As filed with the Securities and Exchange Commission on April 2, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
RAYOVAC CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 22-2423556
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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:
<TABLE>
<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 the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, 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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<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
Proposed
Title of Each Class of Amount to Be Maximum Offering Proposed Maximum Aggregate Amount of
Securities to Be Registered Registered Price per Unit Offering Price(1) Registration Fee(2)
- ---------------------------------------- -------------- ------------------ ---------------------------- --------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 7,475,000 $ 23.13 $172,896,750 $51,005
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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) Calculated based upon the average of the high and low prices reported on
the New York Stock Exchange for March 31, 1998, in accordance with Rule
457(c) under the Securities Act of 1933, as amended.
---------------
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.
================================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two 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
"Offerings"). 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. Such alternate pages for
the International Offering appear in this Registration Statement immediately
following the complete prospectus for the U.S. Offering.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 2, 1998
[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]
PROSPECTUS
6,500,000 Shares
RAYOVAC(R)
Common Stock
----------------
All of the 6,500,000 shares of Common Stock of Rayovac Corporation
("Rayovac" or the "Company") offered hereby are being sold by certain
shareholders (the "Selling Shareholders") of the Company. See "Principal and
Selling Shareholders." The Company is not selling any shares of Common Stock in
this Offering and will not receive any of the proceeds from the sale of shares
of Common Stock offered hereby.
Of the 6,500,000 shares of Common Stock offered hereby, 5,200,000 shares
are being offered for sale initially in the United States and Canada by the
U.S. Underwriters and 1,300,000 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 underwriting discount per
share will be identical for both Offerings. See "Underwriting."
The Common Stock is listed on the New York Stock Exchange under the symbol
"ROV." On March 31, 1998, the last sale price of the Common Stock as reported
on the New York Stock Exchange was $23-9/16 per share. See "Price Range of
Common Stock and Dividend Policy."
See "Risk Factors" beginning on page 11 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.
- --------------------------------------------------------------------------------
Proceeds to
Price to Underwriting Selling
Public Discount (1) Shareholders (2)
---------- -------------- -----------------
Per Share..................... $ $ $
- ------------------------------- ---------- -------------- -----------------
Total(3) ...................... $ $ $
- --------------------------------------------------------------------------------
(1) The Company and the 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 $800,000.
(3) The Selling Shareholders have granted the U.S. Underwriters and the
International Managers options to purchase up to an additional 780,000
shares and 195,000 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 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 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 , 1998.
----------------
Merrill Lynch & Co.
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Salomon Smith Barney
----------------
The date of this Prospectus is , 1998.
<PAGE>
[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[RegTM], RENEWAL[RegTM], LOUD'N CLEAR[RegTM], POWER STATION[RegTM],
PROLINE[RegTM], WORKHORSE[RegTM], ROUGHNECK[RegTM] and SMART PACK[RegTM] 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 and the purchase of Common Stock to
cover syndicate short positions. 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, and is the leading worldwide manufacturer of
hearing aid batteries. The Company is also the leading domestic manufacturer of
rechargeable household batteries and certain other specialty batteries,
including lantern batteries. In addition, the Company is a leading marketer of
heavy duty batteries and battery-powered lighting products and also markets
rechargeable batteries for cellular phones and video camcorders. 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) continuous 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 and warehouse clubs; food,
drug and convenience stores; electronics specialty stores and department
stores; hardware and automotive centers; specialty retailers; hearing aid
professionals; and industrial and government/OEM. The Company markets all of
its branded products under the Rayovac[RegTM] name and selected products under
sub-brand names such as MAXIMUM[TM], Renewal[RegTM], Loud'n Clear[RegTM],
ProLine[RegTM], Lifex[TM], Power Station[RegTM], Workhorse[RegTM], and
Roughneck[RegTM].
Business Strategy
In September 1996, pursuant to the Recapitalization, affiliates of 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 increasing training and education, upgrading information
systems 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, experienced
senior managers have been 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; Stephen P. Shanesy,
Senior Vice President of Marketing and General Manager of General Batteries and
Lights; and Randall J. Steward, Senior Vice President of Corporate Development.
The new senior managers have over 75 years of collective experience in the
consumer
3
<PAGE>
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 nine executive officers of the Company will
beneficially own 9.7% of the outstanding Common Stock (without giving effect to
the Underwriters' over-allotment options) on a fully diluted basis.
Restructured Operations. In March 1998, the Company announced
restructuring plans for its domestic and international operations designed to
maximize production and capacity efficiencies, reduce fixed costs, upgrade
existing technology and equipment, and improve customer service. Major elements
of the restructuring include (i) consolidating the Company's packaging
operations, (ii) outsourcing manufacturing of heavy duty batteries, and (iii)
closing certain of the Company's existing manufacturing, packaging and
distribution facilities. The Company will record a charge of $7.5 million in
the second quarter of the current fiscal year in connection with the
restructuring program and expects to record an additional $2.0 million of costs
in subsequent periods. The Company currently anticipates annual aggregate cost
savings of the restructuring program, after full implementation (currently
expected in early 1999), to be approximately $5.0 million. The restructuring is
in addition to prior actions taken by the Company following the
Recapitalization to rationalize manufacturing and other costs, which the
Company estimates have an annual aggregate cost savings of approximately $8.6
million. The Company believes that its current manufacturing capacity remains
sufficient to meet its production requirements for the foreseeable future.
Reorganized Sales, Marketing and Administration by Distribution
Channel. Rayovac has realigned its marketing department, sales organization,
supply chain and support functions to better serve the diverse customer needs
within major distribution channels. Customer-focused teams are now organized to
serve the following distribution channels: mass merchandisers and warehouse
clubs; food, drug and convenience stores; electronics specialty stores and
department stores; hardware and automotive centers; specialty retailers;
hearing aid professionals; and 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
continues to implement broad new marketing initiatives designed to reinvigorate
the Rayovac brand name. Major steps completed to date include (i) selecting
Young & Rubicam as the Company's new advertising agency and developing its
first major national advertising campaign for its full line of general
batteries, (ii) launching a new and improved alkaline product line under the
MAXIMUM[TM] sub-brand, (iii) redesigning all product graphics and packaging to
convey a high-quality image and emphasize the Rayovac brand name, (iv)
extending the Company's existing contract with Michael Jordan to include his
representation for all Rayovac products, and (v) restructuring the Company's
sales representative network along distribution channels.
Reorganized Information Systems. The Company has completed an initial
overhaul of its information systems by (i) hiring an experienced Chief
Information Officer, (ii) outsourcing mainframe computer operations, (iii)
completing an enterprise software system analysis, and (iv) retaining outside
consultants to upgrade its data processing and telecommunications
infrastructure. The Company has purchased from SAP and begun implementing an
enterprise-wide, integrated information system to upgrade its business
operations, the majority of which is expected to be substantially completed by
mid-1999. When fully implemented, this system, along with efforts by the
Company's internal project team, is expected to reduce cycle times, lower
manufacturing and administrative costs, improve both asset and employee
productivity and substantially address the Year 2000 issue.
4
<PAGE>
Growth Strategy
Rayovac believes it has significant growth opportunities in its businesses
and has developed strategies to increase sales, profits and market share. Key
elements of the Company's growth strategy are as follows:
Reinvigorate the Rayovac Brand Name. The Company is committed to
reinvigorating the Rayovac brand name after many years of underdevelopment. 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 has initiated an integrated
advertising campaign using significantly higher levels of TV and print media.
In 1997, the Company launched a reformulated alkaline battery, Rayovac
MAXIMUM[TM], supported by new graphics, new packaging, a new advertising
campaign, and aggressive introductory retail promotions. The Company's
marketing and advertising initiatives are designed to increase awareness of the
Rayovac brand and to increase retail sales by heightening customers'
perceptions of the quality, performance and value of Rayovac products.
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 to appeal 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 44%
of industry sales growth in the domestic alkaline battery market on a unit
basis over the past five years and has achieved a 19% unit share. The Company
believes its value brand positioned products and innovative merchandising
programs also make it an attractive supplier to other retail channels, which
represent a market of $1.7 billion or 69% of the general battery market. 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) offering a selection of products with high sell-through, and
(iv) utilizing more aggressive and channel specific promotional programs. The
Company believes that these initiatives have resulted in significant success
over the past fiscal year in gaining access to new accounts and expanding
product offerings to existing accounts and the Company intends to continue to
pursue these strategies.
Further Capitalize on Worldwide Leadership in Hearing Aid Batteries. The
Company seeks to increase its 52% 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 dedicated 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 also markets large
multi-packs of hearing aid batteries which have rapidly gained consumer favor.
In November 1997, the Company acquired Brisco GmbH in Germany and Brisco B.V.
in Holland (collectively, "Brisco"). Brisco packages and distributes hearing
aid batteries in customized packaging to hearing health care professionals in
Germany and Holland as well as other European countries. The Company believes
that the Brisco acquisition will enable the Company to further penetrate
European markets for hearing aid batteries.
Develop New Markets. The Company intends to expand its business into new
markets for batteries and related products both domestically and
internationally by developing new products internally or selective
acquisitions. These acquisitions may focus on expansion into new technologies,
product lines or geographic markets and may be of significant size. In March
1998, the Company acquired the retail portion of the business of Direct Power
Plus of New York (the business acquired being referred to herein as "DPP"), a
full line marketer of rechargeable batteries and accessories for cellular
phones and video camcorders. In conjunction with the acquisition of DPP, the
Company has announced the launch of a new line of rechargeable batteries for
cordless telephones. The Company may also pursue joint ventures or other
strategic marketing opportunities where appropriate to expand its markets or
product offerings. See "Risk Factors--Risks Associated with Future
Acquisitions."
Introduce New Niche Products. The Company has developed leading positions
in several important niche markets, including those for lantern batteries and
lithium coin cells. The Company intends to continue selectively
5
<PAGE>
pursuing opportunities to exploit under-served niche markets and to enter
high-growth specialty battery markets. In 1997, the Company entered the market
for photo and keyless entry batteries and recently introduced a line of
products to serve the medical instrument and health services markets. In the
lighting products segment, where market share is driven by new product
introductions, 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.
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 68% market share of the rechargeable household
battery market through mass merchandisers, food and drug stores for the 52
weeks ended February 14, 1998. Since the Recapitalization, the Company has
lowered the price of Renewal rechargers by 33% to encourage consumers to
purchase the system and promoted Renewal's 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.
The Company has focused sales efforts for this product on distribution channels
which the Company believes to be more suited for this product, such as
electronics specialty stores, and has recently begun shipments to Radio Shack.
Recent Developments
Restructuring of Domestic and International Operations. In March 1998, the
Company announced restructuring plans for its domestic and international
operations designed to maximize production and capacity efficiencies, reduce
fixed costs, upgrade existing technology and equipment and improve customer
service. Major elements of the restructuring include (i) consolidating the
Company's packaging operations at its Madison, Wisconsin plant, (ii)
outsourcing the manufacture of heavy duty batteries, (iii) closing the
Company's Appleton, Wisconsin plant and relocating the affected manufacturing
operations for lithium batteries to the Company's Portage, Wisconsin facility,
and (iv) closing the Company's Newton Aycliffe, United Kingdom packaging and
distribution facility. The Company will record a charge of $7.5 million in the
second quarter of the current fiscal year in connection with the restructuring
program and expects to record an additional $2.0 million of costs in
subsequent periods. The Company anticipates annual aggregate cost savings of
the restructuring program, after full implementation (currently expected in
early 1999), to be approximately $5.0 million.
Sale of Idled Facility. In March 1998, the Company sold its Kinston, North
Carolina facility and will record a gain of $2.5 million in the quarter.
Acquisitions. In November 1997, the Company acquired Brisco which packages
and distributes hearing aid batteries in customized packaging to hearing health
care professionals in Germany, Holland and several other European countries.
Brisco had sales of $4.5 million in calendar year 1997. In March 1998, the
Company acquired DPP, a full line marketer of rechargeable batteries and
accessories for cellular phones and video camcorders, with retail sales of $14
million in calendar year 1997. Also in March 1998, the Company acquired the
hearing aid battery distribution portion of Best Labs, a St. Petersburg,
Florida distributor of hearing aid batteries and a manufacturer of hearing
instruments. The battery distribution portion of Best Labs had net sales of
$2.6 million in 1997.
Amended Credit Agreement. On December 30, 1997, the Company entered into
an Amended and Restated Credit Agreement (the "Amended Credit Agreement") which
includes a five-year reducing revolver facility of $90 million (the "Revolver
Facility"), and a five-year amortizing acquisition facility of $70 million (the
"Acquisition Facility"). The Revolver Facility is reduced by $10.0, $15.0 and
$15.0 million, respectively, on December 31, 1999, 2000 and 2001, and expires
on December 31, 2002. The Acquisition Facility provides up to $70.0 million in
loans for qualifying acquisitions during a one-year commitment period expiring
December 31, 1998. Debt obtained under the Acquisition Facility is subject to
quarterly amortization commencing March 31, 1999 through December 31, 2002. As
of March 28, 1998, $56.1 million was outstanding on the Revolver Facility, with
approximately $5.8 million utilized for outstanding letters of credit, and $4.2
million was outstanding under the Acquisition Facility. As of December 30,
1997, all of the Company's senior term debt was replaced by revolver debt under
the Revolver Facility. See "Description of Certain Indebtedness."
6
<PAGE>
Extension of Technology Agreement; New Manufacturing Line. In March 1998,
the Company announced the extension of its existing alkaline battery technology
agreement with Matsushita Battery Industrial Co. of Japan ("Matsushita"),
pursuant to which the Company is entitled to license Matsushita's highly
advanced designs, technology and manufacturing equipment, including all
developments and innovations thereto, through 2003. Thereafter, the Company is
entitled to license such technology existing as of such date through 2023. The
Company has also agreed to purchase from Matsushita a new high speed alkaline
battery manufacturing production line for its Fennimore, Wisconsin plant and to
source certain finished products, battery parts and material from Matsushita to
continue to supplement the Company's existing domestic production capacity.
This new high speed manufacturing line is anticipated to increase capacity for
production of AA size batteries by up to 50%.
The Offerings
The offering of 5,200,000 shares of the Company's Common Stock in the
United States and Canada (the "U.S. Offering") and the offering of 1,300,000
shares of the Common Stock outside the United States and Canada (the
"International Offering") are collectively referred to herein as the
"Offerings."
<TABLE>
<S> <C>
Common Stock offered by the Selling
Shareholders .......................... 6,500,000 shares
Common Stock to be outstanding after the
Offerings(1) .......................... 27,439,238 shares
Use of proceeds ........................ The Company will not receive any proceeds from the sale
of Common Stock by the Selling Shareholders.
New York Stock Exchange symbol ......... "ROV"
</TABLE>
- ----------------
(1) Excludes 5,261,127 shares of Common Stock reserved for sale or issuance
under the Company's employee benefit plans, of which options to purchase
2,236,127 shares have been granted and 3,025,000 shares remain available
for issuance or sale.
7
<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 based on 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.
8
<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 three months ended December 28, 1996 and
December 27, 1997 and 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,
which policy was adopted as of September 30, 1997. 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 $11.9 million for the three
months ended December 28, 1996. The Company believes that this reclassification
is consistent with the method used by other consumer products companies.
