involve either domestic or international parties. The diversion of
management attention required by the acquisition and integration of a separate
organization, as well as other difficulties which may be encountered in the
transition and integration process, could have a material adverse effect on the
revenue and operating results of the Company. There can be no assurance that
the Company will identify suitable acquisition candidates, that acquisitions
will be consummated on acceptable terms or that the Company will be able to
successfully integrate the operations of any acquisition. In addition, the
Company may incur additional indebtedness in connection with acquisitions,
which might not be available on terms as favorable to the Company as current
terms and which would increase the leveraged position of the Company. See
"--Substantial Leverage." Further, acquisitions utilizing equity may be
dilutive to shareholders.
Environmental Matters
The Company's facilities are subject to a broad range of federal, state,
local and foreign laws and regulations relating to the environment, including
those governing discharges to the air and water and land, the handling and
disposal of solid and hazardous substances and wastes and the remediation of
contamination associated with releases of hazardous substances at Company
facilities and at off-site disposal locations. Risk of environmental liability
is inherent in the Company's business, however, and there can be no assurance
that material environmental costs will not arise in the future. In particular,
the Company might incur capital and other costs to comply with increasingly
stringent environmental laws and enforcement policies. Based on currently
available information, the Company believes that it is substantially in
compliance with applicable environmental regulations at its facilities,
although no assurance can be provided with respect to such compliance in the
future.
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or similar state laws with respect to the past disposal of waste.
Such laws may impose liability on certain statutory classes of persons that are
considered jointly and severally liable for the costs of investigation and
remediation of contaminated properties, regardless of fault or the legality of
the original disposal. These persons include the present or former owner or
operator of a facility and companies that generated, disposed or arranged for
the disposal of hazardous substances found at the facility. The Company may be
named as a PRP at additional sites in the future, and the costs associated with
such additional or existing sites may be material. In addition, certain of the
Company's battery manufacturing facilities have been in operation for decades
and, over such time, the Company and other prior operators of such facilities
have generated and disposed of wastes such as manganese, cadmium and mercury
which are or may be considered hazardous. The Company has not conducted
invasive testing to identify all potential risks, and given the age of the
Company's facilities and the nature of the Company's operations, there can be
no assurance that material liabilities will not arise in the future in
connection with its current or former facilities. The discovery of previously
unknown contamination of property underlying or in the vicinity of the
Company's manufacturing facilities could require the Company to incur material
unforeseen expenses. Occurrences of any such events may have a material adverse
effect on the Company's financial condition.
In addition, the Company has been notified that its former manganese
processing facility in Covington, Tennessee is being evaluated by the Tennessee
Department of Environment and Conservation ("TDEC") for a determination as to
whether the facility should be added to the National Priorities List as a
Superfund site. Groundwater monitoring at the site conducted pursuant to the
post-closure maintenance of solid waste lagoons on site, and recent groundwater
testing beneath former process areas on site, indicate that there are elevated
levels of certain inorganic contaminants, particularly (but not exclusively)
manganese, in the groundwater underneath the site. The Company cannot predict
the outcome of TDEC's investigation of the site. See "Business--Environmental
Matters."
The Company has been and is subject to several proceedings related to its
disposal of industrial and hazardous material at off-site disposal locations
under CERCLA or analogous state laws that hold persons who "arranged for" the
disposal or treatment of such substances strictly liable for the costs incurred
in responding to the release or threatened release of hazardous substances from
such sites. Except for the Velsicol Chemical and Morton International
proceedings described below (as to which there is insufficient information to
make a judgment as to its impact on the Company at this time), the Company does
not believe that any of its pending CERCLA or
11
<PAGE>
analogous state matters, either individually or in the aggregate, will have a
material impact on the Company's operations, financial condition or liquidity.
The Company has been named as a defendant in two lawsuits in connection
with a Superfund site located in Bergen County, New Jersey (Velsicol Chemical
Corporation, et al. v. A.E. Staley Manufacturing Company, et al., and Morton
International, Inc. v. A.E. Staley Manufacturing Company, et al., United States
District Court for the District of New Jersey, filed July 29, 1996). These
lawsuits involve contamination at a former mercury processing facility and the
watershed of a nearby creek (the "Bergen County Site"). The Company is one of
approximately 100 defendants named in these lawsuits. The cost to remediate the
Bergen County Site has not been determined and the Company cannot predict the
outcome of these proceedings. See "Business--Environmental Matters."
Battery Technology
The battery industry generally involves continually evolving technology
with individual advances typically resulting in modest increases in product
life. There can be no assurance that, as existing battery products and
technologies improve and new, more advanced products and technologies are
introduced, the Company's products will be able to compete effectively in any
of its targeted market segments. The development and successful introduction of
new and enhanced products and other competing technologies that may outperform
the Company's batteries and technological developments by competitors or
consumer perceptions as to improved product offerings of competitors may have a
material adverse effect on the Company's business, financial condition or
results of operations, particularly in the context of the substantially greater
resources of the Company's two principal competitors in the general battery
market, Duracell and Energizer. See "--Competition." Similarly, in those market
segments where the Company's battery products currently have technological
advantages there can be no assurance that the Company's products will maintain
such advantages.
The general battery industry historically has sustained unit sales growth
even as battery life has increased with innovation (largely due to expansion in
the use of and the number of applications for batteries); however, there can be
no assurance that continued enhancements of battery performance (including
rechargeable battery performance) will not have an adverse effect on unit
sales.
Risks of Foreign Sales; Exchange Rate Fluctuations
The Company's foreign sales and certain expenses are transacted in foreign
currencies. In fiscal 1997, approximately 19% of the Company's revenues and
18% of the Company's expenses were denominated in currencies other than U.S.
dollars. International operations and exports and imports to and from foreign
markets are subject to a number of special risks including, but not limited to,
risks with respect to currency exchange rates, economic and political
destabilization, restrictive actions by foreign governments (e.g. duties and
quotas and restrictions on transfer of funds), changes in United States and
foreign laws regarding trade and investment and difficulty in obtaining
distribution and support. Significant increases in the value of the U.S. dollar
relative to certain foreign currencies could have a material adverse effect on
the Company's results of operations. The Company generally hedges a portion of
its foreign currency exposure and will, in the future, be vulnerable to the
effects of currency exchange rate fluctuations. For a description of the
Company's operations in different geographic areas, including the Company's
sales, revenue and profit or loss and identifiable assets attributable to each
of the Company's geographic areas, see Note 12 of Notes to Combined
Consolidated Financial Statements.
Raw Materials
The Company's principal raw material for the production of its battery
products is zinc and the Company expects to spend approximately $8.4 million
for zinc in fiscal 1998. Prices for zinc are subject to market forces beyond
the control of the Company. The Company regularly engages in forward purchases
and hedging transactions to effectively manage raw material costs and inventory
relative to anticipated production requirements for the next six to twelve
months. However, the Company's future profitability may be materially adversely
affected by increased zinc prices to the extent it is unable to pass on higher
raw material costs to its customers. See Note 2.o. of Notes to Combined
Consolidated Financial Statements.
Limited Intellectual Property Protection
The Company relies upon a combination of patent, trademark and trade
secret laws, together with licenses, confidentiality agreements and other
contractual covenants, to establish and protect its technology and other
intellectual property rights. There can be no assurance that the steps taken by
the Company will be adequate to
12
<PAGE>
prevent misappropriation of its technology or other intellectual property or
that the Company's competitors will not independently develop technologies that
are substantially equivalent or superior to the Company's technology. Moreover,
although the Company believes that its current products do not infringe upon
the valid proprietary rights of others, there can be no assurance that third
parties will not assert infringement claims against the Company and that, in
the event of an unfavorable ruling on any such claim, a license or similar
agreement will be available to the Company on reasonable terms. Moreover, the
laws of certain foreign countries do not protect intellectual property rights
to the same extent as do the laws of the United States.
Certain technology underlying the Company's rechargeable line of alkaline
batteries is the subject of a non-exclusive license from a third party and
could be made available to the Company's competitors. The licensing of that
technology to a competitor could have an adverse effect on the Company's
business, financial condition or results of operations. The Company does not
believe, however, that this effect would be material to the Company because
revenues from sales of the Company's rechargeable alkaline batteries and
rechargers account for less than 10% of the Company's total revenues.
The Company does not have any right to the trademark "Rayovac" in Brazil,
where the mark is owned by an independent third-party battery manufacturer. In
addition, ROV Limited, a third party unaffiliated with the Company, has an
exclusive, perpetual, royalty-free license for the use on general batteries
(but not hearing aid or other specialty batteries) and lighting devices of the
Rayovac trademark in a number of countries, including in Latin America. See
"Business--Patents, Licenses and Trademarks."
Seasonality
Sales of the Company's products are seasonal, with the highest sales
occurring in the fiscal quarter ending on or about December 31, during the
holiday season. During the past four fiscal years, the Company's sales in the
quarter ending on or about December 31 have represented an average of 33% of
annual net sales. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality."
Control by Existing Shareholders
Upon completion of the Offerings, the Company's existing shareholders will
beneficially own 74.7% of the Company's outstanding Common Stock (71.1% if the
Underwriters' over-allotment options are exercised in full). Of those shares,
the Thomas H. Lee Equity Fund III, L.P. (the "Lee Fund") and certain other
affiliates of Thomas H. Lee Company ("THL Co."; the Lee Fund and such other
affiliates being referred to herein as the "Lee Group") will beneficially own
64.8% of the Company's outstanding Common Stock (61.1% if the Underwriters'
over-allotment options are exercised in full). Consequently, the Lee Group will
control the Company and have the power to elect the board of directors of the
Company (the "Board of Directors") and to approve any action requiring
shareholder approval, including the adoption of amendments to the Company's
Amended and Restated Articles of Incorporation and the approval of mergers or
sales of all or substantially all of the Company's assets. See "Ownership of
Capital Stock." The Company's ability to take certain of these actions is
limited by certain terms of its outstanding indebtedness. See "Description of
Certain Indebtedness."
Shares Eligible for Future Sale; Potential for Adverse Effect on Stock Price;
Registration Rights
Sales of a substantial number of shares of Common Stock in the public
market or the perception that such sales could occur could adversely affect
prevailing market prices for the Common Stock. Upon completion of the
Offerings, the Company will have outstanding 27,551,431 shares of Common Stock,
excluding 2,318,127 shares of Common Stock which have been granted under the
Company's stock incentive plans. Of these shares, the shares of Common Stock to
be sold in the Offerings will be freely tradable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), except for any such
shares which may be acquired by an "affiliate" of the Company. In connection
with the Offerings, certain existing shareholders and the executive officers of
the Company (holding an aggregate of approximately 20 million shares of Common
Stock upon consummation of the Offerings) and the Company have agreed, subject
to certain exceptions, not to dispose of any shares of Common Stock for a
period of 180 days from the date of this Prospectus (the "Lockup Period")
without the consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") on behalf of the Underwriters. Upon expiration of the Lockup
Period, substantially all of such shares will be eligible for sale in the
public market subject to compliance with the volume limitations and other
restrictions of Rule 144 under the Securities Act.
13
<PAGE>
Following the consummation of the Offerings, the Lee Group will hold
17,852,158 shares of Common Stock (without giving effect to the Underwriters'
over-allotment options) and will be entitled to certain registration rights
with respect to the registration of such shares under the Securities Act. Under
the terms of a shareholders agreement between the Company and certain
shareholders, dated as of September 12, 1996, as amended as of August 1, 1997
(the "Shareholders Agreement"), at any time when the Lee Group and their
permitted transferees own in the aggregate at least 10% of the shares acquired
in the Recapitalization, the Lee Group has the right to require the Company to
file a registration statement under the Securities Act in order to register the
sale of all or any part of its shares of Common Stock. See "Shares Eligible for
Future Sale." The Lee Group is entitled to demand that the Company register
their shares of Common Stock on three occasions at the Company's expense;
provided, however, that if the Lee Group owns at least 10%, but not more than
25%, of the shares acquired in the Recapitalization, then the Company shall be
obligated to effect only one such registration. Additionally, the Lee Group and
shareholders party to the Shareholders Agreement have the right, subject to
certain limitations, to include their shares in certain offerings initiated by
the Company whether for its own account or for other shareholders. The Company
may in certain circumstances defer such registrations, and the underwriters
with respect to such sale have the right, subject to certain limitations, to
limit the number of shares included in such registrations. In the event that
the Company proposes to register the sale of any of its securities under the
Securities Act, the Company is required to promptly give such shareholders
written notice no later than 10 days before the effective date of the
registration statement, at which point such shareholders will have five days to
make a written request of the Company to include their shares of Common Stock
in such registration, subject to the underwriters' right to limit such shares
and certain other limitations. In general, the Company is required to bear the
expense of all such registrations except for transfer taxes. The sale of such
shares could have an adverse effect on the Company's ability to raise equity
capital in the public markets. The shares held by the Lee Group are subject to
the Lockup Period referred to in the preceding paragraph. See "Shares Eligible
for Future Sale."
No Prior Market for Common Stock; Offering Price
Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if developed, that such market will be sustained. The initial public
offering price of the Common Stock will be determined through negotiations
between the Company and the representatives of the Underwriters. In addition,
the Company believes that factors such as quarterly fluctuations in the
financial results of the Company, as well as developments that affect the
Company's industry, the overall economy and the financial markets in general
could cause the price of the Common Stock to fluctuate substantially. See
"Underwriting."
Anti-Takeover and Other Provisions of Wisconsin Law
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Charter") and the Amended and Restated By-laws (the
"By-laws"), each to be effective prior to the sale of the shares of Common
Stock in the Offerings, and of Wisconsin corporation law may have the effect of
discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals. Under certain provisions of Wisconsin law,
shareholders may have certain liabilities with respect to liabilities of a
corporation with respect to unpaid wages under certain circumstances. See
"Description of Capital Stock--Anti-Takeover Effects of Provisions of the
Charter and By-laws and of Wisconsin Law" and "--Common Stock."
Substantial and Immediate Dilution to Investors Purchasing in the Offerings
Investors purchasing shares of Common Stock in the Offerings will
experience immediate and substantial dilution in net tangible book value per
share of $13.82 (assuming an initial public offering price of $14.00 per
share). See "Dilution."
14
<PAGE>
THE RECAPITALIZATION
Effective as of September 12, 1996, the Company, all of the shareholders
of the Company, the Lee Fund and other affiliates of THL Co. completed a
recapitalization (the "Recapitalization") pursuant to which, among other
things: (i) the Company obtained senior financing under a Credit Agreement
dated as of September 12, 1996 by and among the Company, Bank of America
National Trust and Savings Association and DLJ Capital Funding, Inc. (the
"Credit Agreement") in an aggregate amount of $170.0 million, of which $131.0
million was borrowed at the closing of the Recapitalization, including $26.0
million under the Revolving Credit Facility; (ii) the Company obtained $100.0
million in financing through the issuance of bridge notes (the "Bridge Notes");
(iii) the Company redeemed a portion of the shares of Common Stock held by
Thomas F. Pyle, Jr., the former President and Chief Executive Officer of the
Company; (iv) the Lee Group purchased for cash shares of Common Stock owned by
shareholders of the Company (a group consisting of current and former directors
and management of the Company and the Thomas Pyle and Judith Pyle Charitable
Remainder Trust (the "Pyle Trust")) which resulted in a change of control of
the Company; and (v) the Company repaid certain of its outstanding
indebtedness, including prepayment fees and penalties. The Bridge Notes were
subsequently repaid with the proceeds of the sale of 10-1/4% Senior
Subordinated Notes Due 2006, which were later exchanged for a like principal
amount of the Notes.
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered in the Offerings are estimated to be approximately $89.7 million
assuming an initial public offering price of $14.00 per share (the midpoint of
the range of the initial public offering price set forth on the cover page of
this Prospectus), and after deducting the underwriting discounts and estimated
offering expenses. The Company will not receive any of the proceeds from the
sale of the shares to be sold, if any, by certain existing shareholders of the
Company who have granted over-allotment options to the Underwriters (the
"Over-Allotment Selling Shareholders").
Of the net proceeds to the Company from this offering, approximately $38.2
million will be used to redeem or repurchase approximately $35.0 million
principal amount of the Notes and pay the associated premium, and approximately
$51.5 million will be used to repay term loans provided pursuant to the Credit
Agreement incurred in connection with the Recapitalization. The Notes bear
interest at a rate of 10-1/4%, payable semiannually, and mature on November 1,
2006. The term loans under the Credit Agreement consist of a six-year Tranche A
term loan of $55.0 million, a seven-year Tranche B term loan of $25.0 million
and an eight-year Tranche C term loan of $25.0 million (collectively, the "Term
Loan Facility"). Borrowings under the Credit Agreement bear interest, in each
case at the Company's option, as follows: (i) with respect to the Tranche A
loans, at Bank of America National Trust and Savings Association's base rate
plus 1.50% per annum, or at IBOR plus 2.50% per annum; (ii) with respect to the
Tranche B loans, at Bank of America National Trust and Savings Association's
base rate plus 2.00% per annum, or at IBOR plus 3.00% per annum; and (iii) with
respect to the Tranche C loans, at Bank of America National Trust and Savings
Association's base rate plus 2.25% per annum, or at IBOR plus 3.25% per annum.
The Credit Agreement requires the Company to apply 50% of the proceeds of the
Offerings not used to redeem or repurchase Notes to repayment of indebtedness
under the Credit Agreement, pro rata among the tranches except as may be
otherwise agreed. See "Description of Certain Indebtedness."
DIVIDEND POLICY
The Company does not anticipate paying cash dividends in the foreseeable
future, but intends to retain any future earnings for reinvestment in its
business. In addition, the Credit Agreement and the Notes restrict the
Company's ability to pay dividends to its shareholders. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements, contractual restrictions and such other
factors as the Board of Directors deems relevant.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, after giving effect to the Company's Charter to be
effective prior to the sale of the shares of Common Stock in the Offerings and
as adjusted as of that date to give effect to the sale by the Company of
6,970,000 shares of Common Stock offered in the Offerings (at an assumed
initial public offering price of $14.00 per share) and the application of the
net proceeds therefrom as described in "Use of Proceeds." This table should be
read in conjunction with the Company's consolidated financial statements and
the related notes thereto and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
As of September 30, 1997
--------------------------
Actual As Adjusted
----------- ------------
(Dollars in millions)
<S> <C> <C>
Debt:
Revolving Credit Facility(1) ................................. $ 4.5 $ 4.5
Term Loan Facility(2) .......................................... 100.5 49.1
Notes ......................................................... 100.0 65.0
Capitalized leases and foreign currency borrowings ............ 2.3 2.3
-------- --------
Total debt ................................................... 207.3 120.9
-------- --------
Shareholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000 shares authorized; no
shares issued and outstanding (3) ........................... -- --
Common stock, $.01 par value, 150,000,000 shares authorized;
20,581,431 and 27,551,431 shares outstanding, respectively,
actual and as adjusted (3) ................................. 0.5 0.6
Additional paid in capital .................................... 16.0 105.6
Foreign currency translation ................................. 2.3 2.3
Notes receivable from officers/shareholders .................. (1.7) (1.7)
Retained earnings ............................................. 31.3 29.3
Less stock held in trust .................................... (1.0) (1.0)
Less treasury stock, at cost, 29,418,569 shares ............... (128.0) (128.0)
-------- --------
Total shareholders' equity (deficit) ........................ (80.6) 7.1
-------- --------
Total capitalization ....................................... $ 126.7 $ 128.0
======== ========
</TABLE>
- ----------------
(1) For a description of the Revolving Credit Facility, see "Description of
Certain Indebtedness--The Credit Agreement." Total availability under the
Revolving Credit Facility is $65.0 million.
(2) For a description of the Term Loan Facility, see "Description of Certain
Indebtedness--The Credit Agreement."
(3) On October 22, 1997, the shareholders of the Company approved the
authorization of 5,000,000 shares of Preferred Stock, $.01 par value, and
an increase in authorized shares of Common Stock from 90,000,000 to
150,000,000.
16
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1997 was
$(82.8) million, or $(4.02) per share. Net tangible book value per share is
determined by dividing total tangible assets less total liabilities of the
Company by the total number of outstanding shares of Common Stock. After giving
effect to the sale of the shares of Common Stock offered in the Offerings
(assuming an initial public offering price of $14.00 per share), deducting the
estimated underwriting discount and estimated expenses to be paid by the
Company and applying the estimated net proceeds as set forth in "Use of
Proceeds," the pro forma net tangible book value of the Company at September
30, 1997 would have been $4.9 million or $0.18 per share. This represents an
immediate increase in net tangible book value of $4.20 per share to existing
shareholders and an immediate dilution of $13.82 per share to new investors
purchasing shares in the Offerings. The following table illustrates this
dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .................. $ 14.00
Net tangible book value per share as of September 30, 1997 ...... $ (4.02)
Increase in net tangible book value per share attributable to new
investors ...................................................... 4.20
-------
Pro forma net tangible book value per share after the Offerings ... 0.18
--------
Dilution per share to new investors .............................. $ 13.82
========
</TABLE>
The following table sets forth, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share paid by
existing shareholders and by the new investors purchasing shares of Common
Stock from the Company in the Offerings (before deducting underwriting
discounts and estimated offering expenses).
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------------ ---------------------- Price per
Number Percent Amount Percent Share
------------ --------- ---------- --------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Existing shareholders ...... 20,581,431 74.7% $ 76,280 43.9% $ 3.71
New investors ............... 6,970,000 25.3 97,467 56.1 13.98
----------- ------ --------- ------
Total ..................... 27,551,431 100.0% $173,747 100.0% $ 6.31
=========== ====== ========= ======
</TABLE>
The foregoing tables assume no exercise of the Underwriters'
over-allotment options. The Company currently has outstanding options to
purchase an aggregate of 2,318,127 shares of Common Stock at a weighted average
exercise price of $4.33 per share. See "Management--Option Grants and
Exercises." To the extent that outstanding options are exercised in the future,
there will be further dilution to new investors.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected historical financial data as of and for the two
fiscal years ended June 30, 1996, the Transition Period ended September 30,
1996 and the fiscal year ended September 30, 1997 is derived from the audited
consolidated financial statements of the Company, together with the notes
thereto, included elsewhere in this Prospectus. The selected historical
financial data as of and for the twelve months ended September 30, 1996 is
derived from the unaudited condensed consolidated financial statements of the
Company and, in the opinion of management, includes all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of financial
position and results of operations as of the date and for the period indicated
which are not included herein. The selected historical financial data of the
Company as of and for the two fiscal years ended June 30, 1993 and June 30,
1994 is derived from audited consolidated financial statements of the Company
which are not included herein. The following selected financial data should be
read in conjunction with the Company's consolidated financial statements and
the related notes thereto and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
This financial data, as well as all other financial data set forth herein,
gives effect to the reclassification by the Company of certain promotional
expenses, previously reported as a reduction of net sales, to selling expense.
The amounts which have been reclassified are $19.0 million, $17.5 million,
$24.2 million, and $24.0 million for the fiscal years ended June 30, 1993,
1994, 1995, and 1996, respectively, $6.9 million for the Transition Period
ended September 30, 1996, $24.1 million for the twelve months ended September
30, 1996 and $28.7 million for the fiscal year ended September 30, 1997. The
Company believes that this reclassification is consistent with the method used
by other consumer products companies.
18
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-----------------------------------------------
1993 1994 1995 1996
----------- ----------- ----------- -----------
(In millions, except per share data)
Statement of Operations Data:
<S> <C> <C> <C> <C>
Net sales .............................. $ 372.4 $ 403.7 $ 415.2 $ 423.4
Cost of goods sold ..................... 201.4 234.9 237.1 239.4
---------- --------- ---------- ----------
Gross profit ........................... 171.0 168.8 178.1 184.0
Selling expense ........................ 98.8 121.3 108.7 116.5
General and administrative expense ...... 35.4 29.4 32.9 31.8
Research and development expense ...... 5.6 5.7 5.0 5.4
Recapitalization and other special
charges(1)(2) ........................ -- 1.5 -- --
---------- --------- ---------- ----------
Income (loss) from operations (3)(4) ..... 31.2 10.9 31.5 30.3
Interest expense ........................ 6.0 7.7 8.6 8.4
Other expense (income), net ............ 1.2 (0.6) 0.3 0.6
---------- --------- ---------- ----------
Income (loss) before income taxes
and extraordinary item ............... 24.0 3.8 22.6 21.3
Income tax expense (benefit) ............ 9.0 (0.6) 6.2 7.0
---------- --------- ---------- ----------
Income (loss) before extraordinary
item ................................. 15.0 4.4 16.4 14.3
Extraordinary item(5) .................. -- -- -- --
---------- --------- ---------- ----------
Net income (loss) ..................... $ 15.0 $ 4.4 $ 16.4 $ 14.3
========== ========= ========== ==========
Net income (loss) per common share
before extraordinary item ............ $ 0.29 $ 0.08 $ 0.32 $ 0.28
========== ========= ========== ==========
Net income (loss) per common
share(6) .............................. $ 0.29 $ 0.08 $ 0.32 $ 0.28
========== ========= ========== ==========
Weighted average common and
common equivalent shares ............... 51.6 51.6 51.6 51.1
Pro Forma Operations Data(7):
Income before provision for income
taxes .................................
Provision for income taxes ............
Pro forma net income ..................
Pro forma net income per common
and common equivalent share ............
Weighted average common and
common equivalent shares ...............
Other Financial Data:
Depreciation ........................... $ 7.4 $ 10.3 $ 11.0 $ 11.9
Capital expenditures(8) ............... 30.3 12.5 16.9 6.6
Cash flows from operating activities ..... 15.8 (18.7) 35.5 17.8
EBITDA(9) .............................. 39.3 21.2 41.3 42.2
Balance Sheet Data:
Working capital ........................ $ 31.6 $ 63.6 $ 55.9 $ 63.2
Total assets ........................... 189.0 222.4 220.6 221.1
Total debt .............................. 74.1 109.0 88.3 81.3
Shareholders' equity (deficit) ......... 36.7 37.9 53.6 61.6
<CAPTION>
Transition Twelve Months Fiscal Year
Period Ended Ended Ended
September 30, September 30, September 30,
1996 1996 1997
--------------- --------------- --------------
Statement of Operations Data:
<S> <C> <C> <C>
Net sales .............................. $ 101.9 $ 417.9 $ 432.6
Cost of goods sold ..................... 59.3 237.9 234.6
-------- -------- ---------
Gross profit ........................... 42.6 180.0 198.0
Selling expense ........................ 27.8 114.4 122.1
General and administrative expense ...... 8.6 33.0 32.2
Research and development expense ...... 1.5 5.6 6.2
Recapitalization and other special
charges(1)(2) ........................ 28.4 28.4 3.0
-------- -------- ---------
Income (loss) from operations (3)(4) ..... (23.7) (1.4) 34.5
Interest expense ........................ 4.4 10.5 24.5
Other expense (income), net ............ 0.1 0.5 0.4
-------- -------- ---------
Income (loss) before income taxes
and extraordinary item ............... (28.2) (12.4) 9.6
Income tax expense (benefit) ............ (8.9) (3.8) 3.4
-------- -------- ---------
Income (loss) before extraordinary
item ................................. (19.3) (8.6) 6.2
Extraordinary item(5) .................. (1.6) (1.6) --
-------- -------- ---------
Net income (loss) ..................... $ (20.9) $ (10.2) $ 6.2
======== ======== =========
Net income (loss) per common share
before extraordinary item ............ $ (0.42) $ (0.17) $ 0.28
======== ======== =========
Net income (loss) per common
share(6) .............................. $ (0.46) $ (0.21) $ 0.28
======== ======== =========
Weighted average common and
common equivalent shares ............... 45.5 49.7 22.2
Pro Forma Operations Data(7):
Income before provision for income
taxes ................................. $ 17.5
Provision for income taxes ............ 6.5
--------
Pro forma net income .................. $ 11.0
=========
Pro forma net income per common
and common equivalent share ............ $ 0.38
Weighted average common and
common equivalent shares ............... 29.2
Other Financial Data:
Depreciation ........................... $ 3.3 $ 12.1 $ 11.3
Capital expenditures(8) ............... 1.2 8.4 10.9
Cash flows from operating activities ..... (1.1) 26.0 35.7
EBITDA(9) .............................. (20.4) 10.7 45.8
Balance Sheet Data:
Working capital ........................ $ 64.6 $ 64.6 $ 33.8
Total assets ........................... 243.7 243.7 236.9
Total debt .............................. 233.7 233.7 207.3
Shareholders' equity (deficit) ......... (85.7) (85.7) (80.6)
</TABLE>
(footnotes on following page)
19
<PAGE>
- ------------
(1) During the Transition Period, the Company recorded charges of $12.3 million
directly related to the Recapitalization and other special charges of
$16.1 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) In the fiscal year ended September 30, 1997, the Company recorded other
special charges of $5.9 million offset by a special credit of $2.9 million
which was related to the curtailment of the Company's defined benefit
pension plan covering all domestic non-union employees. The special
charges related to organizational restructuring in the United States, the
discontinuation of certain manufacturing operations at the Company's
Newton Aycliffe, United Kingdom facility and the discontinuation of
operations at the Company's facility in Kinston, North Carolina.
(3) Income (loss) from operations includes expenses incurred during the
Fennimore Expansion (as defined herein), and Recapitalization and other
special charges in fiscal 1994, the Transition Period Ended September 30,
1996, and the fiscal year ended September 30, 1997. Income from operations
before these non-recurring charges was as follows:
<TABLE>
<CAPTION>
Transition Twelve Months Fiscal Year
Fiscal Year Ended June 30, Period Ended Ended Ended
-------------------------------- September 30, September 30, September 30,
1993 1994 1995 1996 1996 1996 1997
------- -------- ------- ------- --------------- --------------- --------------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from operations ............... $31.2 $ 10.9 $31.5 $30.3 $ (23.7) $ (1.4) $ 34.5
Fennimore Expansion ........................ -- 9.5 -- -- -- -- --
Recapitalization and other special charges . -- 1.5 -- -- 28.4 28.4 3.0
------ ------- ------ ------ ------- ------ -------
Income from operations before non-
recurring charges ........................ $31.2 $ 21.9 $31.5 $30.3 $ 4.7 $ 27.0 $ 37.5
====== ======= ====== ====== ======= ====== =======
</TABLE>
(4) Income from operations in fiscal 1994 was impacted by increased selling
expenses due to higher advertising and promotion expenses related to the
Renewal Introduction (as defined herein). In addition, income from
operations was impacted by non-recurring costs of $9.5 million in
connection with the Fennimore Expansion including $8.4 million of
increased cost of goods sold and $1.1 million of increased general and
administrative expenses, and other special charges of approximately $1.5
million related to a plan to reduce the Company's cost structure and to
improve productivity through an approximate 2.5% reduction in headcount on
a worldwide basis. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Introduction."
(5) The Recapitalization of the Company included repayment of certain
outstanding indebtedness, including prepayment fees and penalties. Such
prepayment fees and penalties of $2.4 million, net of income tax benefit
of $0.8 million, has been recorded as an extraordinary item in the
Combined Consolidated Statement of Operations for the Transition Period
ended September 30, 1996.
(6) Net income (loss) per share data has been computed using the weighted
average number of shares of common and common equivalent shares from stock
options (when dilutive using the treasury stock method). Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin No. 83,
common stock warrants and options issued during the twelve-month period
immediately preceding the Company's proposed initial public offering have
been included in the calculation as if they were outstanding for all
periods presented (even if antidilutive, using the treasury stock method
and the assumed initial public offering price).
(7) The unaudited pro forma operations data gives effect to the sale by the
Company of 6,970,000 shares of Common Stock offered in the Offerings (at
an assumed initial public offering price of $14.00 per share and after
deducting the underwriting discounts and estimated offering expenses), and
the application of the net proceeds therefrom as if they had occurred at
the beginning of the fiscal year ended September 30, 1997. The pro forma
adjustments are based upon available data and certain assumptions that the
Company believes are reasonable. The unaudited pro forma operations data
does not purport to represent what the Company's results of operations
would actually have been had the sale by the Company of 6,970,000 shares
of Common Stock in fact occurred at such prior time or to project the
Company's results of operations for or at any future period or date.
The pro forma adjustments for the fiscal year ended September 30, 1997
record (i) the reduction in interest expense of $7.9 million to give effect
to the sale by the Company of 6,970,000 shares of Common Stock offered in
the Offerings (after deduction for the underwriting discounts and estimated
offering expenses) and the application of the net proceeds therefrom; and
(ii) the incremental income tax expense of $3.1 million relating to the pro
forma interest adjustment (computed using an effective income tax rate of
39%). Interest expense was calculated using the following average rates: (i)
Revolving Credit Facility, 8.4%; (ii) Term Loan Facility (as defined
herein), 8.4% to 9.2%; and (iii) Notes, 10.25%.
The Company will use approximately $38.2 million of the net proceeds to
redeem or repurchase approximately $35.0 million principal amount of the
Notes, including a $3.2 million premium. The $3.2 million premium charge
which will be reported as an extraordinary item, net of applicable income
tax, was not reflected in the pro forma operations data presented.
(8) From fiscal 1993 through fiscal 1995 the Company invested an aggregate of
$32.7 million in connection with the Fennimore Expansion, including $19.7
million incurred in fiscal 1993. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Introduction."
(9) EBITDA represents income from operations plus depreciation and amortization
(excluding amortization of debt issuance costs) and reflects an adjustment
of income from operations to eliminate the establishment and subsequent
reversal of two reserves ($0.7 million established in fiscal 1993 and
reversed in fiscal 1995, and $0.5 million established in fiscal 1992 and
reversed in fiscal 1995). The Company believes that EBITDA and related
measures are commonly used by certain investors and analysts to analyze
and compare, and provide useful information regarding, the Company's
ability to service its indebtedness. However, the following factors should
be considered in evaluating such measures: EBITDA and related measures (i)
should not be considered in isolation, (ii) are not measures of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), (iii) should not be construed as alternatives or
substitutes for income from operations, net income or cash flows from
operating activities in analyzing the Company's operating performance,
financial position or cash flows (in each case, as determined in
accordance with GAAP) and (iv) should not be used as indicators of the
Company's operating performance or measures of its liquidity.
Additionally, because all companies do not calculate EBITDA and related
measures in a uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled measures of
other companies.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and the Company's combined consolidated financial statements
and the related notes thereto, included elsewhere herein.
Introduction
Upon completion of the Recapitalization, the Company changed its fiscal
year end from June 30 to September 30. For clarity of presentation and
comparison, references herein to fiscal 1994, fiscal 1995 and fiscal 1996 are
to the Company's fiscal years ended June 30, 1994, June 30, 1995 and June 30,
1996, respectively, and references to the "Transition Period ended September
30, 1996" and the "Transition Period" are to the period from July 1, 1996 to
September 30, 1996. References to fiscal 1997 are to the Company's fiscal year
ended September 30, 1997.
The Company's operating performance depends on a number of factors, the
most important of which are: (i) general retailing trends, especially in the
mass merchandise segment of the retail market; (ii) the Company's overall
product mix among various specialty and general household batteries and
battery-powered lighting devices, which sell at different price points and
profit margins; (iii) the Company's overall competitive position, which is
affected by both the introduction of new products and promotions by the Company
and its competitors and the Company's relative pricing and battery performance;
and (iv) changes in operating expenses. Set forth below are specific
developments that have affected and may continue to affect the Company's
performance.
Investment in Future Growth Opportunities. Since the Recapitalization, the
Company has undertaken significant measures to pursue growth opportunities and
increase the Company's market share for its products. These measures included
the launch of a new integrated advertising campaign which shifted expenditures
from the Renewal line to the Rayovac brand name. The Company also introduced
new product graphics and packaging designed to build the awareness and image of
the Rayovac brand name and leverage the Company's value brand position. See
"Business--Growth Strategy."
Cost Rationalization Initiatives. Following the Recapitalization, the
Company initiated significant measures to rationalize the Company's
manufacturing, distribution and general overhead costs. The initiatives
relating to manufacturing activities included discontinuing certain
manufacturing operations at the Company's Newton Aycliffe, United Kingdom
facility and closing the Company's Kinston, North Carolina facility. In
addition, the Company implemented a significant organizational restructuring in
the United States and the United Kingdom and eliminated costs associated with
the use of a corporate aircraft. These cost rationalization initiatives
resulted in cash costs of approximately $6.3 million for fiscal 1996 and fiscal
1997 and are expected to result in annual savings of approximately $8.6
million.
Expansion of Production Facility. From fiscal 1993 through fiscal 1995
the Company invested an aggregate of $32.7 million in the modernization and
expansion of its production lines at its Fennimore, Wisconsin facility (the
"Fennimore Expansion") at which the Company manufactures all of its alkaline
products. As a result of the Fennimore Expansion, the Company replaced
substantially all of its alkaline battery manufacturing equipment with
state-of-the-art technology which more than doubled the Company's aggregate
capacity for AA and AAA size alkaline batteries. This investment also resulted
in a reformulation of the Company's alkaline batteries so as to be
mercury-free, better performing and higher quality. The Fennimore Expansion
resulted in $9.5 million of non-recurring costs in fiscal 1994. Such costs
included increased raw material costs incurred pursuant to the terms of
equipment purchase agreements entered into in connection with the Fennimore
Expansion which required the Company to source material from specified foreign
vendors at an increased cost. These incremental costs decreased in fiscal 1996
as a result of the increased use of lower-cost domestic raw material sources to
replace the foreign vendor sourcing, which replacement was substantially
completed in fiscal 1997.
Effect of Recapitalization. The Recapitalization of the Company, which was
completed on September 12, 1996, resulted in non-recurring charges of $12.3
million which were recognized in the Transition Period, including (i) $5.0
million of advisory, legal and consulting fees and (ii) $7.3 million of stock
option compensation, severance payments and employment contract settlements for
the benefit of certain current and former officers, directors and management of
the Company. In connection with the Recapitalization, the Company incurred
other non-recurring special charges of $16.1 million recognized in the
Transition Period, including (i) $2.7 million of charges related to the
discontinuation of manufacturing operations at the Company's Newton Aycliffe,
United Kingdom facility;
21
<PAGE>
(ii) $1.7 million of charges for deferred compensation plan obligations to
former officers of the Company resulting from the curtailment of the plan;
(iii) $1.5 million of charges reflecting the present value of lease payments
for land which new management determined would not be used for any future
productive purpose; (iv) $5.6 million in costs and asset writedowns principally
related to changes in pricing strategies for Power Station, the Renewal
recharging system; and (v) $4.6 million of termination benefits and other
charges. See "The Recapitalization."
Renewal Product Line. In fiscal 1994, the Company introduced the Renewal
rechargeable battery, the first alkaline rechargeable battery sold in the
United States (the "Renewal Introduction"). The Company incurred significant
advertising and promotional expense related to Renewal of $26.0 million in
fiscal 1994, $15.7 million in fiscal 1995 and $20.3 million in fiscal 1996,
with the fiscal 1996 increase largely due to the Company's new promotional
campaign featuring basketball superstar Michael Jordan.
Since the Recapitalization, the Company has significantly revised its
marketing and advertising strategies for the Renewal product line. Management
believes that continued improvement in consumer awareness of the value and
money-saving benefits of Renewal over conventional disposable alkaline
batteries will be necessary to further expand the Company's market for
Renewal. Although the percentage of the Company's advertising budget allocated
to the Renewal product line has decreased, the Company has begun aggressively
marketing Renewal's money-saving benefit over disposable alkaline batteries and
performance advantage over rechargeable nickel cadmium batteries and has
lowered the prices of the recharger system for Renewal. Due to the historically
high levels of investment associated with Renewal, the Renewal product line has
been unprofitable. However, initiatives implemented by the Company's new
management team resulted in the Renewal product line becoming profitable in the
fourth quarter of fiscal 1997.
Seasonality
The Company's sales are seasonal, with the highest sales occurring in the
fiscal quarter ending on or about December 31, during the holiday season.
During the past four fiscal years, the Company's sales in the quarter ended on
or about December 31 have represented an average of 33% of annual net sales. As
a result of this seasonality, the Company's working capital requirements and
revolving credit borrowings are typically higher in the third and fourth
calendar quarters of each year. The following table sets forth the Company's
net sales for each of the periods presented.
<TABLE>
<CAPTION>
Fiscal Quarter Ended
----------------------------------------------------------------------------------------------------------
December 30, March 30, June 30, September 30, December 28, March 29, June 29, September 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------------- ----------- ---------- --------------- -------------- ----------- ---------- --------------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ...... $140.9 $80.5 $94.6 $101.9 $141.9 $83.6 $95.5 $111.5
</TABLE>
Results of Operations
This financial data, as well as all other data set forth herein, gives
effect to the reclassification by the Company of certain promotional expenses,
previously reported as a reduction of net sales, to selling expense. The amounts
which have been reclassified are $24.2 million and $24.0 million for the years
ended June 30, 1995 and 1996, respectively, $6.7 million for the three months
ended September 30, 1995, $6.9 million for the Transition Period ended September
30, 1996, $24.1 million for the twelve months ended September 30, 1996 and $28.7
million for the fiscal year ended September 30, 1997. The Company believes that
this reclassification is consistent with the method used by other consumer
products companies.
22
<PAGE>
The following table sets forth the percentage relationship of certain
items in the Company's statement of operations to net sales for the periods
presented:
<TABLE>
<CAPTION>
Transition Twelve
Three Months Period Months Fiscal
Fiscal Year Ended June 30, Ended Ended Ended Year Ended
----------------------- September 30, September 30, September 30, September 30,
1995 1996 1995 1996 1996 1997
----------- ----------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales ..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ............ 57.1 56.5 59.7 58.2 56.9 54.2
------- ------- ------- --------- --------- -------
Gross profit .................. 42.9 43.5 40.3 41.8 43.1 45.8
Selling expense ............... 26.2 27.5 27.9 27.3 27.4 28.2
General and administrative
expense ..................... 7.9 7.5 6.9 8.4 7.9 7.5
Research and development
expense ..................... 1.2 1.3 1.2 1.5 1.3 1.4
Recapitalization and other
special charges ............... -- -- -- 27.9 6.8 0.7
------- ------- ------- --------- --------- -------
Income (loss) from operations ... 7.6% 7.2% 4.3% (23.3%) (0.3%) 8.0%
</TABLE>
Fiscal Year Ended September 30, 1997 Compared to Twelve Months Ended September
30, 1996
Net Sales. The Company's net sales increased $14.7 million, or 3.5%, to
$432.6 million in fiscal 1997 from $417.9 million in the twelve months ended
September 30, 1996, primarily due to higher sales of alkaline batteries and
lithium batteries, offset in part by decreases in sales of heavy duty
batteries, lantern batteries and Renewal rechargeables. In the last quarter of
fiscal 1997, net sales increased $9.6 million, or 9.4%, to $111.5 million from
$101.9 million in the Transition Period, primarily due to higher sales of
alkaline batteries attributed to the introduction of a 4% price increase on
alkaline batteries in the U.S. phased in beginning May 1997, significant
promotional programs, and sales to new accounts.
Sales of alkaline batteries increased as a result of the launch of a new
integrated advertising campaign emphasizing the alkaline brand, new product
graphics and packaging (designed to build brand awareness and the Company's
value brand position), and strong promotional programs in the Company's fourth
fiscal quarter. The Company also gained significant new distribution on the
strength of this program.
Lithium sales increased primarily due to increased sales of computer clock
and memory back-up batteries to Compaq Computers and SGS Thomson, two of the
Company's larger OEM (Original Equipment Manufacturers) customers.
Sales of heavy duty and lantern batteries decreased primarily due to
declines in the market as consumers move toward alkaline batteries away from
heavy duty batteries. Lantern battery volume was also adversely impacted by the
migration to reflective tape in place of flashing lights on construction
barricades.
Hearing aid battery sales increased as a result of continued growth in the
overall hearing aid battery market. The Company's market leadership position in
this product line has resulted in new distribution gains in the retail channel,
the fastest growing channel for hearing aid batteries as consumers shift their
purchases toward this channel.
Net sales of lighting products increased slightly over the prior twelve
months due primarily to growth in key mass merchandiser accounts and wholesale
clubs.
Dollar sales of Renewal rechargeables were down approximately 12% due
primarily to the Company's decision to decrease prices of the chargers by 33%
in the first quarter of fiscal 1997 to reposition the product and encourage
consumers to purchase the system. Unit sales of chargers and batteries combined
were approximately 7% higher than the prior twelve months.
Gross Profit. Gross profit increased $18.0 million, or 10.0%, to $198.0
million in fiscal 1997 from $180.0 million for the twelve months ended
September 30, 1996. Gross profit as a percentage of net sales increased to
45.8% in fiscal 1997 from 43.1% in the prior twelve months. These increases are
attributed to increased sales of higher margin alkaline batteries, the
introduction of a 4% price increase on alkaline batteries in the U.S. phased in
beginning May 1997, and lower manufacturing costs as a result of cost
rationalization initiatives. Gross profit increased $12.7 million, or 29.8%, to
$55.3 million in the three months ended September 30, 1997 from $42.6 million
in the Transition Period, for these same reasons.
23
<PAGE>
Selling Expense. Selling expense increased $7.7 million, or 6.7%, to
$122.1 million in fiscal 1997 from $114.4 million in the twelve months ended
September 30, 1996 due primarily to increased marketing expense to support the
launch of the Company's new graphics and packaging and increased consumer
promotions on the old graphics and packaging to help retailers promote this
product. These increases were partially offset by reduced advertising expense
while the Company developed its new advertising program. Selling expense
increased as a percentage of net sales to 28.2% in fiscal 1997 from 27.4% in
the prior twelve months because of increased marketing expenses.
General and Administrative Expense. General and administrative expense
decreased $0.8 million, or 2.4%, to $32.2 million in fiscal 1997 from $33.0
million in the twelve months ended September 30, 1996 due in part to cost
rationalization initiatives which included the elimination of the use of a
corporate aircraft. These decreases were partially offset by the expense
related to a new management incentive program implemented for fiscal 1997.
There were no management incentives earned during the twelve months ended
September 30, 1996. As a percentage of net sales, general and administrative
expense decreased to 7.5% in fiscal 1997 from 7.9% in the prior twelve months.
Research and Development Expense. Research and development expense
increased $0.6 million, or 10.7%, to $6.2 million for fiscal 1997 from $5.6
million for the twelve months ended September 30, 1996 due primarily to the
development of an on-the-label battery tester which the Company decided not to
introduce.
Recapitalization and Other Special Charges. During fiscal 1997, the
Company recorded special charges of $3.0 million compared to $28.4 million
recorded in the twelve months ended September 30, 1996 as discussed above under
"Effect of Recapitalization." The current year amount represents the net
charges for organizational restructuring in the United States, the
discontinuation of certain manufacturing operations at the Company's Newton
Aycliffe, United Kingdom facility and the discontinuation of certain
manufacturing operations at the Company's facility in Kinston, North Carolina
partially offset by a credit of $2.9 million related to the curtailment of the
Company's defined benefit pension plan covering all domestic non-union
employees.
Income from Operations. Income from operations increased $35.9 million to
$34.5 million in fiscal 1997 from a loss of $(1.4) million for the twelve
months ended September 30, 1996. The Company's Recapitalization and other
special charges decrease of $25.4 million in combination with increased gross
profits were partially offset by increased operating expenses related to the
new marketing and advertising programs discussed above.
Interest Expense. Interest expense increased $14.0 million to $24.5
million in fiscal 1997 from $10.5 million in the prior twelve months due
primarily to increased indebtedness associated with the Recapitalization and a
write-off of $2.0 million of unamortized debt issuance costs related to the
Bridge Notes the Company issued in September 1996 which were refinanced in
fiscal 1997.
Net Income. Net income increased $16.4 million to $6.2 million in fiscal
1997 from a net loss of $(10.2) million in the twelve months ended September
30, 1996 primarily due to increased income from operations as discussed above
partially offset by increased interest expense due to the Recapitalization. The
Company's effective tax rate for fiscal 1997 was 35.6% compared to an effective
tax benefit rate of 31.0% for the prior twelve months due primarily to some of
the Recapitalization expenses in the prior twelve months being non-tax
deductible and the tax benefits of Rayovac International Corporation, a
domestic international sales corporation ("DISC") owned by the shareholders in
the prior twelve months. The DISC was terminated in August 1996 and replaced
with Rayovac Foreign Sales Corporation, a foreign sales corporation ("FSC"), in
fiscal 1997 which generated fewer tax benefits in fiscal 1997.
Net income for the prior twelve months also decreased $1.6 million
resulting from an extraordinary loss on the early retirement of debt related to
the Recapitalization.
Fiscal Year Ended September 30, 1997 Compared to Transition Period Ended
September 30, 1996
Results of operations for fiscal 1997 include amounts for a twelve-month
period, while results for the Transition Period include amounts for a
three-month period. Results (in terms of dollars) for these periods are not
directly comparable. Accordingly, management's discussion and analysis for
these periods is generally based upon a comparison of specified results as a
percentage of net sales.
Net Sales. The Company's net sales increased $330.7 million to $432.6
million in fiscal 1997 from $101.9 million in the Transition Period due
primarily to fiscal 1997 including twelve months compared to three months
24
<PAGE>
in the Transition Period. Sales during the Transition Period were unfavorably
impacted by the pending sale of the Company.
Gross Profit. Gross profit increased $155.4 million to $198.0 million in
fiscal 1997 from $42.6 million in the Transition Period. As a percentage of net
sales, gross profit increased to 45.8% in fiscal 1997 from 41.8% in the
Transition Period due to selling more higher margin products like alkaline and
hearing aid batteries in fiscal 1997, the alkaline price increase discussed
above, and lower manufacturing costs attributed to cost rationalization
initiatives.
Selling Expense. Selling expense increased $94.3 million to $122.1 million
in fiscal 1997 from $27.8 million in the Transition Period. As a percentage of
net sales, selling expense increased to 28.2% in fiscal 1997 from 27.3% in the
Transition Period due to increased promotional spending to support the new
alkaline battery graphics and packaging, the new advertising program to build
brand awareness and increased spending to gain new distribution.
General and Administrative Expense. General and administrative expense
increased $23.6 million to $32.2 million in fiscal 1997 from $8.6 million in
the Transition Period. As a percentage of net sales, general and administrative
expense decreased to 7.5% in fiscal 1997 from 8.4% in the Transition Period
attributed to the effects of cost rationalization initiatives.
Research and Development Expense. Research and development expense
increased $4.7 million to $6.2 million in fiscal 1997 from $1.5 million in the
Transition Period. As a percentage of net sales, research and development
expense decreased slightly to 1.4% in fiscal 1997 from 1.5% in the Transition
Period due primarily to the effects of the cost rationalization initiatives.
Recapitalization and Other Special Charges. Recapitalization and other
special charges decreased by $25.4 million, or 89.4%, to $3.0 million in fiscal
1997 from $28.4 million in the Transition Period which is explained above in
the discussion of fiscal 1997 compared to the twelve months ended September 30,
1996.
Income (loss) from Operations. Income (loss) from operations increased
$58.2 million to $34.5 million in fiscal 1997 from $(23.7) million in the
Transition Period. As a percentage of net sales, income (loss) from operations
increased to 8.0% in fiscal 1997 from (23.3)% in the Transition Period for the
reasons discussed above.
Net Income (loss). Net income (loss) for fiscal 1997 increased $27.1
million to $6.2 million from $(20.9) million in the Transition Period. As a
percentage of net sales, net income (loss) increased to 1.4% in fiscal 1997
from (20.5)% in the Transition Period primarily due to significant
Recapitalization and other special charges in the Transition Period. In
addition, an extraordinary loss on the early retirement of debt decreased net
income in the Transition Period by $1.6 million, net of income taxes. The
effective tax rate for fiscal 1997 was 35.6% compared to 31.6% in the
Transition Period due primarily to some of the Recapitalization expenses being
non-tax deductible in the Transition Period.
Transition Period Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
Net Sales. The Company's net sales decreased $5.4 million, or 5.0%, to
$101.9 million in the Transition Period from $107.3 million in the three months
ended September 30, 1995 (the "Prior Fiscal Year Period") primarily due to
decreased sales to the food and drug store retail channels and the Company
having made sales to certain retail customers in connection with promotional
orders after the Transition Period which were made during the Prior Fiscal Year
Period.
Gross Profit. Gross profit decreased $0.6 million, or 1.4%, to $42.6
million in the Transition Period from $43.2 million in the Prior Fiscal Year
Period, primarily as a result of decreased sales in the Transition Period, as
discussed above. Gross profit increased as a percentage of net sales to 41.8%
in the Transition Period from 40.3% in the Prior Fiscal Year Period due
primarily to a lower proportion of promotion sales as discussed above.
Selling Expense. Selling expense decreased $2.1 million, or 7.0%, to $27.8
million in the Transition Period from $29.9 million in the Prior Fiscal Year
Period, primarily due to decreased advertising expense in the Transition
Period.
General and Administrative Expense. General and administrative expense
increased $1.2 million, or 16.2%, to $8.6 million in the Transition Period from
$7.4 million in the Prior Fiscal Year Period, primarily as a result of
25
<PAGE>
the Company having incurred certain expenditures during the Transition Period
which were incurred subsequent to the Prior Fiscal Year Period.
Research and Development Expense. Research and development expense
increased $0.2 million, or 15.4%, to $1.5 million in the Transition Period from
$1.3 million in the Prior Fiscal Year Period, primarily as a result of
increased product development efforts.
Recapitalization and Other Special Charges. During the Transition Period,
the Company recorded charges of $28.4 million, including non-recurring charges
related to the Recapitalization and other special charges.
Non-recurring charges of $12.3 million related to the Recapitalization
include (i) $5.0 million of advisory, legal and consulting fees and (ii) $7.3
million of stock option compensation, severance payments and employment
contract settlements for the benefit of certain present and former officers,
directors and management of the Company.
Other special charges of $16.1 million include (i) $2.7 million of charges
related to the discontinuation of manufacturing operations at the Company's
Newton Aycliffe, United Kingdom facility; (ii) $1.7 million of charges for
deferred compensation plan obligations to former officers of the Company
resulting from the curtailment of the plan; (iii) $1.5 million of charges
reflecting the present value of lease payments for land which new management
determined would not be used for any future productive purpose; (iv) $5.6
million in costs and asset writedowns principally related to changes in Renewal
Power Station pricing strategies adopted by new management subsequent to the
Recapitalization and prior to September 30, 1996; and (v) $4.6 million of
termination benefits and other charges.
Income (loss) from Operations. Income (loss) from operations decreased
$28.3 million to $(23.7) million in the Transition Period from $4.6 million in
the Prior Fiscal Year Period for the reasons discussed above.
Net Income (loss). Net income (loss) for the Transition Period decreased
$22.3 million to $(20.9) million from $1.4 million in the Prior Fiscal Year
Period, primarily because of non-recurring charges related to the
Recapitalization and other special charges discussed above. In addition,
amortization of deferred finance charges related to the Bridge Notes and an
extraordinary loss on the early retirement of debt decreased net income in the
Transition Period by $2.6 million, net of income taxes.
Transition Period Ended September 30, 1996 Compared to Fiscal Year Ended June
30, 1996
Results of operations for the Transition Period Ended September 30, 1996
include amounts for a three-month period, while results for the fiscal year
ended June 30, 1996 include amounts for a twelve-month period. Results (in
terms of dollar amounts) for these periods are not directly comparable.
Accordingly, management's discussion and analysis for these periods is
generally based upon a comparison of specified results as a percentage of net
sales.
Net Sales. The Company's net sales decreased $321.5 million, or 75.9%, to
$101.9 million in the Transition Period from $423.4 million in fiscal 1996
because the Transition Period included only three months of net sales as
compared to twelve months in fiscal 1996. Overall pricing was relatively
constant between the two periods.
Gross Profit. Gross profit decreased $141.4 million, or 76.8%, to $42.6
million in the Transition Period from $184.0 million in fiscal 1996. As a
percentage of net sales, gross profit decreased to 41.8% in the Transition
Period from 43.5% in fiscal 1996, primarily because the products sold during
the Transition Period carried a higher average unit cost than the overall
average unit cost of products sold in fiscal 1996 due to seasonal sales trends.
Selling Expense. Selling expense decreased $88.7 million, or 76.1%, to
$27.8 million in the Transition Period from $116.5 million in fiscal 1996. As a
percentage of net sales, selling expenses decreased to 27.3% in the Transition
Period from 27.5% in fiscal 1996, primarily as a result of decreased
advertising expense in the Transition Period.
General and Administrative Expense. General and administrative expense
decreased $23.2 million, or 73.0%, to $8.6 million in the Transition Period
from $31.8 million in fiscal 1996. As a percentage of net sales, general and
administrative expense increased to 8.4% in the Transition Period from 7.5% in
fiscal 1996, primarily as a result of the effects of seasonal sales trends in
the Transition Period.
Research and Development Expense. Research and development expense
decreased $3.9 million, or 72.2%, to $1.5 million in the Transition Period from
$5.4 million in fiscal 1996. As a percentage of net sales, research and
development expense increased to 1.5% in the Transition Period from 1.3% in
fiscal 1996, primarily as a result of increased support for ongoing product
development efforts.
26
<PAGE>
Recapitalization and Other Special Charges. During the Transition Period
ended September 30, 1996, the Company recorded charges totalling $28.4 million,
including non-recurring charges related to the Recapitalization and other
special charges. Non-recurring charges of $12.3 million related to the
Recapitalization include (i) $5.0 million of advisory, legal and consulting
fees and (ii) $7.3 million of stock option compensation, severance payments and
employment contract settlements for the benefit of certain present and former
officers, directors and management of the Company.
Other special charges of $16.1 million include (i) $2.7 million of charges
related to the discontinuation of manufacturing operations at the Company's
Newton Aycliffe, United Kingdom facility; (ii) $1.7 million of charges for
deferred compensation plan obligations to former officers of the Company
resulting from the curtailment of the plan; (iii) $1.5 million of charges
reflecting the present value of lease payments for land which new management
determined would not be used for any future productive purpose; (iv) $5.6
million in costs and asset writedowns principally related to changes in Renewal
Power Station pricing strategies adopted by new management subsequent to the
Recapitalization and prior to September 30, 1996; and (v) $4.6 million of
termination benefits and other charges.
Income (loss) from Operations. Income (loss) from operations decreased
$54.0 million, or 178.2%, to $(23.7) million in the Transition Period from
$30.3 million in fiscal 1996. As a percentage of net sales, income (loss) from
operations decreased to (23.3)% in the Transition Period from 7.2% in fiscal
1996 for the reasons discussed above.
Net Income (loss). Net income (loss) decreased $35.2 million, or 246.2%,
to $(20.9) million for the Transition Period from $14.3 million in fiscal 1996.
As a percentage of net sales, net income (loss) decreased to (20.5)% in the
Transition Period from 3.4% in fiscal 1996, primarily because of non-recurring
charges related to the Recapitalization and other special charges discussed
above. In addition, amortization of deferred finance charges related to the
Bridge Notes and an extraordinary loss on the early retirement of debt
decreased net income in the Transition Period by $2.6 million, net of income
taxes.
Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995
Net Sales. The Company's net sales increased $8.2 million, or 2.0%, to
$423.4 million in fiscal 1996 from $415.2 million in fiscal 1995, primarily due
to higher unit sales of hearing aid batteries, Renewal rechargeable batteries
and alkaline batteries, offset in part by decreases in unit sales of heavy duty
and lantern batteries. Overall pricing was relatively constant between the two
periods. Sales of hearing aid batteries increased as a result of unit sales
growth in the overall hearing aid battery market as well as increased
penetration by the Company's Loud'n Clear line of hearing aid batteries and the
introduction of a new miniature size battery, used in hearing aids that fit
completely in the ear. Unit sales of Renewal rechargeable alkaline batteries
increased as a result of increased consumer awareness of the benefits of
Renewal over nickel-cadmium household rechargeable batteries and disposable
batteries and as replacement sales increased to retailers who had sold through
their high levels of fiscal 1995 Renewal inventory. The Company's unit sales of
alkaline batteries increased as the Company participated to a certain extent in
the continued overall growth in the market for alkaline batteries. Unit sales
of heavy duty batteries decreased due to the continued worldwide migration away
from heavy duty batteries and toward alkaline batteries while unit sales of
lantern batteries also decreased due to an overall decline in the lantern
battery market.
Gross Profit. Gross profit increased $5.9 million, or 3.3%, to $184.0
million in fiscal 1996 from $178.1 million in fiscal 1995. Gross profit
increased as a percentage of net sales to 43.5% in fiscal 1996 from 42.9% in
fiscal 1995. These increases are primarily attributable to increased sales of
higher margin products such as Renewal rechargeable batteries and hearing aid
batteries. In addition, the Company experienced manufacturing cost
improvements, particularly for alkaline battery raw materials related to the
Fennimore Expansion as discussed above.
Selling Expense. Selling expense increased $7.8 million, or 7.2%, to
$116.5 million in fiscal 1996 from $108.7 million in fiscal 1995. Selling
expense as a percentage of net sales increased to 27.5% in 1996 from 26.2% in
1995. These increases are primarily attributable to increased advertising costs
to promote the Renewal product line as discussed above.
General and Administrative Expense. General and administrative expense
decreased $1.1 million, or 3.3%, to $31.8 million in fiscal 1996 from $32.9
million in fiscal 1995. General and administrative expense as a percentage
27
<PAGE>
of net sales decreased from 7.9% in fiscal 1995 to 7.5% in fiscal 1996. These
decreases occurred primarily because the $4.0 million payment of management
incentives in 1995 was not repeated in fiscal 1996.
Research and Development Expense. Research and development expense
increased $0.4 million, or 8.0%, to $5.4 million in fiscal 1996 from $5.0
million in fiscal 1995 as a result of continued support for ongoing product
development efforts.
Income from Operations. Income from operations decreased $1.2 million, or
3.8%, to $30.3 million, or 7.2% of net sales in fiscal 1996, from $31.5
million, or 7.6% of net sales, in fiscal 1995 for the reasons discussed above.
Net Income. Net income decreased $2.1 million, or 12.8%, to $14.3 million
for fiscal 1996 from $16.4 million in fiscal 1995, principally as a result of
decreased income from operations and higher effective tax rates, which
increased from 27.4% in 1995 to 32.9% in 1996. The Company's effective income
tax rates in fiscal 1996 and fiscal 1995 were impacted by the income tax
benefits of Rayovac International Corporation, a domestic international sales
corporation ("DISC") owned by the Company's shareholders, and fiscal 1995 was
also impacted by the utilization of a foreign net operating loss carryforward.