<TABLE>
<CAPTION>
Transition Twelve Fiscal Three Months
Fiscal Year Ended June 30, Period Months Year Ended
------------------------------------- Ended Ended Ended ----------------------
September September September December December
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997 28, 1996 27, 1997
--------- ---------- ------- -------- ----------- -------------- ----------- ---------- -----------
(In millions) <C> <C>
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data: $ 141.9 $ 150.0
Net sales ................... $372.4 $ 403.7 $415.2 $ 423.4 $ 101.9 $ 417.9 $ 432.6 62.9 72.6
Gross Profit ................ 171.0 168.8 178.1 184.0 42.6 180.0 198.0
Income from operations
before non-recurring 14.7 17.4
charges (1) ............... 31.2 21.9 31.5 30.3 4.7 27.0 37.5
Income (loss) from
operations 11.7 18.6
(2)(3)(4)(5) .............. 31.2 10.9 31.5 30.3 ( 23.7) ( 1.4) 34.5 8.0 5.0
Interest expense ............ 6.0 7.7 8.6 8.4 4.4 10.5 24.5 2.4 6.6
Net income (loss)(6) ........ 15.0 4.4 16.4 14.3 ( 20.9) ( 10.2) 6.2
Other Financial Data: $ 3.1 $ 2.8
Depreciation ................ $ 7.4 $ 10.3 $ 11.0 $ 11.9 $ 3.3 $ 12.1 $ 11.3 1.1 1.8
Capital expenditures(7) ..... 30.3 12.5 16.9 6.6 1.2 8.4 10.9
Cash flows from operating 20.5 1.7
activities ................ 15.8 ( 18.7) 35.5 17.8 ( 1.1) 26.0 35.7 14.8 21.4
EBITDA(8) ................... 39.3 21.2 41.3 42.2 ( 20.4) 10.7 45.8
</TABLE>
<TABLE>
<CAPTION>
December 27, 1997
(in millions)
------------------
<S> <C>
Balance Sheet Data:
Working capital ................................................................................................. $ 76.5
Total assets .................................................................................................... 267.7
Total debt ...................................................................................................... 138.8
Shareholders' equity ............................................................................................ 14.3
</TABLE>
(footnotes on following page)
9
<PAGE>
- ----------------
(1) Income (loss) from operations includes expenses incurred during the
Fennimore Expansion (as defined herein) and the Recapitalization and other
special charges in fiscal 1994, the Transition Period ended September 30,
1996, the fiscal year ended September 30, 1997 and the three months ended
December 28, 1996 and December 27, 1997. Income from operations before
these non-recurring charges was as follows:
<TABLE>
<CAPTION>
Transition Twelve Fiscal Three Months
Fiscal Year Ended June 30, Period Months Year Ended
------------------------------------- Ended Ended Ended ---------------------
September September September December December
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997 28, 1996 27, 1997
------- -------- --------- ---------- ------------ ----------- ---------- ---------- ---------
(In millions)
<S> <C> <C> <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 $ 11.7 $ 18.6
Fennimore Expansion .............. -- 9.5 -- -- -- -- -- -- --
Recapitalization and other
special charges (income) ........ -- 1.5 -- -- 28.4 28.4 3.0 3.0 ( 1.2)
------ ------ ------ ------ ------- ------- ------- ------- -------
Income from operations before
non-recurring charges ........... $ 31.2 $ 21.9 $ 31.5 $ 30.3 $ 4.7 $ 27.0 $ 37.5 $ 14.7 $ 17.4
====== ====== ====== ====== ======= ======= ======= ======= =======
</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, 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) In the three months ended December 27, 1997, the Company recorded
additional income of $1.2 million in connection with the buyout of
deferred compensation agreements with certain former employees.
(6) 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. In the three months ended
December 27, 1997, the Company recorded extraordinary expense of $2.0
million net of income taxes for the premium on the repurchase or
redemption of the Notes from the proceeds of the IPO.
(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.
EBITDA includes expenses incurred during the Fennimore Expansion (as
defined herein) and the Recapitalization and other special charges in fiscal
1994, the Transition Period ended September 30, 1996, the fiscal year
ended September 30, 1997 and the three months ended December 28, 1996 and
December 27, 1997. EBITDA before these non-recurring charges was as
follows:
<TABLE>
<CAPTION>
Transition Twelve Fiscal Three Months
Fiscal Year Ended June 30, Period Months Year Ended
------------------------------------ Ended Ended Ended ---------------------
September September September December December
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997 28, 1996 27, 1997
------- -------- -------- ---------- ------------ ----------- ---------- ---------- ---------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA ........................ $ 39.3 $ 21.2 $ 41.3 $ 42.2 $ (20.4) $ 10.7 $ 45.8 $ 14.8 $ 21.4
Fennimore Expansion ........... -- 9.5 -- -- -- -- -- -- --
Recapitalization and other
special charges (income) ..... -- 1.5 -- -- 28.4 28.4 3.0 3.0 ( 1.2)
------ ------- ------ ------ ------- ------- ------- ------- -------
EBITDA before non-recurring
charges ...................... $ 39.3 $ 32.2 $ 41.3 $ 42.2 $ 8.0 $ 39.1 $ 48.5 $ 17.8 $ 20.2
====== ======= ====== ====== ======= ======= ======= ======= =======
</TABLE>
10
<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.
In February 1998, Duracell announced the introduction of a new line of
alkaline batteries under the name Duracell Ultra in the AA and AAA size
category which is being marketed as providing increased performance in certain
high-tech devices, including cellular phones, digital cameras and palm-sized
computers. Duracell has indicated that this new line of alkaline battery will
begin shipping to retailers in May 1998. There can be no assurance that there
will not be a reduction in purchases of the Company's products by consumers or
certain key customers of the Company as a result of competition from this new
alkaline battery line, which could have a material adverse effect on the
Company's business, financial condition or results of operations.
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."
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, including integration of information systems, as well as other
difficulties which may be encountered in the transition and integration
process, including but not limited to the integration of Brisco, DPP and Best
Labs, 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.
11
<PAGE>
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 their impact on the Company at this time), the Company
does not believe that any of its pending CERCLA or 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."
12
<PAGE>
Substantial Leverage
As of December 27, 1997, the Company had total indebtedness of $138.8
million and total shareholders' equity of $14.3 million. Subject to the
restrictions contained in the Company's Amended Credit Agreement 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 Amended 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.
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 $7.5 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
13
<PAGE>
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 or its licensors will be adequate to prevent misappropriation of
their 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 or its licensors 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 or its
licensors 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, Thomas H. Lee Equity Fund III, L.P.
("THL Fund") and certain other affiliates of Thomas H. Lee Company ("THL Co.";
the THL Fund and such other affiliates being referred to herein as "THL Group")
will beneficially own 41.4% of the Company's outstanding Common Stock (38.7% if
the Underwriters' over-allotment options are exercised in full). Consequently,
THL Group will exercise significant control over the Company and in electing
the board of directors of the Company (the "Board of Directors") and approving
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 "Principal and Selling Shareholders." 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 materially adversely
affect prevailing market prices for the Common Stock. Upon completion of the
Offerings, the Company will have outstanding 27,439,238 shares of Common Stock,
excluding 2,236,127 shares of Common Stock which have been granted under the
Company's stock incentive plans. Of these shares, the 7,827,507 shares of
Common Stock previously sold in the Company's initial public offering of Common
Stock in November 1997 (the "IPO") and the 6,500,000 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, the Selling Shareholders, certain existing shareholders,
the Company, its executive officers and directors and the
14
<PAGE>
THL Group (holding an aggregate of approximately 13.7 million shares of Common
Stock upon consummation of the Offerings) have agreed, subject to certain
exceptions, not to dispose of any shares of Common Stock for a period of 90
days from the date of the Offerings (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.
Following the consummation of the Offerings, the THL Group will hold
approximately 11.4 million 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 THL Group
and their permitted transferees own in the aggregate at least 10% of the shares
acquired in the Recapitalization, the THL 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. These
Offerings are made pursuant to the provisions of the Shareholders Agreement.
Following these Offerings, the THL 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 THL 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 THL
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 THL Group
are subject to the Lockup Period referred to in the preceding paragraph. See
"Shares Eligible for Future Sale."
Anti-Takeover and Other Provisions of Wisconsin Law
Certain provisions of the Company's Amended and Restated Articles of
Incorporation, the Amended and Restated By-laws (the "By-laws") 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 the Company with respect
to unpaid wages under certain circumstances.
15
<PAGE>
THE RECAPITALIZATION
Effective as of September 12, 1996, the Company, all of the shareholders
of the Company, the THL 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 THL 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) 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 Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "ROV." The Common Stock commenced public trading on November 21,
1997. On March 26, 1998, the outstanding shares of Common Stock were held of
record by 280 shareholders based upon data provided by the transfer agent for
the Common Stock. The following table sets forth the reported high and low
prices per share of the Common Stock as reported on the New York Stock Exchange
Composite Transaction Tape for the fiscal periods indicated:
<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
Fiscal 1998
- ------------------------------------------------------------------
Quarter ended December 27, 1997 (from November 21, 1997) ......... $17-3/4 $15-1/2
Quarter ended March 28, 1998 ..................................... $24-1/2 $16-3/4
Current quarter (to March 31, 1998) .............................. $24-1/2 $22-1/2
</TABLE>
On March 31, 1998, the closing price of the Common Stock on the New York
Stock Exchange Composite Transaction Tape was $23-9/16 per share.
The Company has not declared or paid and 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 Amended 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.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 27, 1997. 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 December 27, 1997
------------------------
(Dollars in millions)
<S> <C>
Debt:
Revolver Facility(1) ........................................ $ --
Acquisition Facility(1) ..................................... --
Term Loan Facility(1) ....................................... 36.0
Notes(1) .................................................... 100.0
Capitalized leases and foreign currency borrowings .......... 2.8
--------
Total Debt ................................................. 138.8
--------
Shareholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares issued and outstanding(2) ....................... --
Common stock, $.01 par value, 150,000,000 shares authorized;
27,432,238 shares outstanding ............................. 0.6
Additional paid in capital .................................. 103.6
Foreign currency translation ................................ 2.9
Notes receivable from officers/shareholders ................. ( 1.3)
Retained earnings ........................................... 37.9
Less stock held in trust .................................... ( 1.0)
Less treasury stock, at cost, 29,418,569 shares ............. (128.4)
--------
Total shareholders' equity ................................. 14.3
--------
Total capitalization ...................................... $ 153.1
========
</TABLE>
- ----------------
(1) On December 30, 1997, the Company repurchased $35.0 million of the Notes
from a portion of the proceeds of the IPO. In addition, all of the
Company's senior term debt was replaced by revolver debt under the
Revolver Facility. Pro forma for these transactions, the amounts
outstanding under the Revolver Facility and the Notes would have been
$71.0 million and $65.0 million, respectively. For a description of the
Revolver Facility and the Acquisition Facility, see "Description of
Certain Indebtedness--The Amended Credit Agreement." Total availability
under the Revolver Facility is $90.0 million. Total availability under the
Acquisition Facility is $70.0 million.
(2) 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.
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 and the
three months ended December 28, 1996 and December 27, 1997 are 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,
which policy was adopted as of September 30, 1997. 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 $11.9 million for the three
months ended December 28, 1996. The Company believes that this reclassification
is consistent with the method used by other consumer products companies.
18
<PAGE>
<TABLE>
<CAPTION>
Transition Twelve Fiscal
Fiscal Year Ended June 30, Period Months Year Three Months Ended
--------------------------------------- Ended Ended Ended ----------------------
September September September December December
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997 28, 1996 27, 1997
-------- ------- --------- -------- --------- ---------- ----------- ----------- -----------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ....................... $372.4 $403.7 $ 415.2 $ 423.4 $101.9 $ 417.9 $ 432.6 $ 141.9 $ 150.0
Cost of goods sold .............. 201.4 234.9 237.1 239.4 59.3 237.9 234.6 79.0 77.4
------ ------ ------- ------- ----- ------- ------ ------- -------
Gross profit .................... 171.0 168.8 178.1 184.0 42.6 180.0 198.0 62.9 72.6
Selling expense ................. 98.8 121.3 108.7 116.5 27.8 114.4 122.1 38.7 45.5
General and administrative
expense ........................ 35.4 29.4 32.9 31.8 8.6 33.0 32.2 7.6 8.2
Research and development
expense ........................ 5.6 5.7 5.0 5.4 1.5 5.6 6.2 1.9 1.5
Recapitalization and other
special charges(1)(2)(3) ....... -- 1.5 -- -- 28.4 28.4 3.0 3.0 (1.2)
------- ------ -------- -------- ----- ------- ------ ------- --------
Income (loss) from
operations(4)(5) ............... 31.2 10.9 31.5 30.3 (23.7) (1.4) 34.5 11.7 18.6
Interest expense ................ 6.0 7.7 8.6 8.4 4.4 10.5 24.5 8.0 5.0
Other expense (income), net ..... 1.2 (0.6) 0.3 0.6 0.1 0.5 0.4 (.1) (.2)
------- ------- -------- -------- ------ -------- ------ -------- --------
Income (loss) before income
taxes and extraordinary item.... 24.0 3.8 22.6 21.3 (28.2) (12.4) 9.6 3.8 13.8
Income tax expense (benefit) .... 9.0 (0.6) 6.2 7.0 (8.9) (3.8) 3.4 1.4 5.3
------- ------- -------- -------- ------ -------- ------ -------- --------
Income (loss) before
extraordinary item ............. 15.0 4.4 16.4 14.3 (19.3) (8.6) 6.2 2.4 8.5
Extraordinary item(6) ........... -- -- -- -- (1.6) (1.6) -- -- 2.0
------- ------- -------- -------- ------ -------- ------- -------- --------
Net income (loss) ............... $ 15.0 $ 4.4 $ 16.4 $ 14.3 $(20.9) $ (10.2) $ 6.2 $ 2.4 $ 6.6
======= ======= ======== ======== ====== ======== ======= ======== ========
Basic net income (loss) per
common share before
extraordinary item ............. $ 0.30 $ 0.09 $ 0.33 $ 0.29 $(0.44) $ (0.18) $ 0.30 $ 0.12 $ 0.36
======= ======= ======== ======== ======= ======== ======= ======== ========
Diluted net income (loss) per
common share before
extraordinary item ............. $ 0.30 $ 0.09 $ 0.33 $ 0.29 $(0.44) $ (0.18) $ 0.30 $ 0.12 $ 0.34
======= ======= ======== ======== ======= ======== ======= ======== ========
Basic net income (loss) per
common share ................... $ 0.30 $ 0.09 $ 0.33 $ 0.29 $(0.48) $ (0.21) $ 0.30 $ 0.12 $ 0.28
======= ======= ======== ======== ======= ======== ======= ======== ========
Diluted Net income (loss) per
common share ................... $ 0.30 $ 0.09 $ 0.33 $ 0.29 $(0.48) $ (0.21) $ 0.30 $ 0.12 $ 0.26
======= ======= ======== ======== ======= ======== ======= ======== ========
Weighted average common
shares ......................... 50.0 50.0 50.0 49.6 43.8 48.1 20.5 20.5 23.5
Weighted average common and
common equivalent shares ....... 50.0 50.0 50.0 49.6 43.8 48.1 20.6 20.5 24.8
Other Financial Data:
Depreciation .................... $ 7.4 $ 10.3 $ 11.0 $ 11.9 $ 3.3 $ 12.1 $ 11.3 $ 3.1 $ 2.8
Capital expenditures(7) ......... 30.3 12.5 16.9 6.6 1.2 8.4 10.9 1.1 1.8
Cash flows from operating
activities ..................... 15.8 (18.7) 35.5 17.8 (1.1) 26.0 35.7 20.5 1.7
EBITDA(8) ....................... 39.3 21.2 41.3 42.2 (20.4) 10.7 45.8 14.8 21.4
Balance Sheet Data:
Working capital ................. $ 31.6 $ 63.6 $ 55.9 $ 63.2 $ 64.6 $ 64.6 $ 33.8 $ 49.0 $ 76.5
Total assets .................... 189.0 222.4 220.6 221.1 243.7 243.7 236.9 234.6 267.7
Total debt ...................... 74.1 109.0 88.3 81.3 233.7 233.7 207.3 214.9 138.8
Shareholders' equity (deficit) .. 36.7 37.9 53.6 61.6 (85.7) (85.7) (80.6) ( 82.3) 14.3
</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) In the three months ended December 27, 1997, the Company recorded
additional income of $1.2 million in connection with the buyout of
deferred compensation agreements with certain former employees.