Liquidity and Capital Resources
For fiscal 1997, net cash provided by operating activities increased $9.7
million to $35.7 million from $26.0 million for the prior twelve months due
primarily to increased focus on working capital management and increased
earnings from operations partially offset by the payment of Recapitalization
and other special charges accrued during the prior twelve months.
Capital expenditures for fiscal 1997 were $10.9 million, an increase of
$2.5 million from the prior twelve months, due primarily to new computer
information systems purchased in September 1997. Capital expenditures for
fiscal 1996 and the Transition Period reflected maintenance level spending.
Spending will continue on the new computer systems in fiscal 1998 with
implementation currently planned in calendar 1998. Capital expenditures for
fiscal 1998 are expected to increase to approximately $23.0 million due to
alkaline capacity expansion, alkaline vertical integration programs, and the
new computer information systems.
Since the Recapitalization, the Company's primary capital requirements
have been for debt service, working capital, and capital expenditures. The
Company believes that cash flow from operating activities and periodic
borrowings under its existing credit facilities will be adequate to meet the
Company's short-term and long-term liquidity requirements prior to the maturity
of those credit facilities, although no assurance can be given in this regard.
The Company's current credit facilities include a revolving credit facility of
$65.0 million of which $4.5 million was outstanding at September 30, 1997, and
approximately $0.6 million was utilized for outstanding letters of credit.
After giving effect to the Offerings and the application of net proceeds
therefrom, the Company will have approximately $49.1 million outstanding under
the term loans pursuant to the Company's credit facilities which will be
subject to quarterly amortization. See "Risk Factors--Substantial Leverage" and
"Description of Certain Indebtedness."
The Company is subject to various federal, state, local and foreign
environmental laws and regulations in the jurisdictions in which it operates,
including laws and regulations relating to discharges to air, water and land,
the handling and disposal of solid and hazardous waste and the cleanup of
properties affected by hazardous substances. Except for liabilities related to
the Velsicol Chemical and Morton International proceedings described under
"Business--Environmental Matters" as to which the Company cannot predict the
impact of such liabilities, the Company does not currently anticipate any
material adverse effect on its operations or financial condition or any
material capital expenditure as a result of its efforts to comply with
environmental laws and as of September 30, 1997 had reserved $1.8 million for
known on-site and off-site environmental liabilities. Some risk of
environmental liability is inherent in the Company's business, however, and
there can be no assurance that material environmental costs will not arise in
the future. The Company has been identified as a PRP under CERCLA or similar
state laws with respect to the past disposal of waste and is a party to two
lawsuits as to which there is insufficient information to make a judgment as to
the likelihood of a material impact on the Company's operations, financial
condition or liquidity at this time. The Company may be named as a PRP at
additional sites in the future, and the costs associated with such additional
or existing sites may be material. In addition, certain of the Company's
facilities have been in operation for decades and, over such time, the Company
and other prior operators of such facilities have generated and disposed of
wastes which are or may be considered hazardous such as cadmium and mercury
utilized in the
28
<PAGE>
battery manufacturing process. See "Risk Factors--Environmental Matters" and
"Business--Environmental Matters." The Company engages in hedging transactions
in the ordinary course of its business. See Note 2.o. to Notes to Consolidated
Financial Statements.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("FAS
128"). FAS 128 will be effective for periods ending after December 15, 1997,
and specifies the computation, presentation, and disclosure requirements for
earnings per share. Adoption of this accounting standard is not expected to
have a material effect on the earnings per share computations of the Company
assuming the current capital structure.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("FAS 130"), which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income are to be reported
in a financial statement that is displayed with the same prominence as other
financial statements. FAS 130 requires that an enterprise (i) classify items of
other comprehensive income by their nature in a financial statement and (ii)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the equity section of the
balance sheet. FAS 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The Company is evaluating the effect of
this pronouncement on its consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("FAS 131"), which is effective for financial statements for periods beginning
after December 15, 1997. FAS 131 establishes standards for the way public
business enterprises are to report information about operating segments in
annual financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The Company is evaluating the effect of this pronouncement on its
consolidated financial statements.
29
<PAGE>
BUSINESS
General
The Company is the leading value brand and the third largest domestic
manufacturer of general batteries (including alkaline, heavy duty and
rechargeable alkaline), and is the leading worldwide manufacturer of hearing
aid batteries. The Company is also the leading domestic manufacturer of
rechargeable household batteries, heavy duty batteries and certain other
specialty batteries, including lantern batteries and lithium batteries for
personal computer clocks and memory backup. In addition, the Company is a
leading marketer of battery-powered lighting products. Originally introduced in
1921, the Rayovac brand is a well recognized name in the battery industry. The
Company attributes the longevity and strength of its brand name to its
high-quality products and to the success of its marketing and merchandising
initiatives.
The Company has established its position as the leading value brand in the
U.S. general alkaline battery market by focusing on the mass merchandiser
channel. The Company achieved this position by (i) offering batteries with
quality and performance substantially equivalent to batteries offered by its
principal competitors at a lower price, (ii) emphasizing innovative in-store
merchandising programs, and (iii) offering retailers attractive margins. The
Company has established its position as the leader in various specialty battery
niche markets through (i) continual technological advances, (ii) creative
distribution and marketing, and (iii) strong relationships with industry
professionals and manufacturers. The Company sells and distributes its products
in several channels including mass merchandisers, food and convenience stores,
drug and specialty retailers, hardware/home centers, department stores, hearing
aid professionals, industrial and government/OEM. The Company markets all of
its branded products under the Rayovac(R) name and selected products under
sub-brand names such as MAXIMUM(TM), Renewal(R), Loud'n Clear(R),
ProLine(R), Lifex(TM), Power Station(R), Workhorse(R), and
Roughneck(R).
Business Strategy
In September 1996, pursuant to the Recapitalization, affiliates of the
Thomas H. Lee Company acquired beneficial ownership of approximately 80% of the
outstanding Common Stock of Rayovac. David A. Jones was hired as Chief
Executive Officer of the Company to implement a new business strategy focused
on (i) reinvigorating the Rayovac brand name by raising consumer brand
awareness through, among other things, focused marketing and advertising, (ii)
growing Rayovac's market share by expanding distribution into new channels,
increasing sales to under-penetrated channels and customers, launching new
products, and selectively pursuing acquisitions and alliances, (iii) reducing
costs by rationalizing manufacturing and distribution, better utilizing
existing plant capacity, outsourcing products where appropriate, reducing
working capital, and downsizing corporate overhead, and (iv) improving employee
productivity by reorganizing workflow to support the business units,
implementing modern information systems, increasing training and education, and
implementing a pay-for-performance culture.
To implement its new strategy, the Company has undergone a significant
transformation since the Recapitalization.
Strengthened Senior Management Team. In addition to Mr. Jones, three
experienced senior managers were recruited to fill key positions: Kent J.
Hussey, Executive Vice President of Finance and Administration and Chief
Financial Officer; Merrell M. Tomlin, Senior Vice President of Sales; and
Stephen P. Shanesy, Senior Vice President of Marketing and General Manager of
General Batteries. The new senior managers have over 70 years of collective
experience in the consumer products industry. In addition, the current
management team includes several key members who served the Company prior to
the Recapitalization, providing continuity and retaining significant battery
industry expertise. After giving effect to the Offerings, the eight executive
officers of the Company will beneficially own 12.4% of the outstanding Common
Stock on a fully diluted basis.
Reorganized Sales, Marketing and Administration by Distribution
Channel. Rayovac has realigned its marketing department, sales organization,
supply chain and support functions along major distribution channels, including
mass merchandisers, food and convenience stores, drug and specialty retailers,
hardware/home centers, department stores, hearing aid professionals, industrial
and government/OEM. The Company believes that sales to under-penetrated
channels should increase as the dedicated teams focus on implementing channel
specific marketing strategies, sales promotions and customer service
initiatives.
Launched New Sales and Marketing Programs. Rayovac has developed and is in
the process of implementing broad new marketing initiatives designed to
reinvigorate the Rayovac brand name. Major steps completed to date
30
<PAGE>
include: (i) the selection of Young & Rubicam as the Company's new advertising
agency and the development of its first major national advertising campaign for
general battery products, (ii) the launch of a new and improved alkaline
product line under the MAXIMUM sub-brand, (iii) the redesign of all product
graphics and packaging to convey a high quality image and emphasize the Rayovac
brand name, (iv) the extension of the Company's existing contract with Michael
Jordan to include his representation for all Rayovac products, (v) the
restructuring of the Company's sales representative network, and (vi) the
implementation of a 4% price increase for alkaline general battery products in
May 1997.
Outsourced Certain Non-Manufacturing Operations. Since the
Recapitalization, the Company has outsourced a number of non-manufacturing
operations, including mainframe computer operations, graphic design and
production, packaging design and payroll processing. As a result, the Company
has reduced costs and increased profitability, while improving services and
operations.
Rationalized Manufacturing and Other Costs. In March 1997, the Company
transferred the manufacture of round cell batteries from its Newton Aycliffe,
United Kingdom facility to its Wisconsin manufacturing plants. In August 1997,
it closed its Kinston, North Carolina facility and transferred production to
its Wonewoc, Wisconsin lighting products plant and to Far Eastern suppliers.
The Company also implemented a significant organizational restructuring in the
United States and United Kingdom and undertook additional measures to
rationalize the Company's manufacturing, distribution and other overhead costs.
Additionally, the Company eliminated costs associated with the use of a
corporate aircraft. The Company estimates these initiatives should result in
aggregate annual savings of $8.6 million. The Company believes that its current
manufacturing capacity remains sufficient to meet its anticipated production
requirements.
Reorganized Information Systems. The Company has completed an initial
reorganization of its information systems function by (i) hiring an experienced
Chief Information Officer, (ii) outsourcing mainframe computer operations,
(iii) completing an enterprise software system analysis, and (iv) retaining
Electronic Data Systems to modernize and upgrade its data processing and
telecommunications infrastructure. The Company has purchased from SAP and begun
implementing an enterprise-wide, integrated information system to upgrade and
modernize its business operations, the majority of which is expected to be
substantially completed by late 1998. When fully implemented, this system is
expected to reduce cycle times, lower manufacturing and administrative costs,
improve both asset and employee productivity and address the Year 2000 issue.
Growth Strategy
Rayovac believes it has significant growth opportunities in its businesses
and has developed corporate and market segment strategies aimed at increasing
sales, profits and market share. Key elements of the Company's growth strategy
are as follows:
Reinvigorate the Rayovac Brand Name. The brand, originally introduced in
1921, has wide recognition in all markets where the Company competes, but has
lower awareness than the more highly advertised Duracell and Energizer brands.
The Company is committed to reinvigorating the Rayovac brand name after many
years of underdevelopment. The Company has initiated an integrated advertising
campaign using significantly higher levels of TV and print media. The campaign
is designed to increase awareness of the Rayovac brand and to heighten
customers' perceptions of the quality, performance and value of Rayovac
products. The Company intends to continue building its brand name to increase
sales of all its products. In 1997, the Company launched a reformulated
alkaline battery, Rayovac MAXIMUM, supported by new graphics, new packaging, a
new advertising campaign, and aggressive introductory retail promotions. This
focused marketing approach is specifically designed to raise consumer awareness
and increase retail sales.
Leverage Value Brand Position. Rayovac believes it has a unique position
in the general battery market as the value brand in an industry in which the
leading three brands (Duracell, Energizer and Rayovac) account for
approximately 90% of sales. The Company's strategy is to provide products of
quality and performance equal to its major competitors in the general battery
market at a lower price, appealing to a large segment of the population
desiring a value brand. To demonstrate its value positioning, Rayovac offers
comparable battery packages at a lower price or, in some cases, more batteries
for the same price.
Expand Retail Distribution. Historically the Company had focused its sales
and marketing efforts on the mass merchandiser channel which accounted for 41%
of industry sales growth in the domestic alkaline battery market
31
<PAGE>
over the past five years. As a result, the Company has achieved a 19% share of
domestic alkaline battery unit sales through mass merchandisers. However, this
narrow focus contributed to much lower market share in all other retail
channels which represent a market of $1.7 billion or 70% of the general battery
market. The Company believes its value brand positioned products and innovative
merchandising programs make it an attractive supplier to these channels. The
Company has reorganized its marketing, sales, and sales representative
organizations by channel in order to grow market share by (i) gaining new
customers, (ii) penetrating existing customers with a larger assortment of
products, (iii) introducing new products, and (iv) utilizing more aggressive
and channel specific promotional programs.
Further Capitalize on Worldwide Leadership in Hearing Aid Batteries. The
Company seeks to increase its 50% worldwide market share in the hearing aid
battery segment, as it has done consistently for the past 10 years, by
leveraging its leading technology and its dedicated and focused sales and
marketing organizations. Rayovac is the only hearing aid battery manufacturer
to advertise its products and plans to continue to utilize Arnold Palmer as its
spokesperson in its print media campaign. Rayovac has also recently introduced
large multi-packs of hearing aid batteries which have rapidly gained consumer
favor.
Reposition the Renewal Rechargeable Alkaline Battery. The Company's
Renewal rechargeable battery is the only rechargeable alkaline battery in the
U.S. market, commanding a 66% market share of the rechargeable household
battery market through mass merchandisers, food and drug stores for the 52
weeks ended July 5, 1997. Since the Recapitalization, management has lowered
the price of Renewal rechargers by 33% to encourage consumers to purchase the
system and shifted Renewal's marketing message from its environmental benefits
to its money-saving benefits. Renewal batteries present a value proposition to
consumers because Renewal batteries can be recharged over 25 times, providing
10 times the energy of disposable alkaline batteries at only twice the retail
price. In addition, alkaline rechargeables are superior to nickel cadmium
rechargeables (the primary competing technology) because they provide more
energy between charges, are sold fully charged, retain their charge longer and
are environmentally safer.
Introduce New Niche Products. The Company has developed leading positions
in several important niche markets, including those for lantern batteries and
lithium coin cells for personal computer memory back-up. The Company intends to
continue selectively pursuing opportunities to exploit under-served niche
markets, as well as further develop recent initiatives including the sales and
marketing of photo and keyless entry batteries. In the lighting products
segment, the Company is introducing a number of attractively designed new
products over the next twelve months and intends to bring new products to the
market in the future on a six-month cycle. New products have been proven to be
a key element in gaining market share for lighting products.
Develop New Markets. The Company intends to leverage its existing
resources to expand its business into new markets for batteries and related
products both domestically and internationally. The Company expects to pursue a
strategy of selective acquisitions and regularly considers potential
acquisition candidates. These acquisitions may focus on expansion into new
geographic markets, technologies or product lines and, in addition, such
acquisitions may be of a significant size and could involve domestic or
international parties. See "Risk Factors--Risks Associated with Future
Acquisitions."
32
<PAGE>
Battery Industry
The U.S. battery industry had aggregate sales in 1996 of approximately
$4.2 billion as set forth below.
<TABLE>
<CAPTION>
1996 U.S. Battery Industry Sales (In billions)
<S> <C>
Retail:
General ........................... $ 2.4
Hearing aid ........................ 0.2
Other specialty ..................... 0.8
Industrial, OEM and Government ...... 0.8
------
Total ........................... $ 4.2
======
</TABLE>
Retail sales of general batteries represented $2.4 billion of aggregate
U.S. battery industry sales in 1996. As set forth below, this segment has
experienced steady growth, with compound annual unit sales growth since 1990 of
[line chart]
RETAIL GENERAL BATTERY MARKET
Total Retail General Batteries
------------------------------
Dollars Units
(Millions) (Millions)
1990 1834 2225
1991 1912 2358
1992 2003 2543
1993 2099 2715
1994 2192 2910
1995 2310 3071
1996 2497 3250
Source: A.C. Nielsen Scanner Data
A.C. Nielsen Consumer Panel Data
The U.S. battery industry is dominated by three manufacturers, (Duracell,
Energizer and Rayovac) each of which manufactures and markets a wide variety of
batteries. Together, these three accounted for approximately 90% of the U.S.
retail general battery market in the 52 weeks ended July 5, 1997. Retail sales
of general and specialty batteries represent the largest portion of the U.S.
battery industry, accounting for approximately 80% of sales in 1996. Batteries
are popular with many retailers because they provide attractive profit margins.
As batteries are an impulse purchase item, increasing display locations in
stores tends to generate increased sales.
The growth in retail sales of general batteries in the U.S. is largely due
to (i) the popularity and proliferation of battery-powered devices (such as
remote controls, personal radios and cassette players, pagers, portable compact
disc players, electronic and video games and battery-powered toys), (ii) the
miniaturization of battery-powered devices, which has resulted in consumption
of a larger number of smaller batteries, and (iii) increased purchases of
multiple-battery packages for household "pantry" inventory. These factors have
increased the average household usage of batteries from an estimated 23
batteries per year in 1986 to an estimated 35 batteries per year in 1996.
Similar to general retailing trends, increased battery sales through mass
merchandisers and warehouse clubs have driven the overall growth of retail
battery sales. Mass merchandisers accounted for 53% of the total increase in
general battery retail dollar sales from 1992 through 1996 and, together with
warehouse clubs, accounted for 43% of total retail battery sales in 1996.
In 1996, U.S. and worldwide retail sales of hearing aid batteries were
approximately $205 million and $530 million, respectively, and have grown at a
compound annual growth rate of 7% and 5%, respectively, over the last five
years. Growth in the hearing aid battery market has been driven by an aging
population; increases in hearing instrument device sales driven by
technological advances, including miniaturization, which provides higher
cosmetic appeal and improved amplification; and the higher replacement rates of
smaller hearing instruments.
Other markets in which the Company operates include those for replacement
watch and calculator batteries, which had worldwide sales of approximately $920
million in 1996, photo batteries, which had worldwide sales of approximately
$600 million in 1996 and lithium coin cells, which had worldwide sales of
approximately $50 million in 1996.
33
<PAGE>
Products
Rayovac develops, manufactures and markets a wide variety of batteries and
battery-powered lighting devices. The Company's broad line of products includes
(i) general batteries (including alkaline, heavy duty and rechargeable alkaline
batteries) and specialty batteries (including hearing aid, watch, photo,
keyless entry, and personal computer clock and memory back-up batteries) and
(ii) lighting products and lantern batteries. General batteries (D, C, AA, AAA
and 9-volt sizes) are used in devices such as radios, remote controls, personal
radios and cassette players, pagers, portable compact disc players, electronic
and video games and battery-powered toys, as well as a variety of
battery-powered industrial applications. Of the Company's specialty batteries,
button cells are used in smaller devices (such as hearing aids and watches),
lithium coin cells are used in cameras, calculators, communication equipment,
medical instrumentation and personal computer clocks and memory back-up
systems, and lantern batteries are used almost exclusively in battery-powered
lanterns. The Company's lighting products include flashlights, lanterns and
similar portable products.
Net sales data for the Company's products as a percentage of net sales for
fiscal 1995, fiscal 1996, the Transition Period and fiscal 1997 are set forth
below.
<TABLE>
<CAPTION>
Percentage of Company Net Sales
----------------------------------------------------------
Transition Fiscal Year
Fiscal Year June 30, Period Ended Ended
----------------------- September 30, September 30,
1995 1996 1996 1997
Product Type ---------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
Battery Products:
Alkaline ....................................... 43.4% 43.6% 41.4% 45.0%
Heavy Duty .................................... 14.1 12.2 12.7 10.4
Rechargeable Batteries ........................ 5.6 7.1 5.1 5.5
Hearing Aid ................................. 12.7 14.6 14.3 14.8
Other Specialty Batteries ..................... 10.0 8.6 10.1 9.8
------ ------ ------ ------
Total ....................................... 85.8 86.1 83.6 85.5
Lighting Products and Lantern Batteries ...... 14.2 13.9 16.4 14.5
------ ------ ------ ------
Total ....................................... 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
Battery Products
A description of the Company's major battery products including their
typical uses is set forth below.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
General Batteries Hearing Aid Other Specialty Batteries Lantern
Batteries Batteries
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Technology Alkaline Zinc Zinc Air Lithium Silver Zinc
- -----------------------------------------------------------------------------------------------------------------------------------
Types/ - Disposable - Heavy Duty -- -- -- Lantern (Zinc
Common - Rechargeable (Zinc Chloride) Chloride and
Name: Zinc Carbon)
- -----------------------------------------------------------------------------------------------------------------------------------
Brand; Sub-brand Rayovac; MAXIMUM, Rayovac Rayovac; Loud'n Rayovac; Lifex Rayovac Rayovac
Names(1): Renewal, Power Clear, ProLine
Station
- -----------------------------------------------------------------------------------------------------------------------------------
Sizes: D, C, AA, AAA, 9-volt(2) for both 5 sizes 5 primary sizes 10 primary sizes Standard
Alkaline and Zinc lantern
- -----------------------------------------------------------------------------------------------------------------------------------
Typical All standard household applications Hearing Personal com- Watches Beam lanterns
Uses: including pagers, personal radios aids puter clocks and Camping
and cassette players, remote con- memory back-up lanterns
trols and a wide variety of
industrial applications
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company also produces and supplies private label brands in selected
categories.
(2) The Company does not produce 9-volt rechargeable batteries.
Products
Alkaline Batteries. Alkaline batteries are based on technology which first
gained widespread application during the 1980s. Alkaline batteries provide
greater average energy per cell and considerably longer service life than
traditional zinc chloride (heavy duty) or zinc carbon (general purpose)
batteries, the dominant battery types
34
<PAGE>
throughout the world until the 1980s. Alkaline performance superiority has
resulted in alkaline batteries steadily displacing zinc chloride and zinc
carbon batteries. In the domestic retail general battery market, for instance,
alkaline batteries represented approximately 87% of total battery unit sales in
the 52 weeks ended July 5, 1997, despite higher per battery prices than zinc
batteries.
Rayovac produces a full line of alkaline batteries including D, C, AA, AAA
and 9-volt size batteries for both consumers and industrial customers. The
Company's alkaline batteries are marketed and sold primarily under the Rayovac
MAXIMUM brand, although the Company also engages in limited private label
manufacture of alkaline batteries. AA and AAA size batteries are often used
with smaller electronic devices such as remote controls, photography equipment,
personal radios and cassette players, pagers, portable compact disc players and
electronic and video games. C and D size batteries are generally used in
devices such as flashlights, lanterns, radios, cassette players and battery-
powered toys. 9-volt size batteries are generally used in fire alarms, smoke
detectors and communication devices.
The Company regularly tests the performance of its alkaline batteries
against those of its competitors across a number of applications and battery
sizes using American National Standards Institute ("ANSI") testing criteria,
the standardized testing criteria generally used by industry participants to
evaluate battery performance, as well as its own specific product device
testing, which the Company believes may provide more relevant information to
consumers. Although relative performance varies based on battery size and
device tests, the average performance of the Company's alkaline batteries and
those of its competitors are substantially equivalent. The Company's
performance comparison results are corroborated by published independent test
results.
For the 52 weeks ended July 5, 1997, the Company had an 11% overall
alkaline battery unit market share and a 19% alkaline battery unit market share
within the mass merchandiser retail channel.
Heavy Duty Batteries. Heavy duty batteries include zinc chloride batteries
designed for low and medium-drain devices such as lanterns, flashlights, radios
and remote controls. The Company produces a full line of heavy duty batteries,
although AA, C and D size heavy duty batteries together accounted for 90% of
the Company's heavy duty battery sales in fiscal 1996.
The Company had a 46% unit market share in the heavy duty battery market
through mass merchandisers, food and drug stores for the 52 weeks ended July 5,
1997. Generally, the size of the heavy duty battery market has been decreasing
because of increased sales of alkaline batteries for uses traditionally served
by non-alkaline batteries.
Rechargeable Batteries. The Company's Renewal rechargeable battery is the
only rechargeable alkaline battery in the U.S. market, commanding a 66% market
share of the rechargeable household battery market through mass merchandisers,
food and drug stores for the 52 weeks ended July 5, 1997. Since the
Recapitalization, management has lowered the price of Renewal rechargers by 33%
to encourage consumers to purchase the system and shifted Renewal's marketing
message from its environmental benefits to its money-saving benefits. Renewal
batteries present a value proposition to consumers because they can be
recharged over 25 times, providing 10 times the energy of disposable alkaline
batteries at only twice the retail price. In addition, alkaline rechargeables
are superior to nickel cadmium rechargeables (the primary competing technology)
because they provide more energy between charges, are sold fully charged,
retain their charge longer and are environmentally safer. Certain technology
underlying the Company's Renewal line of rechargeable alkaline batteries could
be made available to the Company's competitors under certain circumstances. See
"Risk Factors--Limited Intellectual Property Protection."
Hearing Aid Batteries. The Company was the largest worldwide seller of
hearing aid batteries in fiscal 1996, with a market share of approximately 50%.
This strong market position is the result of hearing aid battery products with
advanced technological capabilities, consistent product performance, a strong
distribution system and an extensive marketing program. Hearing aid batteries
are produced in several sizes and are designed for use with various types and
sizes of hearing aids. The Company produces five sizes and two types of zinc
air button cells for use in hearing aids, which are sold under the Loud'n Clear
and ProLine brand names and under several private labels, including Beltone,
Miracle Ear and Siemens. Zinc air is a highly reliable, high energy density,
lightweight battery system with performance superior to that of traditional
hearing aid batteries. The Company was the pioneer and currently is the leading
manufacturer of the smallest (5A and 10A size) hearing aid batteries. The
Company's zinc air button cells offer consistently strong performance, capacity
and reliability based on ANSI testing criteria as applied by the Company.
Other Specialty Batteries. The Company's other specialty battery products
include non-hearing aid button cells, lithium coin cells, photo batteries and
keyless entry batteries. The Company produces button and coin cells
35
<PAGE>
for watches, cameras, calculators, communications equipment and medical
instrumentation. The Company's market shares within each of these categories
vary. The Company's Lifex lithium coin cells are high-quality lithium batteries
with certain performance advantages over other lithium battery systems. These
products are used in calculators and personal computer clocks and memory
back-up systems. Lifex lithium coin cells have outstanding shelf life and
excellent performance. The Company believes that the market for lithium
personal computer memory back-up batteries has significant growth potential due
to growth in the personal computer market.
Battery Merchandising and Advertising
Alkaline and Rechargeable Batteries. Since the Recapitalization, the
Company has substantially revised its merchandising and advertising strategies
for general batteries. Key elements of the Company's strategies include:
building the awareness and image of the Rayovac brand name; focusing on the
reformulated MAXIMUM alkaline product line; improving consumer perceptions of
the quality and performance of the Company's products; upgrading and unifying
product packaging; and solidifying the Company's position as the value brand by
offering batteries of equal quality and performance at a lower price than those
offered by its principal competitors. The Company's strategy is to provide
products of quality and performance equal to its major competitors in the
general battery market at a lower price, appealing to a large segment of the
population desiring a value brand. To demonstrate its value positioning,
Rayovac offers comparable battery packages at a lower price or, in some cases,
more batteries for the same price. The Company also works with individual
retail channel participants to develop unique merchandising programs and
promotions and to provide retailers with attractive profit margins to encourage
retailer brand support.
In response to the introduction by the Company's principal competitors in
the U.S. general battery market of on-the-label battery testers for alkaline
batteries, the Company developed an on-the-label tester for the Company's
alkaline batteries. Based on the Company's consumer testing which indicated
that such testers are difficult to use, prone to failure and do not represent a
significant marketing advantage, management decided not to proceed with the
implementation of such testers.
In the three fiscal years prior to the Recapitalization, the Company spent
substantially all of its advertising budget on its Renewal product line. The
Company's current advertising campaign designed by Young & Rubicam, the
Company's new advertising agency, has shifted advertising efforts to the
Company's MAXIMUM alkaline products. In addition, the Company is launching its
first major national advertising campaign. The campaign is designed to increase
awareness of the Rayovac brand and to heighten customers' perceptions of the
quality, performance and value of Rayovac products. The Company has engaged
Michael Jordan as a spokesperson for its general battery products under a
contract which extends through 2004.
The Company substantially overhauled its marketing strategy for its
Renewal rechargeable batteries in 1997 to focus on the economic advantages of
Renewal rechargeable batteries and to position the rechargers at lower, more
attractive price points. As part of its marketing strategy for its rechargeable
batteries, the Company actively pursues OEM arrangements and other alliances
with major electronic device manufacturers.
Hearing Aid Batteries. To market and distribute its hearing aid battery
products, the Company continues to use a highly successful national print
advertising campaign featuring Arnold Palmer. A binaural wearer and user of
Rayovac hearing aid batteries, Mr. Palmer has been extremely effective in
promoting the use of hearing aids, expanding the market and communicating the
specific product benefits of Rayovac hearing aid batteries. The Company has
also developed a national print advertising campaign in selected publications
such as Modern Maturity to reach the largest potential market for hearing aid
batteries. The Company also pioneered the use of multipacks and intends to
further expand multipack distribution in additional professional and retail
channels. Additionally, the Company believes that it has developed strong
relationships with hearing aid manufacturers and audiologists, the primary
purveyors of hearing aids, and seeks to further penetrate the professional
market. The Company has also established relationships with major Pacific Rim
hearing aid battery distributors to take advantage of anticipated global market
growth.
Other Specialty Batteries. The Company's marketing strategies for its
other specialty batteries focus on leveraging the Company's brand name and
strong market position in hearing aid batteries to promote its specialty
battery products. The Company has redesigned its product graphics and packaging
of its other specialty battery products to achieve a uniform brand appearance
with the Company's other products and generate greater brand awareness and
loyalty. In addition, the Company plans to continue to develop relationships
with manufacturers of
36
<PAGE>
communications equipment and other products in an effort to expand its share of
the non-hearing aid button cell market. The Company believes there to be
significant opportunity for growth in the photo and keyless entry battery
markets and seeks to further penetrate the replacement market for these
products.
With regard to lithium coin cells, the Company seeks to further penetrate
the OEM portable personal computer market, as well as to broaden its customer
base by focusing additional marketing and distribution efforts on
telecommunication and medical equipment manufacturers.
Lighting Products and Lantern Batteries
Products
The Company is a leading marketer of battery-powered lighting devices,
including flashlights, lanterns and similar portable products for the retail
and industrial markets. For the 52 weeks ended July 5, 1997, the Company's
products accounted for 12% of aggregate lighting product retail dollar sales in
the mass merchandiser retail market segment. Rayovac has established its
position in this market based on innovative product features, consistent
product quality and creative product packaging. In addition, the Company
endeavors to regularly introduce new products to stimulate consumer demand and
promote impulse purchases.
The Company also produces a wide range of consumer and industrial lantern
batteries. For the 52 weeks ended July 5, 1997, the Company held a 44% unit
market share in the lantern battery market. This market has experienced a
decline in recent years due to the declining use of this product for highway
construction barricades.
Merchandising and Advertising
The Company's marketing strategy for its lighting products and lantern
batteries focuses on leveraging the Company's strong brand name, regularly
introducing new products, utilizing innovative packaging and merchandising
programs, and promoting impulse buying and gift purchases.
Sales and Distribution
General
After the Recapitalization, the Company reorganized its sales force by
distribution channel. As a result of this reorganization, the Company maintains
separate U.S. sales forces primarily to service its retail sales and
distribution channels and its hearing aid professionals, industrial and OEM
sales and distribution channels. In addition, the Company utilizes a network of
independent brokers to service participants in selected distribution channels.
In conjunction with its broader cost rationalization initiatives, the Company
has reduced the number of independent brokers and sales agents from over 100 to
approximately 50. With respect to sales of the Company's hearing aid batteries,
while most of the Company's sales have historically been through hearing aid
professionals, the Company is actively engaged in efforts to increase sales
through retail channels. In addition, the Company maintains its own sales force
of approximately 30 employees in Europe which promotes the sale of all of the
Company's products.
Retail
In the retail segment, the Company realigned its sales resources to create
a sales force dedicated to each of its retail distribution channels. The
primary retail distribution channels include: mass merchandisers (both national
and regional); food and convenience stores; drug and specialty retailers;
hardware/home centers; department stores; automotive aftermarket dealers;
military sales; and catalog showrooms. The Company works closely with
individual retailers to develop unique product promotions and to provide them
with the opportunity for attractive profit margins to encourage brand support.
The Company's sales efforts in the retail channel focus primarily on sales
and distribution to national mass merchandisers, in particular the Wal-Mart,
Kmart and Target chains, which collectively accounted for 48% of industry sales
growth in the domestic alkaline battery market over the past five years. The
Company's sales strategy for these and other mass merchandisers includes
increasing market share for all of the Company's products through the use of
account specific programs and a separate sales and marketing team dedicated to
these large retailers.
The Company's sales strategy is to penetrate further particular retail
distribution channels, including home centers, hardware stores, warehouse clubs
and food and drug stores. The Company's strategy for these retail channels is
to develop creative and focused marketing campaigns which emphasize the
performance parity and consumer cost advantage of the Rayovac brand and to
tailor specific promotional programs unique to these distribution channels.
37
<PAGE>
Industrial and OEM
In the industrial battery market, the Company services three sales and
distribution channels: contract sales to governments and related agencies;
maintenance repair organizations (including buying groups); and office product
supply companies. The primary products sold to this market include alkaline,
heavy duty, and lantern batteries and flashlights. Maintenance repair
organizations, the largest of which is W.W. Grainger (to whom the Company is a
major supplier of battery and lighting products), generally sell to contractors
and manufacturers. The office product supply channel includes sales to both
professional and retail companies in the office product supply business.
In the OEM sales channel, the Company actively pursues OEM arrangements
and other alliances with major electronic device manufacturers for its
rechargeable batteries. The Company also utilizes the OEM channel for the sale
and distribution of its hearing aid batteries through strong relationships it
has developed with hearing aid manufacturers. The Company plans to continue to
develop relationships with manufacturers of communications equipment and other
products in an effort to expand its share of the non-hearing aid button cell
market. With regard to lithium coin cells, the Company plans to penetrate
further the OEM portable personal computer market and broaden its customer base
by focusing additional sales and distribution efforts on telecommunications and
medical equipment manufacturers.
Manufacturing and Raw Materials
The Company manufactures batteries in the United States and the United
Kingdom. Since the Recapitalization, the Company has shifted manufacturing
operations from its Newton Aycliffe, United Kingdom and Kinston, North Carolina
facilities to other facilities of the Company and outsourced the manufacture of
certain lighting products. These efforts have increased plant capacity
utilization and eliminated some of the Company's underutilized manufacturing
capacity.
During the past five years, the Company has spent significant resources on
capital improvements, including the modernization of many of its manufacturing
lines and manufacturing processes. These manufacturing improvements have
enabled the Company to increase the quality and service life of its alkaline
batteries and to increase its manufacturing capacity. Management believes that
the Company's manufacturing capacity is sufficient to meet its anticipated
production requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The most significant raw materials used by the Company to manufacture
batteries are zinc powder, electrolytic manganese dioxide powder, graphite and
steel. There are a number of worldwide sources for all necessary raw materials,
and management believes that Rayovac will continue to have access to adequate
quantities of such materials at competitive prices. The Company regularly
engages in forward purchases and hedging transactions to effectively manage raw
material costs and inventory relative to anticipated production requirements.
See "Risk Factors--Raw Materials."
Research and Development
The Company's research and development strategy is to purchase or license
state-of-the-art manufacturing technology from third parties and to develop
such technology through the Company's own research and development efforts. The
Company's research and development efforts focus primarily on performance and
cost improvements of existing products and technologies. In recent years, these
efforts have led to advances in alkaline, heavy duty and lithium chemistries,
as well as zinc air hearing aid batteries and enhancements of licensed
rechargeable alkaline technology.
The Company believes that continued development efforts are important in
light of the continually evolving nature of battery technology and credits the
competitive performance of its products to its recent development efforts. In
the hearing aid battery segment, the Company's research and development group
maintains close alliances with the developers of hearing aid devices and often
works in conjunction with these developers in preparing new product designs.
The success of these efforts is most recently demonstrated by the Company's
development of the two smallest (5A and 10A size) hearing aid batteries. The
Company's research and development efforts in the Lighting Products and Lantern
Batteries segment are focused on the development of new products. Further, the
Company continues to partner with the U.S. government in research efforts to
develop new battery technology. The Company's research and development group
includes approximately 95 employees, the expense for some of whom is funded by
U.S. government research contracts. See "--Patents, Trademarks and Licenses."
38
<PAGE>
Information Systems
The Company has completed an initial reorganization of its information
systems function by (i) hiring an experienced Chief Information Officer, (ii)
outsourcing mainframe computer operations, (iii) completing an enterprise
software system analysis and selection, and (iv) retaining Electronic Data
Systems to modernize and upgrade its data processing and telecommunications
infrastructure. The Company has purchased from SAP and begun implementing an
enterprise-wide, integrated information system to upgrade and modernize its
business operations, the majority of which will be substantially implemented by
late 1998. When fully implemented, this system is expected to reduce cycle
times, lower manufacturing and administrative costs, improve both asset and
employee productivity and address the Year 2000 issue.
Patents, Trademarks and Licenses
The Company's success and ability to compete depends in part upon its
technology. The Company relies upon a combination of patent, trademark and
trade secret laws, together with licenses, confidentiality agreements and other
contractual covenants, to establish and protect its technology and other
intellectual property rights.
The Company owns or licenses from third parties a considerable number of
patents and patent applications throughout the world, primarily for battery
product improvements, additional features and manufacturing equipment.
The Company also uses a number of trademarks in its business, including
Rayovac(R), MAXIMUM(TM), Renewal(R), Loud'n Clear(R), Power
Station(R), ProLine(R), Lifex(TM), Smart Pack(R), Smart(TM) Strip,
Workhorse(R) and Roughneck(R). The Company relies on both registered
and common law trademarks in the United States to protect its trademark rights.
The Rayovac(R) mark is also registered in countries outside the United
States, including in Europe and the Far East. The Company does not have any
right to the trademark "Rayovac" in Brazil, where the mark is owned by an
independent third-party battery manufacturer. In addition, ROV Limited, a third
party unaffiliated with the Company, has an exclusive, perpetual, royalty-free
license for the use of certain of the Company's trademarks (including the
"Rayovac" mark) in connection with zinc carbon and alkaline batteries and
certain lighting devices in many countries outside the United States, including
Latin America.
The Company has obtained a non-exclusive license to use certain technology
underlying its rechargeable battery line to manufacture such batteries in the
United States, Puerto Rico and Mexico and to sell and distribute batteries
based on the licensed technology worldwide. This license terminates with the
expiration of the last-expiring patent covering the licensed technology. In
addition, in the conduct of its business, the Company relies upon other
licensed technology in the manufacture of its products. See Note 13 to Notes to
Combined Consolidated Financial Statements.
Competition
The Company believes that the markets for its products are highly
competitive. Duracell and Energizer are the Company's primary battery industry
competitors, each of which has substantially greater financial and other
resources and greater overall market share than the Company. Although other
competitors have sought to enter this market, the Company believes that new
market entrants would need significant financial and other resources to develop
brand recognition and the distribution capability necessary to serve the U.S.
marketplace. Substantial capital expenditures would be required to establish
U.S. battery manufacturing operations, although potential competitors could
import their products into the U.S. market. The Company and its primary
competitors enjoy significant advantages in having established brand
recognition and distribution channels. See "Risk Factors--Competition."
In the U.S. market for general batteries competition is based on brand
name recognition, perceived quality, price, performance, product packaging and
design innovation, as well as creative marketing, promotion and distribution
strategies. In comparison to the U.S. battery market, the international general
battery market has more competitors, is as highly competitive and has similar
methods of competition.
Competition in the hearing aid battery industry is based upon reliability,
performance, quality, product packaging and brand name recognition. The
Company's primary competitors in the hearing aid battery industry include
Duracell, Energizer and Panasonic. The battery-powered lighting device industry
is also very competitive and includes a greater number of competitors
(including Black & Decker, Mag-Lite and Energizer) than the U.S. battery
industry.
39
<PAGE>
Employees
As of September 30, 1997 the Company had approximately 2,150 full-time
employees. The Company believes its relationship with its employees is good and
there have been no work stoppages involving Company employees since 1981. A
significant number of the Company's factory employees are represented by one of
four labor unions. The Company has recently entered into collective bargaining
agreements with its Madison and Fennimore, Wisconsin employees, each of which
expires in 2000. The Company's collective bargaining agreement with 24 of its
Washington, United Kingdom employees is scheduled to expire in December 1997.
In addition, the Company's collective bargaining agreements with its five
Hayward, California and 203 Portage, Wisconsin employees are scheduled to
expire in May and July 1998, respectively.
Properties and Equipment
The following table sets forth information regarding the Company's six
manufacturing sites in the United States and the United Kingdom:
<TABLE>
<CAPTION>
Location Product Owned/Leased Square Feet
<S> <C> <C> <C>
Fennimore, WI Alkaline batteries and Renewal rechargeable batteries Owned 176,000
Madison, WI Heavy duty/general purpose batteries Owned 158,000
Portage, WI Zinc air and silver button cells Owned 62,000
Appleton, WI Lithium coin cells and alkaline computer batteries Owned 60,600
Wonewoc, WI Battery-powered lighting products and lantern batteries Leased 60,000
Washington, UK Mercuric oxide and zinc air button cells Leased 63,000
</TABLE>
From fiscal 1993 through fiscal 1995 the Company has invested in all of
its major battery facilities. During this period, the Company invested
approximately $33 million in connection with the Fennimore Expansion.
Additional investments in zinc air battery production have helped to increase
output and precision of assembly as well as to increase the capacity of
critical component manufacturing. Investments in lithium coin cell production
have been used to build capacity for newly developed sizes of lithium coin
cells as well as to increase capacity of the largest volume sizes of such
cells. The Company has recently shifted manufacturing operations from its
Newton Aycliffe, United Kingdom and Kinston, North Carolina facilities to other
facilities of the Company and outsourced the manufacture of certain lighting
products. The following table sets forth information regarding the Company's
four packaging and distribution sites in the United States and the United
Kingdom, all of which are leased:
<TABLE>
<CAPTION>
Location Square Feet
<S> <C>
Middleton, WI 220,000
Laverne, TN 73,000
Hayward, CA 30,000
Newton Aycliffe, UK 75,000
</TABLE>
The Company believes that its facilities, in general, are adequate for its
present and currently foreseeable needs.
Environmental Matters
The Company's facilities are subject to a broad range of federal, state,
local and foreign laws and regulations relating to the environment, including
those governing discharges to the air and water and land, the handling and
disposal of solid and hazardous substances and wastes, and the remediation of
contamination associated with releases of hazardous substances at Company
facilities and at off-site disposal locations. The Company has a proactive
environmental management program that includes the use of periodic
comprehensive environmental audits to detect and correct practices that violate
environmental laws or are inconsistent with best management practices. Based on
information currently available to Company management, the Company believes
that it is substantially in compliance with applicable environmental
regulations at its facilities, although no assurance can be provided with
respect to such compliance in the future. There are no pending proceedings
against the Company alleging that the Company is or has been in violation of
environmental laws, and the Company is not aware of any such proceedings
contemplated by governmental authorities. The Company is, however, subject to
certain proceedings under CERCLA or analogous state laws, as described below.
The Company has from time to time been required to address the effect of
historic activities on the environmental condition of its properties, including
without limitation the effect of releases from underground storage tanks.
Several Company facilities have been in operation for decades and are
constructed on fill that includes,
40
<PAGE>
among other materials, used batteries containing various heavy metals. The
Company has accepted a deed restriction on one such property in lieu of
conducting remedial activities, and may consider similar actions at other
properties if appropriate. Although the Company is currently engaged in
remedial projects at a few of its facilities, the Company does not expect that
such projects will cause it to incur material expenditures. Nonetheless, the
Company has not conducted invasive testing to identify all potential risks and,
given the age of the Company's facilities and the nature of the Company's
operations, there can be no assurance that the Company will not incur material
liabilities in the future with respect to its current or former facilities.
The Company has been notified that its former manganese processing
facility in Covington, Tennessee is being evaluated by TDEC for a determination
as to whether the facility should be added to the National Priorities List as a
Superfund site pursuant to CERCLA. Groundwater monitoring conducted pursuant to
the post-closure maintenance of solid waste lagoons on site, and recent
groundwater testing beneath former process areas on site, indicate that there
are elevated levels of certain inorganic contaminants, particularly (but not
exclusively) manganese, in the groundwater underneath the site. The Company has
completed closure of the aforementioned lagoons and has completed the
remediation of a stream that borders the site. The Company cannot predict the
outcome of TDEC's investigation of the site and there can be no assurance that
the Company will not incur material liabilities in the future with respect to
this site.
The Company has been and is subject to several proceedings related to its
disposal of industrial and hazardous waste at off-site disposal locations,
under CERCLA or analogous state laws that hold persons who "arranged for" the
disposal or treatment of such substances strictly liable for the costs incurred
in responding to the release or threatened release of hazardous substances from
such sites. Current and former owners and operators of such sites, and
transporters of waste who participated in the selection of such sites, are also
strictly liable for such costs. Liability under CERCLA is generally "joint and
several," so that a responsible party under CERCLA may be held liable for all
of the costs incurred at a particular site. However, as a practical matter,
liability at such sites generally is allocated among all of the viable
responsible parties. Some of the most significant factors for allocating
liabilities to persons that disposed of wastes at Superfund sites are the
relative volume of waste such persons sent to the site and the toxicity of
their waste streams. Other than the Velsicol Chemical and Morton International
proceedings described below (as to which there is insufficient information to
make a judgment as to the likelihood of a material impact on the Company's
operations, financial condition or liquidity at this time), the Company does
not believe that any of its pending proceedings under CERCLA or analogous state
laws, either individually or in the aggregate, will have a material impact on
the Company's operations, financial condition or liquidity, and the Company is
not aware of any such matters contemplated by governmental agencies that will
have such an impact. However, the Company may be named as a PRP at additional
sites in the future, and the costs associated with such additional or existing
sites may be material. In addition, certain of the Company's facilities have
been in operation for decades and, over such time, the Company and other prior
operators of such facilities have generated and disposed of wastes which are or
may be considered hazardous such as cadmium and mercury utilized in the battery
manufacturing process.
The Company has been named as a defendant in two lawsuits in connection
with a Superfund site located in Bergen County, New Jersey (Velsicol Chemical
Corporation, et al, v. A.E. Staley Manufacturing Company, et al., and Morton
International, Inc. v. A.E. Staley Manufacturing Company, et al., United States
District Court for the District of New Jersey, filed July 29, 1996). The
Company is one of almost one hundred defendants named in these cases. Both
cases involve contamination at a former mercury processing plant. One case was
brought by the current owner and the other case by a former owner. The
complaints in the two cases are identical, with four counts alleging claims for
contribution under CERCLA, the New Jersey Spill Act, the Federal Declaratory
Judgment Act and the common law. The plaintiffs allege that the Company
arranged for the treatment or disposal of hazardous substances at the site.
Consequently, the plaintiffs allege, the Company is liable to them for
contribution toward the costs of investigating and remediating the site.
No ad damnum is specified in either complaint. The Remedial
Investigation/Feasibility Study ("RI/FS") of the site has just begun.
Plaintiff's counsel estimates the cost of the RI/FS to be $4 million. There is
no estimate at this juncture as to the potential cost of remediation. The
Company is one of approximately 75 defendants who allegedly arranged for
treatment or disposal at the site. The remaining defendants are former owners
or operators of the site and adjacent industrial facilities which allegedly
contributed to the contamination. Evidence developed in discovery to date
indicates that while the Company was a customer of the facility, the
relationship was of relatively
41
<PAGE>
brief duration. The cost to remediate the Bergen County Site has not been
determined and the Company cannot predict the outcome of these proceedings.
"See Risk Factors--Environmental Matters."
There can be no assurances that additional proceedings relating to
off-site disposal locations will not arise in the future or that such
proceedings will not have a material adverse effect on the Company's business,
financial condition or results of operations. The discovery of previously
unknown contamination of property underlying or in the vicinity of the
Company's manufacturing facilities could require the Company to incur material
unforeseen expenses. Occurrences of any such events may have a material adverse
effect on the Company's financial condition. See "Risk Factors--Environmental
Matters." As of September 30, 1997, the Company has reserved $1.8 million for
known on-site and off-site environmental liabilities. The Company believes
these reserves are adequate, although there can be no assurance that this
amount will be adequate to cover such matters.
Legal Proceedings
In the ordinary course of business, various suits and claims are filed
against the Company. The Company has been named as a defendant in two lawsuits
in connection with a Superfund site located in Bergen County, New Jersey
(Velsicol Chemical Corporation, et al. v. A.E. Staley Manufacturing Company, et
al. and Morton International, Inc. v. A.E. Staley Manufacturing Company, et
al., United States District Court for the District of New Jersey, filed July
29, 1996). For a discussion of the principal parties, the factual basis alleged
to underlie the proceedings and the relief sought, see "Business--Environmental
Matters." See also "Risk Factors--Environmental Matters." Other than the
Velsicol Chemical and Morton International proceedings (as to which there is
insufficient information to make a judgment as to the likelihood of a material
impact on the Company's business or financial condition at this time), the
Company is not party to any legal proceedings which, in the opinion of
management of the Company, are material to the Company's business or financial
condition.
42
<PAGE>
MANAGEMENT
Directors and Executive Officers
Set forth below is certain information regarding each director and
executive officer of the Company as of October 1, 1997:
<TABLE>
<CAPTION>
Name Age Position and Offices
- ---------------------- ----- --------------------------------------------------------
<S> <C> <C>
David A. Jones 48 Chairman of the Board, Chief Executive Officer and
President
Kent J. Hussey 51 Executive Vice President of Finance and Administration,
Chief Financial Officer and Director
Roger F. Warren 56 President/International and Contract Micropower and
Director
Trygve Lonnebotn 60 Executive Vice President of Operations and Director
Stephen P. Shanesy 41 Senior Vice President of Marketing and General Manager
of General Batteries
Kenneth V. Biller 49 Senior Vice President and General Manager of Lighting
Products & Industrial
Merrell M. Tomlin 44 Senior Vice President of Sales
James A. Broderick 54 Vice President, General Counsel and Secretary
Scott A. Schoen 39 Director
Thomas R. Shepherd 67 Director
Warren C. Smith, Jr. 41 Director
</TABLE>
Mr. Jones has served as the Chairman of the Board of Directors, Chief
Executive Officer and President of the Company since September 12, 1996.
Between February 1995 and March 1996, Mr. Jones was Chief Operating Officer,
Chief Executive Officer and Chairman of the Board of Directors of Thermoscan,
Inc. From 1989 to September 1994, he served as President and Chief Executive
Officer of The Regina Company, a manufacturer of vacuum cleaners and other
floor care equipment. Mr. Jones has over 25 years of experience working in the
consumer durables industry, most recently in management of operations,
manufacturing and marketing.
Mr. Hussey is a director of the Company and has served as Executive Vice
President of Finance and Administration, Chief Financial Officer since October
1, 1996. Prior to that time and since 1994, Mr. Hussey was Vice President and
Chief Financial Officer of ECC International, a producer of industrial minerals
and specialty chemicals, and from 1991 to July 1994 he served as Vice President
and Chief Financial Officer of The Regina Company.
Mr. Warren is a director of the Company and has served as
President/International and Contract Micropower of the Company since 1995. Mr.
Warren joined the Company in 1985 and has held several positions including
Executive Vice President and General Manager and Senior Vice President and
General Manager/International.
Mr. Lonnebotn is a director of the Company and, since 1985, has served as
Executive Vice President of Operations. He joined Rayovac in 1965.
Mr. Shanesy is the Senior Vice President of Marketing and the General
Manager of General Batteries of the Company. From 1991 to 1995, Mr. Shanesy was
Vice President of Marketing of Oscar Mayer. Prior to that time and since 1983,
Mr. Shanesy held various marketing positions with Kraft Foods.
Mr. Biller has been the Senior Vice President and General Manager of
Lighting Products & Industrial since 1996. Prior to such time he was Vice
President and General Manager of Lighting Products & Industrial since 1995. Mr.
Biller joined the Company in 1972 and has held several positions, including
Director of Technology/Battery Products and Vice President of Manufacturing.
Mr. Tomlin is the Senior Vice President of Sales of the Company. From
March 1996 to September 30, 1996, Mr. Tomlin served as Vice President Sales of
Braun of North America/Thermoscan and from August 1995 to March 1996, he served
as Vice President Sales of Thermoscan, Inc. Prior to that time, Mr. Tomlin was
Vice President of Sales of various divisions of Casio Electronics.
43
<PAGE>
Mr. Broderick is Vice President, General Counsel and Secretary for Rayovac
and has held these positions since 1985.
Mr. Schoen has been a director of the Company since the Recapitalization
and is a managing director of THL Co., which he joined in 1986. In addition,
Mr. Schoen is a Vice President of Thomas H. Lee Advisors I and Thomas H. Lee
Advisors II. He is also a director of First Alert, Inc., Signature Brands,
U.S.A., Inc. and various private corporations.
Mr. Shepherd has been a director of the Company since the Recapitalization
and is a managing director of THL Co. and has been engaged as a consultant to
THL Co. since 1986. In addition, Mr. Shepherd is an Executive Vice President of
Thomas H. Lee Advisors I and an officer of various other THL Co. affiliates. He
is also a director of General Nutrition Companies, Inc. and various private
corporations and Chairman of Signature Brands, U.S.A., Inc.
Mr. Smith has been director of the Company since the Recapitalization and
is a managing director of THL Co. and has been employed by THL Co. since 1990.
In addition, Mr. Smith is a Vice President of Thomas H. Lee Advisors II. He is
also a director of Finlay Enterprises, Inc., Finlay Fine Jewelry Corporation
and various private corporations.
The Company anticipates that it will designate two additional, independent
persons to the Board of Directors following the Offerings.
Board Committees and Terms of Office
The Board of Directors has established an audit committee (the "Audit
Committee") and a compensation committee (the "Compensation Committee"). The
members of the Audit Committee and the Compensation Committee are Messrs.
Schoen, Shepherd and Smith. The independent directors will be elected to the
Audit Committee and replace the existing members.
The Company's Charter provides that the Board of Directors is classified
into three classes, with the members of the respective classes serving for
staggered three-year terms. The first class consists of Messrs. Jones,
Lonnebotn and Schoen, the second of Messrs. Warren and Shepherd and the third
of Messrs. Hussey and Smith, with the initial terms of the directors comprising
the classes expiring upon the election and qualification of directors at the
annual meetings of shareholders following the fiscal years ended September 30,
1998, 1999 and 2000, respectively. At each annual meeting of shareholders,
directors will be reelected or elected for full three-year terms. See
"Description of Capital Stock--Anti-Takeover Effects of Provisions of the
Charter and By-laws and of Wisconsin Law."
44
<PAGE>
Executive Compensation
The following table sets forth compensation paid to the former and current
Chief Executive Officer of the Company and the other four most highly
compensated executive officers of the Company during fiscal 1997, the three
month Transition Period ended September 30, 1996 and fiscal 1996 (the "Named
Executive Officers") for services rendered in all capacities to the Company.
<TABLE>
<CAPTION>
Other
Annual Securities
Compen- Underlying All Other
Name and Principal Position Fiscal Year Salary ($) Bonus ($) sation ($) Options (#) Compensation($)
- ------------------------------- ------------------- ------------ ----------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
David A. Jones, 1997 $400,000 $218,500 $65,800 83,196
Chairman of the Board, Transition Period 19,700 179,500 911,577
Chief Executive Officer
and President
Kent J. Hussey, 1997 275,000 185,000 253,657 $ 57,000(1)
Executive Vice President of
Finance and
Chief Financial Officer
Roger F. Warren, 1997 258,000 103,200 28,286
President/International Transition Period 64,500 24,700 227,894 486,600(2)
and Contract Micropower 1996 248,100
Trygve Lonnebotn, 1997 240,200 96,100 16,640
Executive Vice President Transition Period 60,100 32,400 170,921 377,800(2)
of Operations 1996 231,000
Steven P. Shanesy, 1997 154,900 140,000 135,579
Senior Vice President of
Marketing and General Manager
of General Batteries
</TABLE>
- ----------------
(1) Represents relocation payments.
(2) Represents amounts paid by the Company in connection with the
Recapitalization.
45
<PAGE>
Option Grants and Exercises
In connection with the Recapitalization, the Board adopted the Rayovac
Corporation 1996 Stock Option Plan (the "1996 Plan"). Pursuant to the 1996
Plan, options may be granted with respect to an aggregate of 3,000,000 shares
of Common Stock. The Board of Directors has granted an aggregate of 2,318,127
options to purchase shares of Common Stock at a weighted average exercise price
of $4.33 per share, 911,577 of which have been granted to David A. Jones in
accordance with the terms of his employment agreement. See "--Employment
Agreement." Pursuant to the Company's 1997 Stock Option Plan (the "1997 Plan"),
options to purchase an aggregate of 556,222 shares of Common Stock were granted
to certain management employees, which options were immediately exercised or
surrendered to the Company's Deferred Compensation Plan as of such date. See
"Benefit Plans--Stock Option Plans."
The following table discloses the grants of stock options during fiscal
1997 to the Named Executive Officers.
Option/SAR Grants in Fiscal 1997
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------- Potential Realizable
Value At Assumed
Number of Percent of Total Annual Rates of Stock
Securities Options/SARs Exercise Price Appreciation for
Underlying Granted to or Base Option Term
Options/SARs Employees in Price ----------------------
Name Granted (#) Fiscal Year ($/Share) Expiration Date 5% ($) 10% ($)
- ------------------------- -------------- ----------------- ----------- ----------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
David A. Jones ......... 84,204(1) 6.0 $6.01 11/30/1997 $ 8,434 $ 16,869
Roger F. Warren ....... 28,569(1) 2.0 6.01 11/30/1997 2,862 5,723
Trygve Lonnebotn ...... 24,074(1) 1.7 6.01 11/30/1997 2,411 4,823
Kent J. Hussey ......... 227,894 16.2 4.39 10/01/2006 629,181 1,594,467
25,862(1) 1.8 6.01 11/30/1997 2,591 5,181
Steven P. Shanesy ...... 113,947 8.1 4.39 10/01/2006 314,590 797,234
23,077(1) 1.6 6.01 11/30/1997 2,312 4,623
</TABLE>
- ----------------
(1) These options granted under the 1997 Plan were exercised immediately upon
grant. See "Benefit Plans--Stock Option Plans."
The following table sets forth information concerning options to purchase
Common Stock held by the Named Executive Officers.
Aggregated Option Exercises In Fiscal 1997 And Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money (2)
Shares Options at Options at
Acquired Value Fiscal Year End (#) Fiscal Year End ($)
Name on Exercise Realized $ (1) (Exercisable/Unexercisable) (Exercisable/Unexercisable)
- ------------------------- ------------- ---------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C>
David A. Jones ......... 84,204 $-0- 182,315/729,262 $1,752,047/$7,008,208
Roger F. Warren ...... 28,569 -0- 45,579/182,315 438,014/1,752,047
Trygve Lonnebotn ...... 24,074 -0- 34,184/136,737 328,508/1,314,043
Kent J. Hussey ......... 25,862 -0- 45,579/182,315 438,014/1,752,047
Steven P. Shanesy ...... 23,077 -0- 22,789/91,158 219,002/876,028
</TABLE>
- ----------------
(1) These options granted under the 1997 Plan were immediately exercised and no
value was received by the Named Executive Officers. See "Benefit
Plans--Stock Option Plans."
(2) These values are calculated using an assumed initial public offering price
of $14.00 per share, less the exercise price of the options.
Compensation Committee Interlocks and Insider Participation
During fiscal 1997, the Compensation Committee of the Board of Directors
was composed of Scott A. Schoen, Thomas R. Shepherd and Warren C. Smith, Jr.
46
<PAGE>
The Company and THL Co. (which together with its affiliates will own 64.8%
of the outstanding Common Stock following the Offerings) are parties to a
Management Agreement entered into in connection with the Recapitalization
pursuant to which the Company has engaged THL Co. to provide consulting and
management advisory services for an initial period of five years through
September 12, 2001. Under the Management Agreement and in connection with the
closing of the Recapitalization, the Company paid THL Co. and an affiliate an
aggregate fee of $3.25 million (the "THL Transaction Fee"). In consideration of
the consulting and management advisory services, the Company pays THL Co. and
its affiliate an aggregate annual fee of $360,000 plus expenses (the
"Management Fee"). The Company believes that this Management Agreement is on
terms no less favorable to the Company than could have been obtained from an
independent third party.
In connection with the Recapitalization, the Lee Group, certain other
shareholders of the Company and the Company entered into the Shareholders
Agreement. The Shareholders Agreement provides for certain restrictions on
transfer of the shares beneficially owned by the parties thereto. Additionally,
the Shareholders Agreement provides that, subject to certain limitations, so
long as the Lee Group and their permitted transferees own at least 10% of the
shares of Common Stock acquired in the Recapitalization, the Lee Group shall be
entitled to three "demand" registrations which may be exercised at any time.
The shareholders party to the Shareholders Agreement, including the Lee Group,
are also entitled, subject to certain limitations, to include shares of Common
Stock held by them in other registrations of equity securities of the Company
initiated by the Company for its own account or pursuant to a request for
registration by the Lee Group. See "Risk Factors--Shares Eligible for Future
Sale."
Employment Agreement
Under the employment agreement between David A. Jones and the Company (the
"Jones Employment Agreement"), Mr. Jones is entitled to a salary of $400,000
per annum (which may be increased from time to time at the discretion of the
Board of Directors) and an annual bonus based upon the Company achieving
certain annual performance goals established by the Board of Directors. The
Jones Employment Agreement became effective on September 12, 1996 for a term of
three years expiring on September 30, 1999 which automatically renews for
successive one year periods unless terminated earlier upon 90 days prior
written notice by either party. At any time Mr. Jones has the right to resign
and terminate the agreement upon 60 days notice. Upon such resignation, the
Company must pay to Mr. Jones any unpaid base salary and any accrued but unpaid
bonus through the date of resignation. The agreement provides that, upon the
termination of Mr. Jones' employment for death or disability, the Company will
pay to Mr. Jones or his estate any unpaid base salary, any accrued but unpaid
bonus through the date of termination and a pro rata portion of the bonus for
such period. The Company has the right to terminate employment for "cause" (as
defined) and shall be obligated to pay to Mr. Jones any unpaid base salary to
the date of termination. In the event Mr. Jones is terminated without cause (as
defined), the Company must pay to him any unpaid base salary, any accrued but
unpaid bonus through the date of termination and Mr. Jones' base salary and any
additional salary until the earlier of the end of the term of the agreement or
12 months from the date of termination as well as other benefits under the
agreement.