(4) Income (loss) from operations includes expenses incurred during the
Fennimore Expansion and the Recapitalization and other special charges in
fiscal 1994, the Transition Period ended September 30, 1996, the fiscal
year ended September 30, 1997 and the three months ended December 28, 1996
and December 27, 1997. Income from operations before these non-recurring
charges was as follows:
<TABLE>
<CAPTION>
Transition Twelve Fiscal Three Months
Fiscal Year Ended June 30, Period Months Year Ended
-------------------------------------- Ended Ended Ended --------------------
September September September December December
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997 28, 1996 27, 1997
------- ------- --------- ---------- ------------ ----------- ----------- ---------- ---------
(In millions)
<S> <C> <C> <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 $ 11.7 $ 18.6
Fennimore Expansion .......... -- 9.5 -- -- -- -- -- -- --
Recapitalization and other
special charges ............. -- 1.5 -- -- 28.4 28.4 3.0 3.0 ( 1.2)
------ ------ ------ ------ ------- ------- ------- ------- -------
Income from operations
before non-recurring
charges ..................... $ 31.2 $ 21.9 $ 31.5 $ 30.3 $ 4.7 $ 27.0 $ 37.5 $ 14.7 $ 17.4
====== ====== ====== ====== ======= ======= ======= ======= =======
</TABLE>
(5) Income from operations in fiscal 1994 was impacted by increased selling
expenses due to higher advertising and promotion expenses related to the
Renewal Introduction. 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."
(6) 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
Consolidated Statement of Operations for the Transition Period ended
September 30, 1996. In the three months ended December 27, 1997, the
Company recorded extraordinary expense of $2.0 million net of income taxes
for the premium on the repurchase or redemption of the senior term notes
in connection with the IPO.
(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."
(footnotes continued on following page)
20
<PAGE>
-------------------
(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 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.
EBITDA includes expenses incurred during the Fennimore Expansion (as
defined herein) and the Recapitalization and other special charges in
fiscal 1994, the Transition Period ended September 30, 1996, the fiscal
year ended September 30, 1997 and the three months ended December 28,
1996 and December 27, 1997. EBITDA before these non-recurring charges
was as follows:
<TABLE>
<CAPTION>
Transition Twelve Fiscal Three Months
Fiscal Year Ended June 30, Period Months Year Ended
------------------------------------------ Ended Ended Ended ---------------------
September September September December December
1993 1994 1995 1996 30, 1996 30, 1996 30, 1997 28, 1996 27, 1997
--------- ---------- ---------- ---------- ------------ ----------- ----------- ---------- ---------
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA ..................... $ 39.3 $ 21.2 $ 41.3 $ 42.2 $ (20.4) $ (10.7) $ 45.8 $ 14.8 $ 21.4
Fennimore Expansion ........ -- 9.5 -- -- -- -- -- -- --
Recapitalization and other
special charges
(income) .................. -- 1.5 -- -- 28.4 28.4 3.0 3.0 ( 1.2)
------ ------- ------ ------ ------- ------- ------- ------- -------
EBITDA before non-
recurring charges ........ $ 39.3 $ 32.2 $ 41.3 $ 42.2 $ 8.0 $ 39.1 $ 48.5 $ 17.8 $ 20.2
====== ======= ====== ====== ======= ======= ======= ======= =======
</TABLE>
21
<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.
Restructuring of Operations and Other Cost Rationalization Initiatives. In
March 1998, the Company announced restructuring plans for its domestic and
international operations designed to maximize production and capacity
efficiencies, reduce fixed costs, upgrade existing technology and equipment and
improve customer service. Major elements of the restructuring include (i)
consolidating the Company's packaging operations, (ii) outsourcing the
manufacture of heavy duty batteries, and (iii) closing certain of the Company's
existing manufacturing, packaging and distribution facilities. The Company will
record a charge of $7.5 million in the second quarter of the current fiscal
year in connection with the restructuring program and expects to record an
additional $2.0 million of costs in subsequent periods. The Company anticipates
annual aggregate cost savings of the restructuring program, after full
implementation (currently expected in early 1999), to be approximately $5.0
million.
The restructuring is in addition to prior actions taken by the Company
following the Recapitalization to rationalize the Company's manufacturing,
distribution and general overhead costs, which resulted in cash costs of
approximately $6.3 million for fiscal 1996 and fiscal 1997 and which the
Company estimates to have an annual savings of approximately $8.6 million.
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 include
(i) introducing the Company's existing hearing aid products into new markets,
including through the acquisition of Brisco and Best Labs; (ii) broadening the
Company's offering of specialty products, including through the acquisition of
DPP; (iii) expanding distribution into new channels such as electronics
specialty stores; (iv) further penetrating existing distribution channels such
as warehouse clubs and food and convenience stores; and (v) evaluating
opportunities for expansion of the Company's core business into international
markets, whether through acquisitions, joint ventures or other strategic
marketing opportunities. See "Business--Growth Strategy."
Expansion of Production Capacity. In March 1998, the Company agreed to
purchase from Matsushita a new high speed alkaline battery manufacturing
production line for its Fennimore, Wisconsin plant, at which the Company
manufactures all of its alkaline products. The new high speed manufacturing
line is anticipated to increase the Company's production capacity for AA size
batteries by up to 50%. The recent investment in manufacturing technology and
production capacity follows the Fennimore Expansion (as defined herein),
pursuant to which, 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 plant (the "Fennimore Expansion"). 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
22
<PAGE>
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 certain 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 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. In addition, the
Company is focused on growing Renewal's market share by expanding distribution
into new channels such as electronics specialty stores and other speciality
retailers in the domestic market.
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 completed 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,
1995 1996 1996 1996
-------------- ----------- ---------- ---------------
(In millions)
<S> <C> <C> <C> <C>
Net sales ......... $ 140.9 $ 80.5 $ 94.6 $ 101.9
<CAPTION>
Fiscal Quarter Ended
-------------------------------------------------------------------
December 28, March 29, June 29, September 30, December 27,
1996 1997 1997 1997 1997
-------------- ----------- ---------- --------------- -------------
(In millions)
<S> <C> <C> <C> <C> <C>
Net sales ......... $ 141.9 $ 83.6 $ 95.5 $ 111.5 $ 150.0
</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, which
policy was adopted as of September 30, 1997. The amounts which have been
reclassified are $19.0 million, $17.5 million, $24.2 million and $24.0 million
for the years ended June 30, 1993, 1994, 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 $11.9 million for the three months ended December
28, 1996. The Company believes that this reclassification is consistent with
the method used by other consumer products companies.
23
<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>
Fiscal Year Transition Three Months
Ended Three Months Period Twelve Months Fiscal Year Ended
--------------------- Ended Ended Ended Ended -----------------------
June 30, June 30, September September September September December December
1995 1996 30, 1995 30, 1996 30, 1996 30, 1997 28, 1996 27, 1997
---------- ---------- -------------- ----------- --------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .................. 100.0% 100.0% 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 55.7 51.6
----- ----- ----- ------ ------ ----- ----- -----
Gross profit ............... 42.9 43.5 40.3 41.8 43.1 45.8 44.3 48.4
Selling expense ............ 26.2 27.5 27.9 27.3 27.4 28.2 27.3 30.3
General and
administrative expense..... 7.9 7.5 6.9 8.4 7.9 7.5 5.4 5.5
Research and
development expense ....... 1.2 1.3 1.2 1.5 1.3 1.4 1.3 1.0
Recapitalization and other
special charges ........... -- -- -- 27.9 6.8 0.7 2.1 ( 0.8)
----- ----- ----- ------ ------ ----- ----- -----
Income (loss) from
operations ................ 7.6% 7.2% 4.3% (23.3%) ( 0.3%) 8.0% 8.2% 12.4%
</TABLE>
Three Months Ended December 27, 1997 Compared to Three Months Ended December
28, 1996
Net Sales. The Company's net sales increased $8.1 million, or 5.7%, to
$150.0 million in the three months ended December 27, 1997 (the "1998 Fiscal
Quarter"), from $141.9 million in the three months ended December 28, 1996 (the
"1997 Fiscal Quarter"), primarily due to increased sales of general battery
products somewhat offset by decreased sales of lighting products. During the
1998 Fiscal Quarter, the Company's net sales included $0.7 million of hearing
aid battery sales related to the November 1997 acquisition of Brisco, a
distributor in Germany and Holland.
Within general batteries, alkaline battery sales in the 1998 Fiscal
Quarter exceeded the 1997 Fiscal Quarter by approximately 19% due primarily to
strong promotional programs during the Christmas season, a price increase
implemented in the summer of 1997, and sales to new customers. This was
partially offset by decreased sales of heavy duty batteries attributed to
reduced promotional activity and the continuing decline in the domestic market
for heavy duty batteries.
Sales of lighting products were unfavorably impacted as several seasonal
promotions in the prior year were not repeated in 1997.
Gross Profit. Gross profit increased $9.7 million, or 15.4%, to
approximately $72.6 million in the 1998 Fiscal Quarter, from $62.9 million in
the 1997 Fiscal Quarter, primarily as a result of increased sales of alkaline
batteries. Gross profit increased as a percentage of net sales to 48.4% in the
1998 Fiscal Quarter from 44.3% in the 1997 Fiscal Quarter due primarily to a
shift toward higher margin alkaline sales. Gross profit margins also benefitted
from the price increase implemented in mid-1997.
Selling Expense. Selling expense increased $6.8 million, or 17.6%, to
$45.5 million in the 1998 Fiscal Quarter from $38.7 million in the 1997 Fiscal
Quarter. Selling expense increased as a percentage of net sales to 30.3% in the
1998 Fiscal Quarter from 27.3% in the 1997 Fiscal Quarter primarily as a result
of increased advertising and promotional spending.
General and Administrative Expense. General and administrative expense
increased $0.7 million, or 9.2%, to $8.3 million in the 1998 Fiscal Quarter
from $7.6 million in the 1997 Fiscal Quarter, primarily due to higher costs
associated with information system improvements worldwide.
Research and Development Expense. Research and development expense
decreased $0.4 million to $1.5 million in the 1998 Fiscal Quarter from $1.9
million in the 1997 Fiscal Quarter. This decrease was primarily a result of the
increased resources assigned in the 1997 Fiscal Quarter to the development of
an on-the-label battery tester which management decided not to introduce.
Other Special Charges and Income. In the 1998 Fiscal Quarter, the Company
recorded additional income of $1.2 million in connection with the buyout of
deferred compensation agreements with certain former employees. In the 1997
Fiscal Quarter, the Company recorded charges of $3.0 million in connection with
an organizational
24
<PAGE>
restructuring in the United States and the discontinuation of certain
manufacturing operations in the United Kingdom.
Income from Operations. Income from operations increased $6.9 million, or
59.0%, to $18.6 million in the 1998 Fiscal Quarter from $11.7 million in the
1997 Fiscal Quarter due primarily to increased gross profit on the increased
net sales and the other special charges in the 1997 Fiscal Quarter and the
other income in the 1998 Fiscal Quarter which was partially offset by increased
operating expenses in the areas of advertising and promotion expense.
Interest Expense. Interest expense in the 1998 Fiscal Quarter decreased
$3.0 million, or 37.5%, to $5.0 million from $8.0 million in the 1997 Fiscal
Quarter primarily as a result of decreased indebtedness due to the application
of the proceeds of the Company's IPO toward debt reduction, and the write-off,
in the 1997 Fiscal Quarter, of $2.0 million of unamortized debt issuance costs.
Extraordinary Item. In the 1998 Fiscal Quarter the Company recorded
extraordinary expense of $2.0 million net of income taxes for the premium on
the repurchase or redemption of a portion of the Notes in connection with the
IPO.
Net Income. Net income for the 1998 Fiscal Quarter increased $4.2 million,
or 175.0%, to $6.6 million from $2.4 million in the 1997 Fiscal Quarter as
discussed above. Diluted earnings per share for the 1998 Fiscal Quarter
increased $0.15 per share to $0.27 per share. The Company's effective tax rate
for the 1998 Fiscal Quarter was 38.2% compared to 36.7% for the 1997 Fiscal
Quarter due primarily to increased foreign taxes for the 1998 Fiscal Quarter
that are subject to foreign tax credit limitations.
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
25
<PAGE>
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.
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, 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.
26
<PAGE>
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 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.
27
<PAGE>
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 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 certain 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
28
<PAGE>
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.
Recapitalization and Other Special Charges. During the Transition Period
ended September 30, 1996, the Company recorded charges totaling $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 certain 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.
29
<PAGE>
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 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
Net cash provided by operating activities was $1.7 million in the three
months ended December 27, 1997 as compared to $20.5 million in the three months
ended December 28, 1996. The decrease was due to higher levels of receivables
and inventories, partially offset by higher net income and lower depreciation
and amortization.
Capital expenditures during the three months ended December 27, 1997, were
$1.8 million, an increase of $0.7 million from $1.1 million in the 1997 Fiscal
Quarter reflecting maintenance level spending. In addition, the Company
expended $4.9 million in connection with acquisitions in fiscal 1998.
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 implementation of the new computer systems in
fiscal 1998 which is expected to be substantially completed by mid-1999.
The Company currently expects an increase in capital expenditures to
approximately $18.0 million in fiscal 1998 due to alkaline capacity expansion,
alkaline vertical integration programs, and continued spending on new computer
information systems. 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. On December 30, 1997, the Credit Agreement dated
September 12, 1996, was amended. The Amended Credit Agreement provides for more
favorable borrowing costs and covenants consistent with the Company's improved
credit position resulting from the paydown of debt with the net proceeds of the
IPO. The Amended Credit Agreement includes a five-year reducing Revolver
Facility of $90.0 million and a five-year amortizing Acquisition Facility of
$70.0 million. The Revolver Facility is reduced by $10.0, $15.0 and $15.0
million respectively on December 31, 1999, 2000 and 2001 and expires on
December 31, 2002. The Acquisition Facility provides up to $70.0 million in
loans for qualifying acquisitions during a one-year commitment period expiring
December 31, 1998. Debt obtained under the Acquisition Facility is subject to
quarterly amortization commencing March 31, 1999 through December 31, 2002. As
of March 28, 1998, $56.1 million was outstanding on the Revolver Facility, with
approximately $5.8 million utilized for outstanding letters of credit, and $4.2
was outstanding under the Acquisition Facility. See "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
30
<PAGE>
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 March 28, 1998 had reserved $1.7 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 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.
Computer Systems Upgrade
The Company is in the process of implementing its enterprise-wide,
integrated information system upgrade. The SAP system is also expected to
substantially address the Year 2000 issue. Management currently expects to
substantially complete implementation of the upgrade in mid-1999 and to spend
an estimated additional $1.0 million on Year 2000 issues. The Company presently
believes that with modifications to existing software and converting to new
software, the Year 2000 issue will not pose significant operational problems
for the Company's computer systems. However, there can be no assurance that
unforeseen difficulties will not arise for any of the Company, its customers or
vendors and that related costs will not thereby be incurred.
Impact of Recently Issued Accounting Standards
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.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits ("FAS No. 132"), which standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable. FAS No. 132 is effective for fiscal years beginning after December
15, 1997. Restatement of disclosures for earlier periods provided for
comparative purposes is required unless the information is not readily
available. The Company is evaluating the effect of this pronouncement on its
consolidated financial statements.
31
<PAGE>
BUSINESS
General
The Company is the leading value brand and the third largest domestic
manufacturer of general batteries, and is the leading worldwide manufacturer of
hearing aid batteries. The Company is also the leading domestic manufacturer of
rechargeable household batteries and certain other specialty batteries,
including lantern batteries. In addition, the Company is a leading marketer of
heavy duty batteries and battery-powered lighting products and also markets
rechargeable batteries for cellular phones and video camcorders. 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) continuous 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 and warehouse clubs; food,
drug and convenience stores; electronics specialty stores and department
stores; hardware and automotive centers; specialty retailers; hearing aid
professionals; and industrial and government/OEM. The Company markets all of
its branded products under the Rayovac[RegTM] name and selected products under
sub-brand names such as MAXIMUM[TM], Renewal[RegTM], Loud'n Clear[RegTM],
ProLine[RegTM], Lifex[TM], Power Station[RegTM], Workhorse[RegTM], and
Roughneck[RegTM].
Business Strategy
In September 1996, pursuant to the Recapitalization, affiliates of 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 increasing training and education, upgrading information
systems, 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, experienced
senior managers have been 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; Stephen P. Shanesy,
Senior Vice President of Marketing and General Manager of General Batteries and
Lights; and Randall J. Steward, Senior Vice President of Corporate Development.