The agreement also provides that, during the term of the agreement or the
period of time served as a director, and for one year thereafter, Mr. Jones
shall not engage in or have a financial interest in any business which is
involved in the industries in which the Company is engaged. The Company has
also granted Mr. Jones options to purchase 911,577 shares of Common Stock at
$4.39 per share, half of which become exercisable at a rate of 20% per year
over a five-year period and the other half of which become exercisable at the
end of ten years with accelerated vesting over each of the next five fiscal
years if the Company achieves certain performance goals. In connection with the
Recapitalization, Mr. Jones individually also purchased 227,895 shares of
Common Stock at approximately $4.39 per share. One-half of the purchase price
was paid in cash and one-half with a promissory note. The Company holds this
promissory note in the principal amount of $500,000 from Mr. Jones in
connection with the purchase of shares of Common Stock. Mr. Jones will receive
additional salary of $35,000 annually as long as the promissory note remains
outstanding. See "Certain Relationships and Related Transactions."
Severance Agreements
Each of Kent J. Hussey, Executive Vice President of Finance and
Administration and Chief Financial Officer, Roger F. Warren,
President/International and Contract Micropower, Trygve Lonnebotn, Executive
Vice President of Operations, Stephen P. Shanesy, Senior Vice President of
Marketing and General Manager of General Batteries, and Merrell M. Tomlin,
Senior Vice President of Sales has entered into a severance agreement (each, a
"Severance
47
<PAGE>
Agreement") with the Company pursuant to which, in the event that his
employment is terminated during the term of the Severance Agreement (a) by the
Company without cause (as defined) or (b) by reason of death or disability (as
defined), the Company shall pay him an amount in cash equal to the sum of (i)
his base salary as in effect for the fiscal year ending immediately prior to
the fiscal year in which such termination occurs and (ii) the annual bonus (if
any) earned by him pursuant to any annual bonus or incentive plan maintained by
the Company in respect of the fiscal year ending immediately prior to the
fiscal year in which such termination occurs, such amount to be paid ratably
monthly in arrears over the remaining term of the Severance Agreement. In the
event of such termination, the Company shall also maintain for the twelve-month
period following such termination insurance benefits for such individual and
his dependents similar to those provided immediately prior to such termination.
Under the Severance Agreements, each of Messrs. Hussey, Warren, Lonnebotn,
Shanesy and Tomlin has agreed that for one year following the later of the end
of the term of the Severance Agreement or the date of termination, that he will
not engage or have a financial interest in any business which is involved in
the industries in which the Company is engaged. The initial term of each
Severance Agreement is one year with automatic one-year renewals thereafter,
subject to thirty days notice of non-renewal prior to the end of the then
current term.
Director Compensation
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee directors of the Company are
reimbursed for their out-of-pocket expenses in attending meetings of the Board
of Directors. Messrs. Schoen, Shepherd and Smith receive no fees in their
capacities as directors. See "Certain Relationships and Related Transactions"
for a description of certain other arrangements pursuant to which THL Co., of
which they are managing directors, receives compensation from the Company.
Benefit Plans
Rayovac Profit Sharing and Savings Plan. The Company sponsors the Rayovac
Profit Sharing and Savings Plan (the "Profit Sharing Plan"). Under the terms of
the Profit Sharing Plan, eligible employees may elect to contribute to the
Profit Sharing Plan, through payroll deductions, up to 15% of their
compensation for services rendered in any year, not to exceed a statutorily
prescribed annual limit. The Profit Sharing Plan provides that for any pay
period the Company may in its discretion make contributions to the Profit
Sharing Plan on behalf of each Profit Sharing Plan participant, which
contributions shall be a percentage of each participant's compensation for such
pay period. Participants may direct the investment of all contributions among
the funds offered by the Profit Sharing Plan. The executive officers of the
Company participate in the Profit Sharing Plan. Participants in the Profit
Sharing Plan are fully vested in their Profit Sharing Plan accounts.
Deferred Compensation Plan. The Company has adopted the Rayovac
Corporation Deferred Compensation Plan (the "Deferred Compensation Plan") for
eligible management employees employed at the level of vice president or above.
Participants in the Deferred Compensation Plan may elect to defer some or all
of their base salary and bonuses pursuant to elections made prior to the period
with respect to which such compensation is earned ("Deferrals"). In general,
Deferrals are payable upon retirement, death or disability, with a participant
also being eligible for certain hardship withdrawals. The normal form of
Deferral payment is in up to 15 annual installments, with a participant having
the option to receive a lump sum payment with the consent of the Company. The
Deferral will not be subject to federal income tax at the time of the Deferral.
Participants are credited with earnings on their accounts based upon individual
participant's selection from among investment benchmarks chosen by the Company.
The Company has established a related trust to fund Deferrals upon a change in
control of the Company. The Deferrals are unsecured liabilities payable by the
Company out of its general assets.
The Company also has nonqualified deferred compensation agreements with
certain current and former officers under which the Company has agreed to pay
such individuals designated amounts annually for the first 15 years subsequent
to retirement or to a designated beneficiary upon death. The Company estimates
the actuarial present value of the unfunded liabilities related to such
agreements to be approximately $8.7 million as of September 30, 1997. See Note
10 to Notes to Consolidated Financial Statements.
Stock Option Plans. In connection with the Recapitalization, the Company
adopted the 1996 Plan. The 1996 Plan provides for the grant, from time to time,
of non-qualified stock options for an aggregate of 3,000,000 shares of Common
Stock to employees and directors of the Company or a subsidiary to encourage
continuity of service with the Company, to increase their efforts on behalf of
the Company and to promote the success of the Company's business. The 1996 Plan
is administered by the Compensation Committee. Subject to the provisions of the
1996
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<PAGE>
Plan, the Compensation Committee is empowered to, among other things, determine
the persons to whom and the time or times at which options may be granted, the
number of shares to which an option may relate and the terms, conditions and
restrictions relating to any option.
The 1996 Plan provides that the exercise price of options shall be paid in
full at the time of exercise and may be paid in cash or in shares of Common
Stock having a fair market value equal to the exercise price, or in a
combination of cash and shares of Common Stock or, in the discretion of the
Compensation Committee, through a cashless exercise procedure.
Unless otherwise provided in the applicable option agreement, options may
be exercised only during the period that the recipient is an employee or member
of the Board of the Company and for a period of 30 days after termination of
employment other than for cause or due to the death or disability of the
recipient or for a period of twelve months from the date of termination due to
the death or disability of the recipient. The 1996 Plan may, at any time and
from time to time, be altered, amended, suspended or terminated by the Board of
Directors or the Compensation Committee, in whole or in part; provided that no
amendment may be made which adversely affects any of the rights of a recipient
of an option theretofore granted, without such recipient's consent, and no
amendment which requires shareholder approval under applicable law or in order
for the plan to continue to comply with Section 162 (m) of the Internal Revenue
Code of 1986, as amended, will be effective unless it is approved by the
requisite vote of shareholders. Options granted under the 1996 Plan are subject
to adjustment under certain specified circumstances to prevent dilution.
Options to purchase an aggregate of 2,318,127 shares of Common Stock were
granted under the 1996 Plan as of September 30, 1997.
In connection with the purchase by the Company and the Lee Group of shares
of Common Stock from Thomas F. Pyle, Jr., former Chairman, President and Chief
Executive Officer of the Company as of August 1, 1997, the Company adopted the
Rayovac Corporation 1997 Stock Option Plan (the "1997 Plan"). The 1997 Plan
provides for the grant of options to purchase an aggregate of 665,000 shares of
Common Stock to employees of the Company at a specified management level and
above to provide an incentive to such employees to remain in the Company's
employ and to increase their efforts for the success of the Company by offering
them an opportunity to increase their proprietary interest in the Company. The
1997 Plan is administered by David Jones as administrator (the
"Administrator").
The 1997 Plan provides that the exercise price of an option under the 1997
Plan shall be $6.01 per share. The Administrator may determine those persons
who shall be entitled to receive options and may prescribe the minimum and
maximum number of shares of Common Stock for which a participant may exercise
an option, the expiration date of such option and such other terms and
conditions as the Administrator shall deem appropriate. The 1997 Plan and each
option granted thereunder shall expire no later than November 30, 1997. The
1997 Plan provides that the Administrator may cause the Company to lend to a
participant the amount of cash necessary to exercise the option granted to such
participant; provided, however, that such participant simultaneously executes a
promissory note in the form prescribed by the 1997 Plan.
The Administrator may permit a participant to surrender an option held by
such participant and elect instead to have a portion of the amounts credited to
such participant's account under the Company's Deferred Compensation Plan
credited as deferred stock units, each economically equivalent to a share of
Common Stock. The maximum amount which a participant may elect to have so
credited shall be equal to the aggregate purchase price of the shares of Common
Stock subject to the option (or portion thereof) so surrendered.
Pursuant to the 1997 Plan, as of August 1, 1997, options to purchase an
aggregate of 500,868 shares of Common Stock were granted to certain management
employees of the Company. Such options were immediately exercised or
surrendered to the Deferred Compensation Plan as of such date and the proceeds
from the exercise or surrender thereof were used to fund the Company's purchase
of shares of Common Stock from the former Chairman, President and Chief
Executive Officer of the Company occurring as of such date. On September 15,
1997, options to purchase 55,354 shares were granted to certain management
employees, immediately exercised or surrendered to the Deferred Compensation
Plan and the proceeds used to fund the Company's purchase of Common Stock from
another former executive officer of the Company.
On September 5, 1997, the Board adopted the 1997 Rayovac Incentive Plan
(the "Incentive Plan") which was approved by the Shareholders on October 22,
1997 to support the Company's ongoing efforts to develop and retain
exceptionally talented employees and give the Company the ability to provide
employees with incentives that are directly linked to the profitability of the
Company's businesses and increases in shareholder value. The Incentive
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<PAGE>
Plan replaces the 1996 Plan and no further awards will be granted under the
1996 Plan other than awards of options for shares up to an amount equal to the
number of shares covered by options that terminate or expire prior to being
exercised. Under the Incentive Plan, the Company may grant to employees and
non-employee directors stock options, stock appreciation rights ("SARs"),
restricted stock, and other stock-based awards, as well as cash-based annual
and long-term incentive awards. The Company believes that the Incentive Plan
will form an important part of the Company's overall compensation program.
All employees of the Company, its subsidiaries and its affiliates as well
as non-employee members of the Boards of Directors of the Company, its
subsidiaries, and its affiliates will be eligible to receive awards under the
Incentive Plan.
It is currently anticipated that the Incentive Plan will be administered
by the Compensation Committee or a subcommittee thereof. The Compensation
Committee will select the individuals to whom awards will be granted and will
establish the terms of such awards. The Compensation Committee may delegate its
authority under the Incentive Plan to officers of the Company, subject to
Board-approved guidelines, with respect to employees or directors who are not
"executive officers" of the Company.
Up to 3,000,000 shares of Common Stock may be issued under the Incentive
Plan of which none have been issued as of September 30, 1997. The Incentive
Plan will permit the granting of incentive stock options, which qualify for
special tax treatment, and nonqualified stock options. SARs may also be granted
either singly or in combination with underlying stock options. Cash-based
annual and long-term incentive awards granted under the Incentive Plan will be
earned only if corporate, business unit or individual performance objectives
over performance cycles established by or under the direction of the
Compensation Committee are met.
The Incentive Plan also provides for awards that are denominated in,
valued by reference to, or otherwise based on or related to, Common Stock.
These awards may include, without limitation, performance shares and restricted
stock units that entitle the recipient to receive, upon satisfaction of
performance goals or other conditions, a specified number of shares of Common
Stock or the cash equivalent thereof.
The Incentive Plan provides that in the event of a "Change in Control" (as
defined in the Incentive Plan), all stock options and SARs will become
immediately exercisable, the restrictions applicable to outstanding restricted
stock and other stock-based awards will lapse, and, unless otherwise determined
by the Compensation Committee, the value of outstanding stock options, SARs,
restricted stock and other stock-based awards will be cashed out on the basis
of the highest price paid (or offered) during the preceding 60-day period. In
addition, outstanding incentive awards will be vested and paid out on a
prorated basis, based on the maximum award opportunity of such awards and the
number of months elapsed compared with the total number of months in the
performance cycle.
The Incentive Plan will expire on August 31, 2007, unless terminated
earlier, or extended, by the Board. Any awards granted before the Incentive
Plan expires or is terminated may extend beyond the expiration or termination
date. The Board may amend the Incentive Plan at any time, provided that no such
amendment will be made without shareholder approval if such approval is
required under applicable law, or if such amendment would increase the number
of shares that may be issued under the Incentive Plan.
The terms and conditions of each award will be set forth in award
agreements, which can be amended by the Compensation Committee. The
Compensation Committee may require or permit deferral of the payment of awards
and may provide for the payment of interest or other earnings on deferred
amounts or the payment of dividend equivalents where the deferred amounts are
denominated in stock equivalents. Awards under the Incentive Plan may earn
dividends or dividend equivalents, as determined by the Compensation Committee.
Under the Incentive Plan, no recipient may receive awards during the term
of the Incentive Plan that cover in the aggregate more than 25% of the shares
originally reserved for distribution. The value of a recipient's annual
incentive award may not exceed $1 million; individual long-term incentive
awards are limited to $1 million times the number of years in the applicable
performance cycle.
It is presently intended that the Incentive Plan constitute an "unfunded"
plan for incentive compensation. The Incentive Plan authorizes the creation of
trusts and other arrangements to facilitate or ensure payment of the Company's
obligations.
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PRINCIPAL AND OVER-ALLOTMENT SELLING SHAREHOLDERS
The following table sets forth as of the date hereof and after giving
effect to the sale of the shares of Common Stock offered in the Offerings
(including upon full exercise of the over-allotment options granted to the
Underwriters) certain information with respect to beneficial ownership of the
Common Stock by each director, executive officer and beneficial owner of more
than 5% of the Company's outstanding Common Stock, by all directors and
executive officers of the Company as a group and by the Over-Allotment Selling
Shareholders, in each case as of September 30, 1997.
<TABLE>
<CAPTION>
Shares of Common
Stock Beneficially
Shares of Common Owned After the
Stock Beneficially Shares Subject Offerings and Assuming
Owned Prior to to Over-Allotment Full Exercise of
the Offerings(2) Options(3) Over-Allotment Options
------------------------- ------------------- ------------------------
Number of Percentage Number of Percentage
Name and Address(1) Shares of Class Shares of Class
- --------------------------------------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Thomas H. Lee Equity Fund III, L.P.(4) ... 15,298,292 74.2% 861,228 14,437,064 52.3
75 State Street, Ste. 2600
Boston, MA 02109
Thomas H. Lee Foreign Fund III, L.P.(4) ... 947,692 4.6 53,351 894,341 3.2
75 State Street, Ste. 2600
Boston, MA 02109
THL-CCI Limited Partnership(5) ............ 1,606,174 7.8 90,421 1,515,753 5.5
75 State Street, Ste. 2600
Boston, MA 02109
David A. Jones(6) ........................... 498,970 2.4 -- 498,713 1.8
Kent J. Hussey(7) ........................... 95,610 * -- 95,610 *
Roger F. Warren(8) ........................ 583,883 2.8 -- 583,883 2.1
Stephen P. Shanesy(9) ..................... 82,313 * -- 82,313 *
Kenneth V. Biller(10) ..................... 134,403 * -- 134,403 *
Merrell M. Tomlin(11) ..................... 66,830 * -- 66,830 *
James A. Broderick(12) ..................... 231,399 1.1 -- 231,399 *
Trygve Lonnebotn(13) ........................ 468,468 2.3 -- 468,468 1.7
Scott A. Schoen(4)(14) ..................... 77,096 * -- 72,756 *
Thomas R. Shepherd(14) ..................... 40,154 * -- 37,894 *
Warren C. Smith, Jr.(4)(14) ............... 64,258 * -- 60,640 *
All directors and executive officers of the
Company as a group (11 persons)(4)(14) ...... 2,343,384 11.2% -- 2,332,909 8.3
</TABLE>
*Less than 1%.
(1) Addresses are given only for beneficial owners of more than 5% of the
outstanding shares of Common Stock.
(2) Unless otherwise noted, the nature of beneficial ownership is sole voting
and/or investment power, except to the extent authority is shared by
spouses under applicable law. Shares of Common Stock not outstanding but
deemed beneficially owned by virtue of the right of a person or group to
acquire them within 60 days are treated as outstanding only for purposes of
determining the number and percent of outstanding shares of Common Stock
owned by such person or group, except that 40,000 immediately exercisable
options to purchase Common Stock of an employee of the Company who is not
an executive officer of the Company are included for all purposes.
(3) Each Over-Allotment Selling Shareholder is an affiliate of the Lee Group.
See "Risk Factors--Control by Existing Shareholders."
(4) THL Equity Advisors III Limited Partnership ("Advisors"), the general
partner of the Lee Fund and Thomas H. Lee Foreign Fund III, L.P., THL
Equity Trust III ("Equity Trust"), the general partner of Advisors, Thomas
H. Lee, Scott A. Schoen, Warren C. Smith, Jr. and other managing directors
of THL Co., as Trustees of Equity Trust, and Thomas H. Lee as sole
shareholder of Equity Trust, may be deemed to be beneficial owners of the
shares of Common Stock held by such Funds. Each of such persons maintains
a principal business address at Suite 2600, 75 State Street, Boston, MA
02109. Each of such persons disclaims beneficial ownership of all shares.
(5) THL Investment Management Corp., the general partner of THL-CCI Limited
Partnership, and Thomas H. Lee, as director and sole shareholder of THL
Investment Management Corp., may also be deemed to be beneficial owners of
the shares of Common Stock held by THL-CCI Limited Partnership. Each of
such persons maintains a principal business address at Suite 2600, 75
State Street, Boston, MA 02109.
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<PAGE>
(6) Includes 4,556 shares representing Mr. Jones' proportional interest in the
Lee Fund (which proportional interest would be 4,299 shares assuming full
exercise of the over-allotment options granted to the Underwriters) before
giving effect to the allocation of fees and obligations to the Lee Fund
which allocation would reduce the number of shares representing Mr. Jones'
proportional interest in the Lee Fund. Mr. Jones disclaims beneficial
ownership of these shares. Also includes 182,315 shares subject to options
which are currently exercisable and 42,606 shares allocated for the
account of such individual pursuant to the Deferred Compensation Plan.
(7) Includes 45,579 shares subject to options which are currently exercisable
and 8,419 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.
(8) Includes 45,579 shares subject to options which are currently exercisable
and 16,922 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.
(9) Includes 22,789 shares subject to options which are currently exercisable
and 14,757 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.
(10) Includes 22,789 shares subject to options which are currently exercisable
and 12,134 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.
(11) Includes 22,789 shares subject to options which are currently exercisable
and 8,386 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.
(12) Includes 10,000 shares subject to options which are currently exercisable
and 7,974 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.
(13) Includes 34,184 shares subject to options which are currently exercisable
and 15,754 shares allocated for the account of such individual pursuant to
the Deferred Compensation Plan.
(14) Represents the proportional interest of such individual in THL-CCI Limited
Partnership; in the case of Mr. Smith, also includes 15,078 shares which
Mr. Smith may be deemed to beneficially own as a result of Mr. Smith's
children's proportional beneficial interest in THL-CCI Limited
Partnership. The proportional interests of Messrs. Schoen, Shepherd, Smith
and Mr. Smith's children in THL-CCI Limited Partnership, assuming full
exercise of the over-allotment options granted to the Underwriters, would
be 72,756 shares, 37,894 shares, 46,411 shares and 14,229 shares,
respectively.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and THL Co. (which, together with its affiliates will own
64.8% of the outstanding Common Stock following the Offerings) are parties to a
Management Agreement entered into in connection with the Recapitalization
pursuant to which the Company has engaged THL Co. to provide consulting and
management advisory services for an initial period of five years through
September 12, 2001. Under the Management Agreement and in connection with the
closing of the Recapitalization, the Company paid THL Co. and an affiliate an
aggregate fee of $3.25 million (the "THL Transaction Fee"). In consideration of
the consulting and management advisory services, the Company pays THL Co. and
its affiliate an aggregate annual fee of $360,000 plus expenses (the
"Management Fee"). The Company believes that this Management Agreement is on
terms no less favorable to the Company than could have been obtained from an
independent third party.
The Company and David A. Jones are parties to the Jones Employment
Agreement pursuant to which Mr. Jones agreed to be the Chairman of the Board of
Directors, Chief Executive Officer and President of the Company. Mr. Jones also
purchased from the Company 227,895 shares of Common Stock with cash and a
$500,000 promissory note held by the Company with interest payable at a rate of
7% per annum and principal payable on the earliest of the following to occur:
(i) the fifth anniversary of the note; (ii) the date on which (a) Mr. Jones
terminates his employment for any reason other than a Constructive Termination
(as defined in the Jones Employment Agreement) and (b) he is no longer a
director of the Company; or (iii) the date the Company terminates Mr. Jones'
employment for Cause (as defined in the Jones Employment Agreement). Proceeds
from any sale of Mr. Jones' shares must be used to immediately prepay, in whole
or in part, the principal amount of the promissory note outstanding and any
accrued and unpaid interest on the portion prepaid or the holder of the
promissory note may declare the entire principal amount of such note to be
immediately due and payable. Mr. Jones receives additional salary of $35,000
annually during the period the promissory note is outstanding. See
"Management--Employment Agreement."
The Company holds five year promissory notes dated March 17, 1997 from
Messrs. Hussey, Tomlin and Shanesy, in principal amounts of $75,000, $60,000
and $80,000, respectively, with interest payable at 8% per annum. Such notes
were incurred in connection with the purchase of shares of Common Stock by
Messrs. Hussey, Tomlin and Shanesy upon joining the Company.
Pursuant to the 1997 Plan, on August 1, 1997, certain executive officers
of the Company, including Messrs. Jones, Hussey, Tomlin and Shanesy, exercised
options to purchase shares of Common Stock under the 1997 Plan
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<PAGE>
with five-year promissory notes held by the Company, in principal amounts of
$250,000, $50,000, $50,000 and $20,000, respectively, with interest payable at
8% per annum. On September 15, 1997, certain other executive officers,
including Messrs. Warren, Lonnebotn, Shanesy and Hussey, exercised options
under the 1997 Plan with, in the case of Messrs. Warren, Lonnebotn and Shanesy,
five-year promissory notes held by the Company, in principal amounts of
$50,003, $46,079 and $30,002, respectively, with interest payable at 8% per
annum and in the case of Mr. Hussey, a non-interest bearing promissory note in
the principal amount of $36,000 held by the Company due November 21, 1997 of
which a principal amount of $18,000 remains outstanding. No principal amounts
have been paid to date on such other notes.
In connection with the Recapitalization, the Lee Group, certain other
shareholders of the Company and the Company entered into the Shareholders
Agreement. The Shareholders Agreement provides for certain restrictions on
transfer of the shares beneficially owned by the parties thereto. Additionally,
the Shareholders Agreement provides that, subject to certain limitations, so
long as the Lee Group and their permitted transferees own at least 10% of the
shares of Common Stock acquired in the Recapitalization, the Lee Group shall be
entitled to three "demand" registrations which may be exercised at any time.
The shareholders party to the Shareholders Agreement including the Lee Group
are also entitled, subject to certain limitations, to include shares of Common
Stock held by them in other registrations of equity securities of the Company
initiated by the Company for its own account or pursuant to a request for
registration by the Lee Group. See "Risk Factors--Shares Eligible for Future
Sale."
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company does
not purport to be complete, and is subject to the detailed provisions of, and
is qualified in its entirety by reference to, the Restated Articles of
Incorporation of the Company, a copy of which is filed as an exhibit to the
Registration Statement (the "Registration Statement") of which this is a part
and the Wisconsin Business Corporation Law (the "WBCL"). Whenever particular
provisions of the foregoing are referred to, such provisions are incorporated
by reference as a part of the statements made and such statements are qualified
in their entirety by reference to such provisions.
General
Upon the closing of the Offerings, the authorized capital stock of the
Company will consist of 150,000,000 shares of Common Stock, par value $.01 per
share, 27,551,431 shares of which will be issued and outstanding, and 5,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"),
none of which will be outstanding.
Common Stock
Holders of Common Stock are entitled to one vote per share in all matters
to be voted on by the shareholders of the Company and do not have cumulative
voting rights. Accordingly, holders of a majority of the outstanding shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any Preferred Stock outstanding at the time, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of the Company's liabilities and the liquidation preference, if
any, of any outstanding Preferred Stock. Holders of shares of Common Stock have
no preemptive, subscription, redemption or conversion rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All of
the outstanding shares of Common Stock are, and the shares offered by the
Company in the Offerings will be, when issued and paid for, fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future. In addition, under Section 180.0622 of the
WBCL, holders of shares of Common Stock are personally liable, up to the par
value of the shares owned, for debts of the Company owed to its employees for
services rendered by employees to the Company during no more than a six month
period in any one case. Certain Wisconsin courts have interpreted "par value"
to mean the full amount paid upon the purchase of the Common Stock.
At present, there is no established trading market for the Common Stock.
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "ROV," subject to official notice of issuance.
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<PAGE>
Preferred Stock
The Board of Directors may, without further action by the Company's
shareholders, from time to time, direct the issuance of shares of Preferred
Stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of Preferred Stock would reduce the amount of
funds available for the payment of dividends on shares of Common Stock. Holders
of shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. The Board of Directors, without
shareholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect holders of shares of Common
Stock. Upon consummation of the Offerings, there will be no shares of Preferred
Stock outstanding, and the Company has no present intention to issue any shares
of Preferred Stock.
Limitations on Directors' Liability
Wisconsin law provides that, except as limited in a corporation's articles
of incorporation, directors of a corporation will not be liable to the
corporation, its shareholders, or any person asserting rights on behalf of the
corporation or its shareholders, for damages, settlements, fees, fines,
penalties or other monetary liabilities arising from a breach of, or failure to
perform, any duty resulting solely from his or her status as a director, unless
the person asserting liability proves that the breach or failure to perform
constitutes (i) a willful failure to deal fairly with the corporation or its
shareholders in connection with a matter in which the director has a material
conflict of interest; (ii) a violation of criminal law, unless the director had
reasonable cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful; (iii) a transaction from
which the director derived an improper personal profit; or (iv) willful
misconduct.
Anti-Takeover Effects of Provisions of the Charter and By-laws and of Wisconsin
Law
Charter and By-laws
The Charter and the By-laws to be effective prior to the sale of the
shares of Common Stock in the Offerings, together with certain provisions of
Wisconsin law, contain certain provisions that could discourage potential
takeover attempts and make more difficult the acquisition of a substantial
block of the Common Stock. The Charter provides for a Board of Directors that
is divided into three classes. The directors in Class I will hold office until
the first annual meeting of shareholders following the Offerings, the directors
in Class II will hold office until the second annual meeting of shareholders
following the Offerings, and the directors in Class III will hold office until
the third annual meeting of shareholders following the Offerings (or, in each
case, until their successors are duly elected and qualified or until their
earlier resignation, removal from office for cause or death), and, after each
such election, the directors in each such class will then serve in succeeding
terms of three years and until their successors are duly elected and qualified.
The classification system of electing directors and the ability of shareholders
to remove directors only for cause may tend to discourage a third party from
making a tender offer or otherwise attempting to obtain control of the Company
and may maintain the incumbency of the Board of Directors, as the
classification of the Board of Directors generally increases the difficulty of
replacing a majority of the directors.
The Charter authorizes the directors to issue, without shareholder
approval, shares of Preferred Stock in one or more series and to fix the voting
powers, designations, preferences and relative, participating, optional or
other special rights (and the qualifications, limitations or restrictions of
such preferences and rights) of the shares of each such series. The Charter
also provides that special meetings of the Company's shareholders may be called
only by the Chairman of the Board of Directors (if there is one) or the
President, any Vice President (if there is one), the Secretary or any Assistant
Secretary (if there is one) and shall be called by any such officer at the
written request of a majority of the directors. The By-laws also provide that
nominations for directors may not be made by shareholders at any annual or
special meeting thereof unless the shareholder intending to make a nomination
notifies the Company of its intentions a specified number of days in advance of
the meeting and furnishes to the Company certain information regarding itself
and the intended nominee. The By-laws also require a shareholder to provide to
the Secretary of the Company advance notice of business to be brought by such
shareholder before any annual or special meeting of shareholders as well as
certain information regarding such shareholder and others known to support such
proposal and any material interest they may
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have in the proposed business. These provisions could delay shareholder actions
that are favored by the holders of a majority of the outstanding shares of the
Company until the next shareholders' meeting.
Wisconsin Anti-Takeover Statute
As a Wisconsin corporation, the Company is subject to certain provisions
of the WBCL, including a business combination statute, a fair price statute and
a control share statute, which provide Wisconsin corporations with anti-
takeover protection.
Sections 180.1140 to 180.1144 of the WBCL (collectively, the "Wisconsin
Business Combination Statute") regulate a broad range of "business
combinations" between a Wisconsin corporation and an "interested stockholder."
The Wisconsin Business Combination Statute defines a "business combination" to
include a merger or share exchange, sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets equal to at least 5% of the aggregate
market value of the stock or assets of a corporation or 10% of its earning
power, or the issuance of stock or rights to purchase stock with an aggregate
market value equal to at least 5% of the aggregate market value of all of the
outstanding stock, adoption of a plan of liquidation or dissolution, and
certain other transactions involving an "interested stockholder." An
"interested stockholder" is defined as a person who beneficially owns, directly
or indirectly, 10% of the voting power of the outstanding voting stock of a
corporation or who is an affiliate or associate of the corporation and
beneficially owned 10% of the voting power of the then outstanding voting stock
within the last three years. The Wisconsin Business Combination Statute
prohibits a corporation from engaging in a business combination (other than a
business combination of a type specifically excluded from the coverage of the
statute) with an interested stockholder for a period of three years following
the date such person becomes an interested stockholder, unless the board of
directors approved the business combination or the acquisition of the stock
that resulted in a person becoming an interested stockholder prior to such
acquisition. Business combinations after the three-year period following the
stock acquisition date are permitted only if (a) the board of directors
approved the acquisition of the stock prior to the acquisition date, (b) the
business combination is approved by a majority of the outstanding voting stock
not beneficially owned by the interested stockholder at a meeting called for
that purpose, or (c) the consideration to be received by shareholders meets
certain requirements of the Wisconsin Business Combination Statute with respect
to form and amount.
In addition, Sections 180.1130 to 180.1134 of the WBCL provide that
certain mergers, share exchanges or sales, leases, exchanges or other
dispositions of assets in a transaction involving a "significant shareholder"
are subject to a supermajority vote of shareholders, in addition to any
approval otherwise required by law or the articles of incorporation of the
corporation (the "Wisconsin Fair Price Statute"). A "significant shareholder"
is defined as a person who beneficially owns, directly or indirectly, 10% or
more of the voting power of the outstanding voting shares of a corporation or
an affiliate of the corporation which beneficially owned, directly or
indirectly, 10% or more of the voting power of the then outstanding voting
shares of the corporation. The Wisconsin Fair Price Statute provides that
certain transactions with a significant shareholder must be approved by 80% of
the votes entitled to be cast by outstanding voting shares of the corporation
and at least two-thirds of the votes entitled to be cast by holders of voting
shares other than voting shares beneficially owned by the significant
shareholder who is a party to the relevant transaction or any of its affiliates
or associates, in each case voting together as a single group, unless the
following fair price standards have been met: (a) the aggregate value of the
per share consideration is equal to the higher of (i) the highest price paid
for any common shares of the corporation by the significant shareholder in the
transaction in which it became a significant shareholder or within two years
before the date of the transaction, (ii) the market value of the corporation's
shares on the date of commencement of any tender offer by the significant
shareholder, the date on which the person became a significant shareholder or
the date of the first public announcement of the proposed transaction,
whichever is higher, or (iii) the highest liquidation or dissolution
distribution to which holders of the shares would be entitled; and (b) either
cash, or the form of consideration used by the significant shareholder to
acquire the largest number of shares, is offered.
Under Section 180.1150 (the "Wisconsin Control Share Statute"), the voting
power of shares, including shares issuable upon conversion of securities or
exercise of options or warrants, of an "issuing public corporation" held by any
person or persons acting as a group in excess of 20% of the voting power in the
election of directors is limited to 10% of the full voting power of those
shares. The Wisconsin Control Share Statute does not apply to shares acquired
directly from the issuing public corporation, in certain specified
transactions, or in a transaction in which the corporation's shareholders have
approved restoration of the full voting power of the otherwise restricted
shares.
Section 180.1134 (the "Wisconsin Defensive Action Restrictions") provides
that, in addition to the vote otherwise required by law or the articles of
incorporation of an issuing public corporation, the approval of the holders of
a majority of the shares entitled to vote is required before such corporation
can take certain action while a takeover
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offer for such corporation's shares is being made or after a takeover offer has
been publicly announced and before it is concluded. Under the Wisconsin
Defensive Action Restrictions, shareholder approval is required for the
corporation to (a) acquire more than 5% of the outstanding voting shares at a
price above the market value from any individual or organization that owns more
than 3% of the outstanding voting shares and has held such shares for less than
two years, unless a similar offer is made to acquire all voting shares and all
securities which may be converted into voting shares, or (b) sell or option
assets of the corporation which amount to at least 10% of the market value of
the corporation, unless the corporation has at least three independent
directors and a majority of the independent directors vote not to have this
provision apply to the corporation. The restrictions described in clause (a)
above may have the effect of deterring a shareholder from acquiring shares of
the Company with the goal of seeking to have the Company repurchase such shares
at a premium over the market price.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Firstar Trust
Company.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summaries of the principal terms of certain outstanding
indebtedness of the Company do not purport to be complete and are subject to
the detailed provisions of, and qualified in their entirety by reference to,
the respective financing agreements, copies of which have been filed or
incorporated by reference as exhibits to the Registration Statement of which
this Prospectus is a part and to which exhibits reference is hereby made.
Whenever particular provisions of such documents are referred to, such
provisions are incorporated by reference as a part of the statements made, and
the statements are qualified in their entirety by such reference.
The Credit Agreement
Pursuant to the Credit Agreement, BA Securities, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and certain of its affiliates (collectively,
the "Arrangers"), as Arrangers for a group of financial institutions and other
accredited investors, have provided senior bank facilities in an aggregate
amount of $170.0 million.
The Credit Agreement provides for a six-year Tranche A term loan of up to
$55.0 million, a seven-year Tranche B term loan of up to $25.0 million and an
eight-year Tranche C term loan of up to $25.0 million (collectively, the "Term
Loan Facility"), and a six-year Revolving Credit Facility of up to $65.0
million under which working capital loans may be made and with a $10.0 million
sublimit for letters of credit (the "Revolving Credit Facility," and, together
with the Term Loan Facility, referred to collectively as the "Bank
Facilities"). On September 13, 1996 (the "Closing Date"), the Company borrowed
an aggregate amount of $131.0 million comprised of $26.0 million of Revolving
Loans, $55.0 million of Term A Loans, $25.0 million of Term B Loans and $25.0
million of Term C Loans.
As shown in the table below, quarterly amortization of the Tranche A loans
is in aggregate amounts ranging from $1.0 million to $3.75 million and began
December 31, 1996. Amortization of the Tranche B loans is in aggregate
quarterly amounts of $0.0625 million during each of the first six years and
$5.875 million during the seventh year and began December 31, 1996. After
consummation of the Offerings and the application of the net proceeds therefrom
to repay approximately $51.5 million of the amounts outstanding under the Term
Loan Facility, the amortization schedule will be adjusted to give effect to
such repayment applied pro rata among the tranches, except as may be otherwise
agreed. Amortization of the Tranche C loans will be in aggregate quarterly
amounts of $0.0625 million during each of the first seven years and $5.8125
million during the eighth year and began December 31, 1996. The Revolving
Credit Facility must be reduced for 30 consecutive days each year to no more
than $10.0 million for the fiscal year ending September 30, 1997, $5.0 million
for fiscal year ending September 30, 1998 and to zero for any fiscal year
thereafter.
Term Loan Quarterly Amortization
(Dollars in millions)
<TABLE>
<CAPTION>
Year Tranche A Tranche B Tranche C
- ---------- ----------- ----------- ----------
<S> <C> <C> <C>
1 ...... $ 1.0 $ .0625 $ .0625
2 ...... 1.5 .0625 .0625
3 ...... 2.0 .0625 .0625
4 ...... 2.5 .0625 .0625
5 ...... 3.0 .0625 .0625
6 ...... 3.75 .0625 .0625
7 ...... -- 5.875 .0625
8 ...... -- -- 5.8125
</TABLE>
Borrowings under the Credit Agreement bear interest, in each case at the
Company's option, as follows: (i) with respect to the Tranche A loans and the
Revolving Credit Facility, at Bank of America National Trust and Savings
Association's base rate plus 1.50% per annum, or at IBOR plus 2.50% per annum;
(ii) with respect to the Tranche B loans, at Bank of America National Trust and
Savings Association's base rate plus 2.00% per annum, or at IBOR plus 3.00% per
annum; (iii) with respect to the Tranche C loans, at Bank of America National
Trust and Savings Association's base rate plus 2.25% per annum, or at IBOR plus
3.25% per annum; and (iv) with respect to the Revolving Credit Facility, at
Bank of America National Trust and Savings Association's base rate plus 1.50%
per annum, or at IBOR plus 2.50% per annum. Performance-based reductions of the
Tranche A and Revolving Credit Facility interest rates are available. The
Company also incurs standard letter of credit fees to issuing institutions and
other standard commitment fees. The Company obtained interest rate protection
in the form of an interest rate swap for $62.5 million of the Term Loan
Facility on October 7, 1996.
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The indebtedness outstanding under the Credit Agreement has been
guaranteed by ROV Holding, Inc. and is secured by all existing and
after-acquired personal property of the Company and its domestic subsidiaries,
including the stock of all domestic subsidiaries of the Company and any
intercompany debt obligations and 65% of the stock of all foreign subsidiaries
(other than dormant subsidiaries) held directly by the Company or its domestic
subsidiaries, and, subject to certain exceptions, all existing and
after-acquired real and intangible property.
The Credit Agreement contains financial and other restrictive covenants
customary and usual for credit facilities of this type, including those
involving maintenance of minimum coverage for fixed charges, a required minimum
level of earnings before income taxes, depreciation and amortization, a
required minimum net worth and a required maximum leverage. The Credit
Agreement's covenants also restrict the ability of the Company to incur
additional indebtedness, create liens, make investments or specified payments,
give guarantees, merge or acquire or sell assets, make capital expenditures and
restrict certain other activities. The Credit Agreement requires the Company to
apply 50% of the proceeds of the Offerings not used to redeem or repurchase
Notes to repayment of indebtedness under the Credit Agreement, pro rata among
the tranches except as may be otherwise agreed.
"Events of Default" under the Credit Agreement include, among other
things, failure to make payments when due, defaults under certain other
agreements or instruments of indebtedness, noncompliance with covenants,
breaches of representations and warranties, certain bankruptcy or insolvency
events, judgments in excess of specified amounts, pension plan defaults,
impairment of security interests in collateral, invalidity of guarantees and
certain "changes of control" (as defined in the Credit Agreement).
The Notes
Pursuant to an Indenture (the "Indenture") dated October 22, 1996 by and
among the Company, ROV Holding, Inc. and Marine Midland Bank as trustee, the
Company issued $100 million of 10 1/4% Senior Subordinated Notes Due 2006 to
repay certain bridge financing incurred in connection with the
Recapitalization. On March 11, 1997, the Company consummated an offer to
exchange such notes for the Notes registered under the Securities Act.
The Notes bear interest at the rate of 10 1/4% per annum, payable
semi-annually on May 1 and November 1 of each year and mature on November 1,
2006. The Notes are unsecured senior subordinated general obligations of the
Company and are unconditionally guaranteed on an unsecured senior subordinated
basis by ROV Holding, Inc. The payment of principal of, premium, if any, and
interest on the Notes and the guarantees thereon are subordinated in right of
payment to all existing and future Senior Debt (as defined in the Indenture),
including borrowings under the Credit Agreement, whether outstanding on the
date of the Indenture or thereafter incurred.
The Notes are not redeemable at the option of the Company prior to
November 1, 2001. Thereafter the Notes are subject to redemption at the option
of the Company, in whole or in part, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning November 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
- --------------------------------------- -----------
<S> <C>
2001 ..................... 105.125%
2002 ..................... 103.417
2003 ..................... 101.708
2004 and thereafter ...... 100.000
</TABLE>
In addition, at any time on or before October 22, 1999, the Company may
redeem up to 35% of the original aggregate principal amount of the Notes with
the net proceeds of a public equity offering at a redemption price equal to
109.25% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption, provided that at least 65% of the
original aggregate principal amount of the Notes remains outstanding
immediately after such redemption. The Company intends to use a portion of the
net proceeds of the Offerings to redeem or repurchase Notes in the aggregate
principal amount of $35.0 million. See "Use of Proceeds." The Company is not
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
Each holder of Notes has the right to require the Company to repurchase
all or any part of such holder's Notes at an offer price in cash equal to 101%
of the aggregate principal amount thereof plus accrued and unpaid interest
thereon upon a change of control of the Company. A change of control for this
purpose includes any of the following: (i) any transaction pursuant to which a
person or group becomes the beneficial owner of 50% or more of the voting power
of the voting stock of the Company, and more of the voting power of the Company
than is at that time
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beneficially owned by the Lee Group, (ii) the time at which individuals who
were either members of the Board of Directors of the Company as of the date of
the Indenture or whose election was approved by such members cease to be a
majority of the directors of the Company then in office or (iii) the sale,
lease, transfer or other disposition in one or a series of related transactions
of all or substantially all the assets of the Company.
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness, pay dividends or make certain other restricted
payments, incur liens to secure pari passu or subordinated indebtedness, engage
in any sale and leaseback transaction, sell stock of subsidiaries, sell assets,
merge or consolidate with any other person, sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of the assets of the Company,
enter into certain transactions with affiliates, or incur indebtedness that is
subordinate in right of payment to any Senior Debt (including indebtedness
incurred under the Credit Agreement and any other indebtedness permitted to be
incurred under the Indenture) and senior in right of payment to the Notes. The
Indenture permits, under certain circumstances, the Company's subsidiaries to
be deemed unrestricted subsidiaries and thus not be subject to the restrictions
of the Indenture.
The Indenture contains standard events of default, including (i) defaults
in the payment of principal, premium or interest, (ii) defaults in the
compliance with covenants contained in the Indenture, (iii) cross defaults on
more than $5 million of other indebtedness, (iv) failure to pay more than $5
million of judgments and (v) certain events of bankruptcy with respect to the
Company and certain of its subsidiaries.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have 27,551,431 shares
of Common Stock outstanding. The 6,970,000 shares of Common Stock offered in
the Offerings will be freely tradeable without restriction or further
registration under the Securities Act, except for any such shares which may be
acquired by or shares sold by persons deemed to be "affiliates" of the Company,
as such term is defined under the Securities Act, which shares will be subject
to the resale limitations of Rule 144. Substantially all other shares will be
eligible for resale pursuant to Rule 144 after the Lockup Period.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least one year, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company is
entitled to sell within any three-month period the number of shares of Common
Stock which does not exceed the greater of one percent of the number of then
outstanding shares of Common Stock or the average weekly reported trading
volume during the four calendar weeks preceding the sale. Sales under Rule 144
are also subject to certain notice requirements and to the availability of
current public information about the Company and must be made in unsolicited
brokers' transactions or to a market maker. A person (or persons whose shares
are aggregated) who is not an "affiliate" of the Company under the Securities
Act during the three months preceding a sale and who had beneficially owned
such shares for at least two years is entitled to sell such shares under Rule
144 without regard to the volume, notice, information and manner of sale
provisions of such Rule.
An aggregate of 2,318,127 shares of Common Stock are reserved for issuance
upon the exercise of outstanding options granted to employees and directors of
the Company pursuant to the 1996 Plan. After the Offerings, the Company intends
to file a registration statement on Form S-8 to register the shares of Common
Stock issuable upon the exercise of options granted pursuant to the the 1996
Plan and the Incentive Plan. Accordingly, shares issued upon exercise of such
options will be freely tradeable, except for any shares held by an "affiliate"
of the Company.
Prior to the Offerings, there has been no market for the Common Stock. No
predictions can be made of the effect, if any, that sales of shares of Common
Stock or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of
Common Stock or the perception that such sales may occur could adversely affect
the prevailing market price of Common Stock, as well as impair the ability of
the Company to raise capital through the issuance of additional equity
securities. See "Risk Factors--Shares Eligible for Future Sale; Potential for
Adverse Effect on Stock Price; Registration Rights."
Notwithstanding the foregoing, in connection with the Offerings, the
Company, its executive officers and directors, the Lee Group and certain other
shareholders (holding an aggregate of approximately 20 million shares of Common
Stock upon consummation of the Offerings) have agreed, subject to certain
exceptions, not to directly or indirectly (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of or otherwise
dispose of or transfer any shares of Common Stock or securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
thereafter acquired by the person executing the agreement or with respect to
which the person executing the agreement thereafter acquires the power of
disposition, or file a registration statement under the Securities Act with
respect to the foregoing or (ii) enter into any swap or other agreement that
transfers, in whole or in part, the economic consequence of ownership of the
Common Stock whether any such swap or transaction is to be settled by delivery
of Common Stock or other securities, in cash or otherwise, without the prior
written consent of Merrill Lynch & Co. on behalf of the Underwriters for a
period of 180 days after the date of this Prospectus, other than (i) the sale
to the Underwriters of the shares of Common Stock under the Underwriting
Agreement, (ii) upon the exercise of outstanding stock options or (iii) the
issuance of options pursuant to the Company's stock option plans.
In connection with the Recapitalization, the Lee Fund and other affiliates
of THL Co. which purchased shares of Common Stock pursuant to the
Recapitalization, certain other shareholders of the Company and the Company
entered into the Shareholders Agreement. The Shareholders Agreement provides
for certain restrictions on transfer of the shares beneficially owned by the
parties thereto. The Shareholders Agreement also provides that, subject to
certain limitations, the Lee Group and their permitted transferees have demand
registration rights with respect to their shares of Common Stock. The Lee Group
and certain other shareholders also have certain piggy-back registration
rights. See "Risk Factors--Shares Eligible for Future Sale; Potential for
Adverse Effect on Stock Price; Registrations Rights" and "Certain Relationships
and Related Transactions."
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax considerations with respect to the ownership and
disposition of Common Stock applicable to Non-U.S. Holders. In general, a "Non-
U.S. Holder" is any holder other than (i) a citizen or resident of the United
States, (ii) a corporation or partnership created or organized in the United
States or under the laws of the United States or of any state, (iii) an estate,
the income of which is includable in gross income for United States federal
income tax purposes regardless of its source, or (iv) a trust if (a) a court
within the United States is able to exercise primary supervision over the
administration of the trust and (b) one or more United States persons have the
authority to control all substantial decisions of the trust. This discussion is
based on current law, which is subject to change (possibly with retroactive
effect), and is for general information only. This discussion does not address
aspects of United States federal taxation other than income and estate taxation
and does not address all aspects of income and estate taxation or any aspects
of state, local or non-United States taxes, nor does it consider any specific
facts or circumstances that may apply to a particular Non-U.S. Holder
(including certain U.S. expatriates). ACCORDINGLY, PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE,
LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX CONSIDERATIONS OF HOLDING AND
DISPOSING OF SHARES OF COMMON STOCK.
Dividends
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate of the gross amount (or a lower rate
prescribed by an applicable income tax treaty) unless the dividends are either
(i) effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States, or (ii) if certain income tax treaties apply,
attributable to a permanent establishment in the United States maintained by
the Non-U.S. Holder. Dividends effectively connected with such a United States
trade or business or attributable to such a United States permanent
establishment generally will not be subject to United States withholding tax if
the Non-U.S. Holder files certain forms, including Internal Revenue Service
Form 4224, with the payor of the dividend, and generally will be subject to
United States federal income tax on a net income basis, in the same manner as
if the Non-U.S. Holder were a resident of the United States. A Non-U.S. Holder
that is a corporation may be subject to an additional branch profits tax at a
rate of 30% (or such lower rate as may be specified by an applicable income tax
treaty) on the repatriation from the United States of its "effectively
connected earnings and profits," subject to certain adjustments. To determine
the applicability of a tax treaty providing for a lower rate of withholding
under the currently effective United States Treasury Department regulations
(the "Current Regulations"), dividends paid to an address in a foreign country
are presumed to be paid to a resident of that country absent knowledge to the
contrary. Under United States Treasury Department regulations issued on October
6, 1997 (the "Final Regulations") generally effective for payments made after
December 31, 1998, a Non-U.S. Holder (including, in certain cases of Non-U.S.
Holders that are fiscally transparent entities, the owner or owners of such
entities) will be required to provide to the payor certain documentation that
such Non-U.S. Holder (or the owner or owners of such fiscally transparent
entities) is a foreign person in order to claim a reduced rate of withholding
pursuant to an applicable income tax treaty.
Gain on Sale or Other Disposition of Common Stock
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the sale or other disposition of such
holder's shares of Common Stock unless (i) the gain either is effectively
connected with a trade or business carried on by the non-U.S. Holder within the
United States or, if certain income tax treaties apply, is attributable to a
permanent establishment in the United States maintained by the Non-U.S. Holder
(and, in either case, the branch profits tax discussed above may also apply if
the Non-U.S. Holder is a corporation); (ii) the Non-U.S. Holder is an
individual who holds shares of Common Stock as a capital asset and is present
in the United States for 183 days or more in the taxable year of disposition,
and certain other tests are met; or (iii) the Company is or has been a United
States real property holding corporation (a "USRPHC") for United States federal
income tax purposes (which the Company does not believe that it is or is likely
to become) at any time within the shorter of the five year period preceding
such disposition or such Non-U.S. Holder's holding period. If the Company were
or were to become a USRPHC at any time during this period, gains realized upon
a disposition of Common Stock by a Non-U.S. Holder which did not directly or
indirectly own more than 5% of the Common Stock during this period generally
would not be subject to United States federal income tax, provided that the
Common Stock is regularly traded on an established securities market.
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Estate Tax
Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for United States federal estate tax purposes)
of the United States at the time of death will be includable in the
individual's gross estate for United States federal estate tax purposes unless
an applicable estate tax treaty provides otherwise, and therefore may be
subject to United States federal estate tax.
Backup Withholding, Information Reporting and Other Reporting Requirements
The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of this information also may be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Holder resides or is established.
Under the Current Regulations, United States backup withholding tax (which
generally is imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the United States information
reporting requirements) and information reporting requirements (other than
those discussed above under "Dividends") generally will not apply to dividends
paid on Common Stock to a Non-U.S. Holder at an address outside the United
States. Backup withholding and information reporting generally will apply,
however, to dividends paid on shares of Common Stock to a Non-U.S. Holder at an
address in the United States, if such holder fails to establish an exemption or
to provide certain other information to the payor.
Under the Current Regulations, the payment of proceeds from the
disposition of Common Stock to or through a United States office of a broker
will be subject to information reporting and backup withholding unless the
beneficial owner, under penalties of perjury, certifies, among other things,
its status as a Non-U.S. Holder or otherwise establishes an exemption. The
payment of proceeds from the disposition of Common Stock to or through a
non-U.S. office of a non-U.S. broker generally will not be subject to backup
withholding and information reporting except as noted below. In the case of
proceeds from a disposition of Common Stock paid to or through a non-U.S.
office of a broker that is (i) a United States person, (ii) a "controlled
foreign corporation" for United States federal income tax purposes, or (iii) a
foreign person 50% or more of whose gross income from certain periods is
effectively connected with a United States trade or business, information
reporting (but not backup withholding) will apply unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder (and the
broker has no actual knowledge to the contrary).
Under the Final Regulations, the payment of dividends or the payment of
proceeds from the disposition of Common Stock to a Non-U.S. Holder may be
subject to information reporting and backup withholding unless such recipient
provides to the payor certain documentation as to its status as a Non-U.S.
Holder or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules from a payment to a Non-U.S. Holder will be
refunded or credited against the Non-U.S. Holder's United States federal income
tax liability, if any, provided that the required information is furnished to
the Internal Revenue Service in a timely manner.
62
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation
and Smith Barney Inc. are acting as representatives (the "U.S.
Representatives") of each of the Underwriters named below (the "U.S.
Underwriters"). Subject to the terms and conditions set forth in a U.S.
purchase agreement (the "U.S. Purchase Agreement") among the Company, the Over-
Allotment Selling Shareholders and the U.S. Underwriters, and concurrently with
the sale of 1,340,000 shares of Common Stock to the International Managers (as
defined below), the Company has agreed to sell to the U.S. Underwriters, and
each of the U.S. Underwriters severally and not jointly has agreed to purchase
from the Company, the number of shares of Common Stock set forth opposite its
name below.
<TABLE>
<CAPTION>
Number
U.S. Underwriter of Shares
- -------------------------------------------------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ....................................
Bear, Stearns & Co. Inc. .................................
Donaldson, Lufkin & Jenrette Securities Corporation ......
Smith Barney Inc. ..........................................
---------
Total ............................................. 5,360,000
=========
</TABLE>
The Company has also entered into an international purchase agreement (the
"International Purchase Agreement") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International,
Bear, Stearns International Limited, Donaldson, Lufkin & Jenrette Securities
Corporation and Smith Barney Inc. are acting as lead managers (the "Lead
Managers"). Subject to the terms and conditions set forth in the International
Purchase Agreement, and concurrently with the sale of 5,360,000 shares of
Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase Agreement,
the Company has agreed to sell to the International Managers, and the
International Managers severally and not jointly have agreed to purchase from
the Company, an aggregate of 1,340,000 shares of Common Stock. The initial
public offering price per share and the underwriting discount per share of
Common Stock are identical under the U.S. Purchase Agreement and the
International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant to
such agreement are purchased. Under certain circumstances, under the U.S.
Purchase Agreement and the International Purchase Agreement, the commitments of
non-defaulting U.S. Underwriters may be increased. The closings with respect to
the sale of shares of Common Stock to be purchased by the U.S. Underwriters and
International Managers are conditioned upon one another.
The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the shares of Common Stock to the
public at the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share of Common Stock. The U.S. Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share of Common
Stock on sales to certain other dealers. After the initial public offering, the
public offering price, concession and discount may be changed.
The Over-Allotment Selling Shareholders have granted options to the U.S.
Underwriters, exercisable for 30 days after the date of this Prospectus, to
purchase up to an aggregate of 804,000 additional shares of Common Stock at the
initial public offering price set forth on the cover page of this Prospectus,
less the underwriting discount. The U.S. Underwriters may exercise these
options solely to cover over-allotments, if any, made on the sale of the Common
Stock offered hereby. To the extent that the U.S. Underwriters exercise these
options, each U.S. Underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares of Common Stock
proportionate to such U.S. Underwriters' initial amount reflected in the
foregoing table. The Over-Allotment
63
<PAGE>
Selling Shareholders also have granted options to the International Managers,
exercisable for 30 days after the date of this Prospectus, to purchase up to an
aggregate of 201,000 additional shares of Common Stock to cover over-
allotments, if any, on terms similar to those granted to the U.S. Underwriters.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price up to 530,000 of the shares offered hereby to
be sold to certain employees of the Company and certain other persons. The
number of shares of Common Stock available for sale to the general public will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not orally confirmed for purchase within one day of
the pricing of the Offerings will be offered by the Underwriters to the general
public on the same terms as the other shares offered hereby.
The Company, the Company's executive officers and directors, the Lee
Group, and certain other shareholders have agreed, subject to certain
exceptions, not to directly or indirectly (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of or otherwise
dispose of or transfer any shares of Common Stock or securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
thereafter acquired by the person or entity executing the agreement or with
respect to which the person or entity executing the agreement thereafter
acquires the power of disposition, or file a registration statement under the
Securities Act with respect to the foregoing or (ii) enter into any swap or
other agreement that transfers, in whole or in part, the economic consequence
of ownership of the Common Stock whether any such swap or transaction is to be
settled by delivery of Common Stock or other securities, in cash or otherwise,
without the prior written consent of Merrill Lynch on behalf of the
Underwriters for a period of 180 days after the date of this Prospectus. See
"Shares Eligible for Future Sale."
The Lee Group, the beneficial owner of more than 10% of the Company's
outstanding Common Stock, may be deemed to be an affiliate of Sutro & Co.
Incorporated and Tucker Anthony Incorporated, members of the NASD which may
participate in the U.S. Offering and the International Offering. Accordingly,
the U.S. Offering and the International Offering will be conducted in
accordance with NASD Conduct Rule 2720 which provides that the initial public
offering price of the Common Stock may not be higher than the price recommended
by a Qualified Independent Underwriter which has participated in the
preparation of this Prospectus and performed its usual standard of due
diligence with respect thereto. Smith Barney Inc. has agreed to act as the
Qualified Independent Underwriter for the U.S. Offering and the International
Offering, and the initial public offering price of the Common Stock will not be
higher than the price recommended by Smith Barney Inc.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell shares
of Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer
to whom they sell shares of Common Stock will not offer to sell or sell shares
of Common Stock to persons who are non-U.S. or non-Canadian persons or to
persons they believe intend to resell to persons who are non-U.S. or
non-Canadian persons, and the International Managers and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of
Common Stock to U.S. persons or to Canadian persons or to persons they believe
intend to resell to U.S. or Canadian persons, except in the case of
transactions pursuant to the Intersyndicate Agreement.
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined
through negotiations among the Company, the U.S. Representatives and the Lead
Managers. The factors to be considered in determining the initial public
offering price, in addition to prevailing market conditions, are price-earnings
ratios of publicly traded companies that the U.S. Representatives and Lead
Managers believe to be comparable to the Company, certain financial information
of the Company, the history of, and the prospects for, the Company and the
industry in which it competes, and an assessment of the Company's management,
its past and present operations, the prospects for, and timing of, future
revenues of the Company, the present state of the Company's development and the
above factors in relation to market and various valuation measures of other
companies engaged in activities similar to the Company. There can be no
assurance given that an active trading market will develop for the Common Stock
or that the Common Stock will trade in the public market subsequent to the
Offerings at or above the initial public offering price.
The Common Stock has been approved for listing on the New York Stock
Exchange under the trading symbol "ROV," subject to official notice of
issuance. In order to meet the requirements for listing of the Common Stock
64
<PAGE>
on the New York Stock Exchange, the U.S. Underwriters and International
Managers have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
The Underwriters and International Managers do not intend to confirm sales
of the Common Stock offered hereby to any accounts over which they exercise
discretionary authority.
The Company and the Over-Allotment Selling Shareholders have agreed to
indemnify the U.S. Underwriters and the International Managers against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments which the U.S. Underwriters and International Managers
may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the U.S. Representatives are
permitted to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Common Stock in
the open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce
the Underwriters' short position or to stabilize the price of the Common Stock,
they may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might have been in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of the Common Stock to the
extent that it discourages resales of the Common Stock.
Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
Donaldson, Lufkin & Jenrette Securities Corporation and its affiliate, DLJ
Capital Funding, Inc., have provided from time to time, and may provide in the
future, commercial and investment banking services to the Company and its
affiliates, including in connection with the Credit Agreement between the
Company, BA Securities, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and its affiliate DLJ Capital Funding, Inc. as arrangers for a
group of financial institutions and accredited investors which provided the
Company with senior bank facilities in an aggregate amount of $170 million.
65
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by DeWitt Ross & Stevens s.c., Madison,
Wisconsin. Certain other legal matters will be passed upon for the Company by
Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts, special
counsel to the Company. Certain legal matters will be passed upon for the
Underwriters by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations), New York, New York. Fried, Frank, Harris,
Shriver & Jacobson will rely on the opinion of DeWitt Ross & Stevens s.c. as to
certain matters of Wisconsin law.
EXPERTS
The financial statements and schedule of the Company and Subsidiaries as
of September 30, 1997, and for the year then ended, have been included herein
and elsewhere in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements and schedules of the Company and Subsidiaries as
of June 30, 1996 and as of September 30, 1996 and for each of the years in the
two-year period ended June 30, 1996, and the Transition Period ended September
30, 1996 included herein and elsewhere in the Registration Statement have been
included herein and in the Registration Statement in reliance upon the reports
of Coopers & Lybrand L.L.P., independent certified public accountants,
appearing elsewhere herein, given upon the authority of said firm as experts in
accounting and auditing.
The Company believes, and it has been advised by Coopers & Lybrand L.L.P.
that it concurs in such belief, that, during the period of its engagement, the
Company and Coopers & Lybrand L.L.P. did not have any disagreement on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of Coopers & Lybrand L.L.P., would have caused it to make
reference in connection with its report on the Company's financial statements
to the subject matter of the disagreement.
The report of Coopers & Lybrand L.L.P. on the Company's consolidated
financial statements as of June 30, 1995 and 1996 and as of September 30, 1996
and for each of the years in the three-year period ended June 30, 1996, and the
Transition Period ended September 30, 1996, did not contain an adverse opinion
or a disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope or accounting principles. During that period there were no
"reportable events" within the meaning of Item 304(a)(1)(v) of Regulation S-K
promulgated under the Securities Act.
In June 1997, KPMG Peat Marwick LLP replaced Coopers & Lybrand L.L.P. as
the Company's independent accountants. The decision to engage KPMG Peat Marwick
LLP was made with the approval of the Company's Audit Committee.
66
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, and in accordance therewith files periodic reports and
other information with the Commission. The Company has filed with the
Commission the Registration Statement under the Securities Act with respect to
the shares of Common Stock being offered in the Offerings. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, to which reference is hereby made. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description
thereof. Such reports, the Registration Statement and other exhibits and other
information omitted from this Prospectus may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also
be available for inspection and copying at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street (Suite 1400), Chicago,
Illinois 60661. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Additionally, the Commission maintains a World Wide
Web site at (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission through the Electronic Data Gathering, Analysis and
Retrieval System.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements of the Company and quarterly reports
containing unaudited financial information for the Company for the first three
fiscal quarters of each fiscal year.
67
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Independent Auditors' Report .................................... F-2
Report of Independent Accountants .............................. F-3
Consolidated Balance Sheets .................................... F-4
Consolidated Statements of Operations ........................... F-5
Consolidated Statements of Cash Flows ........................... F-6
Consolidated Statements of Shareholders' Equity (Deficit) ...... F-7
Notes to Consolidated Financial Statements ..................... F-8
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
Rayovac Corporation:
We have audited the accompanying consolidated balance sheet of Rayovac
Corporation and Subsidiaries as of September 30, 1997, and the related
consolidated statements of operations, shareholders' deficit, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying consolidated
financial statements of Rayovac Corporation and Subsidiaries as of June 30,
1996 and September 30, 1996, and for each of the years ended June 30, 1995 and
1996, and the transition period from July 1, 1996 to September 30, 1996, were
audited by other auditors whose report thereon dated November 22, 1996,
expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the fiscal year 1997 consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Rayovac Corporation and Subsidiaries as of September 30, 1997, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Milwaukee, Wisconsin
October 28, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Rayovac Corporation
We have audited the accompanying combined consolidated balance sheets of
Rayovac Corporation and Subsidiaries as of June 30, 1996 and September 30,
1996, and the related combined consolidated statements of operations,
shareholders' equity (deficit), and cash flows for each of the two years in the
period ended June 30, 1996 and the period July 1, 1996 to September 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Rayovac Corporation and Subsidiaries as of June 30, 1996 and September 30,
1996, and the results of their operations and their cash flows for each of the
two years in the period ended June 30, 1996 and the period July 1, 1996 to
September 30, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
November 22, 1996
F-3
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1996 1997
---------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 2,190 $ 4,255 $ 1,133
Receivables:
Trade accounts receivable, net of allowance for doubtful
receivables of $786, $722 and $1,221, respectively ...... 55,830 62,320 76,590
Other ................................................... 2,322 4,156 3,079
Inventories ................................................ 66,941 70,121 58,551
Deferred income taxes ....................................... 5,861 9,158 9,099
Prepaid expenses and other ................................. 4,975 4,864 5,928
-------- ---------- ---------
Total current assets ................................. 138,119 154,874 154,380
-------- ---------- ---------
Property, plant and equipment, net ........................ 73,181 68,640 65,511
Deferred charges and other ................................. 9,655 7,413 7,713
Debt issuance costs ....................................... 173 12,764 9,277
-------- ---------- ---------
Total assets .......................................... $221,128 $ 243,691 $ 236,881
======== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ..................... $11,631 $ 8,818 $ 23,880
Accounts payable .......................................... 38,695 46,921 57,259
Accrued liabilities:
Wages and benefits ....................................... 6,126 5,894 9,343
Accrued interest ....................................... 1,890 631 5,613
Recapitalization and other special charges ............... -- 14,942 4,612
Other ................................................... 16,557 13,019 19,856
-------- ---------- ---------
Total current liabilities ........................... 74,899 90,225 120,563
-------- ---------- ---------
Long-term debt, net of current maturities .................. 69,718 224,845 183,441
Employee benefit obligations, net of current portion ...... 12,141 12,138 11,291
Deferred income taxes ....................................... 2,584 142 735
Other ...................................................... 162 2,061 1,446
-------- ---------- ---------
Total liabilities .................................... 159,504 329,411 317,476
-------- ---------- ---------
Shareholders' equity (deficit):
Common stock, $.01 par value, authorized 90,000 shares;
issued 50,000 shares; outstanding 49,500, 20,470 and
20,581 shares, respectively .............................. 500 500 500
Rayovac International Corporation common stock, $.50 value,
authorized 18 shares; issued and outstanding 10 shares at
June 30, 1996 .......................................... 5 -- --
Additional paid-in capital ................................. 12,000 15,970 15,974
Foreign currency translation adjustment .................. 1,650 1,689 2,270
Notes receivable from officers/shareholders ............... -- (500) (1,658)
Retained earnings .......................................... 48,002 25,143 31,321
------- --------- ---------
62,157 42,802 48,407
Less stock held in trust for deferred compensation
plan, 160 shares ....................................... -- -- (962)
Less treasury stock, at cost, 500, 29,530 and 29,419 shares,
respectively ............................................. (533) (128,522) (128,040)
------- --------- ---------
Total shareholders' equity (deficit) ........................ 61,624 (85,720) (80,595)
------- ---------- ---------
Total liabilities and shareholders' equity (deficit) ...... $221,128 $ 243,691 $ 236,881
========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Transition
Year ended June 30, Period ended Year ended
---------------------- September 30, September 30,
1995 1996 1996 1997
---------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales .................................... $415,224 $423,354 $ 101,880 $432,552
Cost of goods sold ........................... 237,126 239,343 59,242 234,569
--------- --------- --------- ---------
Gross profit ................................. 178,098 184,011 42,638 197,983
--------- --------- --------- ---------
Operating expenses:
Selling ....................................... 108,703 116,525 27,796 122,055
General and administrative .................. 32,861 31,767 8,628 32,205
Research and development ..................... 5,005 5,442 1,495 6,196
Recapitalization charges ..................... -- -- 12,326 --
Other special charges ........................ -- -- 16,065 3,002
--------- --------- --------- ---------
146,569 153,734 66,310 163,458
--------- --------- --------- ---------
Income (loss) from operations ............... 31,529 30,277 (23,672) 34,525
Interest expense .............................. 8,644 8,435 4,430 24,542
Other expense, net ........................... 230 552 76 378
--------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item ........................... 22,655 21,290 (28,178) 9,605
Income tax expense (benefit) .................. 6,247 7,002 (8,904) 3,419
--------- --------- --------- ---------
Income (loss) before extraordinary item ...... 16,408 14,288 (19,274) 6,186
Extraordinary item, loss on early
extinguishment of debt, net of income tax
benefit of $777 .............................. -- -- (1,647) --
--------- --------- --------- ---------
Net income (loss) ........................... $ 16,408 $ 14,288 $ (20,921) $ 6,186
========= ========= ========= =========
Net income (loss) per common share:
Income (loss) before extraordinary item ...... $ 0.32 $ 0.28 $ (0.42) $ 0.28
Extraordinary item ........................... -- -- (0.04) --
--------- --------- --------- ---------
Net income (loss) ........................... $ 0.32 $ 0.28 $ (0.46) $ 0.28
========= ========= ========= =========
Weighted average shares of common stock
outstanding ................................. 51,648 51,148 45,469 22,179
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
RAYOVAC CORPORATIONAND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Transition
Year ended June 30, Period ended Year ended
-------------------------- September 30, September 30,
1995 1996 1996 1997
------------ ------------- --------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................ $ 16,408 $ 14,288 $ (20,921) $ 6,186
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Recapitalization and other special charges ..................... -- -- 13,449 --
Extraordinary item, loss on early extinguishment of debt ...... -- -- 2,424 --
Amortization of debt issuance costs ........................... 103 53 1,609 3,563
Depreciation ................................................... 11,024 11,932 3,279 11,308
Deferred income taxes .......................................... 346 3 (5,739) 652
Loss (gain) on disposal of fixed assets ........................ 110 (108) 1,289 (326)
Curtailment gain ............................................. -- -- -- (2,923)
Changes in assets and liabilities:
Accounts receivable .......................................... (2,537) (6,166) (8,940) (14,794)
Inventories ................................................... 9,004 (1,779) (3,078) 11,987
Prepaid expenses and other .................................... (990) 1,148 741 (563)
Accounts payable and accrued liabilities ..................... 2,051 (1,526) (185) 30,905
Accrued recapitalization and other special charges ............ -- -- 14,942 (10,330)
---------- ----------- ---------- ----------
Net cash provided (used) by operating activities ............ 35,519 17,845 (1,130) 35,665
---------- ----------- ---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment ..................... (16,938) (6,646) (1,248) (10,856)
Proceeds from sale of property, plant and equipment ............ 139 298 1,281 52
---------- ----------- ---------- ----------
Net cash provided (used) by investing activities ............ (16,799) (6,348) 33 (10,804)
---------- ----------- ---------- ----------
Cash flows from financing activities:
Reduction of debt ................................................ (106,383) (104,526) (107,090) (135,079)
Proceeds from debt financing .................................... 85,698 96,252 259,489 108,890
Cash overdraft ................................................... 3,925 2,339 (2,493) 164
Debt issuance costs ............................................. -- -- (14,373) --
Extinguishment of debt .......................................... -- -- (2,424) --
Proceeds from direct financing lease .............................. -- -- -- 100
Distributions from DISC .......................................... (1,500) (5,187) (1,943) --
Issuance of stock ................................................ -- -- -- 271
Acquisition of treasury stock .................................... -- (533) (127,925) (3,343)
Exercise of stock options ....................................... -- -- -- 1,438
Payments on capital lease obligation ........................... -- (295) (84) (426)
---------- ----------- ---------- ----------
Net cash provided (used) by financing activities ............ (18,260) (11,950) 3,157 (27,985)
---------- ----------- ---------- ----------
Effect of exchange rate changes on cash and cash
equivalents ...................................................... (345) (2) 5 2
---------- ----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents . 115 (455) 2,065 (3,122)
Cash and cash equivalents, beginning of period .................. 2,530 2,645 2,190 4,255
---------- ----------- ---------- ----------
Cash and cash equivalents, end of period ........................ $ 2,645 $ 2,190 $ 4,255 $ 1,133
========== =========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest .......................................... $ 8,789 $ 7,535 $ 7,977 $ 16,030
Cash paid for income taxes ....................................... 8,821 5,877 419 1,172
========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Rayovac
International
Corporation
common stock
Common Stock (DISC) Foreign
--------------------- ----------------- Additional currency
paid-in translation
Shares Amount Shares Amount capital adjustment
------------ -------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1994 .................. 50,000 $500 10 $ 5 $12,000 $1,555
-------- ----- ---- ------ -------- ------
Net income ................................. -- -- -- -- -- --
Distributions from DISC .................. -- -- -- -- -- --
Translation adjustment ..................... -- -- -- -- -- 424
Adjustment of additional minimum pension
liability ................................. -- -- -- -- -- --
-------- ----- ---- ------ -------- ------
Balances at June 30, 1995 .................. 50,000 500 10 5 12,000 1,979
-------- ----- ---- ------ -------- ------
Net income ................................. -- -- -- -- -- --
Distributions from DISC .................. -- -- -- -- -- --
Translation adjustment ..................... -- -- -- -- -- (329)
Adjustment of additional minimum pension
liability ................................. -- -- -- -- -- --
Treasury stock acquired .................. (500) -- -- -- -- --
-------- ----- ---- ------ -------- ------
Balances at June 30, 1996 .................. 49,500 500 10 5 12,000 1,650
-------- ----- ---- ------ -------- ------
Net loss ................................. -- -- -- -- -- --
Common stock acquired in Recapitalization (29,030) -- -- -- -- --
Exercise of stock options .................. -- -- -- -- 3,970 --
Increase in cost of existing treasury stock -- -- -- -- -- --
Note receivable from officers/shareholders -- -- -- -- -- --
Termination of DISC ........................ -- -- (10) (5) -- --
Translation adjustment ..................... -- -- -- -- -- 39
-------- ----- ---- ------ -------- ------
Balances at September 30, 1996 ............ 20,470 500 -- -- 15,970 1,689
-------- ----- ---- ------ -------- ------
Net income ................................. -- -- -- -- -- --
Sale of common stock ..................... 111 -- -- -- 4 --
Treasury stock acquired .................. (556) -- -- -- -- --
Exercise of stock options and sale of common
stock to trust ........................... 556 -- -- -- -- --
Notes receivable from officers/shareholders -- -- -- -- -- --
Adjustment of additional minimum pension
liability ................................. -- -- -- -- -- --
Translation adjustment ..................... -- -- -- -- -- 581
-------- ----- ---- ------ -------- ------
Balances at September 30, 1997 ............ 20,581 $500 -- -- $15,974 $2,270
======== ===== ==== ====== ======== ======
<CAPTION>
Notes Total
receivable Stock shareholders'
officers/ Retained held in Treasury equity
shareholders earnings trust stock (deficit)
-------------- -------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1994 .................. $ -- $ 23,862 $ -- $ -- $ 37,922
-------- ----------- ------ --------- -----------
Net income ................................. -- 16,408 -- -- 16,408
Distributions from DISC .................. -- (1,500) -- -- (1,500)
Translation adjustment ..................... -- -- -- -- 424
Adjustment of additional minimum pension
liability ................................. -- 333 -- -- 333
-------- ----------- ------ --------- -----------
Balances at June 30, 1995 .................. -- 39,103 -- -- 53,587
-------- ----------- ------ ---------- -----------
Net income ................................. -- 14,288 -- -- 14,288
Distributions from DISC .................. -- (5,187) -- -- (5,187)
Translation adjustment ..................... -- -- -- -- (329)
Adjustment of additional minimum pension
liability ................................. -- (202) -- -- (202)
Treasury stock acquired .................. -- -- -- (533) (533)
-------- ----------- ------ ---------- -----------
Balances at June 30, 1996 .................. -- 48,002 -- (533) 61,624
-------- ----------- ------ ---------- -----------
Net loss ................................. -- (20,921) -- -- (20,921)
Common stock acquired in Recapitalization -- -- -- (127,425) (127,425)
Exercise of stock options .................. -- -- -- -- 3,970
Increase in cost of existing treasury stock -- -- -- (564) (564)
Note receivable from officers/shareholders (500) -- -- -- (500)
Termination of DISC ........................ -- (1,938) -- -- (1,943)
Translation adjustment ..................... -- -- -- -- 39
-------- ----------- ------ ---------- -----------
Balances at September 30, 1996 ............ (500) 25,143 -- (128,522) (85,720)
-------- ----------- ------ ---------- -----------
Net income ................................. -- 6,186 -- -- 6,186
Sale of common stock ..................... -- -- -- 482 486
Treasury stock acquired .................. -- -- -- (3,343) (3,343)
Exercise of stock options and sale of common
stock to trust ........................... -- -- (962) 3,343 2,381
Notes receivable from officers/shareholders (1,158) -- -- -- (1,158)
Adjustment of additional minimum pension
liability ................................. -- (8) -- -- (8)
Translation adjustment ..................... -- -- -- -- 581
-------- ----------- ------ ---------- -----------
Balances at September 30, 1997 ............ $ (1,658) $ 31,321 $ (962) $(128,040) $ (80,595)
======== =========== ====== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
1. Description of Business and Recapitalization
Rayovac Corporation and its wholly owned subsidiaries (Company)
manufacture and market a variety of battery types including general (alkaline,
rechargeables, heavy duty, lantern and general purpose), button cell and
lithium. The Company also produces a variety of lighting devices such as
flashlights and lanterns. The Company's products are sold primarily to
retailers in the United States, Canada, Europe, and the Far East.
Effective as of September 12, 1996, the Company, all of the shareholders
of the Company, Thomas H. Lee Equity Fund III L.P. (Lee Fund) and other
affiliates of Thomas H. Lee Company (THL Co.) completed a recapitalization of
the Company (Recapitalization) pursuant to which: (i) the Company obtained
senior financing in an aggregate of $170,000, of which $131,000 was borrowed at
the closing of the Recapitalization; (ii) the Company obtained $100,000 in
financing through the issuance of senior subordinated increasing rate notes of
the Company (Bridge Notes); (iii) the Company redeemed a portion of the shares
of common stock held by the former President and Chief Executive Officer of the
Company; (iv) the Lee Fund and other affiliates of THL Co. purchased for cash
shares of common stock owned by shareholders of the Company; and (v) the
Company repaid certain of its outstanding indebtedness, including prepayment
fees and penalties. The prepayment fees and penalties paid have been recorded
as an extraordinary item in the Consolidated Statements of Operations. Other
non-recurring charges of $12,300 related to the Recapitalization were also
expensed, including $2,200 in advisory fees paid to the financial advisor to
the Company's selling shareholders; various legal and consulting fees of
$2,800; and $7,300 of stock option compensation, severance payments and
employment contract settlements for the benefit of certain present and former
officers, directors and management of the Company. Payment for these costs was
or is expected to be as follows: (i) $8,900 was paid prior to September 30,
1996; (ii) $2,815 was paid in fiscal year 1997 and (iii) $585 is expected to be
paid in fiscal year 1998.
In 1996, the Company changed its fiscal year end from June 30 to September
30. For clarity of presentation herein, the period from July 1, 1996, to
September 30, 1996 is referred to as the "Transition Period Ended September 30,
1996" or "Transition Period."
2. Significant Accounting Policies and Practices
a. Principles of Combination and Consolidation: The consolidated financial
statements include the financial statements of Rayovac Corporation and
its wholly owned subsidiaries. Rayovac International Corporation, a
Domestic International Sales Corporation (DISC) which was owned by the
Company's shareholders, was combined with Rayovac Corporation through
August 1996, when the DISC was terminated and the net assets distributed
to its shareholders. All intercompany transactions have been eliminated.
For reporting purposes, all financial statements are referred to as
"consolidated" financial statements.
b. Revenue Recognition: The Company recognizes revenue from product sales
upon shipment to the customer.
c. Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
d. Cash Equivalents: For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
e. Concentrations of Credit Risk, Major Customers and Employees: The
Company's trade receivables are subject to concentrations of credit risk
as three principal customers accounted for 26%, 24% and 24% of the
outstanding trade receivables as of June 30, 1996, and September 30, 1996
and 1997, respectively. The Company derived 28%, 28%, 25% and 29% of its
net sales during the years ended June 30, 1995
F-8
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
2. Significant Accounting Policies and Practices--Continued
and 1996, the Transition Period, and the year ended September 30, 1997,
respectively, from the same three customers.
The Company has one customer that represented over 10% of its net
sales. The Company derived 16%, 18%, 18%, and 20% of its net sales from
this customer during the years ended June 30, 1995 and 1996, the
Transition Period, and the year ended September 30, 1997, respectively.
A significant number of the Company's factory employees are represented
by one of four labor unions. The Company has recently entered into
collective bargaining agreements with its Madison and Fennimore,
Wisconsin employees each of which expires in 2000. The Company's
collective bargaining agreement with 24 of its Washington, United Kingdom
employees is scheduled to expire in December 1997. In addition, the
Company's collective bargaining agreements with its 5 Hayward, California
and 203 Portage, Wisconsin employees are scheduled to expire in May and
July 1998, respectively. The Company believes its relationship with its
employees is good and there have been no work stoppages involving Company
employees since 1981.
f. Displays and Fixtures: The costs of displays and fixtures are
capitalized and recorded as a prepaid asset and charged to expense when
shipped to a customer location. Such prepaid assets amount to
approximately $1,068, $730 and $1,456 as of June 30, 1996, and September
30, 1996 and 1997, respectively.
g. Inventories: Inventories are stated at lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
h. Property, Plant and Equipment: Property, plant and equipment are stated
at cost. Depreciation on plant and equipment is calculated on the
straight-line method over the estimated useful lives of the assets.
Depreciable lives by major classification are as follows:
<TABLE>
<S> <C>
Building and improvements ............ 20-30 years
Machinery, equipment and other ...... 5-20 years
</TABLE>
i. Debt Issuance Costs: Debt issuance costs are capitalized and amortized
to interest expense over the lives of the related debt agreements.
j. Accounts Payable: Included in accounts payable at June 30, 1996, and
September 30, 1996 and 1997, is approximately $7,805, $5,312, and $5,476,
respectively, of book overdrafts on disbursement accounts which were
replenished prior to the presentation of checks for payment.
k. 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 and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured 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 of a change in
tax rates is recognized in income in the period that includes the
enactment date.
l. Foreign Currency Translation: Assets and liabilities of the Company's
foreign subsidiaries are translated at the rate of exchange existing at
year-end, with revenues, expenses, and cash flows translated at the
average of the monthly exchange rates. Adjustments resulting from
translation of the financial statements are accumulated as a separate
component of shareholders' equity (deficit). Exchange gains (losses) on
foreign currency transactions aggregating ($112), ($750), ($70), and
($639) for the years ended June 30, 1995 and 1996, the Transition Period,
and the year ended September 30, 1997, respectively, are included in
other expense, net, in the Consolidated Statements of Operations.
F-9
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
2. Significant Accounting Policies and Practices--Continued
m. Advertising Costs: The Company incurred expenses for advertising of
$25,556, $29,976, $7,505 and $24,326 in the years ended June 30, 1995
and 1996, the Transition Period, and the year ended September 30, 1997,
respectively. The Company expenses advertising production costs as such
costs are incurred.
n. Net Income (Loss) Per Share: Net income (loss) per share data has been
computed using the weighted average number of shares of common stock and
common equivalent shares from stock options (when dilutive using the
treasury stock method). Stock options issued during the 12-month period
prior to the Company's proposed initial public offering have been
included in the calculation as if they were outstanding for all periods
presented (even if antidilutive using the treasury stock method and the
anticipated initial public offering price). Net income (loss) per share
on a historical basis (per APB 15) was $0.33, $0.29, and $(0.48) for
fiscal 1995, 1996, and the Transition Period, respectively.
o. Derivative Financial Instruments: Derivative financial instruments are
used by the Company principally in the management of its interest rate,
foreign currency and raw material price exposures.
The Company uses interest rate swaps to manage its interest rate risk.
The net amounts to be paid or received under interest rate swap
agreements designated as hedges are accrued as interest rates change and
are recognized over the life of the swap agreements, as an adjustment to
interest expense from the underlying debt to which the swap is
designated. The related amounts payable to, or receivable from, the
counterparties are included in accounts payable or accounts receivable.
The Company has entered into an interest rate swap agreement which
effectively fixes the interest rate on floating rate debt at a rate of
6.16% for notional principal amount of $62,500 through October 1999. The
fair value of this contract at September 30, 1997 is ($159).
The Company enters into forward foreign exchange contracts relating to
the anticipated settlement in local currencies of intercompany purchases
and sales. These contracts generally require the Company to exchange
foreign currencies for U.S. dollars. The contracts are marked to market,
and the related adjustment is recognized in other expense, net. The
related amounts payable to, or receivable from, the counterparties are
included in accounts payable or accounts receivable. The Company has
approximately $3,100 of forward exchange contracts at September 30, 1997.
The fair value at September 30, 1997, approximated the contract value.
The Company is exposed to risk from fluctuating prices for commodities
used in the manufacturing process. The Company hedges some of this risk
through the use of commodity calls and puts. The Company is buying calls,
which allow the Company to purchase a specified quantity of zinc through
a specified date for a fixed price, and writing puts, which allow the
buyer to sell to the Company a specified quantity of zinc through a
specified date at a fixed price. The maturity of, and the quantities
covered by, the contracts highly correlate to the Company's anticipated
purchases of the commodity. The cost of the calls, and the premiums
received from the puts, are amortized over the life of the agreements and
are recorded in cost of goods sold, along with the effect of the put and
call agreements. At September 30, 1997, the Company has purchased a
series of calls with a contract value of approximately $2,800 and sold a
series of puts with a contact value of approximately $2,400 for the
period from October through March designed to set a ceiling and floor
price. While these transactions have no carrying value, the fair value of
these contracts was approximately $138 at September 30, 1997. The Company
has a receivable at September 30, 1997, of approximately $222 in the
accompanying consolidated balance sheet from the settlement of September
contracts.
These fair values represent the estimated amount the Company would
receive or pay to terminate agreements at September 30, 1997, taking into
consideration current market rates and the current credit worthiness of
the counterparties based on dealer quotes. The Company may be exposed to
credit loss in
F-10
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
2. Significant Accounting Policies and Practices--Continued
the event of nonperformance by the counterparties to these contracts, but
does not anticipate such nonperformance.
p. Environmental Expenditures: Environmental expenditures that relate to
current ongoing operations or to conditions caused by past operations are
expensed. The Company determines its liability on a site by site basis
and records a liability at the time when it is probable and can be
reasonably estimated. The estimated liability is not reduced for possible
recoveries from insurance carriers.
q. Stock Split: In September 1996, the Company's Board of Directors
declared a five-for-one stock split. A total of 16,376 additional shares
were issued in conjunction with the stock split to shareholders of
record. All applicable share and per share amounts herein have been
restated to reflect the stock split retroactively.
r. Reclassification: Certain prior year amounts have been reclassified to
conform with the current year presentation.
The Company has reclassified certain promotional expenses, previously
reported as a reduction of net sales, to selling expense. The amounts
which have been reclassified are $24,236 and $23,970 for the years ended
June 30, 1995 and 1996, respectively, $6,899 for the Transition Period
ended September 30, 1996, and $28,702 for the year ended September 30,
1997.
s. Impact of Recently Issued Accounting Standards: In February 1997, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share (FAS 128). FAS 128 will
be effective for periods ending after December 15, 1997, and specifies
the computation, presentation, and disclosure requirements for earnings
per share. Adoption of this accounting standard is not expected to have a
material effect on the earnings per share computations of the Company
assuming the current capital structure.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (FAS 130), which
establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
All items that are required to be recognized under accounting standards
as components of comprehensive income are to be reported in a financial
statement that is displayed with the same prominence as other financial
statements. FAS 130 requires that an enterprise (i) classify items of
other comprehensive income by their nature in a financial statement, and
(ii) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the
equity section of the balance sheet. FAS 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. The Company is evaluating the effect of this pronouncement on
its consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (FAS 131), which is effective for financial
statements for periods beginning after December 15, 1997. FAS 131
establishes standards for the way public business enterprises are to
report information about operating segments in annual financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Company is evaluating the effect of this pronouncement on
its consolidated financial statements.
F-11
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------
<S> <C> <C> <C>
Raw material ......... $24,238 $25,300 $23,291
Work-in-process ...... 19,081 14,651 15,286
Finished goods ...... 23,622 30,170 19,974
-------- -------- --------
$66,941 $70,121 $58,551
======== ======== ========
</TABLE>
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------
<S> <C> <C> <C>
Land, building and improvements ...... $ 15,469 $ 16,824 $ 10,752
Machinery, equipment and other ...... 117,248 117,754 120,894
Construction in process ............... 5,339 6,232 11,326
--------- --------- ---------
138,056 140,810 142,972
Less accumulated depreciation ......... 64,875 72,170 77,461
--------- --------- ---------
$ 73,181 $ 68,640 $ 65,511
========= ========= =========
</TABLE>
5. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------
<S> <C> <C> <C>
Term loan facility ....................................... $ -- $105,000 $ 100,500
Revolving credit facility ................................. -- 23,500 4,500
Series B Senior Subordinated Notes, due November 1,
2006, with interest at 10-1/4% payable semi-annually ..... -- -- 100,000
Bridge Notes ............................................. -- 100,000 --
Debt paid September 1996 due to Recapitalization:
Senior Secured Notes due 1997 through 2002 ............... 29,572 -- --
Subordinated Notes due through 2003 ..................... 7,270 -- --
Revolving credit facility ................................. 39,250 -- --
Notes payable in Pounds Sterling to a foreign bank, due
on demand, with interest at bank's base rate plus
1.87% ................................................... 1,242 939 --
Capitalized lease obligation .............................. 1,330 1,246 866
Notes and obligations, weighted average interest rate of
5.24% at September 30, 1997 .............................. 2,685 2,978 1,455
-------- --------- ----------
81,349 233,663 207,321
Less current maturities .................................... 11,631 8,818 23,880
-------- --------- ----------
Long-term debt ............................................. $69,718 $224,845 $ 183,441
======== ========= ==========
</TABLE>
F-12
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
5. Debt --Continued
On September 12, 1996, the Company executed a Credit Agreement (Agreement)
arranged by BA Securities, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and certain of its affiliates for a group of financial institutions
and other accredited investors. The Agreement provides for senior bank
facilities, including term and revolving credit facilities in an aggregate
amount of $170,000. Interest on borrowings is computed, at the Company's
option, based on the Bank of America Illinois' base rate, as defined, (Base
Rate) or the Interbank Offering Rate (IBOR).
The term loan facility includes: (i) Tranche A term loan of $55,000,
quarterly amortization ranging from $1,000 to $3,750 beginning December 31,
1996, through September 30, 2002, interest at the Base Rate plus 1.5% per annum
or at IBOR plus 2.5% per annum (8.49% at September 30, 1997); (ii) Tranche B
term loan of $25,000, quarterly amortization amounts of $62.5 during each of
the first six years and $5,875 in the seventh year beginning December 31, 1996,
through September 30, 2003, interest at the Base Rate plus 2.0% per annum, or
IBOR plus 3.0% per annum (8.93% at September 30, 1997); (iii) Tranche C term
loan of $25,000, quarterly amortization of $62.5 during each of the first seven
years and $5,812.5 during the eighth year beginning December 31, 1996, through
September 30, 2004; interest at the Base Rate plus 2.25% per annum or IBOR plus
3.25% per annum (9.10% at September 30, 1997).
The revolving credit facility provides for aggregate working capital loans
up to $65,000 through September 30, 2002, reduced by outstanding letters of
credit ($10,000 limit), and other existing credit facilities and outstanding
obligations (approximately $5,000 at September 30, 1997). Interest on
borrowings is at the Base Rate plus 1.5% per annum or IBOR plus 2.5% per annum
(10.0% at September 30, 1997). The Company had outstanding letters of credit of
approximately $631 at September 30, 1997. A fee of 2.5% per annum is payable on
the outstanding letters of credit. The Company also incurs a fee of .25% per
annum of the average daily maximum amount available to be drawn on each letter
of credit issued. The revolving credit facility must be reduced for 30
consecutive days to no more than $5,000 for the fiscal year ending September
30, 1998, and to zero for any fiscal year thereafter.
The Agreement contains financial covenants with respect to borrowings
which include fixed charge coverage, adjusted net worth, and minimum earnings
before interest, income taxes, depreciation, amortization. In addition, the
Agreement restricts capital expenditures and the payment of dividends. The
Company is required to pay a commitment fee of 0.50% per annum on the average
daily unused portion of the revolving credit facility. The Tranche A term loan
and the revolving credit facility interest rates may be adjusted downward if
the Company's leverage ratio, as defined, decreases. Borrowings under the
Agreement are collateralized by substantially all the assets of the Company.
The Agreement also contains certain mandatory prepayment provisions, one of
which requires the Company to pay down $14.5 million by December 29, 1997 due
to excess cash flow generated as of September 30, 1997.
On October 22, 1996, the Company completed a private debt offering of
10-1/4% Senior Subordinated Notes due in 2006 (Old Notes) pursuant to an
Indenture. In March 1997, the Company exchanged the Old Notes for 10-1/4% Series
B Senior Subordinated Notes due in 2006 (New Notes) registered with the
Securities and Exchange Commission. The terms of the New Notes are identical in
all material respects to terms of the Old Notes. On or after November 1, 2001
or in certain circumstances, after a public offering of equity securities of
the Company, the New Notes will be redeemable at the option of the Company, in
whole or in part, at prescribed redemption prices plus accrued and unpaid
interest.
Upon a change in control, the Company shall be required to repurchase all
or any part of the New Notes at a purchase price equal to 101% of the aggregate
principal amount. The Company is also required to repurchase all or a portion
of the New Notes upon consummation of an asset sale, as defined, in excess of
$5,000.
The terms of the New Notes restrict or limit the ability of the Company
and its subsidiaries to, among other things, (i) pay dividends or make other
restricted payments, (ii) incur additional indebtedness and issue preferred
F-13
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
5. Debt --Continued
stock, (iii) create liens, (iv) incur dividend and other payment restrictions
affecting subsidiaries, (v) enter into mergers, consolidations, or sales of all
or substantially all of the assets of the Company, (vi) make asset sales, (vii)
enter into transactions with affiliates, and (viii) issue or sell capital stock
of wholly owned subsidiaries of the Company. Payment obligations under the New
Notes are fully and unconditionally guaranteed on a joint and several basis by
the Company's directly and wholly owned subsidiary, ROV Holding, Inc. (ROV or
Guarantor Subsidiary). The foreign subsidiaries of the Company, which do not
guarantee the payment obligations under the New Notes (Nonguarantor
Subsidiaries), are directly and wholly owned by ROV. See note 17.
The proceeds from the new Notes were used to pay down the Bridge Notes.
The Bridge Notes bore interest at prime plus 3.5%.
The aggregate scheduled maturities of debt are as follows:
<TABLE>
<S> <C>
Year ending September 30,
1998 ............... $ 23,880
1999 ............... 12,441
2000 ............... 10,500
2001 ............... 12,500
2002 ............... 15,500
Thereafter ......... 132,500
---------
$207,321
=========
</TABLE>
The capitalized lease obligation is payable in Pounds Sterling in
installments of $425 in 1998 and $441 in 1999.
The carrying values of the debt instruments noted above are approximately
96% of their estimated fair values.
6. Shareholders' Equity (Deficit)
During the year ended June 30, 1996, the former principal shareholder of
the Company granted an officer and a director options to purchase 235 shares of
common stock owned by the shareholder personally at exercise prices per share
ranging from $3.65 to $5.77 (the book values per share at the respective dates
of grant). These options were exercised in conjunction with the
Recapitalization and resulted in a charge to earnings of approximately $3,970
during the Transition Period and an increase in additional paid-in capital in
the Consolidated Statements of Shareholders' Equity (Deficit).
Treasury stock acquired during the year ended June 30, 1996 was subject to
an agreement which provided the selling shareholder with additional
compensation for the common stock sold if a change in control occurred within a
specified period of time. As a result of the Recapitalization, the selling
shareholder was entitled to an additional $564, which is reflected as an
increase in treasury stock in the Consolidated Statements of Shareholders'
Equity (Deficit).
Retained earnings includes DISC retained earnings of $1,594 at June 30,
1996. In August 1996, the DISC was terminated and the net assets were
distributed to its shareholders.
In January 1997, the Company established a trust to fund future payments
under a deferred compensation plan. Certain employees eligible to participate
in the plan assigned stock options to the plan. The plan exercised the options
and purchased 160 shares of the Company's common stock. Shares issued to the
trust are valued at $962 and are reflected as a reduction of stockholders'
equity in the consolidated balance sheet.
The Company and the former principal shareholder of the Company, entered
into a Stock Sale Agreement, dated as of August 1, 1997 pursuant to which the
former principal shareholder sold 2,023 shares of common stock at $6.01 per
share to the Company and to the Thomas H. Lee Equity Fund III, L.P. (the "Lee
Fund") and certain other affiliates of Thomas H. Lee Company ("THL Co.," the
Lee Fund and such other affiliates being referred to
F-14
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
6. Shareholders' Equity (Deficit) --Continued
herein as the "Lee Group"). The Stock Sale Agreement provides that, among other
things, if (i) the Company enters into a business combination or other
transaction with a third party whereby less than a majority of the outstanding
capital stock of the surviving entity is owned by the Lee Group, and (ii) such
business combination or other transaction is the result of negotiations or
discussions entered into prior to December 31, 1997 and such combination is
consummated prior to June 30, 1998, then the Lee Group will remit to the former
principal shareholder all amounts, if any, received by the Lee Group (or any
affiliated transferee of shares owned by the Lee Group) from the sale of the
shares of common stock to such third party in excess of $6.01 per share. In
September 1997, another former shareholder sold 205 shares of common stock to
the Company and the Lee Group under similar terms.
On October 22, 1997, the shareholders of the Company approved the
authorization of 5,000 shares of Preferred Stock, $.01 par value, and an
increase in authorized shares of Common Stock from 90,000 to 150,000.
7. Stock Option Plans
Effective September 1996, the Company's Board of Directors (Board)
approved the Rayovac Corporation 1996 Stock Option Plan (1996 Plan) which is
intended to afford an incentive to select employees and directors of the
Company to promote the interests of the Company. Under the 1996 Plan, stock
options to acquire up to 3,000 shares of common stock, in the aggregate, may be
granted under either or both a time-vesting or a performance-vesting formula at
an exercise price equal to the market price of the common stock on the date of
grant. The time-vesting options become exercisable primarily in equal 20%
increments over a five year period. The performance-vesting options become
exercisable at the end of ten years with accelerated vesting over each of the
next five years if the Company achieves certain performance goals. Accelerated
vesting may occur upon sale of the Company, as defined in the Plan.
On September 3, 1997, the Board adopted the 1997 Rayovac Incentive Plan
(Incentive Plan) which was approved by the Shareholders on October 22, 1997 and
expires in August 2007. The Incentive Plan replaces the 1996 Plan and no
further awards will be granted under the 1996 Plan other than awards of options
for shares up to an amount equal to the number of shares covered by options
that terminate or expire prior to being exercised. Under the Incentive Plan,
the Company may grant to employees and non-employee directors stock options,
stock appreciation rights (SARs), restricted stock, and other stock-based
awards, as well as cash-based annual and long-term incentive awards.
Accelerated vesting will occur in the event of a change in control, as defined
in the Incentive Plan. Up to 3,000 shares of common stock may be issued under
the Incentive Plan.
During 1997, the Company adopted the Rayovac Corporation 1997 Stock Option
Plan (1997 Plan). Under the 1997 Plan, stock options to acquire up to 665
shares of common stock, in the aggregate, may be granted. The exercise price is
$6.01. The 1997 Plan and each option granted thereunder expire no later than
November 30, 1997.
A summary of the status of the Company's plan is as follows:
<TABLE>
<CAPTION>
Transition period ended Year ended
September 30, 1996 September 30, 1997
------------------------------ -----------------------------
Weighted-average Weighted-average
Options exercise price Options exercise price
--------- ------------------ --------- -----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period ......... -- $ -- 1,464 $ 4.39
Granted ................................. 1,464 4.30 1,410 5.03
Exercised .............................. -- -- (556) 6.01
------ ------ ----- -------
Outstanding, end of period ............... 1,464 $4.30 2,318 $ 4.33
====== ====== ===== =======
Options exercisable, end of period ...... 40 $1.14 496 $ 4.13
====== ====== ===== =======
</TABLE>
The stock options outstanding on September 30, 1997, have a
weighted-average remaining contractual life estimated at 9.5 years.
F-15
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
7. Stock Option Plans --Continued
<TABLE>
<CAPTION>
Transition
period ended Year ended
September 30, 1996 September 30, 1997
-------------------- -------------------
<S> <C> <C>
Weighted-average grant-date
fair value of options granted during period ...... $1.92 $1.84
Assumptions used:
Risk-free interest rate ........................... 6.78% 6.78%
Expected life .................................... 8 years 8 years
</TABLE>
The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized in the Consolidated
Statements of Operations. Had the Company recognized compensation expense
determined on the fair value at the grant dates for awards under the plans
consistent with the method prescribed by FASB Statement No. 123, Accounting for
Stock Based Compensation (SFAS No. 123), the Company's net income (loss) and
net income (loss) per share, on a pro forma basis, for the Transition Period
and the year ended September 30, 1997, would have been ($21,035) and ($0.46)
per share and $5,680 and $0.26 per share, respectively. The effects of applying
FASB 123 may not be representative of the effects on reported net income (loss)
for future years.
8. Income Taxes
Pretax income (loss) (income (loss) before income taxes and extraordinary
item) and income tax expense (benefit) consist of the following:
<TABLE>
<CAPTION>
Years ended Transition Year
June 30, period ended ended
--------------------- September 30, September 30,
1995 1996 1996 1997
--------- --------- --------------- --------------
<S> <C> <C> <C> <C>
Pretax income (loss):
United States .................. $16,505 $17,154 $(27,713) $6,214
Outside the United States ...... 6,150 4,136 (2,889) 3,391
------- ------- -------- ------
Total pretax income (loss) ...... $22,655 $21,290 $(30,602) $9,605
======= ======= ======== ======
Income tax expense (benefit):
Current:
Federal ........................ $ 3,923 $ 5,141 $ (3,870) $2,926
Foreign ........................ 797 1,469 (72) (176)
State ........................ 1,181 389 -- 17
------- ------- -------- ------
Total current 5,901 6,999 (3,942) 2,767
------- ------- -------- ------
Deferred:
Federal ........................ 799 54 (3,270) (842)
Foreign ........................ (544) (57) (847) 809
State ........................ 91 6 (1,622) 685
------- ------- -------- ------
Total deferred .................. 346 3 (5,739) 652
------- ------- -------- ------
$ 6,247 $ 7,002 $ (9,681) $3,419
======= ======= ======== ======
</TABLE>
F-16
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
8. Income Taxes --Continued
The following reconciles the Federal statutory income tax rate with the
Company's effective tax rate:
<TABLE>
<CAPTION>
Years ended Transition Year
June 30, period ended ended
----------------- September 30, September 30,
1995 1996 1996 1997
------- ------- --------------- --------------
<S> <C> <C> <C> <C>
Statutory Federal income tax rate ..................... 35.0% 35.0% 35.0% 35.0%
DISC/FSC commission income ........................... (5.9) (5.2) 0.4 (1.2)
Effect of foreign items and rate differentials ...... (4.0) 1.0 (1.2) 0.3
State income taxes, net .............................. 3.6 1.1 3.9 4.9
Reduction of prior year tax provision ............... -- -- -- (3.0)
Nondeductible recapitalization charges ............... -- -- (6.2) --
Other ................................................ (1.1) 1.0 (0.3) (0.4)
----- ----- ----- -----
27.6% 32.9% 31.6% 35.6%
===== ===== ===== =====
</TABLE>
The components of the net deferred tax asset and types of significant
basis differences were as follows:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------
<S> <C> <C> <C>
Current deferred tax assets:
Recapitalization charges ........................ $ -- $ 2,991 $ 792
Inventories and receivables ..................... 1,395 1,407 1,495
Marketing and promotional accruals ............... 1,498 1,252 3,256
Employee benefits .............................. 1,554 1,780 1,509
Environmental accruals ........................... 420 752 679
Other .......................................... 994 976 1,368
-------- -------- --------
Total current deferred tax assets ............... 5,861 9,158 9,099
-------- -------- --------
Noncurrent deferred tax assets:
Employee benefits .............................. 3,053 4,504 4,214
State net operating loss carryforwards ......... -- 1,249 468
Package design expense ........................... 532 523 927
Promotional expense .............................. 784 854 594
Other .......................................... 1,516 1,475 1,753
-------- -------- --------
Total noncurrent deferred tax assets ............ 5,885 8,605 7,956
-------- -------- --------
Noncurrent deferred tax liabilities:
Property, plant, and equipment .................. (8,430) (8,708) (8,651)
Other .......................................... (39) (39) (40)
-------- -------- --------
Total noncurrent deferred tax liabilities ...... (8,469) (8,747) (8,691)
-------- -------- --------
Net noncurrent deferred tax liabilities ......... $(2,584) $ (142) $ (735)
======== ======== ========
</TABLE>
At September 30, 1997, the Company has operating loss carryforwards for
state income tax purposes of approximately $6,000, which expire generally in
years through 2012.
During 1995, the Company used approximately $3,200 of foreign net
operating loss carryforwards for which a deferred tax asset had not been
recognized in prior years due to uncertainty regarding future earnings of the
F-17
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
8. Income Taxes --Continued
subsidiaries to which the carryforwards related. As a result, the Company
reversed the valuation allowance of $1,240 recorded at June 30, 1994, in 1995.
Provision has not been made for United States income taxes on a portion of
the undistributed earnings of the Company's foreign subsidiaries (approximately
$4,342, $4,216, and $4,737 at June 30, 1996, and September 30, 1996 and 1997,
respectively), either because any taxes on dividends would be offset
substantially by foreign tax credits or because the Company intends to reinvest
those earnings. Such earnings would become taxable upon the sale or liquidation
of these foreign subsidiaries or upon remittance of dividends. It is not
practicable to estimate the amount of the deferred tax liability on such
earnings.
9. Leases
Future minimum rental commitments under noncancelable operating leases,
principally pertaining to land, buildings and equipment, are as follows:
<TABLE>
<S> <C>
Year ending September 30,
1998 .................. $ 6,828
1999 .................. 5,404
2000 .................. 4,455
2001 .................. 4,012
2002 .................. 4,017
Thereafter ............ 34,112
--------
$58,828
========
</TABLE>
The above lease commitments include payments under leases for the
corporate headquarters facilities and other properties from partnerships in
which one of the Company's former shareholders is a partner. Annual minimum
rental commitments on the headquarters facility of $2,817 are subject to an
adjustment based upon changes in the Consumer Price Index. The leases on the
other properties require annual lease payments of $470 subject to annual
inflationary increases. All of the leases expire during the years 1998 through
2013.
Total rental expense was $8,189, $8,213, $1,995, and $8,126, for the years
ended June 30, 1995 and 1996, the Transition Period, and the year ended
September 30, 1997, respectively.
10. Postretirement Pension Benefits
The Company has various defined benefit pension plans covering
substantially all of its domestic employees. Plans covering salaried employees
provide pension benefits that are based on the employee's average compensation
for the five years which yield the highest average during the 10 consecutive
years prior to retirement. Plans covering hourly employees and union members
generally provide benefits of stated amounts for each year of service. The
Company's policy is to fund pension costs at amounts within the acceptable
ranges established by the Employee Retirement Income Security Act of 1974.
The Company also has nonqualified deferred compensation agreements with
certain of its employees under which the Company has agreed to pay certain
amounts annually for the first 15 years subsequent to retirement or to a
designated beneficiary upon death. It is management's intent that life
insurance contracts owned by the Company will fund these agreements.
F-18
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
10. Postretirement Pension Benefits --Continued
Net periodic pension cost for the aforementioned plans is summarized as
follows:
<TABLE>
<CAPTION>
Years ended
June 30, Transition Year
------------------------- period ended ended
September 30, September 30,
1995 1996 1996 1997
----------- ----------- --------------- --------------
<S> <C> <C> <C> <C>
Service cost ................................. $ 1,711 $ 1,501 $2,149 $1,705
Interest cost .............................. 3,390 3,513 944 3,834
Actual return on plan assets ............... (2,054) (7,880) (605) (6,191)
Net amortization and deferral ............... (708) 4,994 (166) 2,763
Curtailment gain ........................... -- -- -- (2,923)
-------- ------- ------ -------
Net periodic pension cost (benefit) ...... $ 2,339 $ 2,128 $2,322 $ (812)
======== ======= ====== =======
</TABLE>
The following tables set forth the plans' funded status:
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------
Assets exceed Accumulated
accumulated benefits
benefits exceed assets
--------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation ....................................... $ 24,927 $ 19,138
Accumulated benefit obligation ................................. 25,576 19,932
======== =========
Projected benefit obligation .................................... $ 31,462 $ 19,932
Plan assets at fair value, primarily listed stocks, bonds and
cash equivalents ................................................ 32,297 9,349
-------- ---------
Projected benefit obligation (in excess of) less than plan assets 835 (10,583)
Unrecognized net gain ............................................. (2,341) (893)
Unrecognized net obligation (asset) .............................. (211) 4,711
Additional minimum liability .................................... -- (3,823)
-------- ---------
Pension liability ............................................. $ (1,717) $ (10,588)
======== =========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
--------------------------------
Assets exceed Accumulated
accumulated benefits
benefits exceed assets
--------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation ....................................... $ 25,273 $ 19,495
Accumulated benefit obligation ................................. 25,930 20,305
======== =========
Projected benefit obligation .................................... $ 31,910 $ 20,305
Plan assets at fair value, primarily listed stocks, bonds and
cash equivalents ................................................ 32,341 9,364
-------- ---------
Projected benefit obligation (in excess of) less than plan assets 431 (10,941)
Unrecognized net gain ............................................. (2,147) (832)
Unrecognized net obligation (asset) .............................. (208) 2,894
Additional minimum liability .................................... -- (2,067)
Contribution ...................................................... 86 756
-------- ---------
Pension liability ............................................. $ (1,838) $ (10,190)
======== =========
</TABLE>
F-19
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
10. Postretirement Pension Benefits --Continued
<TABLE>
<CAPTION>
September 30, 1997
--------------------------------
Assets exceed Accumulated
accumulated benefits
benefits exceed assets
--------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation ....................................... $ 42,696 $ 13,326
Accumulated benefit obligation ................................. 43,046 13,704
======== =========
Projected benefit obligation .................................... $ 43,046 $ 13,704
Plan assets at fair value, primarily listed stocks, bonds and
cash equivalents ................................................ 43,212 3,098
-------- ---------
Projected benefit obligation (in excess of) less than plan assets 166 (10,606)
Unrecognized net loss (gain) .................................... (1,194) 1
Unrecognized net asset .......................................... 1,028 1,476
Additional minimum liability .................................... -- (1,486)
-------- ---------
Pension liability ............................................. $ -- $ (10,615)
======== =========
</TABLE>
Assumptions used in accounting for the aforementioned plans were:
<TABLE>
<CAPTION>
Years ended Transition Year
June 30, period ended ended
--------------- September 30, September 30,
1995 1996 1996 1997
------ ------ --------------- --------------
<S> <C> <C> <C> <C>
Discount rate used for funded status calculation .... 8.0% 7.5% 7.5% 7.5%
Discount rate used for net periodic pension cost
calculations ....................................... 7.5 8.0 7.5 7.5
Rate of increase in compensation levels
(salaried plan only) .............................. 5.5 5.0 5.0 5.0
Expected long-term rate of return on assets . ...... 9.0 9.0 9.0 9.0
</TABLE>
During the year ended September 30, 1997, the Company merged two of its
defined benefit plans and ceased future benefit accruals. The Company
recognized a $2,923 curtailment gain, which is included in other special
charges in the consolidated statement of operations. A discount rate of 6.5%
was used in the accounting for the curtailed plans. The Company has recorded an
additional minimum pension liability of $3,823, $2,067, and $1,486 at June 30,
1996, and September 30, 1996 and 1997, respectively, to recognize the
underfunded position of certain of its benefits plans. An intangible asset of
$3,582, $1,826, and $1,232 at June 30, 1996, and September 30, 1996 and 1997,
respectively, equal to the unrecognized prior service cost of these plans, has
also been recorded. The excess of the additional minimum liability over the
unrecognized prior service cost of $241 at June 30 and September 30, 1996, and
$249 at September 30, 1997, respectively, has been recorded as a reduction of
shareholders' equity (deficit).
The Company sponsors a defined contribution pension plan for its domestic
salaried employees which allows participants to make contributions by salary
reduction pursuant to Section 401(k) of the Internal Revenue Code. The Company
contributes annually 1% of participants' compensation, and may make additional
discretionary contributions. The Company also sponsors defined contribution
pension plans for employees of certain foreign subsidiaries. Company
contributions charged to operations, including discretionary amounts, for the
years ended June 30, 1995 and 1996, the Transition Period, and September 30,
1997, were $1,273, $ 1,000, $181, and $914, respectively.
F-20
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
11. Other Postretirement Benefit Plan
The Company provides certain health care and life insurance benefits to
eligible retired employees. Participants earn retiree health care benefits
after reaching age 45 over the next 10 succeeding years of service and remain
eligible until reaching age 65. The plan is contributory; retiree contributions
have been established as a flat dollar amount with contribution rates expected
to increase at the active medical trend rate. The plan is unfunded. The Company
is amortizing the transition obligation over a 20-year period.
The following sets forth the plan's funded status reconciled with amounts
reported in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1996 1997
---------- --------------- --------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees .......................................... $ 723 $ 687 $ 722
Fully eligible active participants ............... 805 820 813
Other active participants ........................ 896 970 869
-------- -------- --------
Total APBO .......................................... 2,424 2,477 2,404
Unrecognized net loss .............................. (1,269) (1,246) (1,008)
Unrecognized transition obligation .................. (641) (631) (591)
-------- -------- --------
Accrued postretirement benefit liability ......... $ 514 $ 600 $ 805
======== ======== ========
</TABLE>
Net periodic postretirement benefit cost includes the following
components:
<TABLE>
<CAPTION>
Years ended Transition Year
June 30, period ended ended
--------------- September 30, September 30,
1995 1996 1996 1997
------ ------ --------------- --------------
<S> <C> <C> <C> <C>
Service cost ....................................... $110 $129 $58 $249
Interest ....................................... 85 111 44 179
Net amortization and deferral .................. 40 54 35 138
----- ----- ----- -----
Net periodic postretirement benefit cost ...... $235 $294 $137 $566
===== ===== ===== =====
</TABLE>
For measurement purposes, a 9.5% annual rate of increase in the per capita
costs of covered health care benefits was assumed for fiscal 1996 and 1997,
gradually decreasing to 5.5%. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of September 30,
1997, by $148 and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year ended September 30, 1997,
by $40. A discount rate of 7.5% was used to determine the accumulated
postretirement benefit obligation.
F-21
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
12. Business Segment and International Operations
Information about the Company's operations in different geographic areas
is summarized follows:
<TABLE>
<CAPTION>
Years ended Transition Year
June 30, period ended ended
------------------------- September 30, September 30,
1995 1996 1996 1997
------------ ------------ --------------- --------------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers:
United States .................. $ 337,888 $ 341,967 $ 82,329 $ 352,468
Foreign:
Europe ........................ 60,696 64,432 15,304 62,546
Other ........................... 16,640 16,955 4,247 17,538
--------- --------- --------- ---------
Total ........................... $ 415,224 $ 423,354 $ 101,880 $ 432,552
========= ========= ========= =========
Transfers between geographic areas:
United States .................. $ 26,928 $ 27,097 $ 7,432 $ 28,403
Foreign:
Europe ........................ 1,637 730 422 1,459
Other ........................... 49 -- -- --
--------- --------- --------- ---------
Total ........................... $ 28,614 $ 27,827 $ 7,854 $ 29,862
========= ========= ========= =========
Net sales:
United States .................. $ 364,816 $ 369,065 $ 89,760 $ 380,872
Foreign:
Europe ........................ 62,333 65,161 15,727 64,004
Other ........................... 16,689 16,955 4,247 17,538
Eliminations ..................... (28,614) (27,827) (7,854) (29,862)
--------- --------- --------- ---------
Total ........................... $ 415,224 $ 423,354 $ 101,880 $ 432,552
========= ========= ========= =========
Income (loss) from operations:
United States .................. $ 24,335 $ 24,759 $ (20,983) $ 30,379
Foreign:
Europe ........................ 5,410 5,002 (2,539) 3,759
Other ........................... 1,784 516 (150) 387
--------- --------- --------- ---------
Total ........................... $ 31,529 $ 30,277 $ (23,672) $ 34,525
========= ========= ========= =========
Total assets:
United States .................. $ 189,557 $ 192,441 $ 213,730 $ 208,971
Foreign:
Europe ........................ 34,345 33,719 35,065 32,137
Other ........................... 16,093 17,532 18,782 17,946
Eliminations ..................... (19,405) (22,564) (23,886) (22,173)
--------- --------- --------- ---------
Total ........................... $ 220,590 $ 221,128 $ 243,691 $ 236,881
========= ========= ========= =========
</TABLE>
13. Commitments and Contingencies
The Company has entered into agreements to purchase certain equipment and
to pay annual royalties. In a December 1991 agreement, the Company committed to
pay $1,500 in January 1992 and annual royalties of $1,500 for the first five
years, beginning in 1993, plus $500 for each year thereafter, as long as the
related equipment patents are enforceable. In a March 1994 agreement, the
Company committed to pay $500 in April 1994 and annual royalties
F-22
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
13. Commitments and Contingencies --Continued
of $500 for five years beginning in 1995. Additionally, the Company has
committed to purchase tooling of $957 related to this equipment, $66 for other
tooling, at an unspecified date in the future and purchase manganese ore
amounting to $120 by March 1998.
The Company has provided for the estimated costs associated with
environmental remediation activities at some of its current and former
manufacturing sites. In addition, the Company, together with other parties, has
been designated a potentially responsible party of various third-party sites on
the United States EPA National Priorities List (Superfund). The Company
provides for the estimated costs of investigation and remediation of these
sites when such losses are probable and the amounts can be reasonably
estimated. The actual cost incurred may vary from these estimates due to the
inherent uncertainties involved. The Company believes that any additional
liability in excess of the amounts provided of $1,787, which may result from
resolution of these matters, will not have a material adverse effect on the
financial condition, liquidity, or cash flow of the Company.
The Company has certain other contingent liabilities with respect to
litigation, claims and contractual agreements arising in the ordinary course of
business. In the opinion of management, such contingent liabilities are not
likely to have a material adverse effect on the financial condition, liquidity
or cash flow of the Company.
14. Related Party Transactions
The Company and THL Co. are parties to a Management Agreement pursuant to
which the Company has engaged THL Co. to provide consulting and management
advisory services for an initial period of five years through September 2001.
In consideration of ongoing consulting and management advisory services, the
Company will pay THL Co. an aggregate annual fee of $360 plus expenses. Under
the Management Agreement and in connection with the closing of the
Recapitalization, the Company paid THL Co. and an affiliate $3,250 during the
Transition Period. The Company paid THL Co. aggregate fees of $386 for the year
ended September 30, 1997.
The Company and a shareholder of the Company (the principal shareholder
prior to the Recapitalization) are parties to agreements which include a
consulting arrangement and noncompetition provisions. Terms of the agreements
required the shareholder to provide consulting services for an annual fee of
$200 plus expenses. The term of these agreements runs concurrent with the
Management Agreement, subject to certain conditions as defined in the
agreements. The Consulting Agreement was terminated August 1, 1997. The Company
paid the shareholder $175 for the year ended September 1997.
The Company has notes receivable from officers in the amount of $500 and
$1,261 at September 30, 1996 and 1997, respectively, generally payable in five
years, which bear interest at 7% to 8%. Since the officers utilized the
proceeds of the notes to purchase common stock of the Company, directly or
through the exercise of stock options, the notes have been recorded as a
reduction of shareholders' equity (deficit). The Company has short-term notes
receivable from employees of $397 at September 30, 1997 which were used to
purchase common stock of the Company, through the exercise of stock options,
and are also classified as a reduction of shareholders' equity (deficit).
15. Other Special Charges
During the year ended September 30, 1997, the Company recorded special
charges as follows: (i) $3,900 of charges related to the exit of certain
manufacturing operations at the Company's Newton Aycliffe, United Kingdom and
Kinston, North Carolina facilities which include severance, outplacement
service, other employee benefits and asset write-downs and (ii) $2,000 of
charges for organization restructuring in the United States relating to
severance, outplacement service, and other employee benefits. These charges are
partially offset by a $2,900 gain related to the curtailment of the Company's
defined benefit pension plan covering all domestic non-union employees. The
Company paid $4,000 of these costs in fiscal 1997 and $1,900 is expected to be
paid thereafter.
F-23
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
15. Other Special Charges--Continued
During the Transition Period, the Company recorded special charges as
follows: (i) $2,700 of charges related to the exit of certain manufacturing
operations, (ii) $1,700 of charges to increase net deferred compensation plan
obligations to reflect curtailment of such plans; (iii) $1,500 of charges
reflecting the present value of lease payments for land which management has
determined will not be used for any future productive purpose; (iv) $6,900 in
costs and asset write-downs principally related to changes in product pricing
strategies adopted by management subsequent to the Recapitalization; and (v)
$3,300 of employee termination benefits and other charges. Payment for these
costs was or is expected to be as follows: $7,700 was paid prior to September
30, 1996; $5,600 was paid in fiscal 1997; and $2,800 is expected to be paid
thereafter.
16. Quarterly Results (unaudited)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------
December 30, March 30, June 29, September 30,
1995 1996 1996 1996
-------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Net sales ................................... $140,707 $80,563 $94,731 $101,880
Gross profit ................................. 63,219 34,672 39,495 42,638
Income (loss) before extraordinary item ...... 6,059 310 4,361 (19,274)
Net income (loss) ........................... 6,059 310 4,361 (20,921)
Net income (loss) per share .................. 0.12 0.01 0.09 (0.46)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------
December 28, March 29, June 29, September 30,
1996 1997 1997 1997
-------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Net sales ....................... $141,922 $83,633 $95,466 $111,531
Gross profit ..................... 62,903 36,510 43,249 55,321
Net income (loss) ............... 2,380 (1,720) 2,652 2,874
Net income (loss) per share ...... 0.11 (0.08) 0.12 0.13
</TABLE>
17. Consolidated Financial Statements
The following condensed consolidating financial data illustrates the
composition of the consolidated financial statements. Investments in
subsidiaries are accounted for by the Company on an unconsolidated basis (the
Company and the DISC) and the Guarantor Subsidiary using the equity method for
purposes of the consolidating presentation. Earnings of subsidiaries are
therefore reflected in the Company's and Guarantor Subsidiary's investment
accounts and earnings. The principal elimination entries eliminate investments
in subsidiaries and intercompany balances and transactions. Separate financial
statements of the Guarantor Subsidiary are not presented because management has
determined that such financial statements would not be material to investors.