The new senior managers have over 75 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 nine executive officers of the
Company will beneficially own 9.7% of the outstanding Common Stock (without
giving effect to the Underwriters' over-allotment options) on a fully diluted
basis.
Restructured Operations. In March 1998, the Company announced
restructuring plans for its domestic and international operations designed to
maximize production and capacity efficiencies, reduce fixed costs, upgrade
existing technology and equipment, and improve customer service. Major elements
of the restructuring include (i) consolidating the Company's packaging
operations, (ii) outsourcing manufacturing of heavy duty batteries, and (iii)
closing certain of the Company's existing manufacturing, packaging and
distribution facilities. The Company will record a charge of $7.5 million in
the second quarter of the current fiscal year in connection with the
restructuring program and expects to record an additional $2.0 million of costs
in subsequent periods. The Company currently
32
<PAGE>
anticipates annual aggregate cost savings of the restructuring program, after
full implementation (currently expected in early 1999), to be approximately
$5.0 million.
The restructuring further implements actions taken by the Company
following the Recapitalization to rationalize manufacturing and other costs,
including (i) consolidating certain manufacturing operations at the Company's
facilities and closing other facilities; (ii) sourcing some products previously
manufactured by the Company; (iii) implementing a significant organizational
restructuring and additional measures to rationalize manufacturing,
distribution and overhead costs; and (iv) eliminating costs associated with the
use of a corporate aircraft. The Company estimates the annual aggregate cost
savings associated with these earlier actions at approximately $8.6 million.
The Company believes that its current manufacturing capacity remains sufficient
to meet its anticipated production requirements for the foreseeable future.
Reorganized Sales, Marketing and Administration by Distribution
Channel. Rayovac has realigned its marketing department, sales organization,
supply chain and support functions to better serve the diverse customer needs
within major distribution channels. Customer-focused teams are now organized to
serve the following distribution channels: mass merchandisers and warehouse
clubs; food, drug and convenience stores; electronics specialty stores and
department stores; hardware and automotive centers; specialty retailers;
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
continues to implement broad new marketing initiatives designed to reinvigorate
the Rayovac brand name. Major steps completed to date include (i) selecting
Young & Rubicam as the Company's new advertising agency and developing its
first major national advertising campaign for its full line of general
batteries, (ii) launching a new and improved alkaline product line under the
MAXIMUM[TM] sub-brand, (iii) redesigning all product graphics and packaging to
convey a high-quality image and emphasize the Rayovac brand name, (iv)
extending the Company's existing contract with Michael Jordan to include his
representation for all Rayovac products, and (v) restructuring the Company's
sales representative network along distribution channels.
Reorganized Information Systems. The Company has completed an initial
overhaul of its information systems by (i) hiring an experienced Chief
Information Officer, (ii) outsourcing mainframe computer operations, (iii)
completing an enterprise software system analysis, and (iv) retaining outside
consultants 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 mid-1999. When fully implemented, this system, along with efforts
by the Company's internal project team, is expected to reduce cycle times,
lower manufacturing and administrative costs, improve both asset and employee
productivity and substantially address the Year 2000 issue.
Growth Strategy
Rayovac believes it has significant growth opportunities in its businesses
and has developed strategies to increase sales, profits and market share. Key
elements of the Company's growth strategy are as follows:
Reinvigorate the Rayovac Brand Name. The Company is committed to
reinvigorating the Rayovac brand name after many years of underdevelopment. 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 has initiated an integrated
advertising campaign using significantly higher levels of TV and print media.
In 1997, the Company launched a reformulated alkaline battery, Rayovac
MAXIMUM[TM], supported by new graphics, new packaging, a new advertising
campaign, and aggressive introductory retail promotions. The Company's
marketing and advertising initiatives are designed to increase awareness of the
Rayovac brand and to increase retail sales by heightening customers'
perceptions of the quality, performance and value of Rayovac products.
33
<PAGE>
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 to appeal 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 44%
of industry sales growth in the domestic alkaline battery market on a unit
basis over the past five years and has achieved a 19% unit share. The Company
believes its value brand positioned products and innovative merchandising
programs also make it an attractive supplier to other retail channels, which
represent a market of $1.7 billion or 69% of the general battery market. 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) offering a selection of products with high sell-through, and
(iv) utilizing more aggressive and channel specific promotional programs. The
Company believes that these initiatives have resulted in significant success
over the past fiscal year in gaining access to new accounts and expanding
product offerings to existing accounts and the Company intends to continue to
pursue these strategies.
Further Capitalize on Worldwide Leadership in Hearing Aid Batteries. The
Company seeks to increase its 52% 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 dedicated 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 also markets large
multi-packs of hearing aid batteries which have rapidly gained consumer favor.
In November 1997, the Company acquired Brisco, which packages and distributes
hearing aid batteries in customized packaging to hearing health care
professionals in Germany and Holland as well as other European countries. The
Company believes that the Brisco acquisition will enable the company to further
penetrate European markets for hearing aid batteries.
Develop New Markets. The Company intends to expand its business into new
markets for batteries and related products both domestically and
internationally by developing new products internally or selective
acquisitions. These acquisitions may focus on expansion into new technologies,
product lines or geographic markets and may be of significant size. In March
1998, the Company acquired the retail portion of the business of DPP, a full
line marketer of rechargeable batteries and accessories for cellular phones and
video camcorders. In conjunction with the acquisition of DPP, the Company has
announced the launch of a new line of rechargeable batteries for cordless
telephones. The Company may also pursue joint ventures or other strategic
marketing opportunities where appropriate to expand its markets or product
offerings. See "Risk Factors--Risks Associated with Future Acquisitions."
Introduce New Niche Products. The Company has developed leading positions
in several important niche markets, including those for lantern batteries and
lithium coin cells. The Company intends to continue selectively pursuing
opportunities to exploit under-served niche markets and to enter high-growth
specialty battery markets. In 1997, the Company entered the market for photo
and keyless entry batteries and recently introduced a line of products to
service the medical instrument and health services markets. In the lighting
products segment, where market share is driven by new product introductions,
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.
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 68% market share of the rechargeable household
battery market through mass merchandisers, food and drug stores for the 52
weeks ended February 14, 1998. Since the Recapitalization, management has
lowered the price of Renewal rechargers by 33% to encourage consumers to
purchase the system and promoted Renewal's 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.
The Company has focused
34
<PAGE>
sale efforts for this product in distribution channels which the Company
believes to be more suited for this product and has recently begun shipments to
Radio Shack.
Battery Industry
The U.S. battery industry had aggregate sales in 1997 of approximately
$4.3 billion as set forth below.
1997 U.S. Battery Industry Sales (In billions)
Retail:
General ................................ $ 2.4
Hearing aid ............................ 0.2
Other specialty ........................ 0.9
Industrial, OEM and Government ......... 0.8
------
Total .................................. $ 4.3
======
As set forth below, this segment has experienced steady growth, with
compound annual unit sales growth since 1990 of 4%.
RETAIL GENERAL BATTERY MARKET
Total Retail General Batteries
------------------------------
[LINE CHART DATA]
Dollars Units
(Millions) (Millions)
1990 1834 2225
1991 1912 2358
1992 2003 2543
1993 2099 2715
1994 2192 2910
1995 2316 3071
1996 2395 3156
1997 2431 3246
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 calendar 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 1997. 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 36 batteries per year in 1997.
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 66% of the total increase in
general battery retail dollar sales from 1993 through 1997 and, together with
warehouse clubs, accounted for 41% of total retail battery sales in 1997.
In 1997, U.S. and worldwide retail sales of hearing aid batteries were
approximately $219 million and $565 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.
35
<PAGE>
Other markets in which the Company operates include those for replacement
watch and calculator batteries, which had worldwide sales of approximately $924
million in 1997, photo batteries, which had worldwide sales of approximately
$660 million in 1997 and lithium coin cells, which had worldwide sales of
approximately $56 million in 1997.
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, memory back-up batteries,
rechargeable batteries for cordless telephones and rechargeable batteries,
battery chargers and accessories for cellular phones and camcorders) 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, fiscal 1997 and three months
ended December 28, 1996 and December 27, 1997 are set forth below.
<TABLE>
<CAPTION>
Percentage of Company Net Sales
--------------------------------------------------------------------------------------------
Transition
Period Fiscal Year
Fiscal Year Ended Ended
Ended June 30, September 30, September 30, Three Months Ended
--------------------- --------------- --------------- --------------------------------------
1995 1996 1996 1997 December 28, 1996 December 27, 1997
Product Type ---------- ---------- --------------- --------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Battery Products:
Alkaline ...................... 43.4% 43.6% 41.4% 45.0% 49.7% 55.8%
Heavy Duty .................... 14.1 12.2 12.7 10.4 12.2 9.4
Rechargeable Batteries ........ 5.6 7.1 5.1 5.5 5.6 4.7
Hearing Aid ................... 12.7 14.6 14.3 14.8 10.7 11.4
Other Specialty Batteries ..... 10.0 8.6 10.1 9.8 8.1 6.3
----- ----- ----- ----- ----- -----
Total ....................... 85.8 86.1 83.6 85.5 86.3 87.6
Lighting Products and
Lantern Batteries ............ 14.2 13.9 16.4 14.5 13.7 12.4
----- ----- ----- ----- ----- -----
Total ....................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
36
<PAGE>
Battery Products
A description of the Company's major battery products including their
typical uses is set forth below.
<TABLE>
<S> <C> <C> <C>
General Batteries Hearing Aid
Batteries
- --------------------------------------------------------------------------------
Technology Alkaline Zinc Zinc Air
- --------------------------------------------------------------------------------
Types/ - Disposable - Heavy Duty --
Common - Rechargeable (Zinc Chloride)
Name:
- --------------------------------------------------------------------------------
Brand; Rayovac; Rayovac Rayovac; Loud'n
Sub-brand MAXIMUM, Clear, ProLine
Names(1): Renewal,
Power
Station
- --------------------------------------------------------------------------------
Sizes: D, C, AA, AAA, 9-volt(2) 5 sizes
for both Alkaline and Zinc
- --------------------------------------------------------------------------------
Typical Uses: All standard household Hearing
applications including aids
pagers, personal radios
and cassette players,
remote controls and a
wide variety of
industrial applications
<S> <C> <C> <C> <C>
Other Specialty Batteries Lantern
Batteries
- --------------------------------------------------------------------------------
Technology Lithium Silver Lithium Ion, Zinc
Nickel Metal
Hydride, Nickel
Cadmium and
Sealed Lead
Acid
- --------------------------------------------------------------------------------
Types/ -- -- -Rechargeable Lantern
Common (Alkaline, Zinc
Name: Chloride and
Zinc Carbon)
- --------------------------------------------------------------------------------
Brand; Rayovac; Rayovac Rayovac Rayovac
Sub-brand Lifex
Names(1):
- --------------------------------------------------------------------------------
Sizes: 5 primary 10 primary 35 sizes Standard
sizes sizes lantern
- --------------------------------------------------------------------------------
Typical Uses: Personal Watches Cellular phones, Beam lanterns,
computer camcorders and Camping
clocks and cordless phones Lanterns
memory
back-up
- --------------------------------------------------------------------------------
</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 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 calendar 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 calendar 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.
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<PAGE>
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. In March 1998, the Company announced a restructuring of
operations, including the outsourcing of the manufacturing of heavy duty
batteries. In fiscal 1997, the Company produced 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 unit sales in fiscal 1997.
The Company had a 37% unit market share in the heavy duty battery market
through mass merchandisers, food and drug stores for the 52 weeks ended
February 14, 1998. 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 68% market
share of the rechargeable household battery market through mass merchandisers,
food and drug stores for the 52 weeks ended February 14, 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 1997, with a market share of approximately 52%.
In addition, the Company has strengthened its worldwide leadership with the
acquisition of Brisco. 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,
keyless entry batteries and rechargeable nickel cadmium, nickel metal hydride,
lithium ion and sealed lead acid batteries. The Company produces button and
coin cells 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's rechargeable lithium ion,
nickel metal hydride, nickel cadmium and sealed lead acid batteries are sourced
for use in cellular telephones, camcorders and cordless telephones.
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
38
<PAGE>
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 launched 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. To further its marketing and distribution capability in hearing aid
batteries, in March 1998 the Company acquired the battery distribution portion
of Best Labs, a Florida distributor of hearing aid batteries and a manufacturer
of hearing instruments. The Company has also established relationships with
major Pacific Rim hearing aid battery distributors to take advantage of
anticipated global market growth. In addition, the Company believes that the
acquisition of Brisco will enable the Company to further penetrate European
markets for hearing aid batteries.
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 to promote its specialty battery products. With the
acquisition of DPP, the Company plans to further position itself in the retail
market for rechargeable specialty batteries and accessories for use with
cellular telephones, camcorders and cordless telephones. 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
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. The Company has recently introduced a line of products to serve the
medical instrument and health services markets.
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 February 14, 1998 the
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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 calendar 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 March 1998, the Company acquired the hearing aid
battery distribution portion of Best Labs. 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) and warehouse clubs; food, drug and convenience stores;
electronics specialty stores and department stores; hardware and automotive
centers; specialty retailers; 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 has focused
sales for its Renewal product line on distribution channels which the Company
believes to be more suited for this product, such as electronics specialty
stores, and has recently begun shipments to Radio Shack.
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 55% 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.
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.
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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. In March 1998, the Company announced certain manufacturing changes
which include consolidating the Company's packaging operations at its Madison,
Wisconsin plant, closing the Company's Appleton, Wisconsin plant and relocating
the affected manufacturing operations for lithium batteries to the Company's
Portage, Wisconsin facility. 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. In March 1998, the Company announced the
closing of the Newton Aycliffe, United Kingdom facility and the sale of the
Kinston, North Carolina facility.
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. In March 1998, the
Company agreed to purchase from Matsushita a new high speed alkaline battery
manufacturing production line for its Fennimore, Wisconsin plant and to source
certain finished products, battery parts and material from Matsushita to
continue to supplement the Company's existing domestic production 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. In
March 1998, the Company announced the extension of its existing alkaline
battery technology agreement with Matsushita, pursuant to which the Company is
entitled to license Matsushita's highly advanced designs, technology and
manufacturing equipment, including all developments and innovations thereto,
through 2003. Thereafter, the Company is entitled to license such technology
existing as of such date through 2023. 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
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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."
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 outside consultants
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
mid-1999. When fully implemented, this system is expected to reduce cycle
times, lower manufacturing and administrative costs, improve both asset and
employee productivity and address a significant portion of the Year 2000 issue.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Computer Systems Upgrade."
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. In March
1998, the Company announced the extension of its existing alkaline battery
technology agreement with Matsushita, pursuant to which the Company will
continue to license Matsushita's highly advanced designs, technology and
manufacturing equipment, including all developments and innovations thereto,
through 2003. Thereafter, the Company is entitled to license such technology
existing as of such date through 2023.
The Company also uses a number of trademarks in its business, including
Rayovac[RegTM], MAXIMUMTM, Renewal[RegTM], Loud'n Clear[RegTM], Power
Station[RegTM], ProLine[RegTM], LifexTM, Smart Pack[RegTM], SmartTM Strip,
Workhorse[RegTM] and Roughneck[RegTM]. The Company relies on both registered
and common law trademarks in the United States to protect its trademark rights.
The Rayovac[RegTM] 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 February 1998, Duracell announced the introduction of a new line of
alkaline batteries under the name Duracell Ultra in the AA and AAA size
category which is being marketed as providing increased performance in certain
high-drain devices, including cellular phones, digital cameras and palm-sized
computers. Duracell has
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indicated that this new line of alkaline batteries will begin shipping to
retailers in May 1998. Based on the Company's preliminary analysis of this new
product line in comparison to the Company's technology and technology generally
available in the market, the marketing strategies announced by Duracell in
connnection with the introduction of the new line, and the premium pricing for
such product, the Company does not anticipate that this new product line will
have a significant impact on the Company's results of operations.
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.
Employees
As of February 28, 1998 the Company had approximately 2,100 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, Fennimore, and Portage, Wisconsin employees, which
expire in 2000 for Madison and Fennimore employees and in 2002 for Portage
employees. The Company also recently entered into a collective bargaining
agreement with its Washington, United Kingdom employees which expires in
December 1998.
Properties and Equipment
The following table sets forth information regarding the Company's
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 and general purpose batteries Owned 158,000
Washington, UK Zinc air button cells Leased 63,000
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
</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. As part of the Company's recently announced restructuring, the Madison,
Wisconsin plant will phase out the manufacture of heavy duty batteries, which
will be sourced from other suppliers and the Appleton, Wisconsin plant will be
closed with the manufacturing operations moved to Portage. In addition, in
March 1998 the Company agreed to purchase from Matsushita a new high speed
alkaline battery manufacturing production line for its Fennimore, Wisconsin
plant, which is expected to increase the Company's production capacity for AA
size batteries by up to 50%.
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The following table sets forth information regarding the Company's
packaging and distribution sites:
<TABLE>
<CAPTION>
Location Owned/Leased Square Feet
<S> <C> <C>
Middleton, WI Leased 220,000
Newton Aycliffe, UK Leased 75,000
Laverne, TN Leased 73,000
Hayward, CA Leased 30,000
Billinghausen, GER Owned 5,000
</TABLE>
As part of the recently announced restructuring, the Company will centralize
its packaging operations into one location at its Madison, Wisconsin plant and
will close its Newton Aycliffe, UK facility. In addition, in March 1998 the
Company sold its Kinston, North Carolina facility. 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, 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
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<PAGE>
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 was commenced in the fall
of 1997. 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 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 March 28, 1998 the Company has reserved $1.7 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.
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MANAGEMENT
Directors and Executive Officers
Set forth below is certain information regarding each director and
executive officer of the Company as of March 31, 1998:
<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 and Lights
Kenneth V. Biller 50 Senior Vice President of Manufacturing/Supply Chain
Merrell M. Tomlin 46 Senior Vice President of Sales
Randall J. Steward 43 Senior Vice President of Corporate Development
James A. Broderick 54 Vice President, General Counsel and Secretary
Scott A. Schoen 39 Director
Thomas R. Shepherd 68 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 has been the Senior Vice President of Marketing and the
General Manager of General Batteries and Lights of the Company since January
1998. Prior to that time and since December 1996, Mr. Shanesy was the Senior
Vice President of Marketing and the General Manager of General Batteries. From
1993 to 1996 Mr. Shanesy was Vice President of Marketing of Oscar Mayer and
from 1991 to 1993 he was the Director 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 of Manufacturing/Supply
Chain since January 1998. Prior to that time and since 1996 he was the Senior
Vice President and General Manager of Lighting Products & Industrial and 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.
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<PAGE>
Mr. Steward has been the Senior Vice President of Corporate Development of
the Company since March 1998. From September 1997 to March 1998 Mr. Steward
worked as an independent consultant. From March 1996 to September 1997, Mr.
Steward served as President and General Manager of Thermoscan, Inc. From
January 1992 to March 1996, he served as Executive Vice President of Finance
and Administration and Chief Financial Officer of Thermoscan, Inc. Prior to
January 1991, Mr. Steward was a Finance Director for a division of Medtronic
Inc.
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, a Trustee of THL Equity Trust III, the General Partner of THL
Equity Advisors Limited Partnership III, which is the General Partner of Thomas
H. Lee Equity Fund III L.P., and a Trustee of THL Equity Trust IV, the General
Partner of THL Equity Advisors Limited Partnership IV, which is the General
Partner of Thomas H. Lee Equity Fund IV, L.P. He is also a director of First
Alert, Inc., Signature Brands, USA, Inc., Syratech Corporation, TransWestern
Communications Corp. 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 is Chairman of Signature Brands, U.S.A., Inc.
Mr. Smith has been a director of the Company since the Recapitalization
and has been employed by THL Co. since 1990 and currently serves as a managing
director of THL Co. In addition, Mr. Smith is a Vice President of Thomas H. Lee
Advisors I, Thomas H. Lee Advisors II and T.H. Lee Mezzanine II. Mr. Smith is
also, a Managing Director and Member of THL Equity Advisors Limited Partnership
III, which is the general partner of Thomas H. Lee Equity Fund III L.P. and a
Managing Director and member of THL Equity Advisors Limited Partnership IV,
which is the general partner of Thomas H. Lee Equity Fund IV, L.P. 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.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock by the Selling Shareholders and each
director, executive officer and beneficial owner of more than 5% of the
Company's outstanding Common Stock and by all directors and executive officers
of the Company as a group, at the date hereof and after giving effect to the
sale of the shares of Common Stock offered hereby.
<TABLE>
<CAPTION>
Shares of Common
Shares Stock Beneficially
Shares of Common Shares Subject to Owned After the
Stock Beneficially Being Over- Offerings and Assuming
Owned Prior to Offered Allotment full Exercise of
the Offerings(2) Hereby(3) Options Over-Allotment Options
------------------------- ----------- ------------ -----------------------
Number Percentage Number Percentage
Directors, Executive Officers and 5% Shareholders of Shares of Class of Shares of Class
- --------------------------------------------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Lee Equity Fund III, L.P.(3) 75
State Street, Ste. 2600
Boston, MA 02109 14,437,064 52.6% 4,700,107 648,827 9,088,130 33.1%
Thomas H. Lee Foreign Fund III, L.P.(3)
75 State Street, Ste. 2600
Boston, MA 02109 894,341 3.3 291,160 40,193 562,988 2.1
THL--CCI Limited Partnership(4)
75 State Street, Ste. 2600
Boston, MA 02109 1,515,753 5.5 493,466 68,121 954,166 3.5
David A. Jones(5) 664,388 2.4 217,357 53,144 392,296 1.4
Kent J. Hussey(6) 144,189 * 42,588 0 101,601 *
Roger F. Warren(7) 629,462 2.3 219,249 53,089 357,124 1.3
Stephen P. Shanesy(8) 105,103 * 33,423 8,093 63,587 *
Kenneth V. Biller(9) 157,193 * 49,987 12,104 95,102 *
Merrell M. Tomlin(10) 89,620 * 28,499 6,901 54,220 *
James A. Broderick(11) 241,399 * 78,436 19,391 143,572 *
Trygve Lonnebotn(12) 502,652 1.8 163,323 40,376 298,953 1.1
Randall J. Steward 7,500 * 0 0 7,500 *
Scott A. Schoen(3)(13) 72,756 * 23,686 3,270 45,800 *
Thomas R. Shepherd(13) 37,894 * 12,337 1,703 23,854 *
Warren C. Smith, Jr.(3)(13) 60,640 * 19,741 2,725 38,174 *
All directors and executive officers of the
Company as a group (12 persons)(3)(13) 2,712,796 9.6 888,626 200,796 1,621,783 5.7
Other Officers
- ---------------------------------------------------
Gary E. Wilson(14) 133,959 * 43,527 6,300 84,132 *
Kenneth G. Drescher(15) 22,075 * 7,020 0 15,055 *
Dale R. Tetzlaff(16) 137,572 * 41,000 0 96,572 *
Linda G. Pauls Fleming, as trustee of the
Fleming Trust 8,000 * 600 0 7,400 *
Other Selling Shareholders
- ---------------------------------------------------
16 Other Selling Shareholders, each of whom
is selling less than 4,100 shares of Common Stock
in the Offerings and will beneficially own less
than 1% of the outstanding Common Stock after the
Offerings 115,683 * 30,096 3,590 81,997 *
</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.
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<PAGE>
(3) THL Equity Advisors III Limited Partnership ("Advisors"), the general
partner of the THL 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.
(4) 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.
(5) Includes 364,630 shares subject to options which are currently exercisable.
Shares of Common Stock beneficially owned prior to the Offerings includes
4,299 shares representing Mr. Jones' proportional interest in the THL Fund,
which proportional interest after the Offerings and assuming full exercise
of the over-allotment options granted to the Underwriters would be 2,706
shares before giving effect to the allocation of fees and obligations to
the THL Fund which allocation would reduce the number of shares
representing Mr. Jones' proportional interest in the THL Fund. Mr. Jones
disclaims beneficial ownership of these shares. Shares of Common Stock
beneficially owned prior to the Offerings also includes 42,606 shares
allocated for the account of such individual pursuant to the Deferred
Compensation Plan, all of which are being sold in the Offerings.
(6) Includes 91,158 shares subject to options which are currently exercisable.
Shares of Common Stock beneficially owned prior to the Offerings includes
8,419 shares allocated for the account of such individual pursuant to the
Deferred Compensation Plan, all of which are being sold in the Offerings.
(7) Includes 91,158 shares subject to options which are currently exercisable.
Shares of Common Stock beneficially owned prior to the Offerings includes
16,922 shares allocated for the account of such individual pursuant to the
Deferred Compensation Plan, all of which are being sold in the Offerings.
(8) Includes 45,579 shares subject to options which are currently exercisable.
Shares of Common Stock beneficially owned prior to the Offerings includes
14,757 shares allocated for the account of such individual pursuant to the
Deferred Compensation Plan, all of which are being sold in the Offerings.
(9) Includes 45,579 shares subject to options which are currently exercisable.
Shares of Common Stock beneficially owned prior to the Offerings includes
12,134 shares allocated for the account of such individual pursuant to the
Deferred Compensation Plan, all of which are being sold in the Offerings.
(10) Includes 45,579 shares subject to options which are currently exercisable.
Shares of Common Stock beneficially owned prior to the Offerings includes
8,386 shares allocated for the account of such individual pursuant to the
Deferred Compensation Plan, all of which are being sold in the Offerings.
(11) Includes 20,000 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.
(12) Includes 68,368 shares subject to options which are currently exercisable.
Shares of Common Stock beneficially owned prior to the Offerings includes
15,754 shares allocated for the account of such individual pursuant to the
Deferred Compensation Plan, all of which are being sold in the Offerings.
(13) Represents the proportional interest of such individual in THL-CCI Limited
Partnership; in the case of Mr. Smith, also includes 14,229 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 Mr. Smith's children in THL-CCI Limited
Partnership after the Offerings, assuming full exercise of the
over-allotment options granted to the Underwriters, would be 8,958 shares.
(14) Includes 20,000 shares subject to options which are currently exercisable.
Shares of Common Stock beneficially owned prior to the Offerings includes
7,388 shares allocated for the account of such individual pursuant to the
Deferred Compensation Plan, all of which are being sold in the Offerings.
(15) Includes 2,075 shares allocated for the account of such individual
pursuant to the Deferred Compensation Plan. Shares of Common Stock
beneficially owned prior to the Offerings includes 20,000 shares subject
to options which are currently exercisable and shares of Common Stock
beneficially owned after the Offerings assuming full exercise of the
over-allotment options, includes 13,000 shares subject to options which are
currently exercisable.
(16) Includes 20,000 shares subject to options which are currently exercisable.
Shares of Common Stock beneficially owned prior to the Offerings includes
5,022 shares allocated for the account of such individual pursuant to the
Deferred Compensation Plan, all of which are being sold in the Offerings.
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<PAGE>
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 Amended Credit Agreement
Pursuant to the Amended Credit Agreement, the Company has available senior
bank facilities in an aggregate amount of $160.0 million.
The Amended Credit Agreement provides a five-year reducing Revolver
Facility of up to $90.0 million under which working capital loans may be made
and a $10.0 million sublimit for letters of credit and a five-year amortizing
Acquisition Facility of $70.0 million (together, the "Bank Facilities"). The
Revolver Facility is reduced by $10.0, $15.0, and $15.0 million, respectively,
on December 31, 1999, 2000 and 2001 and expires on December 31, 2002. From
March 31, 1999 through December 31, 2000 the quarterly amortization rate will
be 5% of the balance outstanding under the Acquisition Facility as of December
31, 1998 (the "Outstanding Balance") and from March 31, 2001 through December
31, 2002 the quarterly amortization rate will be 7.5% of the Outstanding
Balance. The Acquisition Facility is subject to quarterly amortization
commencing March 31, 1999 through December 31, 2002. As of December 30, 1997,
all of the Company's senior term debt was replaced by revolver debt under the
Revolver Facility.
Borrowings under the Bank Facilities bear interest, in each case at the
Company's option, at Bank of America National Trust and Savings Association's
base rate or at IBOR plus .75%. Performance-based reductions and increases of
the Bank Facilities' interest rate are available. The Company also incurs
standard letter of credit fees to issuing institutions and other standard
commitment fees.
The indebtedness outstanding under the Amended 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 property.
The Amended Credit Agreement contains financial and other restrictive
covenants customary and usual for credit facilities of this type, including
those involving maintenance of minimum interest coverage and a required maximum
leverage. The Amended 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, and
restrict certain other activities.
"Events of Default" under the Amended 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 Amended Credit Agreement).
The Notes
Pursuant to an 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
50
<PAGE>
subordinated in right of payment to all existing and future Senior Debt (as
defined in the Indenture), including borrowings under the Amended 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:
Year Percentage
------------------------------ -------------
2001 ......................... 105.125%
2002 ......................... 103.417
2003 ......................... 101.708
2004 and thereafter .......... 100.000
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 applied $38.2 million of the net
proceeds of the IPO to redeem or repurchase Notes in the aggregate principal
amount of $35.0 million.
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 beneficially owned by the THL 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 Amended 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.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have 27,439,238 shares
of Common Stock outstanding. The 7,827,507 shares of Common Stock sold in the
IPO of the Company's Common Stock in November of 1997 and the 6,500,000 shares
to be sold 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 2,243,127 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. In November 1997, the Company registered
on a registration statement on Form S-8 the shares of Common Stock issuable
upon the exercise of options granted pursuant to 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.
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
Selling Shareholders, certain existing shareholders, the Company, its executive
officers and directors and the THL Group (holding an aggregate of approximately
13.7 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 90 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 THL 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 THL Group and their permitted transferees have demand
registration rights with respect to their shares of Common Stock. The THL 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."
52
<PAGE>
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
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<PAGE>
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.
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.
54
<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
Selling Shareholders and the U.S. Underwriters, and concurrently with the sale
of 1,300,000 shares of Common Stock to the International Managers (as defined
below), the Selling Shareholders have 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 Selling Shareholders, the number of shares of Common Stock
set forth opposite their respective names below.
Number
U.S. Underwriter of Shares
------------------------------------------------------------- ------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .........................................
Bear, Stearns & Co. Inc. ....................................
Donaldson, Lufkin & Jenrette Securities Corporation .........
Smith Barney Inc. ...........................................
----------
Total ................................................ 5,200,000
=========
The Company and the Selling Shareholders have 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 5,200,000 shares of Common Stock to the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, the Selling Shareholders have agreed
to sell to the International Managers, and the International Managers severally
and not jointly have agreed to purchase from the Selling Shareholders, an
aggregate of 1,300,000 shares of Common Stock. The price per share and the
underwriting discount per share of Common Stock will be 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 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 Offerings, the public offering price, concession and
discount may be changed.
The 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 780,000 additional shares of Common Stock at the 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 Selling Shareholders also have granted
options to the
55
<PAGE>
International Managers, exercisable for 30 days after the date of this
Prospectus, to purchase up to an aggregate of 195,000 additional shares of
Common Stock to cover over-allotments, if any, on terms similar to those
granted to the U.S. Underwriters.
The Company, the Selling Shareholders, and the Company's executive
officers and directors, the THL 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 90 days after the date of this
Prospectus. See "Shares Eligible for Future Sale."
The THL 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.
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 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.
The Common Stock is listed on the New York Stock Exchange under the symbol
"ROV."
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 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.
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.
None of the Company, the Selling Shareholders or 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, none of the Company, the Selling Shareholders or any
of the Underwriters makes
56
<PAGE>
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.
57
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain legal matters for the Selling Shareholders will be passed upon by
DeWitt Ross & Stevens s.c., Madison, Wisconsin. Certain other legal matters
relating to the Offering will be passed upon for the Company and the Selling
Shareholders by Skadden, Arps, Slate, Meagher & Flom LLP, Boston,
Massachusetts. 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 or
incorporated by reference herein in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere or
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements 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
have been included herein in reliance upon the report 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.