F-24
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements--Continued
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Guarantor
Parent subisidiary
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 633 $ 46
Receivables:
Trade accounts receivable, net ........................... 61,400 --
Other ................................................... 8,500 702
Inventories ............................................. 45,003 --
Deferred income taxes .................................... 8,664 342
Prepaid expenses and other .............................. 5,101 --
----------- --------
Total current assets ................................. 129,301 1,090
----------- --------
Property, plant and equipment, net ........................ 60,860 --
Deferred charges and other ................................. 8,411 --
Debt issuance costs ....................................... 9,277 --
Investment in subsidiaries ................................. 16,111 15,627
----------- --------
Total assets ....................................... $ 223,960 $16,717
=========== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ..................... $ 22,000 $ --
Accounts payable .......................................... 50,797 150
Accrued liabilities:
Wages and benefits ....................................... 7,766 --
Accrued interest ....................................... 5,594 --
Recapitalization and other special charges ............... 4,235 --
Other ................................................... 16,182 226
----------- --------
Total current liabilities ........................... 106,574 376
----------- --------
Long-term debt, net of current maturities .................. 183,441 --
Employee benefit obligations, net of current portion ...... 11,291 --
Deferred income taxes ....................................... 554 --
Other ...................................................... 956 230
----------- --------
Total liabilities .................................... 302,816 606
----------- --------
Shareholders' equity (deficit):
Common stock ............................................. 500 --
Additional paid-in capital .............................. 15,974 3,525
Foreign currency translation adjustment .................. 2,270 2,270
Notes receivable from officers/shareholders ............... (1,658) --
Retained earnings ....................................... 33,060 10,316
----------- --------
50,146 16,111
Less stock held in trust for deferred compensation . (962) --
Less treasury stock ....................................... (128,040) --
----------- --------
Total shareholders' equity (deficit) ........................ (78,856) 16,111
----------- --------
Total liabilities and shareholders' equity (deficit) ...... $ 223,960 $16,717
=========== ========
<CAPTION>
Nonguarantor
subsidiaries Eliminations Consolidated
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 454 $ -- $ 1,133
Receivables:
Trade accounts receivable, net ........................... 15,190 -- 76,590
Other ................................................... 2,659 (8,782) 3,079
Inventories ............................................. 13,722 (174) 58,551
Deferred income taxes .................................... 93 -- 9,099
Prepaid expenses and other .............................. 827 -- 5,928
-------- --------- -----------
Total current assets ................................. 32,945 (8,956) 154,380
-------- --------- -----------
Property, plant and equipment, net ........................ 4,651 -- 65,511
Deferred charges and other ................................. 612 (1,310) 7,713
Debt issuance costs ....................................... -- -- 9,277
Investment in subsidiaries ................................. -- (31,738) --
-------- --------- -----------
Total assets ....................................... $38,208 $ (42,004) $ 236,881
======== ========= ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ..................... $ 1,880 $ -- $ 23,880
Accounts payable .......................................... 14,847 (8,535) 57,259
Accrued liabilities:
Wages and benefits ....................................... 1,577 -- 9,343
Accrued interest ....................................... 19 -- 5,613
Recapitalization and other special charges ............... 377 -- 4,612
Other ................................................... 3,448 -- 19,856
-------- --------- -----------
Total current liabilities ........................... 22,148 (8,535) 120,563
-------- --------- -----------
Long-term debt, net of current maturities .................. -- -- 183,441
Employee benefit obligations, net of current portion ...... -- -- 11,291
Deferred income taxes ....................................... 181 -- 735
Other ...................................................... 260 -- 1,446
-------- --------- -----------
Total liabilities .................................... 22,589 (8,535) 317,476
-------- --------- -----------
Shareholders' equity (deficit):
Common stock ............................................. 12,072 (12,072) 500
Additional paid-in capital .............................. 750 (4,275) 15,974
Foreign currency translation adjustment .................. 2,270 (4,540) 2,270
Notes receivable from officers/shareholders ............... -- -- (1,658)
Retained earnings ....................................... 527 (12,582) 31,321
-------- --------- -----------
15,619 (33,469) 48,407
Less stock held in trust for deferred compensation . -- -- (962)
Less treasury stock ....................................... -- -- (128,040)
-------- --------- -----------
Total shareholders' equity (deficit) ........................ 15,619 (33,469) (80,595)
-------- --------- -----------
Total liabilities and shareholders' equity (deficit) ...... $38,208 $ (42,004) $ 236,881
======== ========= ===========
</TABLE>
F-25
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements--Continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent subsidiary subsidiaries Eliminations Consolidated
---------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales ..................... $380,872 $ -- $81,542 $ (29,862) $432,552
Cost of goods sold ............ 212,861 -- 52,180 (30,472) 234,569
-------- -------- -------- --------- ---------
Gross profit .................. 168,011 -- 29,362 610 197,983
-------- -------- -------- --------- ---------
Operating expenses:
Selling ........................ 104,685 -- 17,370 -- 122,055
General and administrative ... 26,039 (817) 5,655 1,328 32,205
Research and development ...... 6,196 -- -- -- 6,196
Other special charges ......... 1,348 -- 1,654 -- 3,002
-------- -------- -------- --------- ---------
138,268 (817) 24,679 1,328 163,458
-------- -------- -------- --------- ---------
Income from operations ...... 29,743 817 4,683 (718) 34,525
Interest expense ............... 24,118 -- 424 -- 24,542
Equity in income of subsidiary (3,475) (2,948) -- 6,423 --
Other (income) expense, net ... (590) 6 962 -- 378
-------- -------- ------- --------- ---------
Income before income taxes ... 9,690 3,759 3,297 (7,141) 9,605
Income tax expense ............ 2,786 284 349 -- 3,419
-------- -------- -------- --------- ---------
Net income .................. $ 6,904 $ 3,475 $ 2,948 $ (7,141) $ 6,186
======== ======== ======== ========= =========
</TABLE>
F-26
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements--Continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Guarantor Nonguarantor
Parent subsidiary subsidiaries Eliminations Consolidated
------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating activities $ 34,436 $ (11) $ 1,240 $-- $ 35,665
Cash flows from investing activities:
Purchases of property, plant and equipment ...... (10,113) -- (743) -- (10,856)
Proceeds from sale of property, plant and
equipment .................................... 52 -- -- -- 52
Sale (purchase) of equipment and technology ...... (1,866) -- 1,866 -- --
---------- ----- --------- ---- ----------
Net cash provided (used) by investing activities (11,927) -- 1,123 -- (10,804)
---------- ----- --------- ---- ----------
Cash flows from financing activities:
Reduction of debt .............................. (123,489) -- (11,590) -- (135,079)
Proceeds from debt financing ..................... 100,000 -- 8,890 -- 108,890
Cash overdrafts ................................. 164 -- -- -- 164
Proceeds from direct financing lease ............ 100 -- -- -- 100
Issuance of stock .............................. 271 -- -- -- 271
Acquisition of treasury stock .................. (3,343) -- -- -- (3,343)
Exercise of stock options ........................ 1,438 -- -- -- 1,438
Payments on capital lease obligations ............ -- -- (426) -- (426)
---------- ----- --------- ---- ----------
Net cash provided (used) by financing activities (24,859) -- (3,126) -- (27,985)
---------- ----- --------- ---- ----------
Effect of exchange rate changes on cash and
cash equivalents ................................. -- -- 2 -- 2
---------- ----- --------- ---- ----------
Net increase (decrease) in cash and cash
equivalents .................................... (2,350) (11) (761) -- (3,122)
Cash and cash equivalents, beginning of period ... 2,983 57 1,215 -- 4,255
---------- ----- --------- ---- ----------
Cash and cash equivalents, end of period ......... $ 633 $ 46 $ 454 $-- $ 1,133
========== ===== ========= ==== ==========
</TABLE>
F-27
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements--Continued
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 1996
<TABLE>
<CAPTION>
Guarantor
Parent subsidiary
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 2,983 $ 57
Receivables:
Trade accounts receivable, net ........................... 45,614 --
Other ................................................... 15,128 162
Inventories ............................................. 57,615 --
Deferred income taxes .................................... 7,888 1,026
Prepaid expenses and other .............................. 3,457 --
----------- --------
Total current assets ................................. 132,685 1,245
----------- --------
Property, plant and equipment, net ........................ 61,495 --
Deferred charges and other ................................. 6,815 --
Debt issuance costs ....................................... 12,764 --
Investment in subsidiaries ................................. 12,056 12,098
----------- --------
Total assets ....................................... $ 225,815 $13,343
=========== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ..................... $ 4,500 $ --
Accounts payable .......................................... 40,830 597
Accrued liabilities:
Wages and benefits ....................................... 4,759 --
Accrued interest ....................................... 618 --
Recapitalization and other special charges ............ 11,645 --
Other ................................................... 10,043 484
----------- --------
Total current liabilities ........................... 72,395 1,081
----------- --------
Long-term debt, net of current maturities .................. 223,990 --
Employee benefit obligations, net of current portion ...... 12,138 --
Deferred income taxes .................................... (64) 206
Other ...................................................... 2,061 --
----------- --------
Total liabilities .................................... 310,520 1,287
Shareholders' equity (deficit):
Common stock ............................................. 500 --
Additional paid-in capital .............................. 15,970 3,525
Foreign currency translation adjustment .................. 1,689 1,689
Notes receivable from officers/shareholders ............... (500) --
Retained earnings ....................................... 26,158 6,842
----------- --------
43,817 12,056
Less treasury stock, at cost ........................... (128,522) --
----------- --------
Total shareholders' equity (deficit) ..................... (84,705) 12,056
----------- --------
Total liabilities and shareholders' equity (deficit) ...... $ 225,815 $13,343
=========== ========
<CAPTION>
Nonguarantor Combined
subsidiaries Eliminations consolidated
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 1,215 $ -- $ 4,255
Receivables:
Trade accounts receivable, net ........................... 16,706 -- 62,320
Other ................................................... 95 (11,229) 4,156
Inventories ............................................. 13,303 (797) 70,121
Deferred income taxes .................................... 244 -- 9,158
Prepaid expenses and other .............................. 1,407 -- 4,864
--------- --------- -----------
Total current assets ................................. 32,970 (12,026) 154,874
--------- --------- -----------
Property, plant and equipment, net ........................ 7,145 -- 68,640
Deferred charges and other ................................. 598 -- 7,413
Debt issuance costs ....................................... -- -- 12,764
Investment in subsidiaries ................................. -- (24,154) --
--------- --------- -----------
Total assets ....................................... $ 40,713 $ (36,180) $ 243,691
========= ========= ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ..................... $ 4,318 -- $ 8,818
Accounts payable .......................................... 16,505 (11,011) 46,921
Accrued liabilities:
Wages and benefits ....................................... 1,135 -- 5,894
Accrued interest ....................................... 13 -- 631
Recapitalization and other special charges ............ 3,297 -- 14,942
Other ................................................... 2,492 -- 13,019
--------- --------- -----------
Total current liabilities ........................... 27,760 (11,011) 90,225
--------- --------- -----------
Long-term debt, net of current maturities .................. 855 -- 224,845
Employee benefit obligations, net of current portion ...... -- -- 12,138
Deferred income taxes .................................... -- -- 142
Other ...................................................... -- -- 2,061
--------- --------- -----------
Total liabilities .................................... 28,615 (11,011) 329,411
Shareholders' equity (deficit):
Common stock ............................................. 12,072 (12,072) 500
Additional paid-in capital .............................. 750 (4,275) 15,970
Foreign currency translation adjustment .................. 1,689 (3,378) 1,689
Notes receivable from officers/shareholders ............... -- -- (500)
Retained earnings ....................................... (2,413) (5,444) 25,143
--------- --------- -----------
12,098 (25,169) 42,802
Less treasury stock, at cost ........................... -- -- (128,522)
--------- --------- -----------
Total shareholders' equity (deficit) ..................... 12,098 (25,169) (85,720)
--------- --------- -----------
Total liabilities and shareholders' equity (deficit) ...... $ 40,713 $ (36,180) $ 243,691
========= ========= ===========
</TABLE>
F-28
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements--Continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Transition period ended September 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales ........................... $ 89,760 -- $ 19,974 $ (7,854) $ 101,880
Cost of goods sold .................. 53,480 -- 13,470 (7,708) 59,242
--------- --------- -------- -------- ---------
Gross profit ........................ 36,280 -- 6,504 (146) 42,638
--------- --------- -------- -------- ---------
Operating expenses:
Selling .............................. 23,539 -- 4,257 -- 27,796
General and administrative ......... 6,508 2 2,109 9 8,628
Research and development ............ 1,495 -- -- -- 1,495
Recapitalization charges ............ 12,326 -- -- -- 12,326
Other special charges ............... 12,768 - 3,297 -- 16,065
--------- --------- -------- -------- ---------
56,636 2 9,663 9 66,310
--------- --------- -------- -------- ---------
Loss from operations ............... (20,356) (2) (3,159) (155) (23,672)
Interest expense ..................... 4,320 -- 110 -- 4,430
Equity in loss of subsidiary ......... 2,508 2,611 -- (5,119) --
Other (income) expense, net ......... (170) (162) 408 -- 76
--------- --------- -------- -------- ---------
Loss before income taxes and
extraordinary item .................. (27,014) (2,451) (3,677) 4,964 (28,178)
Income tax (benefit) expense ......... (7,895) 57 (1,066) -- (8,904)
--------- --------- -------- -------- ---------
Loss before extraordinary item ...... (19,119) (2,508) (2,611) 4,964 (19,274)
Extraordinary item, loss on early
extinguishment of debt, net of income
tax benefit of $777 .................. (1,647) -- -- -- (1,647)
--------- --------- -------- -------- ---------
Net loss ........................... $ (20,766) $ (2,508) $ (2,611) $ 4,964 $ (20,921)
========= ========= ======== ======== =========
</TABLE>
F-29
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements--Continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Transition period ended September 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating activities ...... $ (2,078) $16 $ 932 $-- $ (1,130)
Cash flows from investing activities: ...............
Purchases of property, plant and equipment ............ (912) -- (336) -- (1,248)
Proceeds from sale of property, plant and
equipment .......................................... 1,281 -- -- -- 1,281
---------- ---- -------- ---- ----------
Net cash provided (used) by investing activities ...... 369 -- (336) -- 33
---------- ---- -------- ---- ----------
Cash flows from financing activities:
Reduction of debt .................................... (104,138) -- (2,952) -- (107,090)
Proceeds from debt financing ........................ 256,500 -- 2,989 -- 259,489
Cash overdraft ....................................... (2,493) -- -- -- (2,493)
Debt issuance costs ................................. (14,373) -- -- -- (14,373)
Extinguishment of debt .............................. (2,424) -- -- -- (2,424)
Distributions from DISC .............................. (1,943) -- -- -- (1,943)
Acquisition of treasury stock ........................ (127,925) -- -- -- (127,925)
Payments on capital lease obligation .................. -- -- (84) -- (84)
---------- ---- -------- ---- ----------
Net cash provided (used) by financing activities ...... 3,204 -- (47) -- 3,157
---------- ---- -------- ---- ----------
Effect of exchange rate changes on cash and cash
equivalents .......................................... -- -- 5 -- 5
---------- ---- -------- ---- ----------
Net increase (decrease) in cash and cash
equivalents ....................................... 1,495 16 554 -- 2,065
Cash and cash equivalents, beginning of period ......... 1,488 41 661 -- 2,190
---------- ---- -------- ---- ----------
Cash and cash equivalents, end of period ............... $ 2,983 $57 $ 1,215 -- $ 4,255
========== ==== ======== ==== ==========
</TABLE>
F-30
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements--Continued
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
---------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 1,488 $ 41 $ 661 $ -- $ 2,190
Receivables:
Trade accounts receivable, net ........................... 40,138 -- 15,692 -- 55,830
Other ................................................... 11,434 318 780 (10,210) 2,322
Inventories ............................................. 54,486 -- 12,951 (496) 66,941
Deferred income taxes .................................... 5,439 179 243 -- 5,861
Prepaid expenses and other .............................. 3,415 -- 1,560 -- 4,975
-------- ------- -------- --------- --------
Total current assets ................................. 116,400 538 31,887 (10,706) 138,119
-------- ------- -------- --------- --------
Property, plant and equipment, net ........................ 65,747 -- 7,434 -- 73,181
Deferred charges and other ................................. 9,047 -- 608 -- 9,655
Debt issuance costs ....................................... 173 -- -- -- 173
Investment in subsidiaries ................................. 14,524 14,670 -- (29,194) --
-------- ------- -------- --------- --------
Total assets ....................................... $205,891 $15,208 $39,929 $ (39,900) $221,128
======== ======= ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities: ....................................
Current maturities of long-term debt ..................... $ 7,350 $ -- $ 4,281 $ -- $ 11,631
Accounts payable .......................................... 32,906 492 15,145 (9,848) 38,695
Accrued liabilities:
Wages and benefits ....................................... 5,077 -- 1,049 -- 6,126
Accrued interest ....................................... 1,850 -- 40 -- 1,890
Other ................................................... 12,768 (14) 3,803 -- 16,557
-------- ------- -------- --------- --------
Total current liabilities ........................... 59,951 478 24,318 (9,848) 74,899
-------- ------- -------- --------- --------
Long-term debt, net of current maturities .................. 68,777 -- 941 -- 69,718
Employee benefit obligations, net of current portion ...... 12,141 -- -- -- 12,141
Deferred income taxes .................................... 2,378 206 -- -- 2,584
Other ...................................................... 162 -- -- -- 162
-------- ------- -------- --------- --------
Total liabilities .................................... 143,409 684 25,259 (9,848) 159,504
-------- ------- -------- --------- --------
Shareholders' equity (deficit): ...........................
Common stock ............................................. 500 -- 12,072 (12,072) 500
Rayovac International Corporation common stock ............ 5 -- -- -- 5
Additional paid-in capital .............................. 12,000 3,525 750 (4,275) 12,000
Foreign currency translation adjustment .................. 1,650 1,650 1,650 (3,300) 1,650
Retained earnings ....................................... 48,860 9,349 198 (10,405) 48,002
-------- ------- -------- --------- --------
63,015 14,524 14,670 (30,052) 62,157
Less treasury stock, at cost ........................... (533) -- -- -- (533)
Total shareholders' equity (deficit) ..................... 62,482 14,524 14,670 (30,052) 61,624
-------- ------- -------- --------- --------
Total liabilities and shareholders' equity (deficit) ...... $205,891 $15,208 $39,929 $ (39,900) $221,128
======== ======= ======== ========= ========
</TABLE>
F-31
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements--Continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year ended June 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
---------- ------------ -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Net sales ........................ $369,065 $ -- $82,116 $ (27,827) $423,354
Cost of goods sold ............... 213,349 -- 53,846 (27,852) 239,343
-------- -------- -------- --------- ---------
Gross profit .................. 155,716 -- 28,270 25 184,011
-------- -------- -------- --------- ---------
Operating expenses:
Selling ........................ 99,486 -- 17,039 -- 116,525
General and administrative ...... 25,967 12 5,775 13 31,767
Research and development ...... 5,442 -- -- -- 5,442
-------- -------- -------- --------- ---------
130,895 12 22,814 13 153,734
-------- -------- -------- --------- ---------
Income (loss) from operations ... 24,821 (12) 5,456 12 30,277
Interest expense ............... 7,731 -- 704 -- 8,435
Equity in income of subsidiary ... (2,507) (2,167) -- 4,674 --
Other (income) expense, net ...... (51) (570) 1,173 -- 552
-------- -------- -------- --------- ---------
Income before income taxes ...... 19,648 2,725 3,579 (4,662) 21,290
Income tax expense ............... 5,372 218 1,412 -- 7,002
-------- -------- -------- --------- ---------
Net income ..................... $14,276 $ 2,507 $ 2,167 $ (4,662) $ 14,288
======== ======== ======== ========= =========
</TABLE>
F-32
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements--Continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended June 30, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating activities ...... $ 14,449 $ (292) $ 3,688 $ $ 17,845
Cash flows from investing activities:
Purchases of property, plant and equipment ............ (6,558) -- (88) -- (6,646)
Proceeds from sale of property, plant and
equipment .......................................... 298 -- -- 298
--------- ------ --------- ----------
Net cash provided (used) by investing activities ...... (6,260) -- (88) -- (6,348)
--------- ------ --------- ---- ----------
Cash flows from financing activities:
Reduction of debt .................................... (97,627) -- (6,899) -- (104,526)
Proceeds from debt financing ........................ 93,600 -- 2,652 -- 96,252
Cash overdraft ....................................... 2,339 -- -- -- 2,339
Distributions from DISC .............................. (5,187) -- -- -- (5,187)
Intercompany dividends .............................. -- 130 (130) -- --
Acquisition of treasury stock ........................ (533) -- -- -- (533)
Payments on capital lease obligation .................. -- -- (295) -- (295)
--------- ------ --------- ---- ----------
Net cash provided (used) by financing activities ...... (7,408) 130 (4,672) -- (11,950)
--------- ------ --------- ---- ----------
Effect of exchange rate changes on cash and cash
equivalents .......................................... -- -- (2) -- (2)
--------- ------ --------- ---- ----------
Net increase (decrease) in cash and cash
equivalents .......................................... 781 (162) (1,074) -- (455)
Cash and cash equivalents, beginning of period ......... 707 203 1,735 -- 2,645
--------- ------ --------- ---- ----------
Cash and cash equivalents, end of period ............... $ 1,488 $ 41 $ 661 $-- $ 2,190
========= ====== ========= ==== ==========
</TABLE>
F-33
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements--Continued
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year ended June 30, 1995
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
---------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales ........................... $364,816 $ -- $79,022 $ (28,614) $415,224
Cost of goods sold .................. 214,119 -- 51,781 (28,774) 237,126
-------- -------- -------- --------- ---------
Gross profit ........................ 150,697 -- 27,241 160 178,098
-------- -------- -------- --------- ---------
Operating expenses:
Selling ........................... 93,935 -- 14,768 -- 108,703
General and administrative ......... 27,556 (651) 5,872 84 32,861
Research and development ............ 5,005 -- -- -- 5,005
-------- -------- -------- --------- ---------
126,496 (651) 20,640 84 146,569
-------- -------- -------- --------- ---------
Income from operations ............ 24,201 651 6,601 76 31,529
Interest expense ..................... 7,889 -- 755 -- 8,644
Equity in income of subsidiary ...... (5,520) (4,928) -- 10,448 --
Other (income) expense, net ......... (116) (319) 665 -- 230
-------- -------- -------- --------- ---------
Income before income taxes............ 21,948 5,898 5,181 (10,372) 22,655
Income tax expense .................. 5,616 378 253 -- 6,247
-------- -------- -------- --------- ---------
Net income ........................ $16,332 $ 5,520 $ 4,928 $ (10,372) $ 16,408
======== ======== ======== ========= =========
</TABLE>
F-34
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
17. Consolidated Financial Statements--Continued
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended June 30, 1995
<TABLE>
<CAPTION>
Guarantor Nonguarantor Combined
Parent subsidiary subsidiaries Eliminations consolidated
------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating activities ...... $ 32,394 $ (3,823) $ 3,737 $ 3,211 $ 35,519
Cash flows from investing activities:
Purchases of property, plant and equipment ............ (14,288) -- (2,650) -- (16,938)
Proceeds from sale of property, plant and
equipment .......................................... 139 -- -- -- 139
---------- -------- -------- -------- ----------
Net cash (used) by investing activities ............... (14,149) -- (2,650) -- (16,799)
---------- -------- -------- -------- ----------
Cash flows from financing activities:
Reduction of debt .................................... (100,536) -- (5,847) -- (106,383)
Proceeds from debt financing ........................ 79,749 -- 5,223 726 85,698
Cash overdraft ....................................... 3,925 -- -- -- 3,925
Distributions from DISC .............................. (1,500) -- -- -- (1,500)
Intercompany dividends .............................. -- 3,899 (3,899) -- --
---------- -------- -------- -------- ----------
Net cash provided (used) by financing activities ...... (18,362) 3,899 (4,523) 726 (18,260)
========== ======== ======== ======== ==========
Effect of exchange rate changes on cash and cash
equivalents .......................................... -- -- 3,592 (3,937) (345)
---------- -------- -------- -------- ----------
Net increase (decrease) in cash and cash
equivalents .......................................... (117) 76 156 -- 115
Cash and cash equivalents, beginning of period ......... 824 127 1,579 -- 2,530
---------- -------- -------- -------- ----------
Cash and cash equivalents, end of period ............... $ 707 $ 203 $ 1,735 $ -- $ 2,645
========== ======== ======== ======== ==========
</TABLE>
F-35
<PAGE>
[Inside Back Cover]
[Picture of Rayovac Store Display [Picture of Five Rayovac Photo/Electronic
for Remote Keyless Entry System and Keyless Entry Battery Packs
Batteries on Gray Background] on White and Blue Background]
[Picture of a Rayovac Alkaline [Picture of Rayovac Battery Products
Computer Battery on and Flashlights on Gray Background]
Black Background]
[Picture of Rayovac Loud'n Clear [Picture of Five Packs of Rayovac
Premium Zinc Air Hearing Aid Pro Line Premium Zinc Air Hearing Aid
Battery Pack on Battery Packs on Gray Background]
Light Gray Background]
<PAGE>
----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary ........................ 3
Risk Factors .............................. 10
The Recapitalization ..................... 15
Use of Proceeds ........................... 15
Dividend Policy ........................... 15
Capitalization ........................... 16
Dilution ................................. 17
Selected Financial Data .................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................... 21
Business ................................. 30
Management .............................. 43
Principal and Over-Allotment Selling
Shareholders ........................... 51
Certain Relationships and Related
Transactions ........................... 52
Description of Capital Stock ............ 53
Description of Certain Indebtedness ...... 57
Shares Eligible for Future Sale ......... 60
Certain United States Federal Tax
Considerations for Non-United States
Holders .............................. 61
Underwriting .............................. 63
Legal Matters ........................... 66
Experts ................................. 66
Available Information ..................... 67
Index to Financial Statements ............ F-1
</TABLE>
================================================================================
6,700,000 Shares
RAYOVAC(R)
Common Stock
----------------------------------
P R O S P E C T U S
----------------------------------
Merrill Lynch & Co.
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
, 1997
================================================================================
<PAGE>
[ALTERNATE PAGE]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 17, 1997
PROSPECTUS
[RED HERRING]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[/RED HERRING]
6,700,000 Shares
RAYOVAC(R)
Common Stock
-----------
All of the 6,700,000 shares of Common Stock offered hereby are being sold
by Rayovac Corporation ("Rayovac" or the "Company"). Of the 6,700,000 shares of
Common Stock offered hereby, 1,340,000 shares are being offered for sale
initially outside the United States and Canada by the International Managers
and 5,360,000 shares are being offered for sale initially in a concurrent
offering in the United States and Canada by the U.S. Underwriters. The initial
public offering price and the aggregate underwriting discount per share will be
identical for both Offerings. See "Underwriting."
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $13.00 and $15.00 per share. For a discussion relating to factors to be
considered in determining the initial public offering price, see
"Underwriting".
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "ROV," subject to official notice of issuance.
See "Risk Factors" beginning on page 10 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ...... $ $ $
- --------------------------------------------------------------------------------
Total (3) ...... $ $ $
</TABLE>
================================================================================
(1) The Company and the Over-Allotment Selling Shareholders have agreed to
indemnify the several Underwriters against certain liabilities, including
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,200,000.
(3) The Over-Allotment Selling Shareholders have granted the International
Managers and the U.S. Underwriters options to purchase up to an additional
201,000 shares and 804,000 shares of Common Stock, respectively, in each
case exercisable within 30 days after the date hereof, solely to cover
over-allotments, if any. If such options are exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to the Over-Allotment
Selling Shareholders will be $ , $ and $ , respectively.
See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made in New York,
New York on or about , 1997.
-----------
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
-----------
The date of this Prospectus is , 1997.
<PAGE>
[ALTERNATE PAGE]
UNDERWRITING
Merrill Lynch International, Bear, Stearns International Limited,
Donaldson, Lufkin & Jenrette Securities Corporation and Smith Barney Inc. are
acting as lead managers (the "Lead Managers") for each of the International
Managers named below (the "International Managers"). Subject to the terms and
conditions set forth in an international purchase agreement (the "International
Purchase Agreement") among the Company, the Over-Allotment Selling Shareholders
and the International Managers and concurrently with the sale of 5,360,000
shares of Common Stock to the U.S. Underwriters (as defined below), the Company
has agreed to sell to the International Managers, and each of the International
Managers severally and not jointly has agreed to purchase from the Company, the
number of shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
Number of
International Manager Shares
--------------------- ------
<S> <C>
Merrill Lynch International ..............................
Bear, Stearns International Limited .....................
Donaldson, Lufkin & Jenrette Securities Corporation ......
Smith Barney Inc. ....................................... ---------
Total ............................................. 1,340,000
=========
</TABLE>
The Company has also entered into a U.S. purchase agreement (the "U.S.
Purchase Agreement") with certain underwriters in the United States and Canada
(the "U.S. Underwriters" and, together with the International Managers, the
"Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Smith Barney Inc. are acting as representatives (the
"U.S. Representatives"). Subject to the terms and conditions set forth in the
U.S. Purchase Agreement, and concurrently with the sale of 1,340,000 shares of
Common Stock to the International Managers pursuant to the International
Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters,
and the U.S. Underwriters severally and not jointly have agreed to purchase
from the Company, an aggregate of 5,360,000 shares of Common Stock. The initial
public offering price per share of Common Stock and the underwriting discount
per share of Common Stock are identical under the International Purchase
Agreement and the U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant to
such agreement are purchased. Under certain circumstances, under the
International Purchase Agreement and the U.S. Purchase Agreement, the
commitments of non-defaulting Underwriters may be increased. The closings with
respect to the sale of shares of Common Stock to be purchased by the
International Managers and the U.S. Underwriters are conditioned upon one
another.
The Lead Managers have advised the Company that the International Managers
propose initially to offer the shares of Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $
per share of Common Stock. The International Managers, may allow, and such
dealers may reallow, a discount not in excess of $ per share of Common
Stock on sales to certain other dealers. After the initial public offering, the
public offering price, concession and discount may be changed.
The Over-Allotment Selling Shareholders have granted options to the
International Managers, exercisable within 30 days after the date of this
Prospectus, to purchase up to 201,000 additional shares of Common Stock at the
initial public offering price set forth on the cover page of this Prospectus,
less the underwriting discount. The International Managers may exercise these
options solely to cover over-allotments, if any, made on the sale of the Common
Stock offered hereby. To the extent that the International Managers exercise
these options, each International Manager will be obligated, subject to certain
conditions, to purchase a number of additional shares
63
<PAGE>
[ALTERNATE PAGE]
of Common Stock proportionate to such International Manager's initial amount
reflected in the foregoing table. The Over-Allotment Selling Shareholders also
have granted options to the U.S. Underwriters, exercisable within 30 days after
the date of this Prospectus, to purchase up to aggregate of 804,000 additional
shares of Common Stock to cover over-allotments, if any, on terms similar to
those granted to the International Managers.
At the request of the Company, the Underwriters have reserved up to
530,000 shares of Common Stock for sale at the initial public offering price
set forth on the cover page of this Prospectus to certain employees of the
Company and certain other persons. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the pricing of the Offerings will be
offered by the Underwriters to the general public on the same terms as other
shares offered hereby.
The Company, the Company's executive officers and directors, the Lee Group
and certain other shareholders have agreed, subject to certain exceptions, not
to directly or indirectly (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of or otherwise dispose of or
transfer any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or thereafter
acquired by the person executing the agreement or with respect to which the
person executing the agreement thereafter acquires the power of disposition, or
file a registration statement under the Securities Act with respect to the
foregoing or (ii) enter into any swap or other agreement that transfers, in
whole or in part, the economic consequence of ownership of the Common Stock
whether any such swap or transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, without the prior written
consent of Merrill Lynch on behalf of the Underwriters, for a period of 180
days after the date of this Prospectus. See "Shares Eligible for Future Sale."
The Lee Group, the beneficial owner of more than 10% of the Company's
outstanding Common Stock, may be deemed to be an affiliate of Sutro & Co.
Incorporated and Tucker Anthony Incorporated, members of the NASD which may
participate in the U.S. Offering and the International Offering. Accordingly,
the U.S. Offering and the International Offering will be conducted in
accordance with NASD Conduct Rule 2720 which provides that the initial public
offering price of the Common Stock may not be higher than the price recommended
by a Qualified Independent Underwriter which has participated in the
preparation of this Prospectus and performed its usual standard of due
diligence with respect thereto. Smith Barney Inc. has agreed to act as the
Qualified Independent Underwriter for the U.S. Offering and the International
Offering, and the initial public offering price of the Common Stock will not be
higher than the price recommended by Smith Barney Inc.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
International Managers and the U.S. Underwriters are permitted to sell shares
of Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer
to whom they sell shares of Common Stock will not offer to sell or sell shares
of Common Stock to persons who are non-U.S. or non-Canadian persons or to
persons they believe intend to resell to persons who are non-U.S. or
non-Canadian persons, and the International Managers and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of
Common Stock to U.S. persons or to Canadian persons or to persons they believe
intend to resell to U.S. persons or Canadian persons, except in the case of
transactions pursuant to the Intersyndicate Agreement.
Prior to the Offerings, there has been no public market for the shares
of Common Stock of the Company. The initial public offering price will be
determined through negotiations among the Company, the U.S. Representatives and
the Lead Managers. The factors to be considered in determining the initial
public offering price, in addition to prevailing market conditions, are
price-earnings ratios of publicly traded companies that the U.S. Representatives
and Lead Managers believe to be comparable to the Company, certain financial
information of the Company, the history of, and the prospects for, the Company
and the industry in which the Company competes, and an assessment of the
Company's management, its past and present operations, the prospects for, and
timing of, future revenues of the Company, the present state of the Company's
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to the
Company. There can be no assurance given that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to the Offerings at or above the initial public offering
price.
64
<PAGE>
[ALTERNATE PAGE]
The Common Stock has been approved for listing on the New York Stock
Exchange under the trading symbol "ROV," subject to official notice of
issuance. In order to meet the requirements for listing of the Common Stock on
the New York Stock Exchange, the U.S. Underwriters and International Managers
have undertaken to sell lots of 100 or more shares to a minimum of 2,000
beneficial owners.
The International Managers and the U.S. Underwriters have informed the
Company that they do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
The Company and the Over-Allotment Selling Shareholders have agreed to
indemnify the International Managers and the U.S. Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments which the International Managers and U.S. Underwriters may be required
to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the U.S. Representatives are
permitted to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Common Stock in
the open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce
the Underwriters' short position or to stabilize the price of the Common Stock,
they may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might have been in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of the Common Stock to the
extent that it discourages resales of the Common Stock.
Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
Each International Manager has agreed that (i) it has not offered or sold,
and, for a period of six months from the Closing Date, will not offer or sell,
to persons in the United Kingdom, other than to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied with and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the shares of Common Stock in,
from or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of shares of Common Stock to a
person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995, or is a person to
whom such document may otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock, or the possession, circulation or distribution of this Prospectus or any
other material relating to the Company or shares of Common Stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of Common Stock may not be offered or sold, directly or indirectly, and neither
this Prospectus nor any other offering material or advertisements in connection
with the shares of Common Stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.
65
<PAGE>
[ALTERNATE PAGE]
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
Donaldson, Lufkin & Jenrette Securities Corporation and its affiliate, DLJ
Capital Funding, Inc., have provided from time to time, and may provide in the
future, commercial and investment banking services to the Company and its
affiliates, including in connection with the Credit Agreement between the
Company, BA Securities, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and its affiliate DLJ Capital Funding, Inc. as arrangers for a
group of financial institutions and accredited investors which provided the
Company with senior bank facilities in an aggregate amount of $170 million.
66
<PAGE>
[ALTERNATE PAGE]
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
solicitation of an offer to buy the Common Stock in any jurisdiction where, or
to any person to whom, it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has not been any
change in the facts set forth in this Prospectus or in the affairs of the
Company since the date hereof.
In the Prospectus, references to "dollars" and "$" are to United States
dollars.
----------------------------------
TABLE OF CONTENTS
Page
----------
Prospectus Summary ........................ 3
Risk Factors .............................. 10
The Recapitalization ..................... 15
Use of Proceeds ........................... 15
Dividend Policy ........................... 15
Capitalization ........................... 16
Dilution ................................. 17
Selected Financial Data .................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................... 21
Business ................................. 30
Management .............................. 43
Principal and Over-Allotment Selling
Shareholders ........................... 51
Certain Relationships and Related
Transactions ........................... 52
Description of Capital Stock ............ 53
Description of Certain Indebtedness ...... 57
Shares Eligible for Future Sale ......... 60
Certain United States Federal Tax
Considerations for Non-United States
Holders .............................. 61
Underwriting .............................. 63
Legal Matters ........................... 67
Experts ................................. 67
Available Information ..................... 67
Index to Financial Statements ............ F-1
================================================================================
6,700,000 Shares
RAYOVAC(R)
Common Stock
----------------------------------
P R O S P E C T U S
----------------------------------
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
, 1997
================================================================================
<PAGE>
[ALTERNATE PAGE]
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED NOVEMBER 17, 1997
PROSPECTUS
270,000 Shares
RAYOVAC(R)
Common Stock
-----------
[RED HERRING]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[/RED HERRING]
All of the 270,000 shares of Common Stock offered hereby are being offered
directly by Rayovac Corporation ("Rayovac" or the "Company") to certain
employee participants in the Company's Profit Sharing and Savings Plan (the
"Direct Offering"). Concurrently with the Direct Offering, the Company is
offering (the "Underwritten Offering") an aggregate of 6,700,000 shares of
Common Stock to the public through a group of underwriters (the
"Underwriters"). The Direct Offering is contingent upon the consummation of the
Underwritten Offering. The Direct Offering and the Underwritten Offering are
collectively referred to herein as the "Offerings."
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price for the
Underwritten Offering will be between $13.00 and $15.00 per share and that the
initial public offering price for the Direct Offering will be between $12.61 and
$14.55 per share, representing a discount of approximately 3% from the initial
public offering price in the Underwritten Offering. Employee participants in the
Company's Profit Sharing and Savings Plan purchasing shares of Common Stock in
the Direct Offering will be acquiring the shares of Common Stock through an
investment in the Rayovac Stock Fund, a new investment option available in the
Profit Sharing and Savings Plan, and will be required to transfer funds within
their Profit Sharing and Savings Plan account into the Rayovac Stock Fund in an
amount per share purchased equal to the initial public offering price in the
Underwritten Offering. As requested by the administrator of the Company's Profit
Sharing and Savings Plan, the amount of the discount applicable to purchases of
shares of Common Stock in the Direct Offering may be maintained in cash and cash
equivalents in the Profit Sharing and Savings Plan account of the employee
participant purchasing such shares in the Direct Offering to provide liquidity
in connection with the administration of the Rayovac Stock Fund. See "Plan of
Distribution." See "Plan of Distribution" for information relating to the
factors to be considered in determining the initial public offering price of the
Common Stock.
The Company expects to receive net proceeds of approximately $ million in
connection with the sale of 6,970,000 shares of Common Stock in the Offerings.
The Company estimates that expenses of the Offerings will be approximately
$1,200,000.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "ROV," subject to official notice of issuance.
See "Risk Factors" beginning on page 10 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------
The shares of Common Stock are offered by the Company subject to approval
of certain legal matters by counsel for the Company and certain other
conditions, including consummation of the Underwritten Offering. It is expected
that delivery of the shares of Common Stock will be made in New York, New York
on or about , 1997.
-----------
The date of this Prospectus is , 1997.
<PAGE>
[ALTERNATE PAGE]
The Offerings
<TABLE>
<S> <C>
Common Stock offered by the Company ...... 6,970,000 shares (1)
Common Stock to be outstanding after the
Offerings .............................. 27,551,431 shares (2)
Use of proceeds ........................... The net proceeds to be received by the Company from the
Offerings will be used to repay indebtedness incurred in
connection with the recapitalization of the Company
completed in September 1996. See "The Recapitalization"
and "Use of Proceeds."
New York Stock Exchange symbol ............ "ROV"
</TABLE>
- ----------------
(1) Includes up to 6,700,000 shares of Common Stock being concurrently offered
to the general public by the Underwriters pursuant to a separate
prospectus.
(2) Excludes 5,426,905 shares of Common Stock reserved for sale or issuance
under the Company's employee benefit plans, of which options to purchase
2,318,127 shares have been granted and 3,108,778 shares remain available
for issuance or sale. See "Management--Stock Option Plans."
The Company is concurrently offering up to 6,700,000 shares of Common
Stock to the general public through the Underwriters pursuant to a separate
prospectus in the Underwritten Offering. The Direct Offering and the
Underwritten Offering are collectively referred to herein as the "Offerings."
6
<PAGE>
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
The Company is offering directly to certain employee participants in the
Company's Profit Sharing and Savings Plan up to an aggregate of 270,000 shares
of Common Stock at the initial public offering price set forth on the cover
page of this Prospectus. Since such shares are being sold directly by the
Company and not through the Underwriters, no underwriting discount will be paid
to the Underwriters with respect to such shares. The Direct Offering is
contingent upon the consummation of the Underwritten Offering.
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. The initial public offering price for the Common Stock in
the Underwritten Offering (the "IPO Price") will be determined by negotiation
between the Company and the Representatives of the Underwriters. The initial
public offering price for the Common Stock in the Direct Offering will be equal
to the IPO Price less a discount of approximately 3%. Persons participating in
the Direct Offering will be acquiring the shares of Common Stock through an
investment in the Rayovac Stock Fund, a new investment option available in the
Company's Profit Sharing and Savings Plan, and will be required to transfer
funds within their Profit Sharing and Savings Plan account into the Rayovac
Stock Fund in an amount per share purchased equal to the IPO Price. At the
request of the administrator of the Company's Profit Sharing and Savings Plan,
the difference between the IPO Price and the discounted per share purchase
price applicable to purchases in the Direct Offering may be maintained in cash
and cash equivalents in the Profit Sharing and Savings Plan account of the
employee participant purchasing such shares in the Direct Offering to provide
liquidity in connection with the administration of the Rayovac Stock Fund. The
factors to be considered in determining the IPO Price, in addition to
prevailing market conditions, are price-earnings ratios of publicly traded
companies that the Underwriters believe to be comparable to the Company,
certain financial information of the Company, the history of, and the prospects
for, the Company and the industry in which it competes, and an assessment of
the Company's management, its past and present operations, the prospects for,
and timing of, future revenues of the Company, the present state of the
Company's development and the above factors in relation to market and various
valuation measures of other companies engaged in activities similar to the
Company. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offerings at or above the IPO Price.
At the request of the Company, the Underwriters have reserved for sale, at
the IPO Price up to 530,000 shares of Common Stock to certain eligible
employees and persons having relationships with the Company and its
subsidiaries. The number of shares of Common Stock available to the general
public will be reduced to the extent these persons purchase such reserved
shares. Any reserved shares of Common Stock which are not orally confirmed for
purchase within one day of the pricing of the Underwritten Offering will be
offered by the Underwriters to the general public on the same terms as the
other shares offered in the Underwritten Offering.
The Company, the Company's executive officers and directors, the Lee
Group, and certain other shareholders have agreed, subject to certain
exceptions, not to directly or indirectly (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of or otherwise
dispose of or transfer any shares of Common Stock or securities convertible
into or exchangeable or exercisable for shares of Common Stock, whether now
owned or thereafter acquired by the person or entity executing the agreement or
with respect to which the person or entity executing the agreement thereafter
acquires the power of disposition, or file a registration statement under the
Securities Act with respect to the foregoing or (ii) enter into any swap or
other agreement that transfers, in whole or in part, the economic consequence
of ownership of the Common Stock whether any such swap or transaction is to be
settled by delivery of Common Stock or other securities, in cash or otherwise,
without the prior written consent of the Representatives on behalf of the
Underwriters for a period of 180 days after the date of this Prospectus. See
"Shares Eligible for Future Sale."
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by DeWitt Ross & Stevens s.c., Madison,
Wisconsin. Certain other legal matters will be passed upon for the Company by
Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts, special
counsel to the Company.
EXPERTS
The financial statements and schedule of the Company and Subsidiaries as
of September 30, 1997, and for the year then ended, have been included herein
and elsewhere in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
63
<PAGE>
[ALTERNATE PAGE]
The financial statements and schedules of the Company and Subsidiaries as
of June 30, 1996 and as of September 30, 1996 and for each of the years in the
two-year period ended June 30, 1996, and the Transition Period ended September
30, 1996 included herein and elsewhere in the Registration Statement have been
included herein and in the Registration Statement in reliance upon the reports
of Coopers & Lybrand L.L.P., independent certified public accountants,
appearing elsewhere herein, given upon the authority of said firm as experts in
accounting and auditing.
The Company believes, and it has been advised by Coopers & Lybrand L.L.P.
that it concurs in such belief, that, during the period of its engagement, the
Company and Coopers & Lybrand L.L.P. did not have any disagreement on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of Coopers & Lybrand L.L.P., would have caused it to make
reference in connection with its report on the Company's financial statements
to the subject matter of the disagreement.
The report of Coopers & Lybrand L.L.P. on the Company's consolidated
financial statements as of June 30, 1995 and 1996 and as of September 30, 1996
and for each of the years in the three-year period ended June 30, 1996, and the
Transition Period ended September 30, 1996, did not contain an adverse opinion
or a disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope or accounting principles. During that period there were no
"reportable events" within the meaning of Item 304(a)(1)(v) of Regulation S-K
promulgated under the Securities Act.
In June 1997, KPMG Peat Marwick LLP replaced Coopers & Lybrand L.L.P. as
the Company's independent accountants. The decision to engage KPMG Peat Marwick
LLP was made with the approval of the Company's Audit Committee.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, and in accordance therewith files periodic reports and
other information with the Commission. The Company has filed with the
Commission the Registration Statement under the Securities Act with respect to
the shares of Common Stock being offered in the Offerings. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, to which reference is hereby made. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description
thereof. Such reports, the Registration Statement and other exhibits and other
information omitted from this Prospectus may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also
be available for inspection and copying at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street (Suite 1400), Chicago,
Illinois 60661. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Additionally, the Commission maintains a World Wide
Web site at (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission through the Electronic Data Gathering, Analysis and
Retrieval System.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements of the Company and quarterly reports
containing unaudited financial information for the Company for the first three
fiscal quarters of each fiscal year.
64
<PAGE>
[ALTERNATE PAGE]
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to
buy the Common Stock in any jurisdiction where, or to any person to whom, it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has not been any change in the facts set forth in
this Prospectus or in the affairs of the Company since the date hereof.
----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary ........................ 3
Risk Factors .............................. 10
The Recapitalization ..................... 15
Use of Proceeds ........................... 15
Dividend Policy ........................... 15
Capitalization ........................... 16
Dilution ................................. 17
Selected Financial Data .................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................... 21
Business ................................. 30
Management .............................. 43
Principal and Over-Allotment Selling
Shareholders ........................... 51
Certain Relationships and Related
Transactions ........................... 52
Description of Capital Stock ............ 53
Description of Certain Indebtedness ...... 57
Shares Eligible for Future Sale ......... 60
Certain United States Federal Tax
Considerations for Non-United States
Holders .............................. 61
Plan of Distribution ..................... 63
Legal Matters ........................... 63
Experts ................................. 63
Available Information ..................... 64
Index to Financial Statements ............ F-1
</TABLE>
270,000 Shares
RAYOVAC(R)
Common Stock
----------------------------------
P R O S P E C T U S
----------------------------------
, 1997
================================================================================
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is an estimate (except for the Commission Registration
Fee, National Association of Securities Dealers, Inc. Filing Fee and New York
Stock Exchange Listing Fee) of the fees and expenses all of which are payable
by the Company, other than any underwriting discounts and commissions, in
connection with the registration and sale of the securities being registered:
<TABLE>
<S> <C>
Commission Registration Fee ........................ 36,250
National Association of Securities Dealers, Inc.
Filing Fee ....................................... 12,000
New York Stock Exchange Listing Fee .................. 116,100
Transfer Agent and Registrar Fees and Expenses ...... 5,000
Blue Sky Fees and Expenses ........................... 20,000
Legal Fees and Expenses .............................. 485,000
Accounting Fees and Expenses ........................ 205,000
Printing, Engraving and Mailing Expenses ............ 265,000
Miscellaneous ....................................... 55,650
-----------
Total ............................................. $1,200,000
===========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Pursuant to the Wisconsin Business Corporation Law (the "WBCL") and the
Registrant's By-Laws, directors and officers of the Registrant are entitled to
mandatory indemnification from the Registrant against certain liabilities and
expenses (i) to the extent such directors or officers are successful in the
defense of a proceeding and (ii) in proceedings in which the director or
officer is not successful in the defense thereof, unless (in the latter case
only) it is determined that the director or officer breached or failed to
perform his duties to the Registrant and such breach or failure constituted (a)
a willful failure to deal fairly with the Registrant or its shareholders in
connection with a matter in which the director or officer had a material
conflict of interest; (b) a violation of the criminal law unless the director
or officer had reasonable cause to believe that his or her conduct was lawful
or had no reasonable cause to believe that his or her conduct was unlawful; (c)
a transaction from which the director or officer derived an improper personal
profit; or (d) willful misconduct. The WBCL also provides that, subject to
certain limitations, the mandatory indemnification provisions do not preclude
any additional right to indemnification or allowance of expenses that a
director or officer may have under the Registrant's articles of incorporation,
by-laws, a written agreement or a resolution of the Board of Directors or
shareholders. Further, the WBCL specifically states that it is the public
policy of Wisconsin to require or permit indemnification in connection with a
proceeding involving securities regulation, as described therein, to the extent
required or permitted as described above. Additionally, under the WBCL,
directors of the Registrant are not subject to personal liability to the
Registrant, its shareholders or any person asserting rights on behalf thereof
for certain breaches of or failures to perform any duty resulting solely from
their status as directors, except in circumstances paralleling those in
subparagraphs (a) through (d) outlined above.
Expenses for the defense of any action for which indemnification may be
available may be advanced by the Registrant under certain circumstances.
The general effect of the foregoing provisions may be to reduce the
circumstances which an officer or director may be required to bear the economic
burden of the foregoing liabilities and expense.
The Registrant has purchased directors' and officers' liability insurance
which would indemnify the directors and officers of the Registrant against
damages arising out of certain kinds of claims which might be made against them
based on their negligent acts or omissions while acting in their capacity as
such.
Section 6 of the Purchase Agreement between the Company and the U.S.
Underwriters and Section 6 of the Purchase Agreement between the Company and
the International Managers provide for indemnification by the
II-1
<PAGE>
Company of the U.S. Underwriters and the International Managers and each
person, if any, who controls any U.S. Underwriter or International Manager,
against certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). The Purchase Agreements also provide that the U.S.
Underwriters and the International Managers shall similarly indemnify the
Company, its directors, officers, and controlling persons, as set forth
therein.
Item 15. Recent Sales of Unregistered Securities
The following information is furnished with regard to all securities sold
by the Company within the past three years which were not registered under the
Securities Act.
1. As of September 12, 1996, in connection with the recapitalization of
the Company (the "Recapitalization"), the Company issued and sold 350,000
shares of Common Stock to Marvin G. Siegert upon exercise of stock options held
by Mr. Siegert at an exercise price of $1.15 per share. Such shares received
upon the option exercises by Mr. Siegert were sold in connection with the
Recapitalization.
2. Credit Agreement Financing
As of September 12, 1996, in connection with the Recapitalization, the
Company entered into a Credit Agreement, a copy of which is filed herewith as
Exhibit 4.3, with BA Securities, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, as arrangers for a group of financial institutions and
other accredited investors, pursuant to which, among other things, the Company
issued notes representing aggregate loans to the Company of $170.0 million.
These securities were not registered under the Securities Act in reliance on
the exemption provided by Section 4(2) thereof as an offer and sale of
securities which does not involve a public offering.
3. Bridge Financing
As of September 12, 1996, in connection with the Recapitalization, the
Company entered into a Securities Purchase Agreement with RC Funding, Inc. and
Bank of America National Trust and Savings Association (the "Bridge Lenders"),
pursuant to which, among other things, the Company issued and sold to the
Bridge Lenders $100 million aggregate principal amount of its Senior
Subordinated Increasing Rate Notes (the "Bridge Notes"). The Bridge Notes were
not registered under the Securities Act in reliance on the exemption provided
by Section 4(2) thereof as an offer and sale of securities which does not
involve a public offering.
4. 10-1/4% Senior Subordinated Notes
On October 22, 1996, the Company issued and sold $100.0 million aggregate
principal amount of its 10-1/4% Senior Subordinated Notes due 2006 (the "Old
Notes"). The Old Notes were not registered under the Securities Act in reliance
on the exemption provided by Section 4(2) thereof as an offer and sale of
securities which does not involve a public offering. The Old Notes were
initially sold to Donaldson, Lufkin & Jenrette Securities Corporation and BA
Securities, Inc., as initial purchasers, and have been subsequently offered and
sold in the United States only (a) to "Qualified Institutional Buyers" (as
defined in Rule 144A under the Securities Act) and (b) to a limited number of
other institutional "Accredited Investors" (as defined in Rule 501A(1),(2),(3)
or (7) under the Securities Act) in reliance on Rule 144A under the Securities
Act. The aggregate discounts, commissions and offering expenses for the
issuance of the Notes were approximately $3.0 million.
5. On March 17, 1997, the Company issued and sold from treasury at a price
of $4.39 per share 34,169, 36,447 and 27,335 shares of Common Stock to Messrs.
Hussey, Shanesy and Tomlin, respectively, and 6,000 and 7,000 shares of Common
Stock to Stephen L. Tuscic and Richard Thornley, respectively. These securities
were not registered under the Securities Act in reliance on the exemption
provided by Section 4(2) thereof as an offer and sale of securities which does
not involve a public offering.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description
- ---------------- ------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Purchase Agreement by and among the Company, the U.S. Underwriters and the
Over-Allotment selling Shareholder.
1.2 Form of Purchase Agreement by and among the Company, the International Managers and the
Over-Allotment Selling Shareholder.
3.1** Restated Articles of Incorporation of the Company.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- ---------------- -----------------------------------------------------------------------------------------
<S> <C>
3.2* Form of Amended and Restated Articles of Incorporation (to become effective prior to the
closing of the Offerings).
3.3** Restated By-Laws of the Company.
3.4* Form of Amended and Restated By-laws (to become effective prior to the closing of the
Offerings).
4.1** Indenture, dated as of October 22, 1996, by and among the Company, ROV Holding, Inc. and
Marine Midland Bank, as trustee, relating to the Company's 101/4% Senior Subordinated
Notes due 2006.
4.2** Specimen of the Notes (included as an exhibit to Exhibit 4.1).
4.3** Credit Agreement, dated as of September 12, 1996 by and among the Company, the lenders
party thereto, Bank of America National Trust and Savings Association ("BofA") and DLJ
Capital Funding, Inc. (the "Credit Agreement").
4.4** Amendment No. 1 to the Credit Agreement dated as of October 23, 1996.
4.5** The Security Agreement dated as of September 12, 1996 by and among the Company, ROV
Holding, Inc. and BofA.
4.6** The Company Pledge Agreement dated as of September 12, 1996 by and between the
Company and BofA.
4.7*** Shareholders Agreement dated as of September 12, 1996 by and among the Company and the
shareholders of the Company referred to therein.
4.8*** Amendment to Rayovac Shareholders Agreement dated August 1, 1997 by and among the
Company and the shareholders of the Company referred to therein.
4.9* Specimen certificate representing the Common Stock.
5.1* Opinion re: legality.
10.1** Management Agreement, dated as of September 12, 1996, by and between the Company and
Thomas H. Lee Company.
10.2** Confidentiality, Non-Competition and No-Hire Agreement dated as of September 12, 1996 by
and between the Company and Thomas F. Pyle.
10.3** Employment Agreement, dated as of September 12, 1996, by and between the Company and
David A. Jones, including the Full Recourse Promissory Note, dated September 12, 1996 by
David A. Jones in favor of the Company.
10.4** Severance Agreement by and between Company and Trygve Lonnebotn.
10.5** Severance Agreement by and between Company and Kent J. Hussey.
10.6** Severance Agreement by and between Company and Roger F. Warren.
10.7*** Severance Agreement by and between Company and Stephen P. Shanesy.
10.8*** Severance Agreement by and between Company and Merrell M. Tomlin.
10.9** Technology, License and Service Agreement between Battery Technologies (International)
Limited and the Company, dated June 1, 1991, as amended April 19, 1993 and December 31,
1995.
10.10** Building Lease between the Company and SPG Partners, dated May 14, 1985, as amended
June 24, 1986 and June 10, 1987.
10.11*** Rayovac Corporation 1996 Stock Option Plan.
10.12*** Rayovac Corporation 1997 Stock Option Plan.
10.13* 1997 Rayovac Incentive Plan.
10.14* Rayovac Profit Sharing and Savings Plan.
16+ Letter re: change in certifying accountant.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- ---------------- ------------------------------------------------------------------------------------
<S> <C>
21** Subsidiaries of the Company.
23.1* Consent of DeWitt Ross & Stevens s.c. (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
24* Power of Attorney (set forth on the signature page of this Registration Statement).
27* Financial Data Schedule.
</TABLE>
- ----------------
* Previously filed.
** Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-17895) filed with the Commission.
*** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 29, 1997 filed with the Commission on
August 13, 1997.
+ Incorporated by reference to the Company's Current Report on Form 8-K/A filed
with the Commission on June 20, 1997.
(b) Financial Statement Schedules:
<TABLE>
<S> <C>
Independent Auditors' Report ........................ S-1
Schedule II Valuation and Qualifying Accounts ...... S-2
</TABLE>
All other schedules for which provision is made by the applicable
accounting regulation of the Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
Item 17. Undertakings
The Registrant hereby undertakes to deliver or cause to be delivered with
the prospectus, to each person to whom the prospectus is sent or given, the
latest annual report, to security holders that is incorporated by reference in
the prospectus and furnished pursuant to and meeting the requirements of Rule
14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Restated Articles of Incorporation, By-laws, by
agreement or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance on Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or Rule 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-1 and has duly caused this Amendment No. 2 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Madison, Wisconsin on November 14, 1997.
RAYOVAC CORPORATION
By: /s/ James A. Broderick
--------------------------------
Name: James A. Broderick
Title: Vice President, General
Counsel and Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities indicated on November 14, 1997.
<TABLE>
<CAPTION>
Signature Title
- ------------------------------- ----------------------------------------------------
<S> <C>
*
- ----------------------------- Chairman of the Board, Chief Executive Officer and
David A. Jones President (Principal Executive Officer)
*
- ----------------------------- Executive Vice President of Finance and
Kent J. Hussey Administration, Chief Financial Officer, and
Director (Principal Financial Officer)
*
- --------------------------- President/International and Contract Micropower
Roger F. Warren and Director
* Executive Vice President of Operations and Director
- -----------------------------
Trygve Lonnebotn
* Director
- -----------------------------
Scott A. Schoen
* Director
- -----------------------------
Thomas R. Shepherd
* Director
- -----------------------------
Warren C. Smith, Jr.
</TABLE>
*By /s/ James A. Broderick
---------------------------
James A. Broderick
Attorney-in-fact
II-5
<PAGE>
Independent Auditors' Report
The Board of Directors
Rayovac Corporation:
Under date of October 28, 1997, we reported on the consolidated balance sheets
of Rayovac Corporation and subsidiaries as of September 30, 1997, and the
related consolidated statements of operations, shareholders' deficit, and cash
flows for the year then ended, which is included in the prospectus. In
connection with our audit of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule in the registration statement. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Milwaukee, Wisconsin
October 28, 1997
S-1
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Transition Period ended September 30, 1996
and the years ended June 30, 1994, 1995 and 1996
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------------- ------------ ----------- ------------ --------------
Additions
Balance at Charged to
Beginning Costs and Balance at
Descriptions of Period Expenses Deductions End of Period
- ------------------------------------------- ------------ ----------- ------------ --------------
<S> <C> <C> <C> <C>
September 30, 1997:
Allowance for doubtful accounts ......... $722 $617 $118 $1,221
===== ===== ===== =======
Transition Period Ended September 30, 1996:
Allowance for doubtful accounts ......... $786 $147 $211 $ 722
===== ===== ===== =======
June 30, 1996:
Allowance for doubtful accounts ......... $702 $545 $461 $ 786
===== ===== ===== =======
June 30, 1995:
Allowance for doubtful accounts ......... $831 $714 $843 $ 702
===== ===== ===== =======
</TABLE>
S-2
Exhibit 1.1
-----------
- --------------------------------------------------------------------------------
RAYOVAC CORPORATION
(a Wisconsin corporation)
5,360,000 Shares of Common Stock
FORM OF
U.S. PURCHASE AGREEMENT
-----------------------
Dated: November , 1997
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
Page
----
U.S. PURCHASE AGREEMENT 1
SECTION 1. Representations and Warranties 4
(a) Representations and Warranties by the Company 4
(i) Compliance with Registration Requirements 4
(ii) Independent Accountants 5
(iii) Financial Statements 5
(iv) No Material Adverse Change in Business 6
(v) Good Standing of the Company 7
(vi) Good Standing of Subsidiaries 7
(vii) Capitalization 7
(viii) Authorization of Agreement 7
(ix) Authorization and Description of Securities 7
(x) Absence of Defaults and Conflicts 7
(xi) Absence of Labor Dispute 8
(xii) Absence of Proceedings 8
(xiii) Accuracy of Exhibits 9
(xiv) Possession of Intellectual Property 9
(xv) Absence of Further Requirements 9
(xvi) Possession of Licenses and Permits 10
i
<PAGE>
(xvii) Title to Property 10
(xviii) Investment Company Act 10
(xix) Environmental Laws 11
(xx) Registration Rights 11
(xxi) Stabilization or Manipulation 11
(xxii) Accounting Controls 11
(xxiii) Tax Returns 12
(xxiv) No Association with NASD 12
(b) Representations and Warranties by the Selling Shareholders 12
(i) Accurate Disclosure 12
(ii) Authorization of Agreements 13
(iii) Valid Title 13
(iv) Due Execution of Power of Attorney and Custody Agreement 14
(v) Absence of Manipulation 14
(vi) Absence of Further Requirements 14
(vii) Certificates Suitable for Transfer 14
(viii) Irrevocable Obligations 15
(ix) No Association with NASD 15
(x) Power and Authority 15
(c) Officer's Certificates 16
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing 16
(a) Initial Securities 16
(b) Option Securities 16
(c) Payment 17
(d) Denominations; Registration 17
(e) Appointment of Qualified Independent Underwriter 17
ii
<PAGE>
SECTION 3. Covenants of the Company 18
(a) Compliance with Securities Regulations and Commission Requests 18
(b) Filing of Amendments 18
(c) Delivery of Registration Statements 18
(d) Delivery of Prospectuses 19
(e) Continued Compliance with Securities Laws 19
(f) Blue Sky Qualifications 19
(g) Rule 158 20
(h) Use of Proceeds 20
(i) Listing 20
(j) Restriction on Sale of Securities 20
(k) Reporting Requirements 21
(l) Compliance with NASD Rules 21
SECTION 4. Payment of Expenses 21
(a) Expenses 21
(b) Expenses of the Selling Shareholders 22
(c) Termination of Agreement 22
(d) Allocation of Expenses 22
iii
<PAGE>
SECTION 5. Conditions of U.S. Underwriters' Obligations 22
(a) Effectiveness of Registration Statement 22
(b) Opinion of Counsel for Company and the Selling Shareholders 22
(c) Opinion of Counsel for U.S. Underwriters 23
(d) Officers' Certificate 23
(e) Selling Shareholders' Certificate 23
(f) Accountant's Comfort Letters 24
(g) Bring-down Comfort Letters 24
(h) Approval of Listing 24
(i) No Objection 24
(j) Lock-up Agreement 24
(k) Purchase of Initial International Securities 24
(l) Custody Agreement 24
(m) Conditions to Purchase of U.S. Option Securities 25
(n) Additional Documents 26
(o) Termination of Agreement 26
SECTION 6. Indemnification 26
(a) Indemnification of U.S. Underwriters by the Company 26
(b) Indemnification of U.S. Underwriters by the Selling Shareholders 28
(c) Indemnification of Company, Directors and Officers and
Selling Shareholders 30
(d) Actions against Parties; Notification 30
(e) Settlement without Consent if Failure to Reimburse 31
(f) Indemnification for Reserved Securities 32
(g) Indemnification for Direct Shares 32
(h) Other Agreements with Respect to Indemnification 32
iv
<PAGE>
SECTION 7. Contribution 32
SECTION 8. Representations, Warranties and Agreements to Survive Delivery 34
SECTION 9. Termination of Agreement 34
(a) Termination; General 34
(b) Liabilities 34
SECTION 10. Default by One or More of the U.S. Underwriters 35
SECTION 11. Notices 35
SECTION 12. Parties 36
SECTION 13. Governing Law and Time 36
SECTION 14. Effect of Headings 36
SECTION 15. Counterparts 36
SCHEDULES
SCHEDULE A LIST OF UNDERWRITERS
SCHEDULE B LIST OF SELLING SHAREHOLDERS
SCHEDULE C PRICING INFORMATION
SCHEDULE D LIST OF PERSONS SUBJECT TO LOCK-UP
EXHIBIT A-1 FORM OF OPINION OF COMPANY'S GENERAL COUNSEL
EXHIBIT A-2 FORM OF OPINION OF COMPANY'S COUNSEL
EXHIBIT A-3 FORM OF OPINION OF SELLING SHAREHOLDERS' COUNSEL
EXHIBIT B FORM OF LOCK-UP LETTER
EXHIBIT C-1 FORM OF COMFORT LETTER OF KPMG PEAT MARWICK LLP
EXHIBIT C-2 FORM OF COMFORT LETTER OF COOPERS & LYBRAND LLP
v
<PAGE>
RAYOVAC CORPORATION
(a Wisconsin corporation)
5,360,000 Shares of Common Stock
(Par Value $0.01 Per Share)
U.S. PURCHASE AGREEMENT
November __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Rayovac Corporation, a Wisconsin corporation (the "Company"), and the
persons listed on Schedule B hereto (the "Selling Shareholders") confirm their
respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other U.S. Underwriters
named in Schedule A hereto (collectively, the "U.S. Underwriters," which term
shall also include any underwriter substituted as hereinafter provided in
Section 10 hereof), for whom Merrill Lynch, Bear, Stearns & Co. Inc., Donaldson,
Lufkin & Jenrette Securities Corporation and Smith Barney Inc. are acting as
representatives (in such capacity, the "U.S. Representatives"), with respect to
(i) the issue and sale by the Company and the purchase by the U.S. Underwriters,
acting severally and not jointly, of the number of shares of Common Stock, par
value $0.01 per share, of the Company ("Common Stock") set forth in Schedule A
hereto and (ii) the grant by the Selling Shareholders, acting severally and not
jointly, to the U.S. Underwriters, acting severally and not jointly, of the
option described in Section 2(b) hereof to purchase all or any part of
1
<PAGE>
804,000 additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 5,360,000 shares of Common Stock (the "Initial U.S. Securities") to be
purchased by the U.S. Underwriters, and all or any part of the 804,000 shares of
Common Stock subject to the option described in Section 2(b) hereof (the "U.S.