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.
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 two-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 and through the date
of their termination there were no "reportable events" within the meaning of
Item 304(a)(1)(v) of Regulation S-K promulgated under the Securities Act.
58
<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. Such reports, proxy statements and other information may also
be inspected at the offices of the New York Stock Exchange at 20 Broad Street,
New York, New York 10005.
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.
59
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission, are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997;
(2) The Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 27, 1997; and
(3) The description of the Common Stock contained in the Company's Registration
Statement on Form 8-A filed under Section 12 of the Exchange Act dated
November 11, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the Offerings made hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained in this
Prospectus, in a supplement to this Prospectus or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed supplement to this Prospectus or
in any document that also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents. Requests for such copies should be
directed to: Rayovac Corporation, 601 Rayovac Drive, Madison, Wisconsin,
53711-2497, Attention: James A. Broderick, Vice President, General Counsel and
Secretary (Telephone: (608) 275-3340).
60
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Independent Auditors' Report ....................................... F-2
Independent Auditors' Report ....................................... 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, except
for notes 2n and 2r as to which the date is April 1, 1998 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, except as to
note 2n., which is as of April 1, 1998
F-2
<PAGE>
Independent Auditors' Report
To the Board of Directors of
Rayovac Corporation
We have audited the accompanying consolidated balance sheets of Rayovac
Corporation and Subsidiaries as of June 30, 1996 and September 30, 1996, and
the related 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 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,
except for notes 2n and 2r
as to which the date is
April 1, 1998
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
========= ========= ========= =========
Basic net income (loss) per commons share:
Income (loss) before extraordinary item ......... $ 0.33 $ 0.29 $ (0.44) $ 0.30
Extraordinary item .............................. -- -- (0.04) --
--------- --------- --------- ---------
Net income (loss) .............................. $ 0.33 $ 0.29 $ (0.48) $ 0.30
========= ========= ========= =========
Weighted average shares of common stock
outstanding ..................................... 50,000 49,643 43,820 20,530
========= ========= ========= =========
Diluted net income (loss) per common share:
Income (loss) before extraordinary item ......... $ 0.33 $ 0.29 $ (0.44) $ 0.30
Extraordinary item .............................. -- -- (0.04) --
--------- --------- --------- ---------
Net income (loss) .............................. $ 0.33 $ 0.29 $ (0.48) $ 0.30
========= ========= ========= =========
Weighted average shares of common stock
and equivalents outstanding ..................... 50,000 49,643 43,820 20,642
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
RAYOVAC CORPORATION AND 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 Foreign
Common Stock (DISC) 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>
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:
Building and improvements .............. 20-30 years
Machinery, equipment and other ......... 5-20 years
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. Per Share Data: The Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("FAS No. 128"), in Fiscal 1998.
This statement replaces the presentation of primary and fully diluted EPS
with basic and diluted EPS. Basic EPS is computed by dividing net income
available to common shareholders by the weighted-average number of common
shares outstanding for the period. Basic EPS does not consider common
stock equivalents. Diluted EPS reflects the dilution that would occur if
convertible debt securities and employee stock options were exercised or
converted into common shares or resulted in the issuance of common shares
that then shared in the net income of the entity. The computation of
diluted EPS uses the "if converted" and "treasury stock" methods to
reflect dilution. All prior period EPS data presented has been restated
for the adoption of FAS No. 128. The difference between the number of
shares used in the two calculations is due to employee stock options.
The Company also complies with certain requirements of the Securities and
Exchange Commission with respect to the calculation of earnings per share
for initial public offerings.
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.
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
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 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:
Year ending September 30,
1998 ............................ $ 23,880
1999 ............................ 12,441
2000 ............................ 10,500
2001 ............................ 12,500
2002 ............................ 15,500
Thereafter ...................... 132,500
--------
$207,321
========
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 ($0.48)
per share and $5,680 and $0.28 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
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.
F-17
<PAGE>
RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(In thousands, except per share amounts)
8. Income Taxes--Continued
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:
Year ending September 30,
1998 .................... $ 6,828
1999 .................... 5,404
2000 .................... 4,455
2001 .................... 4,012
2002 .................... 4,017
Thereafter .............. 34,112
-------
$58,828
=======
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 Transition Year
June 30, 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 30, 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)
Basic net income (loss) per share ............... 0.12 0.01 0.09 (0.48)
Diluted net income (loss) per share ............. 0.12 0.01 0.09 (0.48)
</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
Basic net income (loss) per share ........... 0.12 (0.08) 0.13 0.14
Diluted net income (loss) per share ......... 0.12 (0.08) 0.13 0.14
</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 Nonguarantor
Parent subisidiary subsidiaries Eliminations Consolidated
------------ ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 633 $ 46 $ 454 $ -- $ 1,133
Receivables:
Trade accounts receivable, net ......................... 61,400 -- 15,190 -- 76,590
Other .................................................. 8,500 702 2,659 (8,782) 3,079
Inventories ............................................. 45,003 -- 13,722 (174) 58,551
Deferred income taxes ................................... 8,664 342 93 -- 9,099
Prepaid expenses and other .............................. 5,101 -- 827 -- 5,928
-------- ------- ------- -------- --------
Total current assets ............................... 129,301 1,090 32,945 (8,956) 154,380
-------- ------- ------- -------- --------
Property, plant and equipment, net ....................... 60,860 -- 4,651 -- 65,511
Deferred charges and other ............................... 8,411 -- 612 (1,310) 7,713
Debt issuance costs ...................................... 9,277 -- -- -- 9,277
Investment in subsidiaries ............................... 16,111 15,627 -- (31,738) --
-------- ------- ------- -------- --------
Total assets ....................................... $223,960 $16,717 $38,208 $(42,004) $236,881
======== ======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt .................... $ 22,000 $ -- $ 1,880 $ -- $ 23,880
Accounts payable ........................................ 50,797 150 14,847 (8,535) 57,259
Accrued liabilities:
Wages and benefits ..................................... 7,766 -- 1,577 -- 9,343
Accrued interest ....................................... 5,594 -- 19 -- 5,613
Recapitalization and other special charges ............. 4,235 -- 377 -- 4,612
Other .................................................. 16,182 226 3,448 -- 19,856
-------- ------- ------- -------- --------
Total current liabilities .......................... 106,574 376 22,148 (8,535) 120,563
-------- ------- ------- -------- --------
Long-term debt, net of current maturities ................ 183,441 -- -- -- 183,441
Employee benefit obligations, net of current portion ..... 11,291 -- -- -- 11,291
Deferred income taxes .................................... 554 -- 181 -- 735
Other .................................................... 956 230 260 -- 1,446
-------- ------- ------- -------- --------
Total liabilities .................................. 302,816 606 22,589 (8,535) 317,476
-------- ------- ------- -------- --------
Shareholders' equity (deficit):
Common stock ............................................ 500 -- 12,072 (12,072) 500
Additional paid-in capital .............................. 15,974 3,525 750 (4,275) 15,974
Foreign currency translation adjustment ................. 2,270 2,270 2,270 (4,540) 2,270
Notes receivable from officers/shareholders ............. (1,658) -- -- -- (1,658)
Retained earnings ....................................... 33,060 10,316 527 (12,582) 31,321
-------- ------- ------- -------- --------
50,146 16,111 15,619 (33,469) 48,407
Less stock held in trust for deferred compensation ...... (962) -- -- -- (962)
Less treasury stock ..................................... (128,040) -- -- -- (128,040)
-------- ------- ------- -------- --------
Total shareholders' equity (deficit) ..................... (78,856) 16,111 15,619 (33,469) (80,595)
-------- ------- ------- -------- --------
Total liabilities and shareholders' equity (deficit) ..... $223,960 $16,717 $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
Parent subsidiary
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 1,488 $ 41
Receivables:
Trade accounts receivable, net ............................. 40,138 --
Other ...................................................... 11,434 318
Inventories ................................................. 54,486 --
Deferred income taxes ....................................... 5,439 179
Prepaid expenses and other .................................. 3,415 --
-------- -------
Total current assets ................................... 116,400 538
-------- -------
Property, plant and equipment, net ........................... 65,747 --
Deferred charges and other ................................... 9,047 --
Debt issuance costs .......................................... 173 --
Investment in subsidiaries ................................... 14,524 14,670
-------- -------
Total assets ........................................... $205,891 $15,208
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities: .........................................
Current maturities of long-term debt ........................ $ 7,350 $ --
Accounts payable ............................................ 32,906 492
Accrued liabilities:
Wages and benefits ......................................... 5,077 --
Accrued interest ........................................... 1,850 --
Other ...................................................... 12,768 (14)
-------- -------
Total current liabilities .............................. 59,951 478
-------- -------
Long-term debt, net of current maturities .................... 68,777 --
Employee benefit obligations, net of current portion ......... 12,141 --
Deferred income taxes ........................................ 2,378 206
Other ........................................................ 162 --
-------- -------
Total liabilities ...................................... 143,409 684
-------- -------
Shareholders' equity (deficit): ..............................
Common stock ................................................ 500 --
Rayovac International Corporation common stock .............. 5 --
Additional paid-in capital .................................. 12,000 3,525
Foreign currency translation adjustment ..................... 1,650 1,650
Retained earnings ........................................... 48,860 9,349
-------- -------
63,015 14,524
Less treasury stock, at cost ................................ (533) --
Total shareholders' equity (deficit) ......................... 62,482 14,524
-------- -------
Total liabilities and shareholders' equity (deficit) ......... $205,891 $15,208
======== =======
<CAPTION>
Nonguarantor Combined
subsidiaries Eliminations consolidated
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 661 $ -- $ 2,190
Receivables:
Trade accounts receivable, net ............................. 15,692 -- 55,830
Other ...................................................... 780 (10,210) 2,322
Inventories ................................................. 12,951 (496) 66,941
Deferred income taxes ....................................... 243 -- 5,861
Prepaid expenses and other .................................. 1,560 -- 4,975
------- --------- --------
Total current assets ................................... 31,887 (10,706) 138,119
------- --------- --------
Property, plant and equipment, net ........................... 7,434 -- 73,181
Deferred charges and other ................................... 608 -- 9,655
Debt issuance costs .......................................... -- -- 173
Investment in subsidiaries ................................... -- (29,194) --
------- --------- --------
Total assets ........................................... $39,929 $ (39,900) $221,128
======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities: .........................................
Current maturities of long-term debt ........................ $ 4,281 $ -- $ 11,631
Accounts payable ............................................ 15,145 (9,848) 38,695
Accrued liabilities:
Wages and benefits ......................................... 1,049 -- 6,126
Accrued interest ........................................... 40 -- 1,890
Other ...................................................... 3,803 -- 16,557
------- --------- --------
Total current liabilities .............................. 24,318 (9,848) 74,899
------- --------- --------
Long-term debt, net of current maturities .................... 941 -- 69,718
Employee benefit obligations, net of current portion ......... -- -- 12,141
Deferred income taxes ........................................ -- -- 2,584
Other ........................................................ -- -- 162
------- --------- --------
Total liabilities ...................................... 25,259 (9,848) 159,504
------- --------- --------
Shareholders' equity (deficit): ..............................
Common stock ................................................ 12,072 (12,072) 500
Rayovac International Corporation common stock .............. -- -- 5
Additional paid-in capital .................................. 750 (4,275) 12,000
Foreign currency translation adjustment ..................... 1,650 (3,300) 1,650
Retained earnings ........................................... 198 (10,405) 48,002
------- --------- --------
14,670 (30,052) 62,157
Less treasury stock, at cost ................................ -- -- (533)
Total shareholders' equity (deficit) ......................... 14,670 (30,052) 61,624
------- --------- --------
Total liabilities and shareholders' equity (deficit) ......... $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>
================================================================================
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 offerings covered by this Prospectus. If given or made,
such information or representations must not be relied upon as having been
authorized by the Selling Shareholders, the Company or the Underwriters. This
Prospectus does not constitute an offer to sell, or a 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.
----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary ........................... 3
Risk Factors ................................. 11
The Recapitalization ......................... 16
Use of Proceeds .............................. 16
Price Range of Common Stock
and Dividend Policy ....................... 16
Capitalization ............................... 17
Selected Financial Data ...................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 22
Business ..................................... 32
Management ................................... 46
Principal and Selling Shareholders ........... 48
Description of Certain Indebtedness .......... 50
Shares Eligible for Future Sale .............. 52
Certain United States Federal Tax
Considerations for Non-United States
Holders ................................... 53
Underwriting ................................. 55
Legal Matters ................................ 58
Experts ...................................... 58
Available Information ........................ 59
Incorporation of Certain Documents by
Reference ................................. 60
Index to Financial Statements ................ F-1
</TABLE>
6,500,000 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
Salomon Smith Barney
, 1998
================================================================================
<PAGE>
[Alternate Cover for International Prospectus]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 2, 1998
[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]
PROSPECTUS
6,500,000 Shares
RAYOVAC(R)
Common Stock
----------------
All of the 6,500,000 shares of Common Stock of Rayovac Corporation
("Rayovac" or the "Company") offered hereby are being sold by certain
shareholders (the "Selling Shareholders") of the Company. See "Principal and
Selling Shareholders." The Company is not selling any shares of Common Stock in
this Offering and will not receive any of the proceeds from the sale of shares
of Common Stock offered hereby.
Of the 6,500,000 shares of Common Stock offered hereby, 1,300,000 shares
are being offered for sale initially outside the United States and Canada by
the International Managers and 5,200,000 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."
The Common Stock is listed on the New York Stock Exchange under the symbol
"ROV." On March 31, 1998, the last sale price of the Common Stock as reported
on the New York Stock Exchange was $23-9/16 per share. See "Price Range of
Common Stock and Dividend Policy."
See "Risk Factors" beginning on page 11 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.
- --------------------------------------------------------------------------------
Proceeds to
Price to Underwriting Selling
Public Discount (1) Shareholders (2)
Per Share ..................... $ $ $
Total (3) ..................... $ $ $
- --------------------------------------------------------------------------------
(1) The Company and the 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 $800,000.
(3) The Selling Shareholders have granted the International Managers and the
U.S. Underwriters options to purchase up to an additional 195,000 shares
and 780,000 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 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 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 , 1998.
----------------
Merrill Lynch International
Bear, Stearns International Limited
Donaldson, Lufkin & Jenrette
Securities Corporation
Salomon Smith Barney
----------------
The date of this Prospectus is , 1998.
<PAGE>
[Alternate Page for International Prospectus]
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 Selling Shareholders and the
International Managers and concurrently with the sale of 5,200,000 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.
Number of
International Manager Shares
- ---------------------------------------------------------------- ----------
Merrill Lynch International .................................
Bear, Stearns International Limited .........................
Donaldson, Lufkin & Jenrette Securities Corporation .........
Smith Barney Inc. ...........................................
Total ........................................ .......... 1,300,000
=========
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 1,300,000 shares of
Common Stock to the International Managers pursuant to the International
Purchase Agreement, the Selling Shareholders have 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 5,300,000 shares of Common Stock.
The initial public offering price per share of Common Stock and the
underwriting discount per share of Common Stock will be 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 Selling Shareholders have granted options to the International
Managers, exercisable within 30 days after the date of this Prospectus, to
purchase up to 195,000 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 of Common Stock
proportionate to such International Manager's initial amount reflected in the
foregoing table. The Selling Shareholders also have granted options to the U.S.
Underwriters, exercisable within 30 days after the date of this Prospectus, to
purchase
55
<PAGE>
[Alternate Page for International Prospectus]
up to aggregate of 780,000 additional shares of Common Stock to cover
over-allotments, if any, on terms similar to those granted to the International
Managers.
The Company, the Selling Shareholders, the Company's executive officers
and directors, the THL 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 90 days after the date of this Prospectus. See "Shares Eligible for
Future Sale."
The THL 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 International Offering and the U.S. Offering will be conducted in
accordance with NASD Conduct Rule 2720.
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.