Option Securities"), are hereinafter called, collectively, the "U.S.
Securities."
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Company of an aggregate of 1,340,000 shares of
Common Stock (the "Initial International Securities") through arrangements with
certain underwriters outside the United States and Canada (the "International
Managers") for which Merrill Lynch International, Bear, Stearns International
Limited, Donaldson, Lufkin & Jenrette Securities Corporation and Smith Barney
Inc. are acting as lead managers (the "Lead Managers") and the grant by the
Selling Shareholders, acting severally and not jointly, to the International
Managers, acting severally and not jointly, of an option to purchase all or any
part of the International Managers' pro rata portion of up to 201,000 additional
shares of Common Stock solely to cover overallotments, if any (the
"International Option Securities" and, together with the U.S. Option Securities,
the "Option Securities"). The Initial International Securities and the
International Option Securities are hereinafter called the "International
Securities." It is understood that the Company is not obligated to sell and the
U.S. Underwriters are not obligated to purchase, any Initial U.S. Securities
unless all of the Initial International Securities are contemporaneously
purchased by the International Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters," the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities," and the U.S. Securities and the International Securities
are hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the direction
of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (in
such capacity, the "Global Coordinator").
The Company and the Selling Shareholders understand that the U.S.
Underwriters propose to make a public offering of the U.S. Securities as soon as
the U.S. Representatives deem advisable after this Agreement has been executed
and delivered.
The Company and the U.S. Underwriters agree that up to 530,000 shares of
Common Stock to be purchased by the Underwriters (the "Reserved Securities")
shall be reserved for sale by the Underwriters to certain eligible employees and
persons having relationships with the Company as part of the distribution of the
Securities by the Underwriters, subject to the terms of this Agreement, the
applicable rules, regulations and interpretations of the National Association of
Securities Dealers, Inc. and all other applicable laws, rules and regulations.
To the extent that such Reserved
2
<PAGE>
Securities are not orally confirmed for purchase by such eligible employees and
persons having relationships with the Company by the end of the first business
day after the date of this Agreement, such Reserved Securities may be offered to
the public as part of the public offering contemplated hereby. In addition, the
Company is concurrently offering up to 270,000 shares of Common Stock (the
"Direct Shares") directly to certain employee participants in the Company's
Profit Sharing and Savings Plan pursuant to a separate prospectus included in
the Registration Statement (as defined below).
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-35181), as amended
by Amendment No. 1 thereto, covering the registration of the Securities under
the Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses. Promptly after execution and delivery of
this Agreement, the Company will either (i) prepare and file a prospectus in
accordance with the provisions of Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations")
and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or
(ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933
Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance
with the provisions of Rule 434 and Rule 424(b). Two forms of prospectus are to
be used in connection with the offering and sale of the Securities: one relating
to the U.S. Securities (the "Form of U.S. Prospectus") and one relating to the
International Securities (the "Form of International Prospectus"). The Form of
International Prospectus is identical to the Form of U.S. Prospectus, except for
the front cover and back cover pages and the information under the caption
"Underwriting." The information included in any such prospectus or in any such
Term Sheet, as the case may be, that was omitted from such registration
statement at the time it became effective but that is deemed to be part of such
registration statement at the time it became effective (a) pursuant to paragraph
(b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to
paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each Form of
U.S. Prospectus and Form of International Prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final Form of U.S. Prospectus and the final Form of
International Prospectus in the forms first furnished to the Underwriters for
use in connection with the offering of the Securities are herein called the
"U.S. Prospectus" and the "International Prospectus," respectively, and
collectively, the "Prospectuses." If Rule 434 is relied on, the terms "U.S.
Prospectus" and "International Prospectus" shall refer to the preliminary U.S.
Prospectus dated October 31, 1997 and the preliminary International Prospectus
dated October 31, 1997, respectively, each
3
<PAGE>
together with the applicable Term Sheet, and all references in this
Agreement to the date of such Prospectuses shall mean the date of the applicable
Term Sheet. For purposes of this Agreement, all references to the Registration
Statement, any preliminary prospectus, the U.S. Prospectus, the International
Prospectus or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to each U.S. Underwriter as of the date hereof, as of the Closing
Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if
any) referred to in Section 2(b) hereof, and agrees with each U.S. Underwriter,
as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any U.S. Option Securities are
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and did not and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and the Prospectuses, any preliminary prospectuses and any
supplement thereto or prospectus wrapper prepared in connection therewith,
at their respective times of issuance and at the Closing Time, complied and
will comply in all material respects with any applicable laws or
regulations of foreign jurisdictions in which the Prospectuses and such
preliminary prospectuses, as amended or supplemented, if applicable, are
distributed in connection with the offer and sale of Reserved Securities.
Neither of the Prospectuses nor any amendments or supplements thereto
(including any prospectus wrapper), at the time the Prospectuses or any
amendments or supplements thereto were issued and at the Closing Time (and,
if any U.S. Option Securities are purchased, at the Date of Delivery),
included or will include, at the aforesaid times, an untrue statement of a
material fact or omitted or will omit, at the aforesaid times, to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. If
Rule 434 is used,
4
<PAGE>
the Company will comply with the requirements of Rule 434 and the
Prospectuses shall not be "materially different," as such term is used in
Rule 434, from the prospectuses included in the Registration Statement at
the time it became effective. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or the U.S. Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through the U.S. Representative(s) expressly for use in the
Registration Statement or the U.S. Prospectus or by any International
Manager through the Lead Managers expressly for use in the Registration
Statement or the International Prospectus.
Each preliminary prospectus and the prospectuses filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectuses delivered to the Underwriters
for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iii) Financial Statements. The historical financial statements
included in the Registration Statement and the Prospectuses, together with
the related schedule and notes, present fairly the financial position of
the Company and its consolidated Subsidiaries (as defined below) at the
dates indicated and the statement of operations, shareholders' equity and
cash flows of the Company and its consolidated Subsidiaries for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved. The supporting schedules included in
the Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data and
the summary financial information included in the Prospectuses present
fairly the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statement. The pro forma financial data and the related notes
thereto included in the Registration Statement and the Prospectuses present
fairly the information shown therein, have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the bases described therein,
and the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein.
5
<PAGE>
(iv) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change in the condition (financial or otherwise),
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
Subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its Subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(v) Good Standing of the Company. The Company has been duly organized
and is validly existing as a corporation in good standing under the laws of
the State of Wisconsin and has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so
to qualify or to be in good standing would not result in a Material Adverse
Effect.
(vi) Good Standing of Subsidiaries. Each subsidiary of the Company
(each a "Subsidiary" and, collectively, the "Subsidiaries") has been duly
organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of
each such Subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable in jurisdictions where such legal concepts are
recognized and is owned by the Company, directly or through Subsidiaries,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity (except as set forth in the Registration
Statement and except for any director or member qualifying shares); none of
the outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder of such
Subsidiary. The only Subsidiaries of the Company are the subsidiaries
listed on Exhibit 21 to the Registration Statement and, except for Rayovac
Europe Limited (which represents less than 15% of the
6
<PAGE>
assets, liabilities and earnings of the Company), the Company has no
"significant subsidiaries" as defined in Section 1-02 of Regulation S-X.
(vii) Capitalization. After giving effect to the amendment and
restatement of the Amended and Restated Articles of Incorporation of the
Company to be effective prior to the Closing Time, the authorized, issued
and outstanding capital stock of the Company is as set forth in the
Prospectuses in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to this
Agreement, pursuant to reservations, agreements or employee benefit plans
referred to in the Prospectuses or pursuant to the exercise of convertible
securities or options referred to in the Prospectuses). The shares of
issued and outstanding capital stock of the Company have been and at the
Closing Time, including the U.S. Option Securities to be purchased by the
U.S. Underwriters from the Selling Shareholders, will have been duly
authorized and validly issued and are fully paid and non-assessable; none
of the outstanding shares of capital stock of the Company was or as of the
Closing Time, including the U.S. Option Securities to be purchased by the
U.S. Underwriters from the Selling Shareholders, will have been or was
issued in violation of the preemptive or other similar rights of any
securityholder of the Company.
(viii) Authorization of Agreement. This Agreement and the
International Purchase Agreement have been duly authorized, executed and
delivered by the Company.
(ix) Authorization and Description of Securities. The Securities to be
purchased by the U.S. Underwriters and the International Managers from the
Company have been duly authorized for issuance and sale to the U.S.
Underwriters pursuant to this Agreement and the International Managers
pursuant to the International Purchase Agreement, respectively, and, when
issued and delivered by the Company pursuant to this Agreement and the
International Purchase Agreement, respectively, against payment of the
consideration set forth herein and the International Purchase Agreement,
respectively, will be validly issued, fully paid and non-assessable; the
Direct Shares to be offered and sold separately by the Company have been
duly authorized by the Company and when issued and delivered by the Company
against payment therefor will be validly issued, fully paid and
non-assessable; the Common Stock conforms to the descriptions thereof
contained under "Description of Capital Stock" in the Prospectuses and such
description conforms to the rights set forth in the instruments defining
the same; no holder of the Securities will be subject to personal liability
by reason of being such a holder; and the issuance of the Securities is not
subject to the preemptive or other similar rights of any securityholder of
the Company.
(x) Absence of Defaults and Conflicts. Neither the Company nor any of
its Subsidiaries is in violation of its charter or by-laws or in default in
the performance or observance of any obligation, agreement, covenant or
condition
7
<PAGE>
contained in any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which it or any of them
may be bound, or to which any of the property or assets of the Company or
any Subsidiary is subject (collectively, "Agreements and Instruments")
except for such defaults that would not result in a Material Adverse
Effect; and the execution, delivery and performance of this Agreement and
the International Purchase Agreement and the consummation of the
transactions contemplated in this Agreement, the International Purchase
Agreement and in the Registration Statement (including the issuance and
sale of the Securities (and the Direct Shares) and the use of the proceeds
from the sale of the Securities (and Direct Shares) as described in the
Prospectuses under the caption "Use of Proceeds") and the compliance by the
Company with its obligations under this Agreement and the International
Purchase Agreement have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of,
or default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any Subsidiary pursuant to, the Agreements and
Instruments which would reasonably be expected, either singly or in the
aggregate to result in a Material Adverse Effect, nor will such action
result in any violation of any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of their assets, properties or operations,
including specifically but without limitation with respect to the Direct
Shares any violation of the Employee Retirement Income Security Act, which
would reasonably be expected, either singly or in the aggregate to result
in a Material Adverse Effect; nor will such action result in any violation
of the provisions of the charter or by-laws of the Company or any
Subsidiary. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other evidence
of indebtedness (or any person acting on such holder's behalf) the right to
require the repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any Subsidiary.
(xi) Absence of Labor Dispute. Except as described in the Registration
Statement with respect to the renegotiation of collective bargaining
agreements, no labor dispute with the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company, is imminent, and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its or any Subsidiary's principal suppliers,
manufacturers, customers, dealers or contractors, which, in either case,
may reasonably be expected to result in a Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit, proceeding,
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the
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Company, threatened, against or affecting the Company or any Subsidiary,
which is required to be disclosed in the Registration Statement (other than
as disclosed therein), or which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in this Agreement and the
International Purchase Agreement or the performance by the Company of its
obligations hereunder or thereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any Subsidiary is a party
or of which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary routine
litigation incidental to the business of the Company and its Subsidiaries
would not reasonably be expected to result in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or documents which
are required to be described in the Registration Statement or the
Prospectuses or to be filed as exhibits thereto which have not been so
described and filed as required.
(xiv) Possession of Intellectual Property. Except as described in the
Registration Statement, the Company and its Subsidiaries own or possess the
right to utilize, or can acquire on reasonable terms, adequate patents,
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks, trade names or other intellectual property (collectively,
"Intellectual Property") necessary to carry on the business now operated by
them, and neither the Company nor any of its Subsidiaries has received any
notice or is otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of its
Subsidiaries therein, and which infringement or conflict (if the subject of
any unfavorable decision, ruling or finding) or invalidity or inadequacy,
singly or in the aggregate, would result in a Material Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or authoriza-
tion, approval, consent, license, order, registration, qualification or
decree of, any court or governmental authority or agency is necessary or
required for the performance by the Company of its obligations hereunder,
in connection with the offering, issuance or sale of the Securities under
this Agreement and the International Purchase Agreement or the consummation
of the transactions contemplated by this Agreement and the International
Purchase Agreement, except (i) such as have been already obtained or as may
be required under the 1933 Act or the 1933 Act Regulations and foreign or
state securities or blue sky laws or the rules or regulations of the NASD
and (ii) such as have been obtained under the laws and regulations of
jurisdictions outside the United States in
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which the Reserved Securities are offered.
(xvi) Possession of Licenses and Permits. The Company and its
Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them except where the
failure to possess the same would not, singly or in the aggregate have a
Material Adverse Effect; the Company and its Subsidiaries are in compliance
with the terms and conditions of all such Governmental Licenses, except
where the failure so to comply would not, singly or in the aggregate, have
a Material Adverse Effect; all of the Governmental Licenses are valid and
in full force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full force
and effect would not have a Material Adverse Effect; and neither the
Company nor any of its Subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material Adverse
Effect.
(xvii) Title to Property. The Company and its Subsidiaries have good
and marketable title to all real property owned by the Company and its
Subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectuses or (b) do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company or any of
its Subsidiaries or (c) would not reasonably be expected to result in a
Material Adverse Effect; and all of the leases and subleases material to
the business of the Company and its Subsidiaries, considered as one
enterprise, and under which the Company or any of its Subsidiaries holds
properties described in the Prospectuses, are in full force and effect, and
neither the Company nor any Subsidiary has any notice of any claim of any
sort that has been asserted by anyone adverse to the rights of the Company
or any Subsidiary under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or such Subsidiary to
the continued possession of the leased or subleased premises under any such
lease or sublease which would reasonably be expected to result in a
Material Adverse Effect.
(xviii) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectuses
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
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(xix) Environmental Laws. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of its
Subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its Subsidiaries have all
permits, licenses, authorizations and approvals currently required for
their respective businesses and for the businesses contemplated to be
conducted upon consummation of the offering of the Securities under any
applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
Subsidiaries and (D) there are no events, facts or circumstances that might
reasonably be expected to form the basis of any liability or obligation of
the Company or any of its Subsidiaries, including, without limitation, any
order, decree, plan or agreement requiring clean-up or remediation, or any
action, suit or proceeding by any private party or governmental body or
agency, against or affecting the Company or any of its Subsidiaries
relating to any Hazardous Materials or any Environmental Laws.
(xx) Registration Rights. There are no persons with registration
rights or other similar rights to have any securities registered pursuant
to the Registration Statement under the 1933 Act. Except as described in
the Registration Statement, there are no persons with registration rights
or other similar rights to have any securities registered by the Company
under the 1933 Act.
(xxi) Stabilization or Manipulation. Neither the Company nor any of
its officers, directors or controlling persons has taken, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale of the Securities.
(xxii) Accounting Controls. The Company and its Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with
management's general or specific authorization; (B) transactions are
recorded
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as necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain
accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xxiii) Tax Returns. The Company and its Subsidiaries have filed all
federal, state, local and foreign tax returns that are required to have
been filed by them pursuant to applicable foreign, federal, state, local or
other law or have duly requested extensions thereof, except insofar as the
failure to file such returns or request such extensions would not
reasonably be expected to result in a Material Adverse Effect, and has paid
all taxes due pursuant to such returns or pursuant to any assessment
received by the Company and its Subsidiaries, except for such taxes or
assessments, if any, as are being contested in good faith and as to which
adequate reserves have been provided or where the failure to pay would not
reasonably be expected to result in a Material Adverse Effect. The charges,
accruals and reserves on the books of the Company in respect of any income
and corporation tax liability of the Company and each Subsidiary for any
years not finally determined are adequate to meet any assessments or
re-assessments for additional income tax for any years not finally
determined, except to the extent of any inadequacy that would not
reasonably be expected to result in a Material Adverse Effect.
(xxiv) No Association with NASD. Neither the Company nor any of its
affiliates (within the meaning of NASD Conduct Rule 2720(b)(1)(a))
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, or is an associated person
(within the meaning of Article I, Section 1(q) of the By-laws of the
National Association of Securities Dealers, Inc.), of any member firm of
the National Association of Securities Dealers, Inc., other than as
described on an appendix to the Selling Shareholders' Power of Attorney
and Custody Agreement (as defined herein).
(b) Representations and Warranties by the Selling Shareholders. Each
Selling Shareholder, severally and not jointly, represents and warrants to each
U.S. Underwriter as of each Date of Delivery, and agrees with each U.S.
Underwriter, as follows:
(i) Accurate Disclosure. (A) The information furnished in writing by
or on behalf of such Selling Shareholder expressly for use in the
Registration Statement and any amendments or supplements thereto does not
contain an untrue statement of a material fact with respect to such Selling
Shareholder or omit to state a material fact with respect to such Selling
Shareholder required to be stated therein or necessary to make the
statements regarding the Selling Shareholder therein not misleading and (B)
the information furnished in writing by or on behalf of such Selling
Shareholder expressly for use in the Prospectus
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does not include an untrue statement of a material fact with respect to
such Selling Shareholder or omit to state a material fact with respect to
such Selling Shareholder necessary in order to make the statements
regarding the Selling Shareholder therein, in the light of the
circumstances under which they were made, not misleading.
(ii) Authorization of Agreements. Such Selling Shareholder has the
full right, power and authority to enter into this Agreement and the Power
of Attorney and Custody Agreement (the "Power of Attorney and Custody
Agreement") with [Firstar Bank], as custodian (the "Custodian"), and the
attorneys-in-fact named therein (each an "Attorney-in-Fact"), and to sell,
transfer and deliver the Securities to be sold by such Selling Shareholder
hereunder. The execution and delivery of this Agreement and the Power of
Attorney and Custody Agreement and the sale and delivery of the Securities
to be sold by such Selling Shareholder and the consummation of the
transactions contemplated herein and compliance by such Selling Shareholder
with its obligations hereunder have been duly authorized by such Selling
Shareholder and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of,
or default under, or result in the creation or imposition of any tax, lien,
charge or encumbrance upon the Securities to be sold by such Selling
Shareholder or any property or assets of such Selling Shareholder pursuant
to any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, license, lease or other agreement or instrument to which
such Selling Shareholder is a party or by which such Selling Shareholder
may be bound, or to which any of the property or assets of such Selling
Shareholder is subject (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not result in a material adverse
change in the condition (financial or otherwise), earnings, business
affairs or business prospects of such Selling Shareholder (a "Selling
Shareholder Material Adverse Effect"), whether or not arising in the
ordinary course of business), nor will such action result in any violation
of the provisions of the charter or by-laws or other organizational
instrument of such Selling Shareholder, if applicable, or any applicable
treaty, law, statute, rule, regulation, judgment, order, writ or decree of
any government, government instrumentality or court, domestic or foreign,
having jurisdiction over such Selling Shareholder or any of its properties
which would reasonably be expected, either singly or in the aggregate to
result in a Selling Shareholder Material Adverse Effect.
(iii) Valid Title. Such Selling Shareholder has on the date hereof and
will at the Closing Time and on the Date of Delivery have good and valid
title to the U.S. Option Securities to be sold by such Selling Shareholder
hereunder, free and clear of any security interest, mortgage, pledge, lien,
charge, claim, equity or encumbrance of any kind, other than pursuant to
this Agreement; and upon delivery of such U.S. Option Securities and
payment of the purchase price therefor as herein contemplated, assuming
each such Underwriter has no notice of any adverse claim as such term is
used in the Uniform Commercial Code,
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<PAGE>
each of the Underwriters will receive valid title to the U.S. Option
Securities purchased by it from such Selling Shareholder, free and clear of
any security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind.
(iv) Due Execution of Power of Attorney and Custody Agreement. Each
such Selling Shareholder has duly executed and delivered a Power of
Attorney and Custody Agreement; the Custodian is authorized by each such
Selling Shareholder to deliver the U.S. Option Securities to be sold by
such Selling Shareholder hereunder and to accept payment therefor; and each
Attorney-in-Fact named in the Power of Attorney and Custody Agreement
executed by such Selling Shareholder is authorized by such Selling
Shareholder to execute and deliver this Agreement and the certificate
referred to in Section 5(e) of this Agreement or that may be required
pursuant to Sections 5(m) or 5(n) of this Agreement on behalf of such
Selling Shareholder, to sell, assign and transfer to the U.S. Underwriters
the U.S. Option Securities to be sold by such Selling Shareholder
hereunder, to determine the purchase price to be paid by the U.S.
Underwriters to such Selling Shareholder, as provided in Section 2(a)
hereof, to authorize the delivery of the Securities to be sold by such
Selling Shareholder hereunder, to accept payment therefor, and otherwise to
act on behalf of such Selling Shareholder in connection with this
Agreement.
(v) Absence of Manipulation. Such Selling Shareholder has not taken,
and will not take, directly or indirectly, any action which is designed to
or which has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(vi) Absence of Further Requirements. No filing with, or consent,
approval, authorization, order, registration, qualification or decree of,
any court or governmental authority or agency, domestic or foreign, is
necessary or required for the performance by each such Selling Shareholder
of their obligations hereunder or in the Power of Attorney and Custody
Agreement, or in connection with the sale and delivery of the U.S. Option
Securities being sold by each such Selling Shareholder hereunder or the
consummation of the transactions contemplated by this Agreement, except
such as may have previously been made or obtained or as may be required
under the 1933 Act or the 1933 Act Regulations or state or foreign
securities laws or under the rules of the National Association of
Securities Dealers, Inc.
(vii) Certificates Suitable for Transfer. Certificates for all of the
U.S. Option Securities to be sold by such Selling Shareholder pursuant to
this Agreement, in suitable form for transfer by delivery or accompanied by
duly executed instruments of transfer or assignment in blank with
signatures guaranteed, have been placed in custody with the Custodian with
irrevocable conditional instructions to deliver such U.S. Option Securities
to the U.S. Underwriters pursuant to this Agreement.
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(viii) Irrevocable Obligations. The U.S. Option Securities represented
by the Certificates held in custody for such holder under the Custody
Agreement are subject to the interests of the U.S. Underwriters hereunder;
the arrangements made by such holder for such custody, and the appointment
by such holder of the Attorneys-in-fact by the Power of Attorney, are to
that extent irrevocable; the obligations of such holder hereunder shall not
be terminated, except as provided in the Agreement or in the Power of
Attorney, by operation of law, whether by the death or incapacity of any
individual Selling Shareholder or, in the case of an estate or trust, by
the death or incapacity of any executor or trustee or the termination of
such trust estate or trust, or in the case of a partnership or corporation,
by the dissolution of such partnership or corporation, or by the occurrence
of any other event, if any individual Selling Shareholder or any such
executor or trustee should die or become incapacitated, or if any such
estate or trust should be terminated, or any such partnership or
corporation should be dissolved, or if any other event should occur, before
the delivery of the U.S. Option Securities hereunder, certificates
representing the U.S. Option Securities shall be delivered by or on behalf
of such holder in accordance with the terms and conditions of this
Agreement and of the Custody Agreements; and actions taken by the
Attorney-in-Fact pursuant to the Powers of Attorney shall be as valid as if
such death, incapacity, termination, dissolution or other event had not
occurred, regardless of whether or not the Custodian, Attorney-in-Fact, or
any of them, shall have received notice of such death, incapacity,
termination, dissolution or other event.
(ix) No Association with NASD. Neither such Selling Shareholder nor
any of its affiliates (within the meaning of NASD Conduct Rule
2720(b)(1)(a)) directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, or is an
associated person (within the meaning of Article I, Section 1(q) of the
By-laws of the National Association of Securities Dealers, Inc.), of, any
member firm of the National Association of Securities Dealers, Inc., other
than as described on an appendix to the Power of Attorney and Custody
Agreement to which such Selling Shareholder is a party.
(x) Power and Authority. If such Selling Shareholder is a corporation,
partnership or trust, such Selling Shareholder has been duly organized or
incorporated and is validly existing as a corporation or partnership or
limited partnership in good standing under the laws of its jurisdiction of
incorporation or organization, if applicable, and has the power and
authority to own its property and to conduct its business and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not result in a material
adverse change in the condition (financial or otherwise), earnings,
business affairs or business prospects of each the Selling Shareholders,
whether
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or not arising in the ordinary course of business, or materially impair its
ability to consummate the transactions contemplated hereby.
(c) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its Subsidiaries delivered to the Global Coordinator, the U.S.
Representatives or to counsel for the U.S. Underwriters shall be deemed a
representation and warranty by the Company to each U.S. Underwriter as to the
matters covered thereby; and any certificate signed by or on behalf of any
Selling Shareholder as such and delivered to the U.S. Representatives or to
counsel for the U.S. Underwriters pursuant to the terms of this Agreement shall
be deemed a representation and warranty by such Selling Shareholder, as the case
may be, to the U.S. Underwriters as to the matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
the Company agrees to sell to each U.S. Underwriter, severally and not
jointly, to the extent indicated on Schedule A hereto, and each U.S.
Underwriter, severally and not jointly, agrees to purchase from the Company, at
the price per share set forth in Schedule C, the number of Initial U.S.
Securities set forth in Schedule A opposite the name of such U.S. Underwriter,
plus any additional number of Initial U.S. Securities which such Underwriter may
become obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Selling Shareholders, severally and not jointly, hereby grant an
option to the U.S. Underwriters, severally and not jointly, to purchase up to an
additional 804,000 shares of Common Stock to the extent indicated on Schedule B,
at the price per share set forth in Schedule C, less an amount per share equal
to any dividends or distributions declared by the Company and payable on the
Initial U.S. Securities but not payable on the U.S. Option Securities. The
option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial U.S. Securities upon notice by the Global
Coordinator to the Selling Shareholders setting forth the number of U.S. Option
Securities as to which the several U.S. Underwriters are then exercising the
option and the time and date of payment and delivery for such U.S. Option
Securities. Any such time and date of delivery for the U.S. Option Securities (a
"Date of Delivery") shall be determined by the Global Coordinator, but shall not
be later than seven full business days after the exercise of said option, nor in
any event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the U.S. Option Securities, each of the
U.S. Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of U.S. Option Securities then being purchased
which the number of Initial U.S. Securities set forth in Schedule A opposite the
name of such U.S. Underwriter bears to the total number of Initial U.S.
Securities, subject in each case to such adjustments as
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the Global Coordinator in its discretion shall make to eliminate any sales or
purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Fried,
Frank, Harris, Shriver & Jacobson, 1 New York Plaza, New York, New York 10004,
or at such other place as shall be agreed upon by the Global Coordinator and the
Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs
after 4:30 P.M. (Eastern time) on any given day) business day after the date
hereof (unless postponed in accordance with the provisions of Section 10), or
such other time not later than ten business days after such date as shall be
agreed upon by the Global Coordinator and the Company (such time and date of
payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities are
purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Selling Shareholders or the Attorneys-in-Fact on
behalf of the Selling Shareholders, on each Date of Delivery as specified in the
notice from the Global Coordinator to the Selling Shareholders.
Payment shall be made to the Company and the Selling Shareholders by wire
transfer of immediately available funds to a bank account designated by the
Company and the Custodian pursuant to the Selling Shareholders' Power of
Attorney and Custody Agreement, as the case may be, against delivery to the U.S.
Representatives for the respective accounts of the U.S. Underwriters of
certificates for the U.S. Securities to be purchased by them. It is understood
that each U.S. Underwriter has authorized the U.S. Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial U.S. Securities and the U.S. Option Securities, if any,
which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the U.S. Underwriters, may (but shall not be obligated to)
make payment of the purchase price for the Initial U.S. Securities or the U.S.
Option Securities, if any, to be purchased by any U.S. Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such U.S. Underwriter from
its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
(e) Appointment of Qualified Independent Underwriter. The Company hereby
confirms its engagement of Smith Barney Inc. as, and Smith Barney Inc. hereby
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confirms its agreement with the Company to render services as, a "qualified
independent underwriter" within the meaning of Rule 2720 of the Conduct Rules of
the National Association of Securities Dealers, Inc. with respect to the
offering and sale of the U.S. Securities. Smith Barney Inc., solely in its
capacity as qualified independent underwriter and not otherwise, is referred to
herein as the "Independent Underwriter."
SECTION 3. Covenants of the Company. The Company covenants with each U.S.
Underwriter as follows: (a) Compliance with Securities Regulations and
Commission Requests. The Company, subject to Section 3(b), will comply with
the requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator immediately, and confirm the notice in writing, (i)
when any post-effective amendment to the Registration Statement shall
become effective, or any supplement to the Prospectuses or any amended
Prospectuses shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to
the Prospectuses or for additional information, and (iv) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus, or of the suspension of the qualification of
the Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes. The
Company will promptly effect the filings necessary pursuant to Rule 424(b)
and will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under Rule 424(b) was
received for filing by the Commission and, in the event that it was not, it
will promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Global Coordinator
notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus
included in the Registration Statement at the time it became effective or
to the Prospectuses, will furnish the Global Coordinator with copies of any
such documents a reasonable amount of time prior to such proposed filing or
use, as the case may be, and will not file or use any such document to
which the Global Coordinator or counsel for the U.S. Underwriters shall
reasonably object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the U.S. Representatives and counsel for the U.S.
Underwriters, without charge, signed copies of the Registration Statement
as originally filed and of each amendment thereto (including exhibits filed
therewith) and signed copies of all consents and certificates of experts,
and will also deliver to the U.S. Representatives, without charge, a
conformed copy of the Registration
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Statement as originally filed and of each amendment thereto (without
exhibits) for each of the U.S. Underwriters. The copies of the Registration
Statement and each amendment thereto furnished to the U.S. Underwriters
will be identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered or will
deliver to each U.S. Underwriter, without charge, as many copies of each
preliminary prospectus as such U.S. Underwriter reasonably requested, and
the Company hereby consents to the use of such copies for purposes
permitted by the 1933 Act. The Company will furnish to each U.S.
Underwriter, without charge, during the period when the U.S. Prospectus is
required to be delivered under the 1933 Act or the Securities Exchange Act
of 1934 (the "1934 Act"), such number of copies of the U.S. Prospectus (as
amended or supplemented) as such U.S. Underwriter may reasonably request.
The U.S. Prospectus and any amendments or supplements thereto furnished to
the U.S. Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement, the International Purchase Agreement and in the Prospectuses. If
at any time when a prospectus is required by the 1933 Act to be delivered
in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary to amend the
Registration Statement or amend or supplement any Prospectus in order that
the Prospectuses will not include any untrue statements of a material fact
or omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser, or if it shall be necessary, at any
such time to amend the Registration Statement or amend or supplement any
Prospectus in order to comply with the requirements of the 1933 Act or the
1933 Act Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectuses comply with such requirements, and the
Company will furnish to the U.S. Underwriters such number of copies of such
amendment or supplement as the U.S. Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the U.S. Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and
other jurisdictions (domestic or foreign) as the Global Coordinator may
designate and to maintain such qualifications in effect for a period of not
less than one year from the later of the effective date of the Registration
Statement and any Rule 462(b)
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Registration Statement; provided, however, that neither the Company nor any
of the Selling Shareholders shall be obligated to file any general consent
to service of process or to qualify as a foreign corporation or as a dealer
in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction
in which it is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such statements
and reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for a period of not less than one year from
the effective date of the Registration Statement and any Rule 462(b)
Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the
Prospectuses under "Use of Proceeds."
(i) Listing. The Company will use its best efforts to effect the
listing of the Common Stock (including the Securities) on the New York
Stock Exchange.
(j) Restriction on Sale of Securities. During a period of 180 days
from the date of the Prospectuses, the Company will not, without the prior
written consent of the Global Coordinator, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of any share of
Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file any registration statement under the
1933 Act with respect to any of the foregoing or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i)
or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise except pursuant to Common Stock issued in
connection with (y) the Company's stock option plans existing at the
Closing Time or (z) acquisitions by the Company; provided that, in the case
of clause (z), it shall be a condition to such stock issuance that the
third party receiving such shares executes a lock-up agreement on
substantially the same terms as described above for a period expiring 180
days from the date of the Prospectus and there shall be no further transfer
of such shares except in accordance with the provisions of such lock-up
agreement. The foregoing sentence shall not apply to the Securities to be
sold hereunder or under the International Purchase Agreement.
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(k) Reporting Requirements. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934
Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act
and the rules and regulations of the Commission thereunder.
(l) Compliance with NASD Rules. The Company hereby agrees that it will
ensure that the Reserved Securities and Direct Shares will be restricted as
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three or five months, as the case may be,
following the date of this Agreement. The Underwriters will notify the
Company as to which persons will need to be so restricted. At the request
of the Underwriters, the Company will direct the transfer agent to place a
stop transfer restriction upon such securities for such period of time.
Should the Company release, or seek to release, from such restrictions any
of the Reserved Securities or Direct Shares, the Company agrees to
reimburse the Underwriters for any reasonable expenses (including, without
limitation, legal expenses) they incur in connection with such release.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities by the Company to the Underwriters
and the transfer of the Securities between the U.S. Underwriters and the
International Managers, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectuses and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies of the blue
sky survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities, (ix) the filing fees incident
to, and the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the NASD of the terms of the sale of the
Securities, (x) the fees and expenses incurred in connection with the listing of
the Securities on the New York Stock Exchange and (xi) all costs and expenses of
the Underwriters, including the fees and disbursements of counsel for the
Underwriters, in connection with matters related to the Reserved
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Securities and Direct Shares which are designated by the Company for sale to
eligible employees and other persons having relationships with the Company and
(xii) the fees and expenses of the Independent Underwriter.
(b) Expenses of the Selling Shareholders. The Company will pay all
expenses incident to the performance of the Selling Shareholders'
obligations under, and the consummation of the transactions contemplated
by, this Agreement (other than any underwriting discount), including (i)
any stamp duties, capital duties and stock transfer taxes, if any, payable
upon the sale of the U.S. Option Securities by the Selling Shareholders to
the Underwriters, and their transfer between the Underwriters pursuant to
an agreement between such Underwriters and (ii) the fees and disbursements
of the Selling Shareholders' counsel and accountants.
(c) Termination of Agreement. If this Agreement is terminated by the
U.S. Representatives in accordance with the provisions of Section 5 or
Sections 9(a)(i) or (ii) hereof, the Company shall reimburse the U.S.
Underwriters for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the U.S. Underwriters.
(d) Allocation of Expenses. The provisions of this Section shall not
affect any agreement that the Company and the Selling Shareholders may make
for the sharing of such costs and expenses.
SECTION 5. Conditions of U.S. Underwriters' Obligations. The obligations of
the several U.S. Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Shareholders
contained in Section 1 hereof or in certificates of any officer of the Company
or any Subsidiary of the Company or on behalf of the Selling Shareholders
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective under the 1933 Act; and at Closing Time no stop order suspending
the effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by the
Commission, and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
counsel to the U.S. Underwriters. A prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance with
Rule 424(b) (or a post-effective amendment providing such information shall
have been filed and declared effective in accordance with the requirements
of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term
Sheet shall have been filed with the Commission in accordance with Rule
424(b).
(b) Opinion of Counsel for Company and the Selling Shareholders. At
Closing Time, the U.S. Representatives shall have received the favorable
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opinions, dated as of Closing Time, of (i) Dewitt Ross & Stevens, s.c.,
counsel to the Company, relating to certain matters of Wisconsin law and
(ii) Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Company, in
each case in form and substance reasonably satisfactory to counsel for the
U.S. Underwriters, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters to the effect set forth in Exhibits
A-1 and A-2, respectively, hereto.
(c) Opinion of Counsel for U.S. Underwriters. At Closing Time, the
U.S. Representatives shall have received the favorable opinion, dated as of
Closing Time, of Fried, Frank, Harris, Shriver & Jacobson, counsel for the
U.S. Underwriters, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters with respect to the matters set
forth in clauses (i), (ii), (v), (vi) (solely as to preemptive or other
similar rights arising by operation of law or under the charter or by laws
of the Company), (viii), (x), (xi), (xv) (solely as to the information in
the Prospectus under "Description of Capital Stock") of Exhibit A-1 and the
penultimate paragraph of Exhibit A-2 hereto. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions
other than the law of the State of New York and the federal law of the
United States and the General Corporation Law of the State of Delaware,
upon the opinions of counsel satisfactory to the U.S. Representatives. Such
counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its Subsidiaries and of the
Selling Shareholders and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information
is given in the Prospectuses, any material adverse change in the condition
(financial or otherwise), earnings, business affairs or business prospects
of the Company and its Subsidiaries considered as one enterprise, whether
or not arising in the ordinary course of business, and the U.S.
Representatives shall have received a certificate of the President or a
Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the effect
that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct
with the same force and effect as though expressly made at and as of
Closing Time, (iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or
prior to Closing Time, and (iv) no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened by the
Commission.
(e) Selling Shareholders' Certificate. At Closing Time, the
Representatives shall have received a certificate of each Selling
Shareholder (which may be executed on behalf of each Selling Shareholder by
the general
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partner or a duly authorized executive officer of such Selling
Shareholder), dated as of Closing Time, to the effect that (i) the
representations and warranties of such Selling Shareholder contained in
Section 1(b) hereof are true and correct with the same force and effect as
though expressly made at and as of the Closing Time and (ii) such Selling
Shareholder has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied under this Agreement at or prior
to the Closing Time; provided that such Selling Shareholder certificate may
provide that such certificate shall be of no force or effect in the event
that no Option Shares are purchased from the Selling Shareholders
hereunder.
(f) Accountant's Comfort Letters. At the time of the execution of this
Agreement, the U.S. Representatives shall have received from KPMG Peat
Marwick LLP a letter in the form of Exhibit C-1 hereto and from Coopers &
Lybrand LLP a letter in the form of Exhibit C-2 hereto, dated such date, in
form and substance reasonably satisfactory to the U.S. Representatives,
together with signed or reproduced copies of such letter for each of the
other U.S. Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectuses.
(g) Bring-down Comfort Letters. At Closing Time, the U.S.
Representatives shall have received letters from KPMG Peat Marwick LLP and
Coopers & Lybrand LLP, dated as of Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection
(e) of this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
(h) Approval of Listing. At Closing Time, the Securities shall have
been approved for listing on the New York Stock Exchange, subject only to
official notice of issuance.
(i) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(j) Lock-up Agreements. At the date of this Agreement, the U.S.
Representatives shall have received an agreement substantially in the form
of Exhibit B hereto signed by the persons listed on Schedule D hereto.
(k) Purchase of Initial International Securities. Contemporaneously
with the purchase by the U.S. Underwriters of the Initial U.S. Securities
under this Agreement, the International Managers shall have purchased the
Initial International Securities under the International Purchase
Agreement.
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(l) Custody Agreement. At the date of this Agreement the U.S.
Representatives shall have received copies of a Custody Agreement and Power
of Attorney executed by each of the Selling Shareholders.
(m) Conditions to Purchase of U.S. Option Securities. In the event
that the U.S. Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the U.S. Option Securities, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company or any Subsidiary
of the Company hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the U.S. Representatives
shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at the Closing Time pursuant
to Section 5(d) hereof remains true and correct as of such Date of
Delivery.
(ii) Selling Shareholder's Certificate. At the Date of Delivery,
the U.S. Representatives shall have received a certificate of each
Selling Shareholder (which may be executed on behalf of each Selling
Shareholder by the general partner or a duly authorized executive
officer of such Selling Shareholder), dated as of Date of Delivery, to
the effect that (x) the representations and warranties of such
Selling Shareholder contained in Section 1(b) hereof are true and
correct with the same force and effect as though expressly made at and
as of Date of Delivery and (y) such Selling Shareholder has complied
with all agreements and satisfied all conditions on their part to be
performed or satisfied under this Agreement at or prior to Date of
Delivery.
(iii) Opinion of Counsel for Company and the Selling
Shareholders. The favorable opinion of (x) Dewitt Ross & Stevens,
s.c., Counsel to the Company, relating to certain matters of Wisconsin
law, (y) Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Company, and (z) Skadden, Arps, Slate, Meagher & Flom LLP, counsel for
the Selling Shareholders in form and substance reasonably satisfactory
to counsel for the U.S. Underwriters together with signed or
reproduced copies of such letter for each of the other U.S.
Underwriters, dated such Date of Delivery, relating to the U.S. Option
Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the opinion required by Section 5(b) hereof with
respect to opinions (x) and (y) and shall be to the effect set forth
in Exhibit A-3 in the case of opinion (z).
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(iii) Opinion of Counsel for U.S. Underwriters. The favorable
opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel for the
U.S. Underwriters, dated such Date of Delivery, relating to the U.S.
Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Section 5(c)
hereof.
(iv) Bring-down Comfort Letters. Letters from Coopers & Lybrand
LLP and KPMG Peat Marwick LLP, in form and substance reasonably
satisfactory to the U.S. Representatives and dated such Date of
Delivery, substantially in the same form and substance as the letter
furnished to the U.S. Representatives pursuant to Section 5(g) hereof,
except that the "specified date" in the letter furnished pursuant to
this paragraph shall be a date not more than five days prior to such
Date of Delivery.
(n) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the U.S. Underwriters shall have been furnished with such documents
and opinions as they may reasonably require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company and the Selling Shareholders in connection with the
issuance and sale of the Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the U.S. Representatives and counsel for
the U.S. Underwriters.
(o) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of U.S. Option
Securities on a Date of Delivery which is after the Closing Time, the
obligations of the several U.S. Underwriters to purchase the relevant Option
Securities, may be terminated by the U.S. Representatives by notice to the
Company at any time at or prior to Closing Time or such Date of Delivery, as the
case may be, and such termination shall be without liability of any party to any
other party except as provided in Section 4 and except that Sections 1, 6, 7 and
8 shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of U.S. Underwriters by the Company. (1) The Company
agrees to indemnify and hold harmless each U.S. Underwriter and each person, if
any, who controls any U.S. Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows to the extent set forth below:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue
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statement of a material fact contained in the Registration Statement (or
any amendment thereto), including the Rule 430A Information and the Rule
434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of (A) the violation of any applicable
laws or regulations of foreign jurisdictions where Reserved Securities have
been offered and (B) any untrue statement or alleged untrue statement of a
material fact included in the supplement or prospectus wrapper material
distributed in foreign jurisdictions in connection with the reservation and
sale of the Reserved Securities and Direct Shares to eligible employees and
persons having relationships with the Company or the omission or alleged
omission therefrom of a material fact necessary to make the statements
therein, when considered in conjunction with the Prospectuses or
preliminary prospectuses, not misleading;
(iii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation of
the nature referred to in Section 6(a)(1)(ii)(A) hereof; provided that
(subject to Section 6(d) below) any such settlement is effected with the
written consent of the indemnifying party; and
(iv) against any and all expense whatsoever, as incurred (including the
fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission or
in connection with any violation of the nature referred to in Section
6(a)(1)(ii)(A) hereof, to the extent that any such expense is not paid
under (i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not (i) apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any U.S. Underwriter through the U.S. Representatives or any
International Manager through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto),
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including the Rule 430A Information and the Rule 434 Information, if applicable,
or any preliminary prospectus or the U.S. Prospectus or International
Prospectus, as the case may be (or any amendment or supplement thereto) or (ii)
inure to the benefit of any U.S. Underwriter from whom the person asserting any
loss, liability, claim, damage or expense, purchased Securities, or any person
controlling such U.S. Underwriter, if it shall be established that a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such U.S. Underwriter to such person, if required by law to have been so
delivered, at or prior to the confirmation of the sale of such Securities to
such person in any case where the Company complied with its obligations under
Sections 3(a), 3(b) and 3(d), and if the Prospectus (as so amended or
supplemented) would have cured any defect giving rise to such loss, liability,
claim damage, or expense.
(2) In addition to and without limitation of the Company to indemnify Smith
Barney Inc. as an Underwriter, the Company agrees to indemnify and hold harmless
the Independent Underwriter and each person, if any, who controls the
Independent Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, from and against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, incurred as a result of the
Independent Underwriter's participation as a "qualified independent underwriter"
within the meaning of Rule 2720 of the Conduct Rules of the National Association
of Securities Dealers, Inc. in connection with the offering of the U.S.
Securities.
(b) Indemnification of U.S. Underwriters by the Selling Shareholders. (1)
Each Selling Shareholder, severally and not jointly, agrees to indemnify and
hold harmless each U.S. Underwriter and each person, if any, who controls any
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act as follows to the extent set forth below:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of (A) the violation of any applicable
laws or regulations of foreign jurisdictions where Reserved Securities have
been offered and (B) any untrue statement or alleged untrue statement of a
material
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fact included in the supplement or prospectus wrapper material distributed
in foreign jurisdictions in connection with the reservation and sale of the
Reserved Securities and Direct Shares to eligible employees and persons
having relationships with the Company or the omission or alleged omission
therefrom of a material fact necessary to make the statements therein, when
considered in conjunction with the Prospectuses or preliminary
prospectuses, not misleading;
(iii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation of
the nature referred to in Section 6(b)(1)(ii)(A) hereof; provided that
(subject to Section 6(e) below) any such settlement is effected with the
written consent of the indemnifying party; and
(iv) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission or
in connection with any violation of the nature referred to in Section
6(b)(1)(ii)(A) hereof, to the extent that any such expense is not paid
under (i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not (i) apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any U.S. Underwriter through the U.S. Representatives or any
International Manager through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus or International Prospectus, as the case may
be (or any amendment or supplement thereto) or (ii) inure to the benefit of any
U.S. Underwriter from whom the person asserting any loss, liability, claim,
damage or expense, purchased Securities, or any person controlling such U.S.
Underwriter, if it shall be established that a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such U.S.
Underwriter to such person, if required by law to have been so delivered, at or
prior to the confirmation of the sale of such Securities to such person in any
case where the Company complied with its obligations under Sections 3(a), 3(b)
and 3(d), and if the Prospectus (as so amended or supplemented) would have cured
any defect giving rise to such loss, liability, claim damage, or expense;
provided, however, further, that with respect to each Selling Shareholder, (x)
the indemnification provision in this paragraph (b) shall only apply to any
loss, liability,
29
<PAGE>
claim, damage or expense to the extent arising out of any untrue statement or
omission, or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by such Selling
Shareholder expressly for use in the Registration Statement (or any amendment
thereto) including the Rule 430A information and the Rule 434 Information if
applicable, or any or such preliminary prospectus or the U.S. Prospectus or
International Prospectus, as the case may be (or any amendment or supplement
thereto) and (y) each such Selling Shareholder's aggregate liability under this
Section 6 shall be limited to an amount equal to the net proceeds (after
deducting the underwriting discount but before deducting expenses) received by
such Selling Shareholder from the sale of Securities pursuant to this Agreement.
(c) Indemnification of Company, Directors and Officers and Selling
Shareholders. Each U.S. Underwriter severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each
Selling Shareholder and each person, if any, who controls any Selling
Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 6(a)and Section 6(a) hereof, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary U.S. prospectus or the U.S.
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the U.S. Prospectus (or any amendment or supplement thereto).
(d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on
30
<PAGE>
account of this indemnity agreement. In the case of parties indemnified pursuant
to Section 6(a) and Section 6(b) above or Sections 6(f) or 6(g), counsel to the
indemnified parties shall be selected by Merrill Lynch, and, in the case of
parties indemnified pursuant to Section 6(c) above, counsel to the indemnified
parties shall be selected by the Company or the indemnified Selling Shareholder,
as appropriate. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any
necessary local counsel) separate from their own counsel for all indemnified
parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances; provided, that, if indemnity is sought pursuant to Section
6(a)(2), Sections 6(f) or 6(g), then, in addition to the fees and expenses of
such counsel for the indemnified parties, the indemnifying party shall be liable
for the reasonable fees and expenses of not more than one counsel (in addition
to any necessary local counsel) separate from its own counsel and that of the
other indemnified parties for the Independent Underwriter in its capacity as a
"qualified independent underwriter" and all persons, if any, who control the
Independent Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of 1934 Act in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances if, in the reasonable judgment of the Independent
Underwriter, there may exist a conflict of interest between the Independent
Underwriter and the other indemnified parties. Any such separate counsel for the
Independent Underwriter and such control persons of the Independent Underwriter
shall be designated in writing by the Independent Underwriter. No indemnifying
party shall, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(e) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel for which the indemnifying
party is responsible pursuant to the terms hereof, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(1)(iii) or Section 6(b)(1)(iii) or pursuant to Sections 6(f) or
6(g) effected without its written consent if (i) such settlement is entered into
more than 60 days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice of the terms of
such settlement at least 45 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior
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<PAGE>
to the date of such settlement.
(f) Indemnification for Reserved Securities. In connection with the offer
and sale of the Reserved Securities, the Company agrees, promptly upon a request
in writing, to indemnify and hold harmless the Underwriters from and against any
and all losses, liabilities, claims, damages and expenses incurred by them as a
result of the failure of certain eligible employees and other persons to pay for
and accept delivery of Reserved Securities which, by the end of the first
business day following the date of this Agreement, were subject to an orally
confirmed agreement to purchase.
(g) Indemnification for Direct Shares. The Company agrees to indemnify and
hold harmless the Underwriters from and against any and all losses, liabilities,
claims, damages and expenses incurred by them in connection with the offer and
sale by the Company of the Direct Shares.
(h) Other Agreements with Respect to Indemnification. The provisions of
this Section shall not affect any agreement among the Company and the Selling
Shareholders with respect to indemnification.
SECTION 7. Contribution. If, although applicable in accordance with its
terms, the indemnification provided for in Section 6 hereof is for any reason
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, liabilities, claims, damages or expenses referred to therein,
then each indemnifying party shall contribute to the aggregate amount of such
losses, liabilities, claims, damages and expenses incurred by such indemnified
party, as incurred, (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders on the
one hand and the U.S. Underwriters on the other hand from the offering of the
U.S. Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Shareholders on
the one hand and of the U.S. Underwriters on the other hand in connection with
the statements or omissions, or in connection with any violation of the nature
referred to in Section 6(a)(1)(ii)(A) or Section 6(b)(1)(ii)(A) hereof, which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Shareholders
on the one hand and the U.S. Underwriters on the other hand in connection with
the offering of the U.S. Securities pursuant to this Agreement shall be deemed
to be in the same respective proportions as the total net proceeds from the
offering of the U.S. Securities pursuant to this Agreement (before deducting
expenses) received by the Company and the Selling Shareholders and the total
underwriting discount received by the U.S. Underwriters, in each case as set
forth on the cover of the U.S. Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the U.S. Securities as set forth on such cover.
The relative fault of the Company and the Selling Shareholders on the one
hand
32
<PAGE>
and the U.S. Underwriters on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Selling Shareholders or by the
U.S. Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission or
any violation of the nature referred to in Section 6(a)(1)(ii)(A) or Section
6(b)(1)(ii)(A) hereof.
The Company, the Selling Shareholders and the U.S. Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation (even if the U.S. Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 7. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
7 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no U.S. Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the U.S. Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
U.S. Underwriter has otherwise been required to pay by reason of any such untrue
or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, (a) each person, if any, who controls a
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, (b) each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company and (c) each
person, if any, who controls any Selling Shareholder within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as such Selling Shareholder. The U.S. Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial U.S. Securities set forth opposite their
respective names in Schedule A hereto and not joint.
Notwithstanding the provisions of this Section 7, no Selling Shareholder
shall be required to contribute any amount in excess of the amount equal to the
net proceeds (after deducting the underwriting discount but before deducting
expenses) received by
33
<PAGE>
such Selling Shareholder from the sale of U.S. Option Securities pursuant to
this Agreement.
The provisions of this Section shall not affect any agreement among the
Company and the Selling Shareholders with respect to contribution.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its Subsidiaries or the
Selling Shareholders submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
any U.S. Underwriter or controlling person, or by or on behalf of the Company or
any Selling Shareholder, and shall survive delivery of the U.S. Option
Securities to the U.S. Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The U.S. Representatives may terminate this
Agreement, by notice to the Company and the Attorneys-in-Fact on behalf of the
Selling Shareholders, at any time at or prior to Closing Time (i) if there has
been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the U.S. Prospectus, any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there shall have occurred a downgrading in the rating
assigned to any of the Company's debt securities by any nationally recognized
securities rating agency, or if such securities rating agency shall have
publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Company's debt securities, or
(iii) if there has occurred any material adverse change in the financial markets
in the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the U.S. Representatives, impracticable
to market the Securities or to enforce contracts for the sale of the Securities,
or (iv) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the New York Stock Exchange, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (v) if a banking moratorium has been
declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 1, 6,
7 and 8 shall survive such termination and remain in full force and effect.
34
<PAGE>
SECTION 10. Default by One or More of the U.S. Underwriters. If one or more
of the U.S. Underwriters shall fail at the Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of U.S. Securities to be purchased on such date, each of the
non-defaulting U.S. Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
U.S. Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the U.S. Underwriters to purchase the U.S. Option Securities
to be purchased and sold on such Date of Delivery shall terminate without
liability on the part of any non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting U.S.
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the U.S.
Underwriters to purchase and the Selling Shareholders to sell the relevant U.S.
Option Securities, either (i) the U.S. Representatives or (ii) the Selling
Shareholders shall have the right to postpone the Closing Time or the relevant
Date of Delivery, as the case may be, for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or Prospectus
or in any other documents or arrangements. As used herein, the term "U.S.
Underwriter" includes any person substituted for a U.S. Underwriter under this
Section 10.
SECTION 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of W. Gregg Smart,
with a copy to Fried, Frank, Harris, Shriver & Jacobson, 1 New York Plaza, New
York, New York 10004, attention of Valerie Ford Jacob, Esq.; notices to the
Company shall be directed to it at Rayovac
35
<PAGE>
Corporation, 601 Rayovac Drive, Madison, Wisconsin 53711, attention of James A.
Broderick, Esq., with a copy to Louis A. Goodman, Esq. Skadden, Arps, Slate,
Meagher & Flom LLP, One Beacon Street, Boston, MA 02108; notices to the Selling
Shareholders shall be delivered to them at The Thomas H. Lee Company, 75 State
Street, Suite 2600, Boston, MA 02109 with a copy to Louis A. Goodman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP, One Beacon Street, Boston, MA 02108.
SECTION 12. Parties. This Agreement shall each inure to the benefit of and
be binding upon the U.S. Underwriters, the Company and the Selling Shareholders
and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the U.S. Underwriters, the Company and the Selling
Shareholders and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the U.S. Underwriters, the Company and the Selling
Shareholders and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any U.S. Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES
OF DAY REFER TO NEW YORK CITY TIME. AS USED HEREIN, THE TERM "BUSINESS DAY"
MEANS ANY DAY ON WHICH THE NEW YORK STOCK EXCHANGE AND COMMERCIAL BANKS IN NEW
YORK CITY ARE REGULARLY OPEN FOR BUSINESS.
SECTION 14 Effect of Headings. The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 15. Counterparts. This Agreement may be executed in one or more
counterparts and, when a counterpart has been executed by each party hereto, all
such counterparts taken together shall constitute one and the same agreement.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
36
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the U.S. Underwriters, the Company and the Selling Shareholders in accordance
with its terms.
Very truly yours,
RAYOVAC CORPORATION
By:
----------------------------
Name: David A. Jones
Title: Chairman of the Board,
Chief Executive Officer
and President
SELLING SHAREHOLDERS
THOMAS H. LEE EQUITY
FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership, as General Partner
By: THL Equity Trust III,
as General Partner
By:
----------------------------
Name:
Title:
THOMAS H. LEE FOREIGN
FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership, as General Partner
By: THL Equity Trust III,
as General Partner
By:
----------------------------
Name:
Title:
1
<PAGE>
THL-CCI Limited Partnership
By:
-----------------------------------
Name: Warren C. Smith, Jr.
as agent and attorney-in-fact
under appointment of Power of
Attorney dated ________, 1997 for
THL-CCI Limited Partnership
CONFIRMED AND ACCEPTED,
as of the date first above
written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _______________________________________
Authorized Signatory
For themselves and as U.S. Representatives of the
other U.S. Underwriters named in Schedule A hereto.
2
<PAGE>
SCHEDULE A
Number of Initial
Name of U.S. Underwriter U.S. Securities
- ------------------------ ---------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
Total 5,360,000
3
<PAGE>
SCHEDULE B
Selling Shareholder Maximum Number of U.S.
Option Securities to be Sold
----------------------------
THOMAS H. LEE EQUITY FUND III, L.P. ----------------------------
THOMAS H. LEE FOREIGN FUND III, L.P. ----------------------------
THL-CCI Limited Partnership ----------------------------
Total 804,000
4
<PAGE>
SCHEDULE C
Rayovac Corporation
________________ Shares of Common Stock
Par Value $0.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $ .
2. The purchase price per share for the U.S. Securities to be paid by the
several U.S. Underwriters shall be $ , being an amount equal to the initial
public offering price set forth above less $ per share; provided that the
purchase price per share for any U.S. Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be reduced
by an amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial U.S. Securities but not payable on the U.S.
Option Securities.
5
<PAGE>
SCHEDULE D
List of Persons and Entities Subject to Lock-up
Thomas H. Lee Equity Fund III, L.P.
THL-CCI Limited Partnership
Thomas H. Lee Foreign Fund III, L.P.
Roger F. Warren
Trygve Lonnebotn
David A. Jones
James A. Broderick
Russell E. Lefevre
Raymond L. Balfour
Gary E. Wilson
Dale R. Tetzlaff
Kenneth V. Biller
Kent J. Hussey
Stephen P. Shanesy
Merrell M. Tomlin
Scott A. Schoen
Thomas R. Shepherd
Warren C. Smith
1
<PAGE>
EXHIBIT A-1
FORM OF OPINION OF DEWITT ROSS & STEVENS, s.c., WISCONSIN COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)*
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Wisconsin.
(ii) The issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(iii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the U.S.
Purchase Agreement and the International Purchase Agreement.
(iv) The form of certificate used to evidence the Common Stock complies in
all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the New York Stock Exchange.
(v) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(vi) The statements in the Prospectuses under the captions "Description of
Capital Stock," to the extent that such statements constitute matters of law,
summaries of legal matters or legal conclusions are correct in all material
respects.
(vii) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectuses in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if any, pursuant to
the U.S. Purchase Agreement and the International Purchase Agreement); the
shares of issued and outstanding capital stock have been and will have been at
the Closing Time duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was or will have been at the Closing Time issued in violation of the
preemptive or other similar rights of any securityholder
of the Company.
- --------
* Full Form of opinion, including qualifications to be attached prior to
execution.
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<PAGE>
(viii) The Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for issuance
and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, and, when issued and delivered
by the Company pursuant to the U.S. Purchase Agreement and the International
Purchase Agreement, respectively, against payment of the consideration set forth
in the U.S. Purchase Agreement and the International Purchase Agreement, will be
validly issued and fully paid and non-assessable and no holder of the Securities
is or will be subject to personal liability by reason of being such a holder.
(ix) Each subsidiary incorporated or organized under the laws of the state
of Wisconsin (a "Wisconsin Subsidiary") has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the state
of Wisconsin, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectuses and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(x) The information in the Registration Statement under Item 14, to the
extent that it constitutes matters of law, summaries of legal matters, the
Company's charter and bylaws or legal proceedings, or legal conclusions, has
been reviewed by us and is correct in all material respects.
(xi) The U.S. Purchase Agreement and the International Purchase Agreement
have been duly authorized, executed and delivered by the Company.
(xii) To the best of our knowledge, neither the Company nor any Wisconsin
Subsidiary is in violation of its charter or by-laws and no default by the
Company or any Wisconsin Subsidiary exists in the due performance or observance
of any material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectuses or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xiii) The execution, delivery and performance of the U.S. Purchase
Agreement and the International Purchase Agreement and the consummation of the
transactions contemplated in the U.S. Purchase Agreement, the International
Purchase Agreement and in the Registration Statement (including the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectuses under the caption "Use Of Proceeds")
and compliance by the Company with its obligations under the U.S. Purchase
Agreement and the International Purchase Agreement have been duly authorized by
all necessary corporate action and do not and will not, whether with or without
the giving of notice or lapse of time or both, conflict
2
<PAGE>
with or constitute a breach of, or default or Repayment Event (as defined in
Section 1(a)(x) of the Purchase Agreements) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any Wisconsin Subsidiary pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or any other
agreement or instrument, known to us, to which the Company or any Wisconsin
Subsidiary is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any Wisconsin Subsidiary is
subject (except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or by-laws of
the Company or any Wisconsin Subsidiary, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any Wisconsin Subsidiary or any of their respective
properties, assets or operations.