The Common Stock is listed on the New York Stock Exchange under the symbol
"ROV."
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 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.
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.
None of the Company, the Selling Shareholders or 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, none of the Company, the Selling Shareholders or 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.
56
<PAGE>
[Alternate Page for International Prospectus]
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 1996, 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.
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 $170 million.
57
<PAGE>
[Alternate Back Cover for International Prospectus]
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy the Common
Stock in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has not been any change in the facts set forth in this Prospectus or
in the affairs of the Company since the date hereof.
In the Prospectus, references to "dollars" and "$" are to United States
dollars.
----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Prospectus Summary ........................... 3
Risk Factors ................................. 11
The Recapitalization ......................... 16
Use of Proceeds .............................. 16
Price Range of Common Stock and
Dividend Policy ........................... 16
Capitalization ............................... 17
Selected Financial Data ...................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 22
Business ..................................... 32
Management ................................... 46
Principal and Selling Shareholders ........... 48
Description of Certain Indebtedness .......... 50
Shares Eligible for Future Sale .............. 52
Certain United States Federal Tax
Considerations for Non-United States
Holders ................................... 53
Underwriting ................................. 55
Legal Matters ................................ 58
Experts ...................................... 58
Available Information ........................ 59
Incorporation of Certain Documents
by Reference .............................. 60
Index to Financial Statements ................ F-1
</TABLE>
6,500,000 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
Salomon Smith Barney
, 1998
================================================================================
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate (other than the Commission Registration Fee
and the National Association of Securities Dealers, Inc. (the "NASD") Filing
Fee) of the fees and expenses all of which are payable by the Registrant, in
connection with the registration and sale of the securities being registered:
Commission Registration Fee ............................ 51,005
NASD Filing Fee ........................................ 17,790
Transfer Agent and Registrar Fees and Expenses ......... 1,000
Blue Sky Fees and Expenses ............................. 15,000
Legal Fees and Expenses ................................ 300,000
Accounting Fees and Expenses ........................... 100,000
Printing, Engraving and Mailing Expenses ............... 225,000
Miscellaneous .......................................... 90,205
-------
Total ................................................ $800,000
========
Item 15. 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 Registrant, the U.S.
Underwriters and the Selling Shareholders and Section 6 of the Purchase
Agreement between the Registrant, the International Managers and the Selling
Shareholders each provide for indemnification by the Registrant of the U.S.
Underwriters, 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
Underwriting Agreements
II-1
<PAGE>
also provide that the U.S. Underwriters and the International Managers shall
similarly indemnify the Registrant, its directors, officers, and controlling
persons, as set forth therein.]
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 Selling Shareholders and the
U.S. Underwriters.
1.2+ Form of Purchase Agreement by and among the Company, the Selling Shareholders and the
International Managers.
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 103% Senior Subordinated Notes
due 2006.
4.2* Specimen of the Notes (included as an exhibit to Exhibit 4.1).
4.3 Amended and Restated Credit Agreement, dated as of December 30, 1997, among Rayovac
Corporation, the lenders party thereto and BofA, as Administrative Agent.
4.4* Security Agreement, dated as of September 12, 1996, by and among the Company, ROV
Holding, Inc. and BofA.
4.5* Company Pledge Agreement, dated as of September 12, 1996, by and between the Company
and BofA.
4.6** Shareholders Agreement, dated as of September 12, 1996, by and among the Company and
the shareholders of the Company referred to therein.
4.7** Amendment to Rayovac Shareholders Agreement, dated August 1, 1997, by and among the
Company and the shareholders of the Company referred to therein.
4.8*** Specimen certificate representing the Common Stock.
5.1 + Opinion re: legality.
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).
27.1 Restated Financial Data Schedule for the fiscal years ended June 30, 1993, 1994, 1995 and
1996 and September 30, 1997.
27.2 Restated Financial Data Schedule for the three months ended December 27, 1997.
27.3 Restated Financial Data Schedule for the transition period ended September 30, 1996.
</TABLE>
- ----------------
* 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 Registration Statement on Form
S-1 (Registration No. 333-35181) filed with the Commission.
+ To be filed by Amendment.
II-2
<PAGE>
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.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in this Registration Statement 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.
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; and
(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-3
<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-3 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Madison,
Wisconsin on April 2, 1998.
RAYOVAC CORPORATION
By: /s/ David A. Jones
-------------------------------
Name: David A. Jones
Title: Chairman of the Board,
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David A. Jones, Kent J. Hussey and James
A. Broderick and each of them, as such person's true and lawful
attorney-in-fact and agent with full power of substitution and revocation for
such person and in such person's name, place and stead, in any and all
capacities, to execute any and all amendments to this Registration Statement
and any subsequent Registration Statement for the same offering which may be
filed under Rule 462(b), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on April 2, 1998.
<TABLE>
<CAPTION>
Signature Title
- ------------------------------- -------------------------------------------------
<S> <C>
/s/ David A. Jones Chairman of the Board, Chief Executive Officer and
- ----------------------------- President (Principal Executive Officer)
David A. Jones
/s/ Kent J. Hussey Executive Vice President of Finance and
- ----------------------------- Administration, Chief Financial Officer and Director
Kent J. Hussey (Principal Financial and Accounting Officer)
/s/ Robert F. Warren President/International and Contract MicroPower
- ----------------------------- and Director
Robert F. Warren
/s/ Trygve Lonnebotn Executive Vice President of Operations and Director
- -----------------------------
Trygve Lonnebotn
/s/ Scott A. Schoen Director
- -----------------------------
Scott A. Schoen
/s/ Thomas R. Shepherd Director
- -----------------------------
Thomas R. Shepherd
/s/ Warren C. Smith, Jr. Director
- -----------------------------
Warren C. Smith, Jr.
</TABLE>
II-4
================================================================================
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of December 30, 1997
among
RAYOVAC CORPORATION,
VARIOUS FINANCIAL INSTITUTIONS
and
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Administrative Agent
Arranged by
BANCAMERICA ROBERTSON STEPHENS
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms..............................................1
1.2 Other Interpretive Provisions.....................................23
1.3 Accounting Principles.............................................24
1.4 Reallocation of Loans and Commitments.............................24
ARTICLE II
THE CREDITS
2.1 Amounts and Terms of Commitments..................................25
2.2 Loan Accounts.....................................................26
2.3 Procedure for Borrowing...........................................26
2.4 Conversion and Continuation Elections.............................27
2.5 Swingline Loans...................................................28
2.6 Termination or Reduction of Commitments...........................30
2.7 Optional Prepayments..............................................31
2.8 Mandatory Prepayments of Revolving Loans..........................32
2.9 Repayment.........................................................32
2.10 Interest..........................................................32
2.11 Fees..............................................................33
2.12 Computation of Fees and Interest..................................34
2.13 Payments by the Company...........................................34
2.14 Payments by the Lenders to the Administrative Agent...............34
2.15 Sharing of Payments, Etc..........................................35
ARTICLE III
THE LETTERS OF CREDIT
3.1 The Letter of Credit Subfacility; Existing Letters of Credit......36
3.2 Issuance, Amendment and Renewal of Letters of Credit..............37
3.3 Risk Participations, Drawings and Reimbursements..................39
3.4 Repayment of Participations.......................................41
3.5 Role of the Issuing Lender........................................41
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<PAGE>
3.6 Obligations Absolute..............................................42
3.7 Cash Collateral Pledge............................................43
3.8 Letter of Credit Fees.............................................43
3.9 Uniform Customs and Practice......................................44
3.10 Non-Dollar Letters of Credit......................................44
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1 Taxes.............................................................45
4.2 Illegality........................................................47
4.3 Increased Costs and Reduction of Return...........................48
4.4 Funding Losses....................................................48
4.5 Inability to Determine Rates......................................49
4.6 Certificates of Lenders...........................................50
4.7 Substitution of Lenders...........................................50
4.8 Survival..........................................................50
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions of Effectiveness.......................................50
5.2 Conditions to All Credit Extensions...............................52
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Corporate Existence and Power.....................................53
6.2 Corporate Authorization; No Contravention.........................53
6.3 Governmental Authorization........................................54
6.4 Binding Effect....................................................54
6.5 Litigation........................................................54
6.6 No Default........................................................54
6.7 ERISA Compliance..................................................54
6.8 Use of Proceeds; Margin Regulations...............................55
6.9 Title to Properties...............................................55
6.10 Taxes.............................................................55
6.11 Financial Condition...............................................56
6.12 Regulated Entities................................................56
6.13 No Burdensome Restrictions........................................56
6.14 Copyrights, Patents, Trademarks and Licenses, etc.................56
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<PAGE>
6.15 Subsidiaries......................................................57
6.16 Insurance.........................................................57
6.17 Solvency, etc.....................................................57
6.18 Real Property; Mortgages..........................................57
6.19 Swap Obligations..................................................57
6.20 Senior Indebtedness...............................................58
6.21 Environmental Warranties..........................................58
6.22 Full Disclosure...................................................59
ARTICLE VII
AFFIRMATIVE COVENANTS
7.1 Financial Statements..............................................59
7.2 Certificates; Other Information...................................60
7.3 Notices...........................................................61
7.4 Preservation of Corporate Existence, etc..........................62
7.5 Maintenance of Property...........................................62
7.6 Insurance.........................................................63
7.7 Payment of Obligations............................................63
7.8 Compliance with Laws..............................................63
7.9 Compliance with ERISA.............................................63
7.10 Inspection of Property and Books and Records......................63
7.11 Environmental Covenant............................................64
7.12 Use of Proceeds...................................................64
7.13 Further Assurances................................................64
ARTICLE VIII
NEGATIVE COVENANTS
8.1 Limitation on Liens...............................................66
8.2 Disposition of Assets.............................................67
8.3 Consolidations and Mergers........................................68
8.4 Loans and Investments.............................................68
8.5 Limitation on Indebtedness........................................70
8.6 Transactions with Affiliates......................................71
8.7 Use of Proceeds...................................................71
8.8 Contingent Obligations............................................71
8.9 Joint Ventures....................................................72
8.10 Lease Obligations.................................................72
8.11 Minimum Interest Coverage Ratio...................................72
8.12 Maximum Leverage Ratio............................................72
8.13 Restricted Payments...............................................73
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<PAGE>
8.14 ERISA.............................................................73
8.15 Limitations on Sale and Leaseback Transactions....................74
8.16 Inconsistent Agreements...........................................74
8.17 Change in Business................................................74
8.18 Amendments to Certain Documents...................................74
8.19 Limitation on Issuance of Guaranty Obligations....................74
ARTICLE IX
EVENTS OF DEFAULT
9.1 Event of Default..................................................75
9.2 Remedies..........................................................77
9.3 Rights Not Exclusive..............................................78
ARTICLE X
THE ADMINISTRATIVE AGENT
10.1 Appointment and Authorization.....................................78
10.2 Delegation of Duties..............................................79
10.3 Liability of Administrative Agent.................................79
10.4 Reliance by Administrative Agent..................................79
10.5 Notice of Default.................................................80
10.6 Credit Decision...................................................80
10.7 Indemnification...................................................81
10.8 Administrative Agent in Individual Capacity.......................81
10.9 Successor Administrative Agent....................................81
10.10 Withholding Tax...................................................82
10.11 Collateral Matters................................................84
ARTICLE XI
MISCELLANEOUS
11.1 Amendments and Waivers............................................85
11.2 Notices...........................................................86
11.3 No Waiver; Cumulative Remedies....................................87
11.4 Costs and Expenses................................................87
11.5 Company Indemnification...........................................87
11.6 Payments Set Aside................................................88
11.7 Successors and Assigns............................................88
11.8 Assignments, Participations, etc..................................88
11.9 Confidentiality...................................................90
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<PAGE>
11.10 Set-off...........................................................91
11.11 Automatic Debits of Fees..........................................91
11.12 Notification of Addresses, Lending Offices, etc...................91
11.13 Counterparts......................................................91
11.14 Severability......................................................91
11.15 No Third Parties Benefited........................................91
11.16 Governing Law and Jurisdiction....................................92
11.17 Waiver of Jury Trial..............................................92
11.18 Entire Agreement..................................................93
-v-
<PAGE>
SCHEDULES
Schedule 1.1 Pricing Schedule
Schedule 2.1 Commitments and Percentages
Schedule 3.1 Existing Letters of Credit
Schedule 6.5 Litigation
Schedule 6.11 Permitted Liabilities
Schedule 6.15 Subsidiaries and Minority Interests
Schedule 6.16 Insurance Matters
Schedule 6.18(a) Real Property
Schedule 6.18(b) Mortgages
Schedule 6.21 Environmental Matters
Schedule 8.1 Liens
Schedule 8.4 Permitted Investments
Schedule 8.8 Contingent Obligations
Schedule 11.2 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Promissory Note
Exhibit E Copy of Security Agreement
Exhibit F Copy of Guaranty
Exhibit G Copy of Company Pledge Agreement
Exhibit H-1 Copy of Subsidiary Pledge Agreement (U.K.)
Exhibit H-2 Copy of Subsidiary Pledge Agreement (Canada)
Exhibit H-3 Copy of Subsidiary Pledge Agreement (Hong Kong)
Exhibit H-4 Copy of Subsidiary Pledge Agreement (Netherlands)
Exhibit I Form of Confirmation and Omnibus Amendment
Exhibit J Form of Opinion of General Counsel to the Company
Exhibit K Form of Opinion of Special Counsel to the Administrative Agent
Exhibit L Form of Assignment and Acceptance
Exhibit M Form of Lender Certificate
-vi-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT dated as of
December 30, 1997, is among RAYOVAC CORPORATION (the "Company"), various
financial institutions, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as administrative agent for the Lenders.
WHEREAS, pursuant to the Credit Agreement dated as of
September 12, 1996 (the "Existing Agreement"), the Company borrowed $105,000,000
in term loans and obtained commitments for up to $65,000,000 in revolving loans
and letters of credit;
WHEREAS, the parties hereto have agreed to amend and restate
the Existing Agreement so as to, among other things, (a) reduce the principal
amount of the term loans thereunder to zero, (b) increase the amount of the
revolving credit facility to $90,000,000, (c) add an acquisition loan facility,
(d) amend the pricing, certain covenants and various other provisions of the
Existing Agreement and (e) revise in certain respects the composition of the
lender group; and
WHEREAS, the parties hereto intend that this Agreement and
the documents executed in connection herewith not effect a novation of the
obligations of the Company under the Existing Agreement, but merely a
restatement and, where applicable, an amendment of the terms governing such
obligations;
NOW, THEREFORE, in consideration of the mutual agreements
contained herein, the Existing Agreement is restated in its entirety, and the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. The following terms have the
following meanings:
Acquisition means any transaction or series of related
transactions for the purpose of, or resulting directly or indirectly
in, (a) the acquisition of all or substantially all of the assets of a
Person, or of any business or division of a Person, (b) the acquisition
of in excess of 50% of the capital stock, partnership interests,
membership interests or equity of any Person, or otherwise causing any
Person to become a Subsidiary or (c) a merger or consolidation or any
other combination with another Person (other than a Person that is a
Subsidiary) provided that the Company or a Subsidiary is the surviving
entity.
-1-
<PAGE>
Acquisition Commitment means, as to any Lender, the
commitment of such Lender to make Acquisition Loans pursuant to
subsection 2.1(b). The initial amount of each Lender's Acquisition
Commitment is set forth across from such Lender's name on Schedule 2.1.
Acquisition Commitment Amount means $70,000,000, as reduced
from time to time in accordance with the terms hereof.
Acquisition Loan - see subsection 2.1(b).
Administrative Agent means BofA in its capacity as
administrative agent for the Lenders hereunder, and any successor
administrative agent arising under Section 10.9.
Affiliate means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the
ownership of voting securities or membership interests, by contract, or
otherwise. Without limiting the foregoing, any Person which is an
officer, director or shareholder of the Company, or a member of the
immediate family of any such officer, director or shareholder, shall be
deemed to be an Affiliate of the Company.
Agent-Related Persons means BofA and any successor
administrative agent arising under Section 10.9, together with its
Affiliates (including the Arranger), and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and Affiliates.