In rendering such opinion, such counsel may rely as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. Such opinion shall not
state that it is to be governed or qualified by, or that it is otherwise subject
to, any treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
3
<PAGE>
EXHIBIT A-2
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)*
November [ ], 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
U.S. Purchase Agreement
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as representatives of the several
international managers to be named
in the International Purchase Agreement
c/o Merrill Lynch & Co.
North Tower
World Financial Center
New York, New York 10281-1209
Re: Public Offering of 6,700,000 Shares of
Common Stock of Rayovac Corporation
-----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Rayovac Corporation, a Wisconsin
corporation (the "Company"), in connection with (i) the registration and sale by
- --------
* Full Form of opinion, including qualifications to be attached prior to
execution.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 2
the Company of 5,360,000 shares of the Company's Common Stock, par value $0.01
per share (the "U.S. Shares"), pursuant to the terms of the U.S. Purchase
Agreement (the "U.S. Purchase Agreement"), dated November [ ], 1997, among the
Company, the U.S. Underwriters named in Schedule A thereto (the "U.S.
Underwriters") and the shareholders of the Company named in Schedule B thereto
(the "Selling Shareholders") and (ii) the registration and sale by the Company
of 1,340,000 shares of Common Stock (the "International Shares," and together
with the U.S. Shares, the "Shares"), pursuant to the terms of the International
Purchase Agreement (the "International Purchase Agreement"), dated November [ ],
1997, between the Company and the international managers named in Schedule A
thereto (the "International Managers") and the Selling Shareholders.
This opinion is being furnished pursuant to Section 5(b) of each of the
U.S. Purchase Agreement and the International Purchase Agreement. Capitalized
terms used but not otherwise defined herein shall have the respective meanings
set forth in the U.S. Purchase Agreement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-1 (File No. 333-35181) relating to the Shares filed with the
Securities and Exchange Commission (the "Commission") on September 8, 1997 under
the Securities Act of 1933, as amended (the "Act"), Amendment No. 1 thereto, as
filed with the Commission on October 31, 1997, [and Amendment No. 2 thereto, as
filed with the Commission on November , 1997,] including the information deemed
to be a part of the Registration Statement at the time of effectiveness pursuant
to Rule 430A of the General Rules and Regulations under the Act (the "Rules and
Regulations") (such registration statement, as so amended, being hereinafter
referred to as the "Registration Statement"); (ii) the final U.S. prospectus
dated November [ ], 1997, relating to the U.S. Shares filed with the Commission
on November [ ], 1997 pursuant to Rule 424(b) of the Rules and Regulations (the
"U.S. Prospectus"); (iii) the final International Prospectus dated November [],
1997, relating to the International Shares filed with the Commission on
November [ ], 1997, pursuant to Rule 424(b) of the Rules and Regulations (the
"International Prospectus" and together with the U.S. Prospectus, the
"Prospectuses"); (iv) executed copies of the U.S. Purchase Agreement and the
International Purchase Agreement; (v) a specimen certificate representing the
Common Stock (the "Specimen Certificate"); and (vi) the certificate of James A.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 3
Broderick, General Counsel to the Company, attached hereto as Exhibit A (the
"Officer's Certificate"). We have also examined originals or copies, certified
or otherwise identified to our satisfaction, of all such records of the Company
and all such agreements, certificates of public officials, certificates of
officers or other representatives of the Company and others, and such other
documents, certificates and records as we have deemed necessary or appropriate
as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
executed documents, we have assumed that the parties thereto (including the
Company) had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof. As to any facts
material to the opinions expressed herein that were not independently
established or verified, we have relied upon oral or written statements and
representations of officers and other representatives of the Company.
For purposes of the opinions set forth below, with respect to any document
which by its terms or otherwise is governed by the laws of any jurisdiction
other than the United States of America or the State of New York, such opinions
are based solely upon our understanding of the plain language of such document,
and we express no opinion as to the interpretation of any such document or of
any term or provision thereof under applicable governing law or as to the effect
on the opinions expressed herein of any interpretation thereof inconsistent with
such understanding. For purposes of our opinion set forth in paragraph 4, we
have assumed that the certificates representing the shares referred to in such
paragraph conform to the Specimen Certificate. Our opinion set forth in
paragraph 5, is based solely upon the Officer's Certificate and our discussions
with James A. Broderick, General Counsel of the Company; we have not performed
any docket search in any jurisdiction, and have not done any other investigation
of any kind.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 4
The opinions expressed herein are limited to the laws of the State of New
York, the General Corporation Law of the State of Delaware and the federal laws
of the United States of America to the extent specifically referred to herein.
As used herein, (i) the term "Applicable Laws" means the General
Corporation Law of the State of Delaware and those laws, rules and regulations
of the State of New York and of the United States of America that, in our
experience, are normally applicable to transactions of the type contemplated by
the U.S. Purchase Agreement, but without our having made any special
investigation concerning the applicability of any other law, rule or regulation;
provided, that such term does not include any federal or state securities or
other antifraud laws or the rules and regulations of the National Association
of Securities Dealers, Inc.; (ii) the term "Applicable Contracts" means those
contracts and agreements listed on Annex A to the Officer's Certificate; and
(iii) the term "Governmental Approval" means any consent, approval, license,
authorization or validation of, or filing, recording or registration with, any
United States federal or New York executive, legislative, judicial,
administrative or regulatory body (a "Governmental Entity"), pursuant to
Applicable Laws.
Based upon and subject to the foregoing and to the other qualifications and
limitations set forth herein, we are of the opinion that:
1. All of the issued and outstanding capital stock of ROV Holding, Inc. has
been duly authorized and validly issued and is fully paid and nonassessable.
None of the outstanding shares of capital stock of ROV Holding, Inc. was issued
in violation of the preemptive rights of any security holder of ROV Holding,
Inc. arising under the Certificate of Incorporation or By-laws of ROV Holding,
Inc. or any other similar rights arising under any Applicable Contract.
2. To our knowledge, based solely on our examination of the stock record
book of ROV Holding, Inc., the issued and outstanding capital stock of ROV
Holding, Inc. is owned of record by the Company, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity arising under any
Applicable Contract, except for the pledge of the capital stock of ROV Holding,
Inc. by the Company pursuant to a Company Pledge Agreement dated as of September
12, 1996 between the Company and Bank of America National Trust and Savings
Association in its capacity as administrative agent for the lenders referred to
therein.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 5
3. The Registration Statement, as of its effective date, and the
Prospectuses, as of their date, appeared on their face to be appropriately
responsive in all material respects to the requirements of the Securities Act
and the Rules and Regulations, except that, in each case, we express no opinion
as to the financial statements, schedules and other financial data included
therein or excluded therefrom or the exhibits to the Registration Statement, and
we do not assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement except to the extent
indicated in paragraph 6 below.
4. The Specimen Certificate complies in all material respects with any
requirements of the New York Stock Exchange applicable to companies whose
securities are listed thereon.
5. To our knowledge, except as set forth in the Registration Statement or
the Prospectuses, there are no legal, regulatory or governmental proceedings
pending in any New York State or federal court to which the Company or any
subsidiary of the Company listed on Exhibit 21 to the Registration Statement
(each, a "Subsidiary") is a party, or to which the property of the Company or
any Subsidiary is subject, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the transactions contemplated by the U.S. Purchase Agreement or
the International Purchase Agreement or the performance by the Company of its
obligations thereunder.
6. The statements in the Prospectuses under the captions "Description of
Capital Stock," "Description of Certain Indebtedness," "Shares Eligible for
Future Sale," "Underwriting" and "Certain Federal Income Tax Considerations," to
the extent that such statements constitute matters of law, summaries of legal
matters or legal conclusions, are correct in all material respects.
7. No Governmental Approval is required under Applicable Laws in connection
with the consummation by the Company of the transactions contemplated by the
U.S. Purchase Agreement or the International Purchase Agreement except that we
do not express any opinion as to any consent or authorization which may have
become applicable to the Company as a result of the involvement of the U.S.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 6
Underwriters or of the International Managers in the transactions contemplated
by the U.S. Purchase Agreement or the International Purchase Agreement, because
of their legal or regulatory status or because of any other facts specifically
pertaining to them.
8. Neither the execution and delivery of the U.S. Purchase Agreement or
the International Purchase Agreement nor the consummation of the transactions
contemplated therein will contravene any Applicable Laws.
9. To our knowledge, based solely upon a review of the Applicable
Contracts, there are no Applicable Contracts of a character required to be filed
as exhibits to the Registration Statement which are not filed as required.
10. The execution, delivery and performance of the U.S. Purchase Agreement
and the International Purchase Agreement and the consummation of the
transactions contemplated thereby and the use of the proceeds from the sale of
the Shares as described in the Prospectuses under the caption "Use of Proceeds"
do not and will not, either by itself or the giving of notice or the lapse of
time or both, conflict with or constitute a breach of or a default or Repayment
Event (as defined in Section 1(a)(x) of the Purchase Agreements) under any
Applicable Contract or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any Subsidiary
pursuant to any Applicable Contract to which the Company or any Subsidiary is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any Subsidiary is subject or any Applicable
Law or Governmental Approval of any Governmental Entity having jurisdiction over
the Company or any Subsidiary or any of their respective properties, assets or
operations, except in any such case for any such conflicts, breaches, or
defaults which would not have a Material Adverse Effect.
11. Except as disclosed in the Registration Statement, to our knowledge,
there are no persons with registration rights or other similar rights under any
Applicable Contract to have any shares of Common Stock registered pursuant to
the Registration Statement or otherwise registered by the Company pursuant to
the 1933 Act.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 7
12. The Company is not subject to registration as an investment company
under the Investment Company Act of 1940, as amended.
We have been orally advised by the Commission that the Registration
Statement was declared effective under the Act at [ ], Washington, D.C. time, on
November [ ], 1997; the required filing of the Prospectuses pursuant to Rule
424(b) has been made in the manner and within the time period required by Rule
424(b); and, to our knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened by the Commission.
In addition, we have participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, and you and your counsel, at which the contents of
the Registration Statement, the Prospectuses and related matters were discussed
and, although we are not passing upon, and do not assume any responsibility for,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectuses and have made no independent check or
verification thereof, on the basis of the foregoing, no facts have come to our
attention that have led us to believe that the Registration Statement, at the
time it became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectuses, as of
their dates and as of the date hereof, contained or contains an untrue statement
of a material fact or omitted or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that we express no opinion or belief with
respect to the financial statements, schedules and other financial data included
therein or excluded therefrom or the exhibits to the Registration Statement.
This opinion is furnished to you solely for your benefit in connection with
the closings under the U.S. Purchase Agreement and the International Purchase
Agreement occurring today and is not to be used, circulated, quoted or otherwise
referred to for any other purpose or relied upon by any other person without our
prior express written permission.
Very truly yours,
<PAGE>
EXHIBIT A-3
FORM OF OPINION OF COUNSEL OF
SELLING SHAREHOLDERS
TO BE DELIVERED PURSUANT TO
SECTION 5(b)*
November __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
MERRILL LYNCH INTERNATIONAL
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as Lead Managers for the several International Managers
c/o Merrill Lynch International
25 Ropemaker Place
London EC2Y 9LY
England
Re: Overallotment Option in Connection
With Public Offering of Shares of
Common Stock of Rayovac Corporation
-----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Thomas H. Lee Equity Fund
III, L.P., THL-CCI Limited Partnership, Thomas H. Lee Foreign Fund III, L.P.,
(each a "Selling Shareholder" and together the "Selling Shareholders") in
connection with the execution and delivery by the Selling Shareholders of (i)
the U.S. Purchase Agreement dated as of November __, 1997 (the "U.S. Purchase
Agreement") among
- --------
* Full Form of opinion, including qualifications to be attached prior to
execution.
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 2
Rayovac Corporation, a Wisconsin corporation (the "Company"), the Selling
Shareholders, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, Bear Stearns & Co., Inc., and Smith
Barney Inc. as representatives (the "U.S. Representatives") of the U.S.
Underwriters listed in Schedule A thereto and (ii) the International Purchase
Agreement dated as of November __, 1997 (the "International Purchase Agreement")
among the Company, the Selling Shareholders, and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Bear
Stearns International Limited, and Smith Barney Inc. as lead managers (the "Lead
Managers") on behalf of the International Managers listed in Schedule A thereto,
and the sale by the Selling Shareholders to the U.S. Underwriters (as defined in
the U.S. Purchase Agreement) and the International Managers (as defined in the
International Purchase Agreement) of an aggregate of 1,005,000 shares of Common
Stock, par value $0.01 per share, of the Company (the "Common Stock") pursuant
to the exercise by the U.S. Underwriters and the International Managers of the
options granted by the Selling Shareholders, acting severally and not jointly,
to (i) the U.S. Underwriters, acting severally and not jointly, to purchase all
or any part of 804,000 additional shares of Common Stock (the "U.S. Option
Securities") and (ii) the International Managers, acting severally and not
jointly, to purchase all or any part of 201,000 additional shares of Common
Stock (the "International Option Securities," and together with the U.S. Option
Securities, the "Option Shares") to cover over allotments, if any, described in
Section 2(b) of each of the U.S. Purchase Agreement and the International
Purchase Agreement. This opinion is delivered to you pursuant to Section 5(b)
of each of the U.S. Purchase Agreement and the International Purchase Agreement.
Capitalized terms used herein but not otherwise defined herein shall have the
same meaning ascribed to them in the U.S. Purchase Agreement.
In connection with this opinion, we have examined or are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the U.S. Purchase Agreement; (ii) the International Purchase Agreement;
(iii) the Irrevocable Power of Attorney and Custody Agreement dated as of
November ___, 1997 among each Selling Shareholder and ________________________,
each acting as Attorney-in-Fact (each, an "Attorney-in-Fact" and together, the
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 3
"Attorneys-in-Fact"), and [Firstar Trust Bank], as Custodian (the "Custodian")
(the "Custody Agreement" and together with the U.S. Purchase Agreement and the
International Purchase Agreement, the "Transaction Documents"), (iv) the Limited
Partnership Agreement of Thomas H. Lee Foreign Fund III, L.P. (the "Foreign
Fund"), dated as of February 6, 1996, by and among THL Equity Advisors III
Limited Partnership, a Massachusetts limited partnership ("Advisors"), and the
limited partners listed on Exhibit A thereto; (v) the Second Amended and
Restated Limited Partnership Agreement of Thomas H. Lee Equity Fund III, L.P.
(the "Equity Fund" and together with the Foreign Fund, the "Funds"), dated as of
December 22, 1995, by and among Advisors and the limited partners listed on
Exhibit A thereto; (vi) the Thirteenth Amended and Restated Agreement of Limited
Partnership of THL-CCI Limited Partnership ("CCI", and together with the Funds,
the "Partnerships"), dated as of January 17, 1997, by and among THL Investment
Management Corp. and the persons and entities admitted as limited partners;
(vii) the Certificate of Limited Partnership of the Foreign Fund, dated as of
January 23, 1996; (viii) the Certificate of Limited Partnership of the Equity
Fund, dated as of February 14, 1995; (ix) the Certificate of Limited Partnership
of CCI, dated as of July 10, 1992, as amended November 30, 1993 and March 13,
1996; (x) the First Amended and Restated Agreement of Limited Partnership of
Advisors, dated as of August 15, 1995 by and among THL Equity Trust III, a
Massachusetts business trust ("Equity Trust"), and the limited partners
signatories thereto; (xi) the Certificate of Limited Partnership of Advisors,
dated as of February 16, 1995; (xii) the Declaration of Trust of Equity Trust,
made as of February 14, 1995, by and between Thomas H. Lee, as grantor, and the
trustees signatories thereto; (xiii) the Consent of Trustees of Equity Trust,
dated as of January 17, 1997; (xiv) the Articles of Organization and By-laws of
THL Investment Management Corp., each as in effect as of the date hereof; (xv)
the Consent of Sole Director of THL Investment Management Corp., dated as of
January 17, 1997; (xvi) the Certificate of Advisors, as general partner of the
Equity Fund, dated as of January 17, 1997; (xvii) the Certificate of Advisors,
as general partner of the Foreign Fund, dated as of November __, 1997; (xviii)
the Certificate of Equity Trust, as general partner of Advisors, dated as of
November __, 1997; (xix) the Officer's Certificate of THL Investment Management
Corp., as general partner of CCI, dated as of November __, 1997; (xx) the
Officer's Certificate of THL Investment Management Corp., dated as of November
__, 1997; (xxi) the Certificate of Equity Trust, dated as of November __, 1997
and (xxii) certificates representing the Option Shares. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such records of each of the Partnerships and others and such agreements,
certificates of public officials, certificates of officers or other
representatives of each of the Partnerships and others and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 4
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such latter documents. As to any facts material to the opinions set
forth herein which we did not independently establish or verify, we have relied
upon statements and representations of officers and other representatives of
each of the Partnerships and others.
As used herein, (i) the term "Applicable Laws" means the General
Corporation Law and Revised Uniform Limited Partnership Act of the State of
Delaware, the Business Corporation Law and the Uniform Limited Partnership Act
of the Commonwealth of Massachusetts and those laws, rules and regulations of
the State of New York and of the United States of America that, in our
experience, are normally applicable to transaction of the type contemplated by
the Transaction Documents, but without our having made any special investigation
concerning the applicability of any other law, rule or regulation; provided,
that such term does not include any federal or state securities or other
antifraud laws or the rules and regulations of the National Association of
Securities Dealers, Inc.; (ii) the term "Applicable Contracts" means those
contracts and agreements listed on Annex A hereto; and (iii) the term
"Governmental Approval" means any consent, approval, license, authorization or
validation of, or filing, recording or registration with, any United States
Federal or Delaware, Massachusetts or New York executive, legislative, judicial,
administrative or regulatory body (a "Governmental Entity"), pursuant to
Applicable Laws.
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 5
The opinions expressed herein are limited to (i) the General Corporation
Law and the Revised Uniform Limited Partnership Act of the State of Delaware;
(ii) the Business Corporation Law and the Uniform Limited Partnership Act of the
Commonwealth of Massachusetts; (iii) the laws of the State of New York; and (iv)
the federal laws of the United States of America to the extent specifically
referred to herein.
Based upon and subject to the foregoing, and to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
1. No Governmental Approval is required under Applicable Laws in connection
with the offer, sale or delivery of the Option Shares by the Selling
Shareholders under the U.S. Purchase Agreement and the International Purchase
Agreement or the performance by each of the Selling Shareholders of its
obligations under any of the Transaction Documents; provided, that we express no
opinion as to any Governmental Approval which may be required under state
securities laws or that may have become applicable to any Selling Shareholder as
a result of your involvement in the U.S. Purchase Agreement or the International
Purchase Agreement because of your legal or regulatory status or because of any
other facts specifically pertaining to you.
2. Each of the Custody Agreement, the U.S. Purchase Agreement and the
International Purchase Agreement has been duly executed and delivered by each
Selling Shareholder.
3. The Attorney-in-Fact has been duly authorized by each Selling
Shareholder to deliver and sell the U.S. Option Securities and the International
Option Securities on behalf of each Selling Shareholder in accordance with the
terms of each of the U.S. Purchase Agreement and the International Purchase
Agreement.
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 6
4. The execution, delivery and performance of each of the Transaction
Documents and the sale and delivery of the U.S. Option Securities and the
International Option Securities and the consummation of the transactions
contemplated in each of the U.S. Purchase Agreement and the International
Purchase Agreement and compliance by each Selling Shareholder with its
obligations under each of the U.S. Purchase Agreement and the International
Purchase Agreement have been duly authorized by all necessary partnership action
on the part of each Selling Shareholder and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default under any Applicable Law or Governmental
Approval of any Governmental Entity having jurisdiction over any Selling
Shareholder or any of their properties (except for such conflicts, breaches or
defaults or liens, charges or encumbrances which would not have a material
adverse effect on the condition (financial or otherwise), earnings, business
affairs or business prospects of any Selling Shareholder, whether or not arising
in the ordinary course of business) nor will such action result in any violation
of the provisions of the partnership agreements of any of the Selling
Shareholders.
5. To our knowledge, each Selling Shareholder has the power and authority
as a limited partnership to sell, transfer and deliver the U.S. Option
Securities and the International Option Securities pursuant to each of the U.S.
Purchase Agreement and the International Purchase Agreement. Assuming that
neither any U.S. Representatives nor any U.S. Underwriter has notice of adverse
claims with respect to the certificates identified on Schedule A as representing
the U.S. Option Securities, then upon physical delivery to Merrill Lynch & Co.
as designee of the U.S. Representatives in the State of New York of such
certificates indorsed to the U.S. Representatives or indorsed in blank, the U.S.
Representatives will acquire such certificates (and the shares of Common Stock
represented thereby) free of any adverse claims within the meaning of the
Uniform Commercial Code in effect in the State of New York. Assuming that
neither any Lead Manager nor any International Manager has notice of adverse
claims with respect to the certificates identified on Schedule A as representing
the International Option Securities, then upon physical delivery to Merrill
Lynch & Co. as designee of the Lead Managers in the State of New York of such
certificates indorsed to the Lead Managers or indorsed in blank, the Lead
Managers will acquire such certificates (and the shares of Common Stock
represented thereby) free of any adverse claims within the meaning of the
Uniform Commercial Code in effect in the State of New York.
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 7
This opinion is furnished to you solely for your benefit in connection with
the closings under the U.S. Purchase Agreement and the International Purchase
Agreement occurring today and is not to be used, circulated, quoted or otherwise
referred to for any other purpose or relied upon by any other person without our
prior express written permission.
Very truly yours,
<PAGE>
EXHIBIT B
_________________, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
within-mentioned U.S. Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Rayovac Corporation
Dear Sirs:
The undersigned, a stockholder [and an [officer] or [director]] of
Rayovac Corporation, a Wisconsin corporation (the "Company"), understands that
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Smith Barney Inc. propose to enter into a U.S.
Purchase Agreement (the "U.S. Purchase Agreement") with the Company providing
for the public offering of shares (the "Securities") of the Company's common
stock, par value $0.01 per share (the "Common Stock"). In recognition of the
benefit that such an offering will confer upon the undersigned as a stockholder
of the Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the U.S. Purchase Agreement that, during a period of
180 days from the date of the U.S. Purchase Agreement, the undersigned will not,
without the prior written consent of Merrill Lynch, directly or indirectly, (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any shares of the Company's
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock, whether now owned or hereafter acquired by the undersigned or
with respect to which the undersigned has or hereafter acquires the power of
disposition, or file any registration
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statement under the Securities Act of 1933, as amended, with respect to any of
the foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise.
Notwithstanding the foregoing, the undersigned may transfer any or all
of its shares of Company Common Stock (i) by gift, will or intestacy, (ii) to
its affiliates, as such term is defined in Rule 405 promulgated under the
Securities Act of 1933, as amended, or (iii) in the event the undersigned is an
individual, to his or her immediate family or to a trust the beneficiaries of
which are exclusively the undersigned and/or a member or members of his or her
immediate family; provided, however, that in any such case it shall be a
condition to any such transfer that the transferee execute an agreement stating
that the transferee is receiving and holding the shares subject to the
provisions of this letter agreement and there shall be no further transfer of
such shares except in accordance with the provisions of this letter agreement.
Very truly yours,
Signature:
Print Name:
2
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EXHIBIT C-1
FORM OF COMFORT LETTER OF
KPMG PEAT MARWICK LLP PURSUANT TO SECTION 5(f)
(i) We are independent public accountants with respect to the Company
within the meaning of the 1933 Act and the applicable published 1933 Act
Regulations.
(ii) In our opinion, the audited financial statements and the related
financial statement schedules included in the Registration Statement and the
Prospectuses comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the published rules and regulations
thereunder.
(iii) On the basis of procedures (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of the
unaudited interim consolidated financial statements of the Company for the
periods ______________ and________________ included in the Registration
Statement and the Prospectuses (collectively, the "Quarterly Financials"), a
reading of the minutes of all meetings of the stockholders and directors of the
Company and its Subsidiaries and the committees of the Company's Board of
Directors and any subsidiary committees since October 1, 1997, inquiries of
certain officials of the Company and its subsidiaries responsible for financial
and accounting matters, a review of interim financial information in accordance
with standards established by the American Institute of Certified Public
Accountants in Statement on Auditing Standards No. 71, Interim Financial
Information ("SAS 71"), with respect to the Quarterly Financials and such other
inquiries and procedures as may be specified in such letter, nothing came to our
attention that caused us to believe that:
(A) the Quarterly Financials included in the Registration Statement
and the Prospectuses do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the 1933 Act Regulations
or any material modifications should be made to the unaudited consolidated
financial statements included in the Registration Statement and the Prospectuses
for them to be in conformity with generally accepted accounting principles;
(B) at a specified date not more than five days prior to the date of
this Agreement, there was any change in the common stock of the Company and its
subsidiaries or any decrease in the working capital, total assets, total current
assets or stockholder's equity of the Company and its subsidiaries or any
increase in the long-term debt or total liabilities of the Company and its
subsidiaries, in each case as compared with amounts shown in the latest balance
sheet included in the Registration Statement, except in each case for changes,
decreases or increases that the Registration Statement discloses have occurred
or may occur; or
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(C) for the period from September 30, 1997 to a specified date not
more than five days prior to the date of this Agreement, there was any decrease
in net sales, gross profit, income from operations before non-recurring charges,
income (loss) from operations, interest expense, net income in each case as
compared with the comparable period in the preceding year, except in each case
for any decreases that the Registration Statement discloses have occurred or may
occur.
(iv) Based upon the procedures set forth in clause (iii) above and a
reading of the Selected Financial Data included in the Registration Statement
and a reading of the financial statements from which such data were derived,
nothing came to our attention that caused us to believe that the Selected
Financial Data included in the Registration Statement do not comply as to form
in all material respects with the disclosure requirements of Item 301 of
Regulation S-K of the 1933 Act, that the amounts included in the Selected
Financial Data are not in agreement with the corresponding amounts in the
audited consolidated financial statements for the respective periods or that the
financial statements not included in the Registration Statement from which
certain of such data were derived are not in conformity with generally accepted
accounting principles.
(v) We have compared the information in the Registration Statement
under selected captions with the disclosure requirements of Regulation S-K of
the 1933 Act and on the basis of limited procedures specified herein. nothing
came to our attention that caused us to believe that this information does not
comply as to form in all material respects with the disclosure requirements of
Items 302, 402 and 503(d), respectively, of Regulation S-K.
(vi) We are unable to and do not express any opinion on the Pro Forma
Financial Information included in the Registration Statement or on the pro forma
adjustments applied to the historical amounts included in the Pro Forma
Financial Information. However, for purposes of this letter we have:
(A) read the Pro Forma Financial Information;
(B) performed an audit of the financial statements to which the pro
forma adjustments were applied;
(C) made inquiries of certain officials of the Company who have
responsibility for financial and accounting matters about the basis for their
determination of the pro forma adjustments and whether the Pro Forma Financial
Information complies as to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X; and
(D) proved the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the Pro Forma Financial Information;
and
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on the basis of such procedures and such other inquiries and procedures as
specified herein, nothing came to our attention that caused us to believe that
the Pro Forma Financial Information included in the Registration Statement does
not comply as to form in all material respects with the applicable requirements
of Rule 11-02 of Regulation S-X or that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of those
statements.
(vii) In addition to the procedures referred to in clause (iii) above,
we have performed other procedures, not constituting an audit, with respect to
certain amounts, percentages, numerical data and financial information appearing
in the Registration Statement, which are specified herein, and have compared
certain of such items with, and have found such items to be in agreement with,
the accounting and financial records of the Company.
3
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EXHIBIT C-2
FORM OF COMFORT LETTER OF
COOPERS & LYBRAND LLP PURSUANT TO SECTION 5(f)
(i) We are independent public accountants with respect to the Company
and its predecessors within the meaning of the 1933 Act and the applicable
published 1933 Act Regulations.
(ii) In our opinion, the audited financial statements and the related
financial statement schedules of Rayovac Corporation for the Transition Period
ended September 30, 1996, for the fiscal years ended June 30, 1996, 1995 and
1994 included in the Registration Statement and the Prospectuses comply as to
form in all material respects with the applicable accounting requirements of the
1933 Act and the published rules and regulations thereunder.
(iii) In addition, we have performed other procedures, not constituting
an audit, with respect to certain amounts, percentages, numerical data and
financial information appearing in the Registration Statement, which are
specified herein, and have compared certain of such items with, and have found
such items to be in agreement with, the accounting and financial records of the
Company.
1
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RAYOVAC CORPORATION
(a Wisconsin corporation)
1,340,000 Shares of Common Stock
FORM OF
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
Dated: November , 1997
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<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
INTERNATIONAL PURCHASE AGREEMENT................................................ 1
SECTION 1. Representations and Warranties ................................... 3
(a) Representations and Warranties by the Company ...................... 3
(i) Compliance with Registration Requirements ...................... 3
(ii) Independent Accountants ........................................ 4
(iii) Financial Statements ........................................... 5
(iv) No Material Adverse Change in Business ......................... 5
(v) Good Standing of the Company.................................... 5
(vi) Good Standing of Subsidiaries................................... 5
(vii) Capitalization ................................................. 6
(viii) Authorization of Agreement ..................................... 6
(ix) Authorization and Description of Securities .................... 6
(x) Absence of Defaults and Conflicts .............................. 7
(xi) Absence of Labor Dispute ....................................... 7
(xii) Absence of Proceedings ......................................... 8
(xiii) Accuracy of Exhibits ........................................... 8
(xiv) Possession of Intellectual Property ............................ 8
(xv) Absence of Further Requirements ................................ 8
(xvi) Possession of Licenses and Permits ............................. 9
(xvii) Title to Property .............................................. 9
(xviii) Investment Company Act ......................................... 9
(xix) Environmental Laws ............................................. 9
(xx) Registration Rights ............................................ 10
(xxi) Stabilization or Manipulation .................................. 10
(xxii) Accounting Controls ............................................ 10
(xxiii) Tax Returns .................................................... 10
(xxiv) No Association with NASD ....................................... 11
(b) Representations and Warranties by the Selling Shareholders ......... 11
(i) Accurate Disclosure ............................................ 11
(ii) Authorization of Agreements .................................... 11
(iii) Valid Title .................................................... 12
(iv) Due Execution of Power of Attorney and Custody Agreement ....... 12
(v) Absence of Manipulation ........................................ 13
(vi) Absence of Further Requirements ................................ 13
</TABLE>
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<TABLE>
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(vii) Certificates Suitable for Transfer ....................... 13
(viii) Irrevocable Obligations .................................. 13
(ix) No Association with NASD ................................. 14
(x) Power and Authority ...................................... 14
(b) Officer's Certificates ....................................... 14
SECTION 2. Sale and Delivery to International Managers; Closing ....... 14
(a) Initial Securities ........................................... 14
(b) Option Securities ............................................ 14
(b) Payment ...................................................... 15
(d) Denominations; Registration .................................. 16
(e) Appointment of Qualified Independent Underwriter ............. 16
SECTION 3. Covenants of the Company ................................... 16
(a) Compliance with Securities Regulations and Commission Requests 16
(b) Filing of Amendments ......................................... 16
(c) Delivery of Registration Statements .......................... 17
(d) Delivery of Prospectuses ..................................... 17
(e) Continued Compliance with Securities Laws .................... 17
(f) Blue Sky Qualifications ...................................... 18
(g) Rule 158 ..................................................... 18
(h) Use of Proceeds .............................................. 18
(i) Listing ...................................................... 18
(j) Restriction on Sale of Securities ............................ 18
(k) Reporting Requirements ....................................... 19
(l) Compliance with NASD Rules ................................... 19
SECTION 4. Payment of Expenses ........................................ 19
(a) Expenses ..................................................... 20
(b) Expenses of the Selling Shareholders ......................... 20
(c) Termination of Agreement ..................................... 20
(d) Allocation of Expenses ....................................... 20
SECTION 5. Conditions of International Managers' Obligations .......... 20
(a) Effectiveness of Registration Statement ...................... 20
(b) Opinion of Counsel for Company and the Selling Shareholders .. 20
(c) Opinion of Counsel for International Managers ................ 21
(d) Officers' Certificate ........................................ 21
(e) Selling Shareholders' Certificate ............................ 21
(f) Accountant's Comfort Letter .................................. 22
(g) Bring-down Comfort Letter .................................... 22
(h) Approval of Listing .......................................... 22
(i) No Objection ................................................. 22
(j) Lock-up Agreement ............................................ 22
(k) Purchase of Initial U.S. Securities .......................... 22
</TABLE>
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(l) Custody Agreement .............................................. 22
(m) Conditions to Purchase of International Option Securities ...... 22
(n) Additional Documents ........................................... 23
(o) Termination of Agreement ....................................... 23
SECTION 6. Indemnification .............................................. 24
(a) Indemnification of International Managers by the Company ....... 26
(b) Indemnification of the International Managers by
the Selling Shareholders ..................................... 27
(c) Indemnification of Company, Directors and Officers and
Selling Shareholders ......................................... 27
(d) Actions against Parties; Notification .......................... 28
(e) Settlement without Consent if Failure to Reimburse ............. 29
(f) Indemnification for Reserved Securities ........................ 29
(g) Indemnification for Direct Shares .............................. 29
(h) Other Agreements with Respect to Indemnification ............... 29
SECTION 7. Contribution ................................................. 29
SECTION 8. Representations, Warranties and Agreements to Survive Delivery 31
SECTION 9. Termination of Agreement .................................... 31
(a) Termination; General ........................................... 31
(b) Liabilities .................................................... 32
SECTION 10. Default by One or More of the International Managers ........ 32
SECTION 11. Notices ..................................................... 32
SECTION 12. Parties ..................................................... 33
SECTION 13. Governing Law and Time ...................................... 33
SECTION 14. Effect of Headings .......................................... 33
SECTION 15. Counterparts ................................................ 33
</TABLE>
SCHEDULES
SCHEDULE A LIST OF UNDERWRITERS
SCHEDULE B LIST OF SELLING SHAREHOLDERS
SCHEDULE C PRICING INFORMATION
SCHEDULE D LIST OF PERSONS SUBJECT TO LOCK-UP
EXHIBITS
EXHIBIT A-1 FORM OF OPINION OF COMPANY'S GENERAL COUNSEL
EXHIBIT A-2 FORM OF OPINION OF COMPANY'S COUNSEL
EXHIBIT A-3 FORM OF OPINION OF SELLING SHAREHOLDERS COUNSEL
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EXHIBIT B FORM OF LOCK-UP LETTER
EXHIBIT C-1 FORM OF COMFORT LETTER OF KPMG PEAT MARWICK LLP
EXHIBIT C-2 FORM OF COMFORT LETTER OF COOPERS & LYBRAND LLP
<PAGE>
RAYOVAC CORPORATION
(a Wisconsin corporation)
1,340,000 Shares of Common Stock
(Par Value $0.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
__________, 1997
MERRILL LYNCH INTERNATIONAL
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
c/o Merrill Lynch International
25 Ropemaker Place
London EC2Y 9LY
England
Ladies and Gentlemen:
Rayovac Corporation, a Wisconsin corporation (the "Company") and the
persons listed on Schedule B hereto (the "Selling Shareholders") confirm their
respective agreements with Merrill Lynch International and each of the other
International Managers named in Schedule A hereto (collectively, the
"International Managers," which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch International, Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Smith Barney Inc. are acting as representatives (in
such capacity, the "Lead Managers"), with respect to (i) the issue and sale by
the Company and the purchase by the International Managers, acting severally and
not jointly, of the number of shares of Common Stock, par value $0.01 per share,
of the Company ("Common Stock") set forth in Schedule A hereto and (ii) the
grant by the Selling Shareholders, to the International Managers, acting
severally and not jointly, of the option described in Section 2(b) hereof to
purchase all or any part of 201,000 additional shares of Common Stock to cover
over-allotments, if any. The aforesaid shares of Common Stock (the "Initial
International Securities") to be purchased by the International Managers, and
all or any part of the 201,000 shares of Common Stock subject to the option
described in Section 2(b) hereof (the "International Option Securities"), are
hereinafter called, collectively, the "International Securities."
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "U.S. Purchase Agreement") providing for
the offering by the Company of an aggregate
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of 5,360,000 shares of Common Stock (the "Initial U.S. Securities") through
arrangements with certain underwriters in the United States and Canada (the
"U.S. Underwriters") for which Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co. Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Smith Barney Inc. are
acting as representatives (the "U.S. Representatives") and the grant by the
Company, to the U.S. Underwriters, acting severally and not jointly, of an
option to purchase all or any part of the U.S. Underwriters' pro rata portion of
up to 804,000 additional shares of Common Stock solely to cover over-allotments,
if any (the "U.S. Option Securities" and, together with the International Option
Securities, the "Option Securities"). The Initial U.S. Securities and the U.S.
Option Securities are hereinafter called the "U.S. Securities." It is understood
that the Company is not obligated to sell and the International Managers are not
obligated to purchase, any Initial International Securities unless all of the
Initial U.S. Securities are contemporaneously purchased by the U.S.
Underwriters.
The International Managers and the U.S. Underwriters are hereinafter
collectively called the "Underwriters," the Initial International Securities and
the Initial U.S. Securities are hereinafter collectively called the "Initial
Securities," and the International Securities and the U.S. Securities are
hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company and the Selling Shareholders understand that the
International Managers propose to make a public offering of the International
Securities as soon as the Lead Managers deem advisable after this Agreement has
been executed and delivered.
The Company and the International Managers agree that up to 530,000 of
the shares of Common Stock to be purchased by the Underwriters (the "Reserved
Securities") shall be reserved for sale by the Underwriters to certain eligible
employees and persons having relationships with the Company as part of the
distribution of the Securities by the Underwriters, subject to the terms of this
Agreement, the applicable rules, regulations and interpretations of the National
Association of Securities Dealers, Inc. and all other applicable laws, rules and
regulations. To the extent that such Reserved Securities are not orally
confirmed for purchase by such eligible employees and persons having
relationships with the Company by the end of the first business day after the
date of this Agreement, such Reserved Securities may be offered to the public as
part of the public offering contemplated hereby. In addition, the Company is
concurrently offering up to 270,000 shares of Common Stock (the "Direct Shares")
directly to certain employee participants in the Company's Profit Sharing and
Savings Plan pursuant to a separate prospectus included in the Registration
Statement (as defined below).
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-35181), as amended
by Amendment No. 1 thereto, covering the registration of the Securities under
the Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses. Promptly after execution and delivery of
this Agreement, the Company will either (i) prepare and file a prospectus in
accordance
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with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of
the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b)
of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations, or (ii) if the Company
has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations,
prepare and file a term sheet (a "Term Sheet") in accordance with the provisions
of Rule 434 and Rule 424(b). Two forms of prospectus are to be used in
connection with the offering and sale of the Securities: one relating to the
International Securities (the "Form of International Prospectus") and one
relating to the U.S. Securities (the "Form of U.S. Prospectus"). The Form of
U.S. Prospectus is identical to the Form of International Prospectus, except for
the front cover and back cover pages and the information under the caption
"Underwriting." The information included in any such prospectus or in any such
Term Sheet, as the case may be, that was omitted from such registration
statement at the time it became effective but that is deemed to be part of such
registration statement at the time it became effective (a) pursuant to paragraph
(b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to
paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each Form of
International Prospectus and Form of U.S. Prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final Form of International Prospectus and the final
Form of U.S. Prospectus in the forms first furnished to the Underwriters for use
in connection with the offering of the Securities are herein called the
"International Prospectus" and the "U.S. Prospectus," respectively, and
collectively, the "Prospectuses." If Rule 434 is relied on, the terms
"International Prospectus" and "U.S. Prospectus" shall refer to the preliminary
International Prospectus dated October 31, 1997 and the preliminary U.S.
Prospectus dated October 31, 1997, respectively, each together with the
applicable Term Sheet, and all references in this Agreement to the date of such
Prospectuses shall mean the date of the applicable Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the International Prospectus, the U.S. Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each International Manager as of the date hereof, as
of the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each
International Manager, as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any
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Rule 462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to the
knowledge of the Company, are contemplated by the Commission, and any request on
the part of the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any International Option Securities
are purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Prospectuses, any preliminary prospectuses and any supplement thereto or
prospectus wrapper prepared in connection therewith, at their respective times
of issuance and at the Closing Time, complied and will comply in all material
respects with any applicable laws or regulations of foreign jurisdictions in
which the Prospectuses and such preliminary prospectuses, as amended or
supplemented, if applicable, are distributed in connection with the offer and
sale of Reserved Securities. Neither of the Prospectuses nor any amendments or
supplements thereto (including any prospectus wrapper), at the time the
Prospectuses or any amendments or supplements thereto were issued and at the
Closing Time (and, if any International Option Securities are purchased, at the
Date of Delivery), included or will include, at the aforesaid times, an untrue
statement of a material fact or omitted or will omit, at the aforesaid times, to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. If Rule
434 is used, the Company will comply with the requirements of Rule 434 and the
Prospectuses shall not be "materially different," as such term is used in Rule
434, from the prospectuses included in the Registration Statement at the time it
became effective. The representations and warranties in this subsection shall
not apply to statements in or omissions from the Registration Statement or the
Prospectuses made in reliance upon and in conformity with information furnished
to the Company in writing by any Underwriter through the Lead Managers or the
U.S. Representatives expressly for use in the Registration Statement or the
Prospectuses.
Each preliminary prospectus and the prospectuses filed as part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all
material respects with the 1933 Act Regulations and each preliminary prospectus
and the Prospectuses delivered to the Underwriters for use in connection with
this offering was identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(ii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
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(iii) Financial Statements. The historical financial
statements included in the Registration Statement and the Prospectuses,
together with the related schedule and notes, present fairly the
financial position of the Company and its consolidated Subsidiaries (as
defined below) at the dates indicated and the statement of operations,
shareholders' equity and cash flows of the Company and its consolidated
Subsidiaries for the periods specified; said financial statements have
been prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the
periods involved. The supporting schedules included in the Registration
Statement present fairly in accordance with GAAP the information
required to be stated therein. The selected financial data and the
summary financial information included in the Prospectuses present
fairly the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in
the Registration Statement. The pro forma financial data and the
related notes thereto included in the Registration Statement and the
Prospectuses present fairly the information shown therein and have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly
compiled on the bases described therein, and the assumptions used in
the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions and circumstances
referred to therein.
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the condition (financial
or otherwise), earnings, business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise, whether or
not arising in the ordinary course of business (a "Material Adverse
Effect"), (B) there have been no transactions entered into by the
Company or any of its Subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and
its Subsidiaries considered as one enterprise, and (C) there has been
no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Wisconsin and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing
in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each subsidiary of the
Company (each a "Subsidiary" and, collectively, the "Subsidiaries") has
been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectuses and is
duly qualified as a
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foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued
and outstanding capital stock of each such Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable in
jurisdictions where such legal concepts are recognized and is owned by
the Company, directly or through Subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity
(except as set forth in the Registration Statement and except for any
director or member qualifying shares); none of the outstanding shares
of capital stock of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.
The only Subsidiaries of the Company are the subsidiaries listed on
Exhibit 21 to the Registration Statement and, except for Rayovac Europe
Limited (which represents less than 15% of the assets, liabilities and
earnings of the Company) the Company has no "significant subsidiaries"
as defined in Section 1-02 of Regulation S-X.
(vii) Capitalization. After giving effect to the amendment and
restatement of the Amended and Restated Articles of Incorporation of
the Company to be effective prior to the Closing Time, the authorized,
issued and outstanding capital stock of the Company is as set forth in
the Prospectuses in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to
this Agreement, pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectuses or pursuant to the
exercise of convertible securities or options referred to in the
Prospectuses). The shares of issued and outstanding capital stock of
the Company have been and at the Closing Time, including the
International Option Securities to be purchased by the International
Managers from the Selling Shareholders, will have been duly authorized
and validly issued and are or will be fully paid and non-assessable;
none of the outstanding shares of capital stock of the Company was or
as of the Closing Time, including the International Option Securities
to be purchased by the International Managers from the Selling
Shareholders, will have been or was issued in violation of the
preemptive or other similar rights of any securityholder of the
Company.
(viii) Authorization of Agreement. This Agreement and the U.S.
Purchase Agreement have been duly authorized, executed and delivered by
the Company.
(ix) Authorization and Description of Securities. The
Securities to be purchased by the International Managers and the U.S.
Underwriters from the Company have been duly authorized for issuance
and sale to the International Managers pursuant to this Agreement and
the U.S. Underwriters pursuant to the U.S. Purchase Agreement,
respectively, and, when issued and delivered by the Company pursuant to
this Agreement and the U.S. Purchase Agreement, respectively, against
payment of the consideration set forth herein and the U.S. Purchase
Agreement, respectively, will be validly issued, fully paid and
non-assessable; the Direct Shares to be offered and sold separately by
the Company have been duly authorized by the Company and when issued
and delivered by the Company against payment therefor will be validly
issued, fully paid and non-assessable; the Common
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Stock conforms to the descriptions thereof contained under
"Description of Capital Stock" in the Prospectuses and such description
conforms to the rights set forth in the instruments defining the same;
no holder of the Securities will be subject to personal liability by
reason of being such a holder; and the issuance of the Securities is
not subject to the preemptive or other similar rights of any
securityholder of the Company.
(x) Absence of Defaults and Conflicts. Neither the Company nor
any of its Subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its Subsidiaries is a
party or by which it or any of them may be bound, or to which any of
the property or assets of the Company or any Subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the U.S. Purchase
Agreement and the consummation of the transactions contemplated in this
Agreement, the U.S. Purchase Agreement and in the Registration
Statement (including the issuance and sale of the Securities (and the
Direct Shares) and the use of the proceeds from the sale of the
Securities (and the Direct Shares) as described in the Prospectuses
under the caption "Use of Proceeds") and the compliance by the Company
with its obligations under this Agreement and the U.S. Purchase
Agreement have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of notice
or passage of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any Subsidiary pursuant to, the
Agreements and Instruments which would reasonably be expected, either
singly or in the aggregate to result in a Material Adverse Effect, nor
will such action result in any violation of any applicable law,
statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any Subsidiary or any of their
assets, properties or operations, including specifically but without
limitation with respect to the Direct Shares any violation of the
Employee Retirement Income Security Act, which would reasonably be
expected, either singly or in the aggregate to result in a Material
Adverse Effect; nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any Subsidiary.
As used herein, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right
to require the repurchase, redemption or repayment of all or a portion
of such indebtedness by the Company or any Subsidiary.
(xi) Absence of Labor Dispute. Except as described in the
Registration Statement with respect to the renegotiation of collective
bargaining agreements, (i) no labor dispute with the employees of the
Company or any Subsidiary exists or, to the knowledge of the Company,
is imminent, and (ii) the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any
Subsidiary's principal suppliers, manufacturers, customers, dealers or
contractors, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.
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(xii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any Subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the
transactions contemplated in this Agreement and the U.S. Purchase
Agreement or the performance by the Company of its obligations
hereunder or thereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any Subsidiary is a
party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement,
including ordinary routine litigation incidental to the business of the
Company and its Subsidiaries would not reasonably be expected to result
in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits thereto which
have not been so described and filed as required.
(xiv) Possession of Intellectual Property. Except as described
in the Registration Statement, the Company and its Subsidiaries own or
possess the right to utilize, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its Subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
Subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities under this Agreement and the U.S. Purchase
Agreement or the consummation of the transactions contemplated by this
Agreement and the U.S. Purchase Agreement, except (i) such as have been
already obtained or as may be required under the 1933 Act or the 1933
Act Regulations and foreign or state securities or blue sky laws or the
rules or regulations of the NASD and (ii) such as have been obtained
under the laws and regulations of jurisdictions outside the United
States in which the Reserved Securities are offered.
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(xvi) Possession of Licenses and Permits. The Company and its
Subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them, except
where the failure to possess the same would not, singly or in the
aggregate have a Material Adverse Effect; the Company and its
Subsidiaries are in compliance with the terms and conditions of all
such Governmental Licenses, except where the failure so to comply would
not, singly or in the aggregate, have a Material Adverse Effect; all of
the Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or the failure
of such Governmental Licenses to be in full force and effect would not
have a Material Adverse Effect; and neither the Company nor any of its
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xvii) Title to Property. The Company and its Subsidiaries
have good and marketable title to all real property owned by the
Company and its Subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectuses or (b) do
not, singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company or any of its Subsidiaries or (c) would
not reasonably be expected to result in a Material Adverse Effect; and
all of the leases and subleases material to the business of the Company
and its Subsidiaries, considered as one enterprise, and under which the
Company or any of its Subsidiaries holds properties described in the
Prospectuses, are in full force and effect, and neither the Company nor
any Subsidiary has any notice of any claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any
Subsidiary under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or such Subsidiary
to the continued possession of the leased or subleased premises under
any such lease or sublease which would reasonably be expected to result
in a Material Adverse Effect.
(xviii) Investment Company Act. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectuses will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xix) Environmental Laws. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its Subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative
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order, consent decree or judgment, relating to pollution or
protection of human health, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively, "Environmental Laws"), (B) the Company and its
Subsidiaries have all permits, licenses, authorizations and approvals
currently required for their respective businesses and for the
businesses contemplated to be conducted upon consummation of the
offering of the Securities under any applicable Environmental Laws and
are each in compliance with their requirements, (C) there are no
pending or threatened administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance
or violation, investigation or proceedings relating to any
Environmental Law against the Company or any of its Subsidiaries and
(D) there are no events, facts or circumstances that might reasonably
be expected to form the basis of any liability or obligation of the
Company or any of its Subsidiaries, including, without limitation, any
order, decree, plan or agreement requiring clean-up or remediation, or
any action, suit or proceeding by any private party or governmental
body or agency, against or affecting the Company or any of its
Subsidiaries relating to any Hazardous Materials or any Environmental
Laws.
(xx) Registration Rights. There are no persons with
registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement under the 1933 Act.
Except as described in the Registration Statement, there are no persons
with registration rights or other similar rights to have any securities
registered by the Company under the 1933 Act.
(xxi) Stabilization or Manipulation. Neither the Company nor
any of its officers, directors or controlling persons has taken,
directly or indirectly, any action designed to cause or to result in,
or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale of the Securities.
(xxii) Accounting Controls. The Company and its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization; (B) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific authorization;
and (D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxiii) Tax Returns. The Company and its Subsidiaries have
filed all federal, state, local and foreign tax returns that are
required to have been filed by them pursuant to applicable foreign,
federal, state, local or other law or have duly requested extensions
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thereof, except insofar as the failure to file such returns or
request such extensions would not reasonably be expected to result in a
Material Adverse Effect, and has paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Company and its
Subsidiaries, except for such taxes or assessments, if any, as are
being contested in good faith and as to which adequate reserves have
been provided or where the failure to pay would not reasonably be
expected to result in a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company in respect of any income and
corporation tax liability of the Company and each Subsidiary for any
years not finally determined are adequate to meet any assessments or
re-assessments for additional income tax for any years not finally
determined, except to the extent of any inadequacy that would not
reasonably be expected to result in a Material Adverse Effect.
(xxiv) No Association with NASD. Neither the Company nor any
of its affiliates (within the meaning of NASD Conduct Rule
2720(b)(1)(a)) directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, or is an associated person (within the meaning of Article
I, Section 1(q) of the By-laws of the National Association of
Securities Dealers, Inc.), of any member firm of the National
Association of Securities Dealers, Inc., other than as described on an
appendix to the Selling Shareholders' Power of Attorney and Custody
Agreement (as defined herein).
b) Representations and Warranties by the Selling Shareholders. Each
Selling Shareholder, severally and not jointly, represents and warrants to each
International Manager as of the date hereof, as of the Closing Time, and, if
such Selling Shareholder is selling International Option Securities on a Date of
Delivery, as of each such Date of Delivery, and agrees with each International
Manager, as follows:
(i) Accurate Disclosure. (A) The information furnished in
writing by or on behalf of such Selling Shareholder expressly for use
in the Registration Statement and any amendments or supplements thereto
does not contain an untrue statement of a material fact with respect to
such Selling Shareholder or omit to state a material fact with respect
to such Selling Shareholder required to be stated therein or necessary
to make the statements regarding the Selling Shareholder therein not
misleading and (B) the information furnished in writing by or on behalf
of such Selling Shareholder expressly for use in the Prospectus does
not include an untrue statement of a material fact with respect to such
Selling Shareholder or omit to state a material fact with respect to
such Selling Shareholder necessary in order to make the statements
regarding the Selling Shareholder therein, in the light of the
circumstances under which they were made, not misleading.
(ii) Authorization of Agreements. Such Selling Shareholder has
the full right, power and authority to enter into this Agreement and
the Power of Attorney and Custody Agreement (the "Power of Attorney and
Custody Agreement") with [Firstar Bank], as custodian (the
"Custodian"), and the attorneys-in-fact named therein (each an
"Attorney-in-Fact"), and to sell, transfer and deliver the Securities
to be sold by such Selling Shareholder hereunder. The execution and
delivery of this Agreement and the Power of Attorney and Custody
Agreement and the sale and delivery of the International Option
Securities to be sold by such Selling Shareholder and the consummation
of the transactions contemplated
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herein and compliance by such Selling Shareholder with its
obligations hereunder have been duly authorized by such Selling
Shareholder and do not and will not, whether with or without the giving
of notice or passage of time or both, conflict with or constitute a
breach of, or default under, or result in the creation or imposition of
any tax, lien, charge or encumbrance upon the Securities to be sold by
such Selling Shareholder or any property or assets of such Selling
Shareholder pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, license, lease or other
agreement or instrument to which such Selling Shareholder is a party or
by which such Selling Shareholder may be bound, or to which any of the
property or assets of such Selling Shareholder is subject (except for
such conflicts, breaches or defaults or liens, charges or encumbrances
that would not result in a material adverse change in the condition
(financial or otherwise), earnings, business affairs or business
prospects of such Selling Shareholder (a "Selling Shareholder Material
Adverse Effect"), whether or not arising in the ordinary course of
business), nor will such action result in any violation of the
provisions of the charter or by-laws or other organizational instrument
of such Selling Shareholder, if applicable, or any applicable treaty,
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over such Selling Shareholder or any of its
properties which would reasonably be expected, either singly or in the
aggregate to result in a Selling Shareholder Material Adverse Effect.
(iii) Valid Title. Such Selling Shareholder has on the date
hereof and will at the Closing Time and on the Date of Delivery have
good and valid title to the International Option Securities to be sold
by such Selling Shareholder hereunder, free and clear of any security
interest, mortgage, pledge, lien, charge, claim, equity or encumbrance
of any kind, other than pursuant to this Agreement; and upon delivery
of such International Option Securities and payment of the purchase
price therefor as herein contemplated, assuming each such Underwriter
has no notice of any adverse claim as such term is used in the Uniform
Commercial Code, each of the Underwriters will receive valid title to
the International Option Securities purchased by it from such Selling
Shareholder, free and clear of any security interest, mortgage, pledge,
lien, charge, claim, equity or encumbrance of any kind.
(iv) Due Execution of Power of Attorney and Custody Agreement.
Each such Selling Shareholder has duly executed and delivered a Power
of Attorney and Custody Agreement; the Custodian is authorized by each
such Selling Shareholder to deliver the International Option Securities
to be sold by such Selling Shareholder hereunder and to accept payment
therefor; and each Attorney-in-Fact named in the Power of Attorney and
Custody Agreement executed by such Selling Shareholder is authorized by
such Selling Shareholder to execute and deliver this Agreement and the
certificate referred to in Section 5(e) of this Agreement or that may
be required pursuant to Sections 5(m) or 5(n) of this Agreement on
behalf of such Selling Shareholder, to sell, assign and transfer to the
International Managers the International Option Securities to be sold
by such Selling Shareholder hereunder, to determine the purchase price
to be paid by the U.S. Underwriters to such Selling Shareholder, as
provided in Section 2(a) hereof, to authorize the delivery of the
Securities to be sold by such Selling Shareholder hereunder, to accept
payment therefor,
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and otherwise to act on behalf of such Selling Shareholder in
connection with this Agreement.
(v) Absence of Manipulation. Such Selling Shareholder has not
taken, and will not take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the International Option Securities.
(vi) Absence of Further Requirements. No filing with, or
consent, approval, authorization, order, registration, qualification or
decree of, any court or governmental authority or agency, domestic or
foreign, is necessary or required for the performance by each such
Selling Shareholder of their obligations hereunder or in the Power of
Attorney and Custody Agreement, or in connection with the sale and
delivery of the International Option Securities being sold by each such
Selling Shareholder hereunder or the consummation of the transactions
contemplated by this Agreement, except such as may have previously been
made or obtained or as may be required under the 1933 Act or the 1933
Act Regulations or state or foreign securities laws or under the rules
of the National Association of Securities Dealers, Inc.
(vii) Certificates Suitable for Transfer. Certificates for all
of the International Option Securities to be sold by such Selling
Shareholder pursuant to this Agreement, in suitable form for transfer
by delivery or accompanied by duly executed instruments of transfer or
assignment in blank with signatures guaranteed, have been placed in
custody with the Custodian with irrevocable conditional instructions to
deliver such International Option Securities to the International
Managers pursuant to this Agreement.
(viii) Irrevocable Obligations. The International Option
Securities represented by the Certificates held in custody for such
holder under the Custody Agreement are subject to the interests of the
International Managers hereunder; the arrangements made by such holder
for such custody, and the appointment by such holder of the
Attorneys-in-fact by the Power of Attorney, are to that extent
irrevocable; the obligations of such holder hereunder shall not be
terminated, except as provided in the Agreement or in the Power of
Attorney, by operation of law, whether by the death or incapacity of
any individual Selling Shareholder or, in the case of an estate or
trust, by the death or incapacity of any executor or trustee or the
termination of such trust estate or trust, or in the case of a
partnership or corporation, by the dissolution of such partnership or
corporation, or by the occurrence of any other event, if any individual
Selling Shareholder or any such executor or trustee should die or
become incapacitated, or if any such estate or trust should be
terminated, or any such partnership or corporation should be dissolved,
or if any other event should occur, before the delivery of the
International Option Securities hereunder, certificates representing
the International Option Securities shall be delivered by or on behalf
of such holder in accordance with the terms and conditions of this
Agreement and of the Custody Agreements; and actions taken by the
Attorney-in-Fact pursuant to the Powers of Attorney shall be as valid
as if such death, incapacity, termination, dissolution or other event
had not
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occurred, regardless of whether or not the Custodian, Attorney-in-Fact,
or any of them, shall have received notice of such death, incapacity,
termination, dissolution or other event.
(ix) No Association with NASD. Neither such Selling
Shareholder nor any of its affiliates (within the meaning of NASD
Conduct Rule 2720(b)(1)(a)) directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, or is an associated person (within the meaning of Article
I, Section 1(q) of the By-laws of the National Association of
Securities Dealers, Inc.), of, any member firm of the National
Association of Securities Dealers, Inc., other than as described on an
appendix to the Power of Attorney and Custody Agreement to which such
Selling Shareholder is a party.
(x) Power and Authority. If such Selling Shareholder is a
corporation, partnership or trust, such Selling Shareholder has been
duly organized or incorporated and is validly existing as a corporation
or partnership or limited partnership in good standing under the laws
of its jurisdiction of incorporation or organization, if applicable,
and has the power and authority to own its property and to conduct its
business and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not result in a material adverse change in the condition
(financial or otherwise), earnings, business affairs or business
prospects of each the Selling Shareholders, whether or not arising in
the ordinary course of business, or materially impair its ability to
consummate the transactions contemplated hereby.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its Subsidiaries delivered to the Global Coordinator, the
Lead Managers or to counsel for the International Managers shall be deemed a
representation and warranty by the Company to each International Manager as to
the matters covered thereby; and any certificate signed by or on behalf of any
Selling Shareholder as such and delivered to the International Managers or to
counsel for the International Managers pursuant to the terms of this Agreement
shall be deemed a representation and warranty by such Selling Shareholder, as
the case may be, to the International Managers as to the matters covered
thereby.
SECTION 2. Sale and Delivery to International Managers; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each International Manager, severally and
not jointly, to the extent indicated on Schedule A hereto, and each
International Manager, severally and not jointly, agrees to purchase from the
Company, at the price per share set forth in Schedule C, the number of Initial
International Securities set forth in Schedule A opposite the name of such
International Manager, plus any additional number of Initial International
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Selling Shareholders,
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severally and not jointly, hereby grant an option to the International Managers,
severally and not jointly, to purchase up to an additional 201,000 shares of
Common Stock to the extent indicated on Schedule B, at the price per share set
forth in Schedule C, less an amount per share equal to any dividends or
distributions declared by the Company and payable on the Initial International
Securities but not payable on the International Option Securities. The option
hereby granted will expire 30 days after the date hereof and may be exercised in
whole or in part from time to time on one or more occasions only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial International Securities upon notice by the
Global Coordinator to the Selling Shareholders setting forth the number of
International Option Securities as to which the several International Managers
are then exercising the option and the time and date of payment and delivery for
such International Option Securities. Any such time and date of delivery for the
International Option Securities (a "Date of Delivery") shall be determined by
the Global Coordinator, but shall not be later than seven full business days
after the exercise of said option, nor in any event prior to the Closing Time,
as hereinafter defined. If the option is exercised as to all or any portion of
the International Option Securities, each of the International Managers, acting
severally and not jointly, will purchase that proportion of the total number of
International Option Securities then being purchased which the number of Initial
International Securities set forth in Schedule A opposite the name of such
International Manager bears to the total number of Initial International
Securities, subject in each case to such adjustments as the Global Coordinator
in its discretion shall make to eliminate any sales or purchases of fractional
shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Fried,
Frank, Harris, Shriver & Jacobson, 1 New York Plaza, New York, New York 10004,
or at such other place as shall be agreed upon by the Global Coordinator and the
Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the
pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day
after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Global Coordinator and the Company (such time and
date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the International Option
Securities are purchased by the International Managers, payment of the purchase
price for, and delivery of certificates for, such International Option
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Global Coordinator and the Selling Shareholders
or the Attorneys-in-fact on behalf of the Selling Shareholders, on each Date of
Delivery as specified in the notice from the Global Coordinator to the Selling
Shareholders.
Payment shall be made to the Company and the Selling Shareholders by
wire transfer of immediately available funds to a bank account designated by the
Company and the Custodian pursuant to the Selling Shareholders' Power of
Attorney and Custody Agreement, as the case may be, against delivery to the Lead
Managers for the respective accounts of the International Managers of
certificates for the International Securities to be purchased by them. It is
understood that each International Manager has authorized the Lead Managers, for
its account, to accept delivery of, receipt for, and make payment of the
purchase price for, the Initial International Securities and the International
Option Securities, if any, which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the International Managers, may (but
shall not be obligated to) make
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payment of the purchase price for the Initial International Securities or the
International Option Securities, if any, to be purchased by any International
Manager whose funds have not been received by the Closing Time or the relevant
Date of Delivery, as the case may be, but such payment shall not relieve such
International Manager from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
International Securities and the International Option Securities, if any, shall
be in such denominations and registered in such names as the Lead Managers may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
International Securities and the International Option Securities, if any, will
be made available for examination and packaging by the Lead Managers in The City
of New York not later than 10:00 A.M. (Eastern time) on the business day prior
to the Closing Time or the relevant Date of Delivery, as the case may be.
(e) Appointment of Qualified Independent Underwriter. The Company hereby
confirms its engagement of Smith Barney Inc. as, and Smith Barney Inc. hereby
confirms its agreement with the Company to render services as, a "qualified
independent underwriter" within the meaning of Rule 2720 of the Conduct Rules of
the National Association of Securities Dealers, Inc. with respect to the
offering and sale of the U.S. Securities. Smith Barney Inc., solely in its
capacity as qualified independent underwriter and not otherwise, is referred to
herein as the "Independent Underwriter".]
SECTION 3. Covenants of the Company. The Company covenants with each
International Manager as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement,
shall become effective, or any supplement to the Prospectuses or any
amended Prospectuses shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission
for any amendment to the Registration Statement or any amendment or
supplement to the Prospectuses or for additional information, and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to
the Registration Statement
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(including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in
the Registration Statement at the time it became effective or to the
Prospectuses, will furnish the Global Coordinator with copies of any
such documents a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file or use any such
document to which the Global Coordinator or counsel for the
International Managers shall reasonably object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Lead Managers and counsel for the
International Managers, without charge, signed copies of the
Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith) and signed copies of all
consents and certificates of experts, and will also deliver to the Lead
Managers, without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the International Managers. The copies of the
Registration Statement and each amendment thereto furnished to the
International Managers will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered or
will deliver to each International Manager, without charge, as many
copies of each preliminary prospectus as such International Manager
reasonably requested, and the Company hereby consents to the use of
such copies for purposes permitted by the 1933 Act. The Company will
furnish to each International Manager, without charge, during the
period when the International Prospectus is required to be delivered
under the 1933 Act or the Securities Exchange Act of 1934 (the "1934
Act"), such number of copies of the International Prospectus (as
amended or supplemented) as such International Manager may reasonably
request. The International Prospectus and any amendments or supplements
thereto furnished to the International Managers will be identical to
the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement, the U.S. Purchase Agreement and in the
Prospectuses. If at any time when a prospectus is required by the 1933
Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is
necessary to amend the Registration Statement or amend or supplement
any Prospectus in order that the Prospectuses will not include any
untrue statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary at any such time to amend the
Registration Statement or amend or supplement any Prospectus in order
to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as
may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectuses comply with such
requirements, and the
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Company will furnish to the International Managers such number of
copies of such amendment or supplement as the International Managers
may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the International Managers, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions (domestic or foreign) as the
Global Coordinator may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that neither the Company nor
any of the Selling Shareholders shall be obligated to file any general
consent to service of process or to qualify as a foreign corporation or
as a dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing business
in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the
Company will file such statements and reports as may be required by the
laws of such jurisdiction to continue such qualification in effect for
a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectuses under "Use of Proceeds."
(i) Listing. The Company will use its best efforts to effect
the listing of the Common Stock (including the Securities) on the New
York Stock Exchange.
(j) Restriction on Sale of Securities. During a period of 180
days from the date of the Prospectuses, the Company will not, without
the prior written consent of the Global Coordinator, (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or
dispose of any share of Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock or file any
registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise except pursuant to Common Stock issued
in connection with (y) the Company's stock option plans existing at the
Closing Time or (z) acquisitions by the Company; provided that, in the
case of clause (z), it shall be a condition to such stock issuance that
the third party receiving such shares executes a lock-up agreement on
substantially the same terms as described above for a period expiring
180 days from the date of the Prospectus and there shall be no further
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transfer of such shares except in accordance with the provisions of
such lock-up agreement. The foregoing sentence shall not apply to the
Securities to be sold hereunder or under the U.S. Purchase Agreement.
(k) Reporting Requirements. The Company, during the period
when the Prospectuses are required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission
thereunder.
(l) Compliance with NASD Rules. The Company hereby agrees that
it will ensure that the Reserved Securities and Direct Shares will be
restricted as required by the National Association of Securities
Dealers, Inc. (the "NASD") or the NASD rules from sale, transfer,
assignment, pledge or hypothecation for a period of three or five
months, as the case may be, following the date of this Agreement. The
Underwriters will notify the Company as to which persons will need to
be so restricted. At the request of the Underwriters, the Company will
direct the transfer agent to place a stop transfer restriction upon
such securities for such period of time. Should the Company release, or
seek to release, from such restrictions any of the Reserved Securities
or Direct Shares, the Company agrees to reimburse the Underwriters for
any reasonable expenses (including, without limitation, legal expenses)
they incur in connection with such release.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities by the Company to the Underwriters
and the transfer of the Securities between the International Managers and the
U.S. Underwriters, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any Term
Sheets and of the Prospectuses and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies of the blue
sky survey and any supplement thereto, (viii) the fees and expenses of any
transfer agent or registrar for the Securities, (ix) the filing fees incident
to, and the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the NASD of the terms of the sale of the
Securities, (x) the fees and expenses incurred in connection with the listing of
the Securities on the New York Stock Exchange, (xi) all costs and expenses of
the Underwriters, including the fees and disbursements of counsel for the
Underwriters, in connection with matters related to the Reserved Securities and
Direct Shares which are designated by the Company for sale to eligible
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employees and other persons having relationships with the Company and (xii) the
fees and expenses of the Independent Underwriter.
(b) Expenses of the Selling Shareholders. The Company will pay all
expenses incident to the performance of the Selling Shareholders' obligations
under, and the consummation of the transactions contemplated by, this Agreement
(other than any underwriting discount), including (i) any stamp duties, capital
duties and stock transfer taxes, if any, payable upon the sale of the
International Option Securities by the Selling Shareholders to the Underwriters,
and their transfer between the Underwriters pursuant to an agreement between
such Underwriters and (ii) the fees and disbursements of the Selling
Shareholders' counsel and accountants.
(c) Termination of Agreement. If this Agreement is terminated by the
Lead Managers in accordance with the provisions of Section 5 or Sections 9(a)(i)
or (ii) hereof, the Company shall reimburse the International Managers for all
of their out-of-pocket expenses, including the reasonable fees and disbursements
of counsel for the International Managers.
(d) Allocation of Expenses. The provisions of this Section shall not
affect any agreement that the Company and the Selling Shareholders may make for
the sharing of such costs and expenses.
SECTION 5. Conditions of International Managers' Obligations. The
obligations of the several International Managers hereunder are subject to the
accuracy of the representations and warranties of the Company and the Selling
Shareholders contained in Section 1 hereof or in certificates of any officer of
the Company or any Subsidiary of the Company or on behalf of the Selling
Shareholders delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective under the 1933 Act; and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the International Managers. A
prospectus containing the Rule 430A Information shall have been filed
with the Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinions of Counsel for the Company and the Selling
Shareholders. At Closing Time, the Lead Managers shall have received
the favorable opinions, dated as of Closing Time, of (i) Dewitt, Ross &
Stevens, s.c. counsel to the Company, relating to certain matters of
Wisconsin law and (ii) Skadden, Arps, Slate, Meagher & Flom LLP,
counsel for the Company, in each case in form and substance reasonably
satisfactory to counsel for the International Managers, together with
signed or reproduced copies of such
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letter for each of the other International Managers to the effect set
forth in Exhibit A-1 and A-2, respectively, hereto.
(c) Opinion of Counsel for International Managers. At Closing
Time, the Lead Managers shall have received the favorable opinion,
dated as of Closing Time, of Fried, Frank, Harris, Shriver & Jacobson,
counsel for the International Managers, together with signed or
reproduced copies of such letter for each of the other International
Managers with respect to the matters set forth in clauses (i), (ii),
(v), (vi) (solely as to preemptive or other similar rights arising by
operation of law or under the charter or bylaws of the Company),
(viii), (x), (xi), (xv) (solely as to the information in the Prospectus
under "Description of Capital Stock") of Exhibit A-1 and the
penultimate paragraph of Exhibit A-2 hereto. In giving such opinion
such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the
federal law of the United States and the General Corporation Law of the
State of Delaware, upon the opinions of counsel satisfactory to the
Lead Managers. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and its
Subsidiaries and of the Selling Shareholders and certificates of public
officials.
(d) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectuses, any material adverse
change in the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise, whether or not arising in the ordinary
course of business, and the Lead Managers shall have received a
certificate of the Chairman of the Board, President or a Vice President
of the Company and of the chief financial or chief accounting officer
of the Company, dated as of Closing Time, to the effect that (i) there
has been no such material adverse change, (ii) the representations and
warranties in Section 1(a) hereof are true and correct with the same
force and effect as though expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to
Closing Time, and (iv) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened by the
Commission.
(e) Selling Shareholders' Certificate. At Closing Time, the
Lead Managers shall have received a certificate of each Selling
Shareholder (which may be executed on behalf of each Selling
Shareholder by the general partner or a duly authorized executive
officer of such Selling Shareholder), dated as of Closing Time, to the
effect that (i) the representations and warranties of each such Selling
Shareholder contained in Section 1(b) hereof are true and correct with
the same force and effect as though expressly made at and as of the
Closing Time and (ii) each such Selling Shareholder has complied with
all agreements and satisfied all conditions on its part to be performed
or satisfied under this Agreement at or prior to the Closing Time;
provided that such Selling Shareholder certificate may provide that
such certificate shall be of no force or effect in the event that no
Option Shares are purchased from the Selling Shareholders hereunder.
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(f) Accountant's Comfort Letters. At the time of the execution
of this Agreement, the Lead Managers shall have received from KPMG Peat
Marwick LLP a letter in the form of Exhibit C-1 hereto and from Coopers
& Lybrand LLP a letter in the form of Exhibit C-2 hereto, dated such
date, in form and substance reasonably satisfactory to the Lead
Managers, together with signed or reproduced copies of such letter for
each of the other International Managers containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement
and the Prospectuses.
(g) Bring-down Comfort Letters. At Closing Time, the Lead
Managers shall have received letters from KPMG Peat Marwick LLP and
Coopers & Lybrand LLP, dated as of Closing Time, to the effect that
they reaffirm the statements made in the letter furnished pursuant to
subsection (e) of this Section, except that the specified date referred
to shall be a date not more than three business days prior to Closing
Time.
(h) Approval of Listing. At Closing Time, the Securities shall
have been approved for listing on the New York Stock Exchange, subject
only to official notice of issuance.
(i) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(j) Lock-up Agreements. At the date of this Agreement, the
Lead Managers shall have received (i) an agreement substantially in the
form of Exhibit B hereto signed by the persons listed on Schedule D
hereto.
(k) Purchase of Initial U.S. Securities. Contemporaneously
with the purchase by the International Managers of the Initial
International Securities under this Agreement, the U.S. Underwriters
shall have purchased the Initial U.S. Securities under the U.S.
Purchase Agreement.
(l) Custody Agreement. At the date of this Agreement the Lead
Managers shall have received copies of a Custody Agreement and Power of
Attorney executed by each of the Selling Shareholders.
(m) Conditions to Purchase of International Option Securities.
In the event that the International Managers exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the
International Option Securities, the representations and warranties of
the Company contained herein and the statements in any certificates
furnished by the Company or any Subsidiary of the Company hereunder
shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Lead Managers shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the
Company and of the chief financial or
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chief accounting officer of the Company confirming that
the certificate delivered at the Closing Time pursuant to
Section 5(d) hereof remains true and correct as of such
Date of Delivery.
(ii) Selling Shareholder's Certificate. At the Date of
Delivery, the Lead Managers shall have received a
certificate of each Selling Shareholder (which may be
executed on behalf of each Selling Shareholder by the
general partner or a duly authorized executive officer of
such Selling Shareholder), dated as of Date of Delivery,
to the effect that (x) the representations and warranties
of each such Selling Shareholder contained in Section 1(b)
hereof are true and correct with the same force and effect
as though expressly made at and as of Date of Delivery and
(y) each such Selling Shareholder has complied with all
agreements and satisfied all conditions on their part to
be performed or satisfied under this Agreement at or prior
to Date of Delivery.
(iii) Opinion of Counsel for Company and the Selling
Shareholders. The favorable opinion of (x) Dewitt Ross &
Stevens, s.c., Counsel to the Company, relating to certain
matters of Wisconsin law, (y) Skadden, Arps, Slate,
Meagher & Flom LLP, counsel for the Company, and (z)
Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Selling Shareholders in form and substance reasonably
satisfactory to counsel for the International Managers
together with signed or reproduced copies of such letter
for each of the other International Managers, dated such
Date of Delivery, relating to the International Option
Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by
Section 5(b) hereof with respect to (x) and (y) and shall
be to the effect set forth in Exhibit A-3 in the case of
opinion (z).
(iv) Opinion of Counsel for International Managers. The
favorable opinion of Fried, Frank, Harris, Shriver &
Jacobson, counsel for the International Managers, dated
such Date of Delivery, relating to the International
Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required
by Section 5(c) hereof.
(v) Bring-down Comfort Letters. Letters from Coopers & Lybrand
LLP and KPMG Peat Marwick LLP in form and substance
reasonably satisfactory to the Lead Managers and dated
such Date of Delivery, substantially in the same form and
substance as the letter furnished to the Lead Managers
pursuant to Section 5(g) hereof, except that the
"specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to
such Date of Delivery.
(n) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the International Managers shall have been
furnished with such documents and opinions as they may reasonably
require for the purpose of enabling them to pass upon the
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issuance and sale of the Securities as herein contemplated, or in order
to evidence the accuracy of any of the representations or warranties,
or the fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company and the Selling Shareholders in
connection with the issuance and sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to
the Lead Managers and counsel for the International Managers.
(o) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of International Option Securities on a Date of Delivery which
is after the Closing Time, the obligations of the several International
Managers to purchase the relevant Option Securities, may be terminated
by the Lead Managers by notice to the Company at any time at or prior
to Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of International Managers by the Company. (1) The
Company agrees to indemnify and hold harmless each International Manager and
each person, if any, who controls any International Manager within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows to the
extent set forth below:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the violation of
any applicable laws or regulations of foreign jurisdictions where
Reserved Securities have been offered and (B) any untrue statement or
alleged untrue statement of a material fact included in the supplement
or prospectus wrapper material distributed in foreign jurisdictions in
connection with the reservation and sale of the Reserved Securities and
Direct Shares to eligible employees and persons having business
relationships with the Company or the omission or alleged omission
therefrom of a material fact necessary to make the statements therein,
when considered in conjunction with the Prospectuses or preliminary
prospectuses, not misleading;
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(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission or in
connection with any violation of the nature referred to in Section
6(a)(1)(ii)(A) hereof; provided that (subject to Section 6(e) below)
any such settlement is effected with the written consent of the
indemnifying party; and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission or in connection with any
violation of the nature referred to in Section 6(a)(1)(ii)(A) hereof,
to the extent that any such expense is not paid under (i), (ii) or
(iii) above;
provided, however, that this indemnity agreement shall not (i) apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any International Manager through the Lead Managers or any U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the International Prospectus or U.S. Prospectus, as the case may
be, (or any amendment or supplement thereto) or (ii) inure to the benefit of any
International Manager from whom the person asserting any loss, liability, claim,
damage or expense, purchased Securities, or any person controlling such
International Manager, if it shall be established that a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
U.S. Underwriter to such person, if required by law to have been so delivered,
at or prior to the confirmation of the sale of such Securities to such person in
any case where the Company complied with its obligations under Sections 3(a),
3(b) and 3(d), and if the Prospectus (as so amended or supplemented) would have
cured any defect giving rise to such loss, liability, claim damage, or expense.
(2) In addition to and without limitation of the Company to
indemnify Smith Barney Inc. as an Underwriter, the Company agrees to
indemnify and hold harmless the Independent Underwriter and each person, if any,
who controls the Independent Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, from and against any and all loss,
liability, claim, damage and expense whatsoever, as incurred, incurred as a
result of the Independent Underwriter's participation as a "qualified
independent underwriter" within the meaning of Rule 2720 of the Conduct Rules of
the National Association of Securities Dealers, Inc. in connection with the
offering of the U.S. Securities.
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(b) Indemnification of the International Managers by the Selling
Shareholders. (1) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless each International Manager and each person, if any,
who controls any International Manager within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows to the extent set forth in
clauses (i), (ii), (iii) and (iv) below:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the violation of
any applicable laws or regulations of foreign jurisdictions where
Reserved Securities have been offered and (B) any untrue statement or
alleged untrue statement of a material fact included in the supplement
or prospectus wrapper material distributed in foreign jurisdictions in
connection with the reservation and sale of the Reserved Securities and
Direct Shares to eligible employees and persons having relationships
with the Company or the omission or alleged omission therefrom of a
material fact necessary to make the statements therein, when considered
in conjunction with the Prospectuses or preliminary prospectuses, not
misleading;
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission or in
connection with any violation of the nature referred to in Section
6(b)(1)(ii)(A) hereof; provided that (subject to Section 6(e) below)
any such settlement is effected with the written consent of the
indemnifying party; and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission or in connection with any
violation of the nature referred to in Section 6(b)(1)(ii)(A) hereof,
to the extent that any such expense is not paid under (i), (ii) or
(iii) above;
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<PAGE>
provided, however, that this indemnity agreement shall not (i) apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any International Manager through the Lead Managers or any U.S.
Underwriter through the U.S. Representative expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the International Prospectus or U.S. Prospectus, as the case may
be (or any amendment or supplement thereto) or (ii) inure to the benefit of any
International Manager from whom the person asserting any loss, liability, claim,
damage or expense, purchased Securities, or any person controlling such
International Manager, if it shall be established that a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
International Manager to such person, if required by law to have been so
delivered, at or prior to the confirmation of the sale of such Securities to
such person in any case where the Company complied with its obligations under
Sections 3(a), 3(b) and 3(d), and if the Prospectus (as so amended or
supplemented) would have cured any defect giving rise to such loss, liability,
claim damage, or expense; provided, however, further, that with respect to each
Selling Shareholder, (x) the indemnification provision in this paragraph (b)
shall only apply to any loss, liability, claim, damage or expense to the extent
arising out of any untrue statement or omission, or alleged untrue statement or
omission made in reliance upon and in conformity with written information
furnished to the Company by such Selling Shareholder expressly for use in the
Registration Statement (or any amendment thereto) including the Rule 430A
Information and the Rule 434 Information if applicable or any such preliminary
International prospectus or the International Prospectus or the U.S.
Prospectus, as the case may be, (or any amendment or supplement thereto and (y)
each such Selling Shareholder's aggregate liability under this Section 6 shall
be limited to an amount equal to the net proceeds (after deducting the
underwriting discount but before deducting expenses) received by such Selling
Shareholder from the sale of Securities pursuant to this Agreement.
(c) Indemnification of Company, Directors and Officers and Selling
Shareholders. Each International Manager severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each
Selling Shareholder and each person, if any, who controls any Selling
Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 6(a) and
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Section 6(b) hereof, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary International
Prospectus or the International Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such International Manager through the Lead Managers expressly
for use in the Registration Statement (or any amendment thereto) or such
preliminary prospectus or the International Prospectus (or any amendment or
supplement thereto).
(d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) and
Section 6(b) above or Sections 6(f) or 6(g) below, counsel to the indemnified
parties shall be selected by Merrill Lynch, and, in the case of parties
indemnified pursuant to Section 6(c) above, counsel to the indemnified parties
shall be selected by the Company or the indemnified Selling Shareholder, as
appropriate. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any
necessary local counsel) separate from their own counsel for all indemnified
parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances; provided, that, if indemnity is sought pursuant to Section
6(a)(2) or Sections 6(f) or 6(g), then, in addition to the fees and expenses of
such counsel for the indemnified parties, the indemnifying party shall be liable
for the reasonable fees and expenses of not more than one counsel (in addition
to any necessary local counsel) separate from its own counsel and that of the
other indemnified parties for the Independent Underwriter in its capacity as a
"qualified independent underwriter" and all persons, if any, who control the
Independent Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of 1934 Act in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances if, in the reasonable judgment of the Independent
Underwriter, there may exist a conflict of interest between the Independent
Underwriter and the other indemnified parties. Any such separate counsel for the
Independent Underwriter and such control persons of the Independent Underwriter
shall be designated in the writing by the Independent Underwriter. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include
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a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(e) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel for which the indemnifying
party is responsible pursuant to the terms hereof, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(1)(iii) or Section (6)(b)(1)(iii) or pursuant to Sections 6(f) or
6(g) effected without its written consent if (i) such settlement is entered into
more than 60 days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice of the terms of
such settlement at least 45 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(f) Indemnification for Reserved Securities. In connection with the
offer and sale of the Reserved Securities, the Company agrees, promptly upon a
request in writing, to indemnify and hold harmless the Underwriters from and
against any and all losses, liabilities, claims, damages and expenses incurred
by them as a result of the failure of certain eligible employees and other
persons to pay for and accept delivery of Reserved Securities which, by the end
of the first business day following the date of this Agreement, were subject to
an orally confirmed agreement to purchase.
(g) Indemnification for Direct Shares. The Company agrees to indemnify
and hold harmless the Underwriters from and against any and all losses,
liabilities, claims, damages and expenses incurred by them in connection with
the offer and sale by the Company of the Direct Shares.
(h) Other Agreements with Respect to Indemnification. The provisions of
this Section shall not affect any agreement among the Company and the Selling
Shareholders with respect to indemnification.
SECTION 7. Contribution. If, although applicable in accordance with
its terms, the indemnification provided for in Section 6 hereof is for any
reason unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Shareholders on the one hand and the International Managers on the other hand
from the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Shareholders on the one hand and of the International Managers on the
other hand in connection with the statements or omissions, or in connection with
any violation of the nature referred to in Section 6(a)(1)(ii)(A) or Section
6(b)(1)(ii)(A) hereof, which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
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<PAGE>
The relative benefits received by the Company and the Selling
Shareholders on the one hand and the International Managers on the other hand in
connection with the offering of the International Securities pursuant to this
Agreement shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the International Securities pursuant to this
Agreement (before deducting expenses) received by the Company and the Selling
Shareholders and the total underwriting discount received by the International
Managers, in each case as set forth on the cover of the International
Prospectus, or, if Rule 434 is used, the corresponding location on the Term
Sheet, bear to the aggregate initial public offering price of the International
Securities as set forth on such cover.
The relative fault of the Company and the Selling Shareholders on the
one hand and the International Managers on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Selling Shareholders
or by the International Managers and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission or any violation of the nature referred to in Section 6(a)(1)(ii)(A) or
Section 6(b)(1)(ii)(A) hereof.
The Company, the Selling Shareholders and the International Managers
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the International
Managers were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 7. The aggregate amount of losses, liabilities, claims,
damages and expenses incurred by an indemnified party and referred to above in
this Section 7 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no International
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such International Manager has otherwise been required to pay
by reason of any such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, (a) each person, if any, who controls a
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, (b) each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company and
(c) each person, if any, who controls any
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<PAGE>
Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as such Selling
Shareholder. The International Managers respective obligations to contribute
pursuant to this Section 7 are several in proportion to the number of Initial
International Securities set forth opposite their respective names in Schedule A
hereto and not joint.
Notwithstanding the provisions of this Section 7, no Selling
Shareholder shall be required to contribute any amount in excess of the amount
equal to the net proceeds (after deducting the underwriting discount but before
deducting expenses) received by such Selling Shareholder from the sale of
International Option Securities pursuant to this Agreement.
The provisions of this Section shall not affect any agreement among the
Company and the Selling Shareholders with respect to contribution.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
Subsidiaries or the Selling Shareholders submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any International Manager or controlling person, or by or on
behalf of the Company or any Selling Shareholder, and shall survive delivery of
the International Option Securities to the International Managers.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Lead Managers may terminate this
Agreement, by notice to the Company and the Attorneys-in-Fact on behalf of the
Selling Shareholders, at any time at or prior to Closing Time (i) if there has
been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the International Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there shall have occurred a downgrading
in the rating assigned to any of the Company's debt securities by any nationally
recognized securities rating agency, or if such securities rating agency shall
have publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Company's debt securities, or
(iii) if there has occurred any material adverse change in the financial markets
in the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Lead Managers, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iv) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the New York Stock Exchange, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (v) if a banking moratorium has
been declared
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<PAGE>
by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the International Managers. If
one or more of the International Managers shall fail at Closing Time or a Date
of Delivery to purchase the Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Lead Managers
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting International Managers, or any other underwriters,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Lead Managers shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of International Securities to be purchased on such date,
each of the non-defaulting International Managers shall be obligated,
severally and not jointly, to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder
bear to the underwriting obligations of all non-defaulting
International Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of International Securities to be purchased on such date, this
Agreement or, with respect to any Date of Delivery which occurs after
the Closing Time, the obligation of the International Managers to
purchase the International Option Securities to be purchased and sold
on such Date of Delivery shall terminate without liability on the part
of any non-defaulting International Manager.
No action taken pursuant to this Section shall relieve any defaulting
International Manager from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
International Managers to purchase and the Selling Shareholders to sell the
relevant International Option Securities, as the case may be, either (i) the
Lead Managers or (ii) the Selling Shareholders shall have the right to postpone
the Closing Time or the relevant Date of Delivery, as the case may be, for a
period not exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
As used herein, the term "International Manager" includes any person substituted
for a International Manager under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Managers shall be directed to the Lead Managers at North Tower,
World Financial Center, New York, New York 10281-1201, attention
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of W. Gregg Smart, with a copy to Fried, Frank, Harris, Shriver & Jacobson, 1
New York Plaza, New York, New York 10004, attention of Valerie Ford Jacob, Esq.;
and notices to the Company shall be directed to it at Rayovac Corporation, 601
Rayovac Drive, Madison, Wisconsin 53711, attention of James A. Broderick, Esq.,
with a copy to Louis A. Goodman, Esq., Skadden, Arps, Slate, Meagher & Flom,
LLP, One Beacon Street, Boston, MA; notices to the Selling Shareholders shall be
delivered to them at The Thomas H. Lee Company, 75 State Street, Suite 2600,
Boston, MA 02109 with a copy to Louis A. Goodman, Esq., Skadden, Arps, Slate,
Meagher & Flom LLP, One Beacon Street, Boston, MA 02108.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the International Managers, the Company, the Selling
Shareholders and, their respective successors. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the International Managers, the Company, the Selling
Shareholders and, their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the International Managers, the Company, the Selling
Shareholders, and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any International Manager shall be deemed to be a successor by reason merely of
such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME. AS USED HEREIN, THE TERM "BUSINESS
DAY" MEANS ANY DAY ON WHICH THE NEW YORK STOCK EXCHANGE AND COMMERCIAL BANKS IN
NEW YORK CITY ARE REGULARLY OPEN FOR BUSINESS.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
SECTION 15. Counterparts. This Agreement may be executed in one or
more counterparts and, when a counterpart has been executed by each party
hereto, all such counterparts taken together shall constitute one and the same
agreement. The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof
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If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the International Managers, the Company and the Selling Shareholders in
accordance with its terms.
Very truly yours,
RAYOVAC CORPORATION
By:____________________________
Name: David A. Jones
Title: Chairman of the Board,
Chief Executive Officer and
President
SELLING SHAREHOLDERS
THOMAS H. LEE EQUITY FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership, as General Partner
By: THL Equity Trust III,
as General Partner
By:____________________________
Name:
Title:
THOMAS H. LEE FOREIGN FUND III, L.P.
By: THL Equity Advisors III Limited
Partnership, as General Partner
By: THL Equity Trust III,
as General Partner
By: ____________________________
Name:
Title:
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THL-CCI Limited Partnership
By: ____________________________
Name: Warren C. Smith, Jr.,
as agent and attorney-in-fact under
appointment of Power of Attorney dated
________, 1997 for THL-CCI Limited
Partnership
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SMITH BARNEY INC.
By: MERRILL LYNCH INTERNATIONAL
By:_________________________________
Authorized Signatory
For themselves and as Lead Managers of the
other International Managers named in Schedule A hereto.
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<PAGE>
SCHEDULE A
Number of
Initial
Name of International Manager International
- ----------------------------- Securities
Merrill Lynch International.......................................
Bear, Stearns International Limited...............................
Donaldson, Lufkin & Jenrette Securities Corporation...............
Smith Barney Inc..................................................
Total.............................................................. 1,340,000
=========
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<PAGE>
SCHEDULE B
Selling Shareholder Maximum Number of
------------------- International Option Securities
to be Sold
----------
THOMAS H. LEE EQUITY FUND III, L.P.
--------------------------
THOMAS H. LEE FOREIGN FUND III, L.P.
--------------------------
THL-CCI Limited Partnership
--------------------------
Total............................. 201,000
=======
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SCHEDULE C
Rayovac Corporation.
1,340,000 Shares of Common Stock
(Par Value $0.01 Per Share)
1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall be $ .
2. The purchase price per share for the International
Securities to be paid by the several International Managers shall be $ ,
being an amount equal to the initial public offering price set forth above less
$ per share; provided that the purchase price per share for any
International Option Securities purchased upon the exercise of the
over-allotment option described in Section 2(b) shall be reduced by an amount
per share equal to any dividends or distributions declared by the Company and
payable on the Initial International Securities but not payable on the
International Option Securities.
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SCHEDULE D
List of Persons and Entities Subject to Lock-up
Thomas H. Lee Equity Fund III, L.P.
THL-CCI Limited Partnership
Thomas H. Lee Foreign Fund III, L.P.
Roger F. Warren
Trygve Lonnebotn
David A. Jones
James A. Broderick
Russell E. Lefevre
Raymond L. Balfour
Gary E. Wilson
Dale R. Tetzlaff
Kenneth V. Biller
Kent J. Hussey
Stephen P. Shanesy
Merrell M. Tomlin
Scott A. Schoen
Thomas R. Shepherd
Warren C. Smith
<PAGE>
EXHIBIT A-1
FORM OF OPINION OF DEWITT ROSS & STEVENS, s.c., WISCONSIN COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)*
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Wisconsin.
(ii) The issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(iii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the U.S.
Purchase Agreement and the International Purchase Agreement.
(iv) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the New York Stock Exchange.
(v) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(vi) The statements in the Prospectuses under the caption "Description
of Capital Stock", to the extent that such statements constitute matters of law,
summaries of legal matters or legal conclusions are correct in all material
respects.
(vii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectuses in the column entitled "Actual"
under the caption "Capitalization" (except for subsequent issuances, if any,
pursuant to the U.S. Purchase Agreement and the International Purchase
Agreement); the shares of issued and outstanding capital stock have been and
will have been at the Closing Time duly authorized and validly issued and are
fully paid and non-assessable; and none of the outstanding shares of capital
stock of the Company was or will have been at the Closing Time issued in
violation of the preemptive or other similar rights of any securityholder of the
Company.
(viii) The Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for issuance
and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively,
- ------------------
* Full Form of opinion, including qualifications to be attached
prior to execution.
-1-
<PAGE>
and, when issued and delivered by the Company pursuant to the U.S. Purchase
Agreement and the International Purchase Agreement, respectively, against
payment of the consideration set forth in the U.S. Purchase Agreement and the
International Purchase Agreement, will be validly issued and fully paid and
non-assessable and no holder of the Securities is or will be subject to personal
liability by reason of being such a holder.
(ix) Each subsidiary incorporated or organized under the laws of the
state of Wisconsin (a "Wisconsin Subsidiary") has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the state
of Wisconsin, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectuses and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(x) The information in the Registration Statement under Item 14, to the
extent that it constitutes matters of law, summaries of legal matters, the
Company's charter and bylaws or legal proceedings, or legal conclusions, has
been reviewed by us and is correct in all material respects.
(xi) The U.S. Purchase Agreement and the International Purchase
Agreement have been duly authorized, executed and delivered by the Company.
(xii) To the best of our knowledge, neither the Company nor any
Wisconsin Subsidiary is in violation of its charter or by-laws and no default by
the Company or any Wisconsin Subsidiary exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectuses or filed or incorporated by reference
as an exhibit to the Registration Statement.
(xiii) The execution, delivery and performance of the U.S. Purchase
Agreement and the International Purchase Agreement and the consummation of the
transactions contemplated in the U.S. Purchase Agreement, the International
Purchase Agreement and in the Registration Statement (including the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectuses under the caption "Use Of Proceeds")
and compliance by the Company with its obligations under the U.S. Purchase
Agreement and the International Purchase Agreement do not and will not, whether
with or without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in Section
1(a)(x) of the Purchase Agreements) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any Wisconsin Subsidiary pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or any other
agreement or instrument to which the Company or any Wisconsin Subsidiary is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any Wisconsin Subsidiary is subject (except
for such conflicts, breaches or defaults or liens, charges or encumbrances that
would not have a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or any
Wisconsin Subsidiary, or any applicable law, statute, rule, regulation,
judgment, order, writ or decree, of any government, government instrumentality
or court, domestic or foreign,
-2-
<PAGE>
having jurisdiction over the Company or any Wisconsin Subsidiary or any of their
respective properties, assets or operations.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
-3-
<PAGE>
EXHIBIT A-2
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)*
November [ ], 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
U.S. Purchase Agreement
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as representatives of the several
international managers to be named
in the International Purchase Agreement
c/o Merrill Lynch & Co.
North Tower
World Financial Center
New York, New York 10281-1209
Re: Public Offering of 6,700,000 Shares of
Common Stock of Rayovac Corporation
-----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Rayovac Corporation, a Wisconsin
corporation (the "Company"), in connection with (i) the registration and sale by
- --------
* Full Form of opinion, including qualifications to be attached prior to
execution.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 2
the Company of 5,360,000 shares of the Company's Common Stock, par value $0.01
per share (the "U.S. Shares"), pursuant to the terms of the U.S. Purchase
Agreement (the "U.S. Purchase Agreement"), dated November [ ], 1997, among the
Company, the U.S. Underwriters named in Schedule A thereto (the "U.S.
Underwriters") and the shareholders of the Company named in Schedule B thereto
(the "Selling Shareholders") and (ii) the registration and sale by the Company
of 1,340,000 shares of Common Stock (the "International Shares," and together
with the U.S. Shares, the "Shares"), pursuant to the terms of the International
Purchase Agreement (the "International Purchase Agreement"), dated November [ ],
1997, between the Company and the international managers named in Schedule A
thereto (the "International Managers") and the Selling Shareholders.
This opinion is being furnished pursuant to Section 5(b) of each of the
U.S. Purchase Agreement and the International Purchase Agreement. Capitalized
terms used but not otherwise defined herein shall have the respective meanings
set forth in the U.S. Purchase Agreement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-1 (File No. 333-35181) relating to the Shares filed with the
Securities and Exchange Commission (the "Commission") on September 8, 1997 under
the Securities Act of 1933, as amended (the "Act"), Amendment No. 1 thereto, as
filed with the Commission on October 31, 1997, [and Amendment No. 2 thereto, as
filed with the Commission on November , 1997,] including the information deemed
to be a part of the Registration Statement at the time of effectiveness pursuant
to Rule 430A of the General Rules and Regulations under the Act (the "Rules and
Regulations") (such registration statement, as so amended, being hereinafter
referred to as the "Registration Statement"); (ii) the final U.S. prospectus
dated November [ ], 1997, relating to the U.S. Shares filed with the Commission
on November [ ], 1997 pursuant to Rule 424(b) of the Rules and Regulations (the
"U.S. Prospectus"); (iii) the final International Prospectus dated November [],
1997, relating to the International Shares filed with the Commission on
November [ ], 1997, pursuant to Rule 424(b) of the Rules and Regulations (the
"International Prospectus" and together with the U.S. Prospectus, the
"Prospectuses"); (iv) executed copies of the U.S. Purchase Agreement and the
International Purchase Agreement; (v) a specimen certificate representing the
Common Stock (the "Specimen Certificate"); and (vi) the certificate of James A.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 3
Broderick, General Counsel to the Company, attached hereto as Exhibit A (the
"Officer's Certificate"). We have also examined originals or copies, certified
or otherwise identified to our satisfaction, of all such records of the Company
and all such agreements, certificates of public officials, certificates of
officers or other representatives of the Company and others, and such other
documents, certificates and records as we have deemed necessary or appropriate
as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
executed documents, we have assumed that the parties thereto (including the
Company) had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof. As to any facts
material to the opinions expressed herein that were not independently
established or verified, we have relied upon oral or written statements and
representations of officers and other representatives of the Company.
For purposes of the opinions set forth below, with respect to any document
which by its terms or otherwise is governed by the laws of any jurisdiction
other than the United States of America or the State of New York, such opinions
are based solely upon our understanding of the plain language of such document,
and we express no opinion as to the interpretation of any such document or of
any term or provision thereof under applicable governing law or as to the effect
on the opinions expressed herein of any interpretation thereof inconsistent with
such understanding. For purposes of our opinion set forth in paragraph 4, we
have assumed that the certificates representing the shares referred to in such
paragraph conform to the Specimen Certificate. Our opinion set forth in
paragraph 5, is based solely upon the Officer's Certificate and our discussions
with James A. Broderick, General Counsel of the Company; we have not performed
any docket search in any jurisdiction, and have not done any other investigation
of any kind.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 4
The opinions expressed herein are limited to the laws of the State of New
York, the General Corporation Law of the State of Delaware and the federal laws
of the United States of America to the extent specifically referred to herein.
As used herein, (i) the term "Applicable Laws" means the General
Corporation Law of the State of Delaware and those laws, rules and regulations
of the State of New York and of the United States of America that, in our
experience, are normally applicable to transactions of the type contemplated by
the U.S. Purchase Agreement, but without our having made any special
investigation concerning the applicability of any other law, rule or regulation;
provided, that such term does not include any federal or state securities or
other antifraud laws or the rules and regulations of the National Association
of Securities Dealers, Inc.; (ii) the term "Applicable Contracts" means those
contracts and agreements listed on Annex A to the Officer's Certificate; and
(iii) the term "Governmental Approval" means any consent, approval, license,
authorization or validation of, or filing, recording or registration with, any
United States federal or New York executive, legislative, judicial,
administrative or regulatory body (a "Governmental Entity"), pursuant to
Applicable Laws.
Based upon and subject to the foregoing and to the other qualifications and
limitations set forth herein, we are of the opinion that:
1. All of the issued and outstanding capital stock of ROV Holding, Inc. has
been duly authorized and validly issued and is fully paid and nonassessable.
None of the outstanding shares of capital stock of ROV Holding, Inc. was issued
in violation of the preemptive rights of any security holder of ROV Holding,
Inc. arising under the Certificate of Incorporation or By-laws of ROV Holding,
Inc. or any other similar rights arising under any Applicable Contract.
2. To our knowledge, based solely on our examination of the stock record
book of ROV Holding, Inc., the issued and outstanding capital stock of ROV
Holding, Inc. is owned of record by the Company, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity arising under any
Applicable Contract, except for the pledge of the capital stock of ROV Holding,
Inc. by the Company pursuant to a Company Pledge Agreement dated as of September
12, 1996 between the Company and Bank of America National Trust and Savings
Association in its capacity as administrative agent for the lenders referred to
therein.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 5
3. The Registration Statement, as of its effective date, and the
Prospectuses, as of their date, appeared on their face to be appropriately
responsive in all material respects to the requirements of the Securities Act
and the Rules and Regulations, except that, in each case, we express no opinion
as to the financial statements, schedules and other financial data included
therein or excluded therefrom or the exhibits to the Registration Statement, and
we do not assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement except to the extent
indicated in paragraph 6 below.
4. The Specimen Certificate complies in all material respects with any
requirements of the New York Stock Exchange applicable to companies whose
securities are listed thereon.
5. To our knowledge, except as set forth in the Registration Statement or
the Prospectuses, there are no legal, regulatory or governmental proceedings
pending in any New York State or federal court to which the Company or any
subsidiary of the Company listed on Exhibit 21 to the Registration Statement
(each, a "Subsidiary") is a party, or to which the property of the Company or
any Subsidiary is subject, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the transactions contemplated by the U.S. Purchase Agreement or
the International Purchase Agreement or the performance by the Company of its
obligations thereunder.
6. The statements in the Prospectuses under the captions "Description of
Capital Stock," "Description of Certain Indebtedness," "Shares Eligible for
Future Sale," "Underwriting" and "Certain Federal Income Tax Considerations," to
the extent that such statements constitute matters of law, summaries of legal
matters or legal conclusions, are correct in all material respects.
7. No Governmental Approval is required under Applicable Laws in connection
with the consummation by the Company of the transactions contemplated by the
U.S. Purchase Agreement or the International Purchase Agreement except that we
do not express any opinion as to any consent or authorization which may have
become applicable to the Company as a result of the involvement of the U.S.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 6
Underwriters or of the International Managers in the transactions contemplated
by the U.S. Purchase Agreement or the International Purchase Agreement, because
of their legal or regulatory status or because of any other facts specifically
pertaining to them.
8. Neither the execution and delivery of the U.S. Purchase Agreement or
the International Purchase Agreement nor the consummation of the transactions
contemplated therein will contravene any Applicable Laws.
9. To our knowledge, based solely upon a review of the Applicable
Contracts, there are no Applicable Contracts of a character required to be filed
as exhibits to the Registration Statement which are not filed as required.
10. The execution, delivery and performance of the U.S. Purchase Agreement
and the International Purchase Agreement and the consummation of the
transactions contemplated thereby and the use of the proceeds from the sale of
the Shares as described in the Prospectuses under the caption "Use of Proceeds"
do not and will not, either by itself or the giving of notice or the lapse of
time or both, conflict with or constitute a breach of or a default or Repayment
Event (as defined in Section 1(a)(x) of the Purchase Agreements) under any
Applicable Contract or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any Subsidiary
pursuant to any Applicable Contract to which the Company or any Subsidiary is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any Subsidiary is subject or any Applicable
Law or Governmental Approval of any Governmental Entity having jurisdiction over
the Company or any Subsidiary or any of their respective properties, assets or
operations, except in any such case for any such conflicts, breaches, or
defaults which would not have a Material Adverse Effect.
11. Except as disclosed in the Registration Statement, to our knowledge,
there are no persons with registration rights or other similar rights under any
Applicable Contract to have any shares of Common Stock registered pursuant to
the Registration Statement or otherwise registered by the Company pursuant to
the 1933 Act.
<PAGE>
MERRILL LYNCH & CO.
Merrill Lynch International
November [ ], 1997
Page 7
12. The Company is not subject to registration as an investment company
under the Investment Company Act of 1940, as amended.
We have been orally advised by the Commission that the Registration
Statement was declared effective under the Act at [ ], Washington, D.C. time, on
November [ ], 1997; the required filing of the Prospectuses pursuant to Rule
424(b) has been made in the manner and within the time period required by Rule
424(b); and, to our knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened by the Commission.
In addition, we have participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, and you and your counsel, at which the contents of
the Registration Statement, the Prospectuses and related matters were discussed
and, although we are not passing upon, and do not assume any responsibility for,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectuses and have made no independent check or
verification thereof, on the basis of the foregoing, no facts have come to our
attention that have led us to believe that the Registration Statement, at the
time it became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectuses, as of
their dates and as of the date hereof, contained or contains an untrue statement
of a material fact or omitted or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that we express no opinion or belief with
respect to the financial statements, schedules and other financial data included
therein or excluded therefrom or the exhibits to the Registration Statement.
This opinion is furnished to you solely for your benefit in connection with
the closings under the U.S. Purchase Agreement and the International Purchase
Agreement occurring today and is not to be used, circulated, quoted or otherwise
referred to for any other purpose or relied upon by any other person without our
prior express written permission.
Very truly yours,
<PAGE>
EXHIBIT A-3
FORM OF OPINION OF COUNSEL OF
SELLING SHAREHOLDERS
TO BE DELIVERED PURSUANT TO
SECTION 5(b)*
November __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as U.S. Representatives of the several
U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
MERRILL LYNCH INTERNATIONAL
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
as Lead Managers for the several International Managers
c/o Merrill Lynch International
25 Ropemaker Place
London EC2Y 9LY
England
Re: Overallotment Option in Connection
With Public Offering of Shares of
Common Stock of Rayovac Corporation
-----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Thomas H. Lee Equity Fund
III, L.P., THL-CCI Limited Partnership, Thomas H. Lee Foreign Fund III, L.P.,
(each a "Selling Shareholder" and together the "Selling Shareholders") in
connection with the execution and delivery by the Selling Shareholders of (i)
the U.S. Purchase Agreement dated as of November __, 1997 (the "U.S. Purchase
Agreement") among
- --------
* Full Form of opinion, including qualifications to be attached prior to
execution.
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 2
Rayovac Corporation, a Wisconsin corporation (the "Company"), the Selling
Shareholders, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, Bear Stearns & Co., Inc., and Smith
Barney Inc. as representatives (the "U.S. Representatives") of the U.S.
Underwriters listed in Schedule A thereto and (ii) the International Purchase
Agreement dated as of November __, 1997 (the "International Purchase Agreement")
among the Company, the Selling Shareholders, and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Bear
Stearns International Limited, and Smith Barney Inc. as lead managers (the "Lead
Managers") on behalf of the International Managers listed in Schedule A thereto,
and the sale by the Selling Shareholders to the U.S. Underwriters (as defined in
the U.S. Purchase Agreement) and the International Managers (as defined in the
International Purchase Agreement) of an aggregate of 1,005,000 shares of Common
Stock, par value $0.01 per share, of the Company (the "Common Stock") pursuant
to the exercise by the U.S. Underwriters and the International Managers of the
options granted by the Selling Shareholders, acting severally and not jointly,
to (i) the U.S. Underwriters, acting severally and not jointly, to purchase all
or any part of 804,000 additional shares of Common Stock (the "U.S. Option
Securities") and (ii) the International Managers, acting severally and not
jointly, to purchase all or any part of 201,000 additional shares of Common
Stock (the "International Option Securities," and together with the U.S. Option
Securities, the "Option Shares") to cover over allotments, if any, described in
Section 2(b) of each of the U.S. Purchase Agreement and the International
Purchase Agreement. This opinion is delivered to you pursuant to Section 5(b)
of each of the U.S. Purchase Agreement and the International Purchase Agreement.
Capitalized terms used herein but not otherwise defined herein shall have the
same meaning ascribed to them in the U.S. Purchase Agreement.
In connection with this opinion, we have examined or are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the U.S. Purchase Agreement; (ii) the International Purchase Agreement;
(iii) the Irrevocable Power of Attorney and Custody Agreement dated as of
November ___, 1997 among each Selling Shareholder and ________________________,
each acting as Attorney-in-Fact (each, an "Attorney-in-Fact" and together, the
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 3
"Attorneys-in-Fact"), and [Firstar Trust Bank], as Custodian (the "Custodian")
(the "Custody Agreement" and together with the U.S. Purchase Agreement and the
International Purchase Agreement, the "Transaction Documents"), (iv) the Limited
Partnership Agreement of Thomas H. Lee Foreign Fund III, L.P. (the "Foreign
Fund"), dated as of February 6, 1996, by and among THL Equity Advisors III
Limited Partnership, a Massachusetts limited partnership ("Advisors"), and the
limited partners listed on Exhibit A thereto; (v) the Second Amended and
Restated Limited Partnership Agreement of Thomas H. Lee Equity Fund III, L.P.
(the "Equity Fund" and together with the Foreign Fund, the "Funds"), dated as of
December 22, 1995, by and among Advisors and the limited partners listed on
Exhibit A thereto; (vi) the Thirteenth Amended and Restated Agreement of Limited
Partnership of THL-CCI Limited Partnership ("CCI", and together with the Funds,
the "Partnerships"), dated as of January 17, 1997, by and among THL Investment
Management Corp. and the persons and entities admitted as limited partners;
(vii) the Certificate of Limited Partnership of the Foreign Fund, dated as of
January 23, 1996; (viii) the Certificate of Limited Partnership of the Equity
Fund, dated as of February 14, 1995; (ix) the Certificate of Limited Partnership
of CCI, dated as of July 10, 1992, as amended November 30, 1993 and March 13,
1996; (x) the First Amended and Restated Agreement of Limited Partnership of
Advisors, dated as of August 15, 1995 by and among THL Equity Trust III, a
Massachusetts business trust ("Equity Trust"), and the limited partners
signatories thereto; (xi) the Certificate of Limited Partnership of Advisors,
dated as of February 16, 1995; (xii) the Declaration of Trust of Equity Trust,
made as of February 14, 1995, by and between Thomas H. Lee, as grantor, and the
trustees signatories thereto; (xiii) the Consent of Trustees of Equity Trust,
dated as of January 17, 1997; (xiv) the Articles of Organization and By-laws of
THL Investment Management Corp., each as in effect as of the date hereof; (xv)
the Consent of Sole Director of THL Investment Management Corp., dated as of
January 17, 1997; (xvi) the Certificate of Advisors, as general partner of the
Equity Fund, dated as of January 17, 1997; (xvii) the Certificate of Advisors,
as general partner of the Foreign Fund, dated as of November __, 1997; (xviii)
the Certificate of Equity Trust, as general partner of Advisors, dated as of
November __, 1997; (xix) the Officer's Certificate of THL Investment Management
Corp., as general partner of CCI, dated as of November __, 1997; (xx) the
Officer's Certificate of THL Investment Management Corp., dated as of November
__, 1997; (xxi) the Certificate of Equity Trust, dated as of November __, 1997
and (xxii) certificates representing the Option Shares. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such records of each of the Partnerships and others and such agreements,
certificates of public officials, certificates of officers or other
representatives of each of the Partnerships and others and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 4
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such latter documents. As to any facts material to the opinions set
forth herein which we did not independently establish or verify, we have relied
upon statements and representations of officers and other representatives of
each of the Partnerships and others.
As used herein, (i) the term "Applicable Laws" means the General
Corporation Law and Revised Uniform Limited Partnership Act of the State of
Delaware, the Business Corporation Law and the Uniform Limited Partnership Act
of the Commonwealth of Massachusetts and those laws, rules and regulations of
the State of New York and of the United States of America that, in our
experience, are normally applicable to transaction of the type contemplated by
the Transaction Documents, but without our having made any special investigation
concerning the applicability of any other law, rule or regulation; provided,
that such term does not include any federal or state securities or other
antifraud laws or the rules and regulations of the National Association of
Securities Dealers, Inc.; (ii) the term "Applicable Contracts" means those
contracts and agreements listed on Annex A hereto; and (iii) the term
"Governmental Approval" means any consent, approval, license, authorization or
validation of, or filing, recording or registration with, any United States
Federal or Delaware, Massachusetts or New York executive, legislative, judicial,
administrative or regulatory body (a "Governmental Entity"), pursuant to
Applicable Laws.
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 5
The opinions expressed herein are limited to (i) the General Corporation
Law and the Revised Uniform Limited Partnership Act of the State of Delaware;
(ii) the Business Corporation Law and the Uniform Limited Partnership Act of the
Commonwealth of Massachusetts; (iii) the laws of the State of New York; and (iv)
the federal laws of the United States of America to the extent specifically
referred to herein.
Based upon and subject to the foregoing, and to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
1. No Governmental Approval is required under Applicable Laws in connection
with the offer, sale or delivery of the Option Shares by the Selling
Shareholders under the U.S. Purchase Agreement and the International Purchase
Agreement or the performance by each of the Selling Shareholders of its
obligations under any of the Transaction Documents; provided, that we express no
opinion as to any Governmental Approval which may be required under state
securities laws or that may have become applicable to any Selling Shareholder as
a result of your involvement in the U.S. Purchase Agreement or the International
Purchase Agreement because of your legal or regulatory status or because of any
other facts specifically pertaining to you.
2. Each of the Custody Agreement, the U.S. Purchase Agreement and the
International Purchase Agreement has been duly executed and delivered by each
Selling Shareholder.
3. The Attorney-in-Fact has been duly authorized by each Selling
Shareholder to deliver and sell the U.S. Option Securities and the International
Option Securities on behalf of each Selling Shareholder in accordance with the
terms of each of the U.S. Purchase Agreement and the International Purchase
Agreement.
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 6
4. The execution, delivery and performance of each of the Transaction
Documents and the sale and delivery of the U.S. Option Securities and the
International Option Securities and the consummation of the transactions
contemplated in each of the U.S. Purchase Agreement and the International
Purchase Agreement and compliance by each Selling Shareholder with its
obligations under each of the U.S. Purchase Agreement and the International
Purchase Agreement have been duly authorized by all necessary partnership action
on the part of each Selling Shareholder and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default under any Applicable Law or Governmental
Approval of any Governmental Entity having jurisdiction over any Selling
Shareholder or any of their properties (except for such conflicts, breaches or
defaults or liens, charges or encumbrances which would not have a material
adverse effect on the condition (financial or otherwise), earnings, business
affairs or business prospects of any Selling Shareholder, whether or not arising
in the ordinary course of business) nor will such action result in any violation
of the provisions of the partnership agreements of any of the Selling
Shareholders.
5. To our knowledge, each Selling Shareholder has the power and authority
as a limited partnership to sell, transfer and deliver the U.S. Option
Securities and the International Option Securities pursuant to each of the U.S.
Purchase Agreement and the International Purchase Agreement. Assuming that
neither any U.S. Representatives nor any U.S. Underwriter has notice of adverse
claims with respect to the certificates identified on Schedule A as representing
the U.S. Option Securities, then upon physical delivery to Merrill Lynch & Co.
as designee of the U.S. Representatives in the State of New York of such
certificates indorsed to the U.S. Representatives or indorsed in blank, the U.S.
Representatives will acquire such certificates (and the shares of Common Stock
represented thereby) free of any adverse claims within the meaning of the
Uniform Commercial Code in effect in the State of New York. Assuming that
neither any Lead Manager nor any International Manager has notice of adverse
claims with respect to the certificates identified on Schedule A as representing
the International Option Securities, then upon physical delivery to Merrill
Lynch & Co. as designee of the Lead Managers in the State of New York of such
certificates indorsed to the Lead Managers or indorsed in blank, the Lead
Managers will acquire such certificates (and the shares of Common Stock
represented thereby) free of any adverse claims within the meaning of the
Uniform Commercial Code in effect in the State of New York.
<PAGE>
MERRILL LYNCH & CO.
MERRILL LYNCH INTERNATIONAL
November __, 1997
Page 7
This opinion is furnished to you solely for your benefit in connection with
the closings under the U.S. Purchase Agreement and the International Purchase
Agreement occurring today and is not to be used, circulated, quoted or otherwise
referred to for any other purpose or relied upon by any other person without our
prior express written permission.
Very truly yours,
<PAGE>
EXHIBIT B
October ____,1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co., Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney, Inc.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
within-mentioned U.S. Purchase Agreement
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney, Inc.
as Lead Managers for the several
Managers to be named in the within-
mentioned International Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Rayovac Corporation
Dear Sirs:
The undersigned, a stockholder [and an [officer] or [director]] of
Rayovac Corporation, a Wisconsin corporation (the "Company"), understands that
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Smith Barney Inc. propose to enter into a U.S.
Purchase Agreement (the "U.S. Purchase Agreement") with the Company, providing
for the public offering of shares (the "Securities") of the Company's common
stock, par value $0.01 per share (the "Common Stock"). In recognition of the
benefit that such an offering will confer upon the undersigned as a stockholder
of the company and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the U.S. Purchase Agreement that, during a period of
180 days from the date of the U.S.
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<PAGE>
Purchase Agreement, the undersigned will not, without the prior written consent
of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of the Company's Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock, whether
any such swap or transaction is to be settled by delivery of Common Stock or
other securities, in cash or otherwise.
Notwithstanding the foregoing, the undersigned may transfer any or all
of its shares of Company Common Stock (i) by gift, will or intestacy, (ii) to
its affiliates, as such term is defined in Rule 405 promulgated under the
Securities Act of 1933, as amended, or (iii) in the event the undersigned is an
individual, to his or her immediate family or to a trust the beneficiaries of
which are exclusively the undersigned and/or a member or members of his or her
immediate family; provided, however, that in any such case it shall be a
condition to any such transfer that the transferee execute an agreement stating
that the transferee is receiving and holding the shares subject to the
provisions of this letter agreement and there shall be no further transfer of
such shares except in accordance with the provisions of this letter agreement.
Very truly yours,
Signature: ___________________________
Print Name: __________________________
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<PAGE>
EXHIBIT C-1
FORM OF COMFORT LETTER OF
KPMG PEAT MARWICK LLP PURSUANT TO SECTION 5(f)
(i) We are independent public accountants with respect to the Company
within the meaning of the 1933 Act and the applicable published 1933 Act
Regulations.
(ii) In our opinion, the audited financial statements and the related
financial statement schedules included in the Registration Statement and the
Prospectuses comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the published rules and regulations
thereunder.
(iii) On the basis of procedures (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of the
unaudited interim consolidated financial statements of the Company for the
periods ______________ and________________ included in the Registration
Statement and the Prospectuses (collectively, the "Quarterly Financials"), a
reading of the minutes of all meetings of the stockholders and directors of the
Company and its Subsidiaries and the committees of the Company's Board of
Directors and any subsidiary committees since October 1, 1997, inquiries of
certain officials of the Company and its subsidiaries responsible for financial
and accounting matters, a review of interim financial information in accordance
with standards established by the American Institute of Certified Public
Accountants in Statement on Auditing Standards No. 71, Interim Financial
Information ("SAS 71"), with respect to the Quarterly Financials and such other
inquiries and procedures as may be specified in such letter, nothing came to our
attention that caused us to believe that:
(A) the Quarterly Financials included in the Registration
Statement and the Prospectuses do not comply as to form in
all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations
or any material modifications should be made to the
unaudited consolidated financial statements included in
the Registration Statement and the Prospectuses for them
to be in conformity with generally accepted accounting
principles;
(B) at a specified date not more than five days prior to the
date of this Agreement, there was any change in the common
stock of the Company and its subsidiaries or any decrease
in the working capital, total assets, total current assets
or stockholder's equity of the Company and its
subsidiaries or any increase in the long-term debt or
total liabilities of the Company and its subsidiaries, in
each case as compared with amounts shown in the latest
balance sheet included in the Registration Statement,
except in each case for changes, decreases or increases
that the Registration Statement discloses have occurred or
may occur; or
(C) for the period from September 30, 1997 to a specified date
not more than five days prior to the date of this
Agreement, there was any decrease in net sales, gross
profit, income from operations before non-recurring
charges, income (loss) from operations, interest expense,
net income in each case as compared with the
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<PAGE>
comparable period in the preceding year, except in each
case for any decreases that the Registration Statement
discloses have occurred or may occur.
(iv) Based upon the procedures set forth in clause (iii) above and a
reading of the Selected Financial Data included in the Registration Statement
and a reading of the financial statements from which such data were derived,
nothing came to our attention that caused us to believe that the Selected
Financial Data included in the Registration Statement do not comply as to form
in all material respects with the disclosure requirements of Item 301 of
Regulation S-K of the 1933 Act, that the amounts included in the Selected
Financial Data are not in agreement with the corresponding amounts in the
audited consolidated financial statements for the respective periods or that the
financial statements not included in the Registration Statement from which
certain of such data were derived are not in conformity with generally accepted
accounting principles.
(v) We have compared the information in the Registration Statement
under selected captions with the disclosure requirements of Regulation S-K of
the 1933 Act and on the basis of limited procedures specified herein. nothing
came to our attention that caused us to believe that this information does not
comply as to form in all material respects with the disclosure requirements of
Items 302, 402 and 503(d), respectively, of Regulation S-K.
(vi) We are unable to and do not express any opinion on the Pro Forma
Financial Information included in the Registration Statement or on the pro forma
adjustments applied to the historical amounts included in the Pro Forma
Financial Information. However, for purposes of this letter we have:
(A) read the Pro Forma Financial Information;
(B) performed an audit of the financial statements to which the pro
forma adjustments were applied;
(C) made inquiries of certain officials of the Company who have
responsibility for financial and accounting matters about the basis for their
determination of the pro forma adjustments and whether the Pro Forma Financial
Information complies as to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X; and
(D) proved the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the Pro Forma Financial Information;
and
on the basis of such procedures and such other inquiries and procedures as
specified herein, nothing came to our attention that caused us to believe that
the Pro Forma Financial Information included in the Registration Statement does
not comply as to form in all material respects with the applicable requirements
of Rule 11-02 of Regulation S-X or that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of those
statements.
(vii) In addition to the procedures referred to in clause (iii) above,
we have performed other procedures, not constituting an audit, with respect to
certain amounts, percentages, numerical data and financial information appearing
in the Registration Statement, which are specified herein, and have compared
certain of such items with, and have found such items to be in agreement with,
the accounting and financial records of the Company.
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<PAGE>
EXHIBIT C-2
FORM OF COMFORT LETTER OF
COOPERS & LYBRAND LLP PURSUANT TO SECTION 5(f)
(i) We are independent public accountants with respect to the Company
and its predecessors within the meaning of the 1933 Act and the applicable
published 1933 Act Regulations.
(ii) In our opinion, the audited financial statements and the related
financial statement schedules of Rayovac Corporation for the Transition Period
ended September 30, 1996, for the fiscal years ended June 30, 1996, 1995 and
1994 included in the Registration Statement and the Prospectuses comply as to
form in all material respects with the applicable accounting requirements of the
1933 Act and the published rules and regulations thereunder.
(iii) In addition, we have performed other procedures, not constituting
an audit, with respect to certain amounts, percentages, numerical data and
financial information appearing in the Registration Statement, which are
specified herein, and have compared certain of such items with, and have found
such items to be in agreement with, the accounting and financial records of the
Company.
-1-
Consent of KPMG Peat Marwick LLP
The Board of Directors
Rayovac Corporation:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Milwaukee, Wisconsin
November 14, 1997
Consent of Independent Accountants
We consent to the inclusion in Amendment No. 2 to this registration statement on
Form S-1, (File No. 333-35181) of our report dated November 22, 1996, on our
audits of the consolidated financial statements of Rayovac Corporation as of
September 30, 1996 and June 30, 1996, and for the period July 1, 1996 to
September 30, 1996 and each of the two years in the period ended June 30, 1996.
We also consent to the references to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Milwaukee, Wisconsin
November 14, 1997