Agent's Payment Office means the address for payments set
forth on Schedule 11.2 in relation to the Administrative Agent, or such
other address as the Administrative Agent may from time to time
specify.
Agreement means this Amended and Restated Credit Agreement.
Agreement Currency - see subsection 3.10(f).
Arranger means BancAmerica Robertson Stephens, a Delaware
corporation.
Assignee - see subsection 11.8(a).
Assignment and Acceptance - see subsection 11.8(a).
Attorney Costs means and includes all reasonable and
documented fees and disbursements of any law firm or other external
counsel and, without duplication of
-2-
<PAGE>
effort, the allocated cost of internal legal services and all
disbursements of internal counsel.
Bankruptcy Code means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. ss.101, et seq.).
Base Rate means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of interest
in effect for such day as publicly announced from time to time by BofA
in San Francisco as its "reference rate." (The "reference rate" is a
rate set by BofA based upon various factors including BofA's costs and
desired return, general economic conditions and other factors, and is
used as a reference point for pricing some loans, which may be priced
at, above or below such announced rate.) Any change in the reference
rate announced by BofA shall take effect at the opening of business on
the day specified in the public announcement of such change.
Base Rate Loan means a Loan that bears interest based on the
Base Rate.
BofA means Bank of America National Trust and Savings
Association, a national banking association.
Borrowing means a borrowing hereunder consisting of (a)
Revolving Loans or Acquisition Loans of the same Type made to the
Company on the same day by the Lenders and, in the case of Offshore
Rate Loans, having the same Interest Period, or (b) a Swingline Loan
made to the Company by the Swingline Lender, in each case pursuant to
Article II.
Borrowing Date means any date on which a Borrowing occurs
under Section 2.3.
Business Day means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City, Chicago or San
Francisco are authorized or required by law to close and, if the
applicable Business Day relates to any Offshore Rate Loan, means such a
day on which dealings are carried on in the applicable offshore Dollar
interbank market.
Canadian Share Pledge Agreement means the Share Pledge
Agreement dated as of November 11, 1996 between ROV Holding and the
Administrative Agent, a copy of which is attached hereto as Exhibit
H-2.
Capital Adequacy Regulation means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
in each case regarding capital adequacy of any bank or of any Person
controlling a bank.
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<PAGE>
Cash Collateralize means to pledge and deposit with or
deliver to the Administrative Agent, for the benefit of the
Administrative Agent, the Issuing Lender and the Lenders, as additional
collateral for the L/C Obligations, cash or deposit account balances
pursuant to documentation in form and substance satisfactory to the
Administrative Agent and the Issuing Lender (which documents are hereby
consented to by the Lenders). Derivatives of such term shall have
corresponding meanings. The Company hereby grants the Administrative
Agent, for the benefit of the Administrative Agent, the Issuing Lender
and the Lenders, a security interest in all such cash and deposit
account balances. Cash collateral shall be maintained in blocked,
non-interest bearing deposit accounts at BofA.
Cash Equivalent Investments shall mean (i) securities issued
or directly and fully guaranteed or insured by the United States of
America or guaranteed by a government that is a member of the OECD
("OECD Country") or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America or such
OECD Country, as applicable, is pledged in support thereof) having
maturities of not more than three years from the date of acquisition,
(ii) marketable direct obligations issued by any State of the United
States of America or any local government or other political
subdivision thereof rated (at the time of acquisition of such security)
at least AA by Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc. ("S&P") or the equivalent thereof by
Moody's Investors Service, Inc. ("Moody's") having maturities of not
more than one year from the date of acquisition, (iii) time deposits,
certificates of deposit and bankers' acceptances of (x) any Lender, (y)
any commercial bank that is a member of the Federal Reserve System or
an applicable central bank of an OECD Country having capital and
surplus in excess of $250,000,000 or (z) any bank whose short-term
commercial paper rating (at the time of acquisition of such security)
by S&P is at least A-1 or the equivalent thereof (any such bank, an
"Approved Bank"), in each case with maturities of not more than six
months from the date of acquisition, (iv) commercial paper and variable
or fixed rate notes issued by any Lender or Approved Bank or by the
parent company of any Lender or Approved Bank and commercial paper and
variable rate notes issued by, or guaranteed by, any industrial or
financial company with a short-term commercial paper rating (at the
time of acquisition of such security) of at least A-1 or the equivalent
thereof by S&P or at least P-1 or the equivalent thereof by Moody's, or
guaranteed by any industrial company with a long-term unsecured debt
rating (at the time of acquisition of such security) of at least AA or
the equivalent thereof by S&P or at least Aa or the equivalent thereof
by Moody's and in each case maturing within one year after the date of
acquisition and (v) repurchase agreements with any Lender or any
primary dealer maturing within one year from the date of acquisition
that are fully collateralized by investment instruments that would
otherwise be Cash Equivalent Investments; provided that the terms of
such repurchase agreements comply with the guidelines set forth in the
Federal Financial Institutions Examination Council Supervisory Policy
-- Repurchase Agreements of Depository Institutions With Securities
Dealers and Others, as adopted by the Comptroller of the Currency on
October 31, 1985.
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CERCLA means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
Change of Control means the occurrence of any of the
following events: (i) a majority of the Board of Directors of the
Company shall not be Continuing Directors; (ii) any Person or group of
Persons (within the meaning of Section 13 or 14 of the Exchange Act,
but excluding Thomas H. Lee Company and its Affiliates) shall acquire
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 25% or more of the outstanding shares of
Voting Stock of the Company; or (iii) while any Senior Subordinated
Notes are outstanding, any "Change of Control" as defined in the Senior
Subordinated Note Indenture.
Code means the Internal Revenue Code of 1986.
Collateral Document means the Security Agreement, each
Pledge Agreement, each Mortgage and any other document pursuant to
which collateral securing the liabilities of the Company or any
Guarantor under any Loan Document is granted or pledged to the
Administrative Agent for the benefit of itself, the Lenders and the
Qualified Foreign Lenders.
Commercial Letter of Credit means any Letter of Credit which
is drawable upon presentation of a sight draft and other documents
evidencing the sale or shipment of goods purchased by the Company or a
Subsidiary in the ordinary course of business.
Commitment means, as to each Lender, such Lender's Revolving
Commitment and/or Acquisition Commitment, as applicable.
Common Stock means the common stock, par value $.01 per
share, of the Company.
Company - see the Preamble.
Company Pledge Agreement means the Company Pledge Agreement
dated as of September 12, 1996 between the Company and the
Administrative Agent, a copy of which is attached hereto as Exhibit G.
Compliance Certificate means a certificate substantially in
the form of Exhibit C.
Computation Period means any period of four consecutive
fiscal quarters and in any case ending on the last day of a fiscal
quarter; provided that, solely for purposes of calculating the Interest
Coverage Ratio, the Computation Periods ending on March 31, 1998, June
30, 1998 and September 30, 1998 shall be the periods of one, two and
three fiscal quarters, respectively, ending on such dates.
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Consolidated Net Income means, with respect to the Company
and its Subsidiaries for any period, the net income (or loss) of the
Company and its Subsidiaries for such period; provided that the net
income of any Subsidiary shall be excluded from Consolidated Net Income
to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary from such income is not at the time
permitted by the terms of its charter or by-laws or any judgment,
decree, order, law, statute, rule, regulation, agreement, indenture or
other instrument which is binding on such Subsidiary.
Contingent Liabilities means, at any time, the maximum
estimated amount of liabilities reasonably likely to result at such
time from pending litigation, asserted and unasserted claims and
assessments, guaranties, uninsured risks and other contingent
liabilities of each of the Company and of each Guarantor after giving
effect to the transactions contemplated by this Agreement (including
all fees and expenses related thereto).
Contingent Obligation means, as to any Person, any direct or
indirect liability of such Person, whether or not contingent, with or
without recourse: (a) with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary
obligation") of another Person (the "primary obligor"), including any
obligation of such Person (i) to purchase, repurchase or otherwise
acquire such primary obligation or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any primary
obligation, or to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or
any balance sheet item, level of income or financial condition of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any primary
obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless
the holder of any primary obligation against loss in respect thereof
(each, a "Guaranty Obligation"); (b) with respect to any Surety
Instrument (other than any Letter of Credit) issued for the account of
such Person or as to which such Person is otherwise liable for
reimbursement of drawings or payments; (c) to purchase any materials,
supplies or other property from, or to obtain the services of, another
Person if the relevant contract or other related document or obligation
requires that payment for such materials, supplies or other property,
or for such services, shall be made regardless of whether delivery of
such materials, supplies or other property is ever made or tendered, or
such services are ever performed or tendered; or (d) in respect of any
Swap Contract. The amount of any Contingent Obligation shall, (1) in
the case of Guaranty Obligations, be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably anticipated liability in respect thereof, (2) in the
case of Swap Contracts, be equal to the Swap Termination Value and (3)
in the case of other Contingent Obligations, be equal to the maximum
reasonably anticipated liability in respect thereof.
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Continuing Director means (A) any individual who was a
member of the Company's Board of Directors on the Effective Date and
(B) any individual who becomes a member of the Company's Board of
Directors whose nomination for election by the Company's shareholders
was approved by a vote of at least a majority of the Continuing
Directors on the date of such nomination.
Contractual Obligation means, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other
instrument, document or agreement to which such Person is a party or by
which it or any of its property is bound.
Conversion/Continuation Date means any date on which, under
Section 2.4, the Company (a) converts Loans of one Type to the other
Type or (b) continues as Offshore Rate Loans, but with a new Interest
Period, Offshore Rate Loans having Interest Periods expiring on such
date.
Credit Extension means and includes (a) the making of any
Loan hereunder and (b) the Issuance of any Letter of Credit hereunder.
Dollar Equivalent means, in relation to an amount
denominated in a currency other than Dollars, the amount of Dollars
which could be purchased with such amount at the prevailing foreign
exchange spot rate.
Dollars and $ mean lawful money of the United States.
Dormant Subsidiaries means, so long as either such Person
does not have assets with a fair market value in the aggregate in
excess of $100,000 and transacts no business, Minera Vindaluz, Zoe-Phos
International and Vidor Battery; provided that no Subsidiary may be a
Dormant Subsidiary if the Company or any of its other Subsidiaries
provides any credit support thereto or is liable in any respect for the
liabilities thereof.
EBITDA means, for any Computation Period, the sum of (a)
Consolidated Net Income of the Company for such period excluding, to
the extent reflected in determining such Consolidated Net Income,
extraordinary gains for such period, plus to the extent deducted in
determining such Consolidated Net Income, Interest Expense, income tax
expense, depreciation and amortization for such period. For purposes of
calculating the Interest Coverage Ratio and the Leverage Ratio, EBITDA
shall be calculated for the relevant Computation Period on a pro forma
basis (as certified) by the Company to the Agent) assuming that all
Acquisitions made, and all divestitures completed, during such
Computation Period had been made on the first day of such Computation
Period (but without adjustment for expected cost savings or other
synergies).
Effective Amount means, with respect to any outstanding L/C
Obligations on any date, (i) the amount of such L/C Obligations on such
date after giving effect to any
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Issuances of Letters of Credit occurring on such date, (ii) the amount
of any undrawn Commercial Letters of Credit which have expired less
than 25 days prior to such date and (iii) any other changes in the
aggregate amount of the L/C Obligations as of such date, including as a
result of any reimbursements of outstanding unpaid drawings under any
Letter of Credit or any reduction in the maximum amount available for
drawing under Letters of Credit taking effect on such date.
Effective Date means the date on which all conditions
precedent set forth in Sections 5.1 and 5.2 are satisfied or waived by
all Lenders in their sole discretion (or, in the case of subsection
5.1(e), waived by the Person entitled to receive the applicable
payment).
Eligible Assignee means (i) a commercial bank organized
under the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $500,000,000; (ii) a
commercial bank organized under the laws of any other country which is
a member of the OECD, or a political subdivision of any such country,
and having a combined capital and surplus of at least $500,000,000,
provided that such bank is acting through a branch or agency located in
the United States; (iii)(x) a Lender, (y) an Affiliate of a Lender that
is a Person of the type specified in clause (i), (ii) or (iv) of this
definition or (z) a Person that is primarily engaged in the business of
commercial banking and that is (A) a Subsidiary of a Lender, (B) a
Subsidiary of a Person of which a Lender is a Subsidiary or (C) a
Person of which a Lender is a Subsidiary; and (iv) an insurance
company, pension fund, mutual fund, commercial finance company or
similar financial institution having a net worth of at least
$250,000,000.
Employment Agreement means the Employment Agreement dated as
of September 12, 1996 between the Company and David A. Jones, as
amended from time to time in accordance with Section 8.18.
Environmental Claims means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability
under any Environmental Law or responsibility for violation of any
Environmental Law, or for release or injury to the environment.
Environmental Laws means CERCLA, RCRA and all other federal,
state or local laws, statutes, common law duties, rules, regulations,
ordinances and codes relating to pollution or protection of public or
employee health or the environment, together with all administrative
orders, consent decrees, licenses, authorizations and permits of any
Governmental Authority implementing them.
ERISA means the Employee Retirement Income Security Act of
1974.
ERISA Affiliate means any trade or business (whether or not
incorporated) under common control with the Company within the meaning
of Section 414(b) or (c) of
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the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).
ERISA Event means: (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate
from a Pension Plan subject to Section 4063 of ERISA during a plan year
in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA) or a substantial cessation of operations which is
treated as such a withdrawal; (c) a complete or partial withdrawal by
the Company or any ERISA Affiliate from a Multiemployer Plan or
notification that a Multiemployer Plan is in reorganization; (d) the
filing of a notice of intent to terminate, the treatment of a Pension
Plan amendment as a termination under Section 4041 or 4041A of ERISA,
or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might
reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan or Multiemployer Plan; or (f) the
imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon the
Company or any ERISA Affiliate.
Event of Default means any of the events or circumstances
specified in Section 9.1.
Exchange Act means the Securities Exchange Act of 1934.
Excluded Assets has the meaning assigned thereto in the
Security Agreement.
Excluded Taxes - see the definition of "Taxes."
Existing Agreement - see the recitals.
Existing Letters of Credit means the Letters of Credit
described in Section 3.1.
Fair Value means, at any time, the amount at which the
assets, in their entirety, of each of the Company and of each Guarantor
would likely change hands at such time as part of a going concern and
for continued use as part of a going concern between a willing buyer
and a willing seller, within a commercially reasonable period of time,
each having reasonable knowledge of the relevant facts, with neither
being under any compulsion to act.
Federal Funds Rate means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New
York (including any such successor, "H.15(519)") on the preceding
Business Day opposite the caption "Federal Funds (Effective)"; or, if
for any relevant day such rate is not so published on any such
preceding Business Day, the rate
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for such day will be the arithmetic mean as determined by the
Administrative Agent of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m. (New York City time) on that
day by each of three leading brokers of Federal funds transactions in
New York City selected by the Administrative Agent.
Fee Letter - see subsection 2.11(a).
Foreign Subsidiary shall mean each Subsidiary of the Company
organized under the laws of any jurisdiction other than the United
States or any state thereof.
FRB means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its
principal functions.
Funded Debt means all indebtedness of the Company and its
Subsidiaries as determined in accordance with GAAP.
Further Taxes means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees, withholdings or
similar charges (including net income taxes and franchise taxes), and
all liabilities with respect thereto, imposed by any jurisdiction on
account of amounts paid or payable pursuant to Section 4.1.
GAAP means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date
of determination.
Governmental Authority means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
Guarantor means ROV Holding and each other Person which from
time to time executes and delivers a counterpart of the Guaranty.
Guaranty means the Guaranty dated as of September 12, 1996,
a copy of which is attached hereto as Exhibit F.
Guaranty Obligation has the meaning specified in the
definition of Contingent Obligation.
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Hazardous Material means
(a) any "hazardous substance", as defined by
CERCLA;
(b) any "hazardous waste", as defined by RCRA;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous,
dangerous or toxic chemical, material or substance within the meaning
of any other Environmental Law.
Hong Kong Charge means the Deed of Charge and Memorandum of
Deposit dated as of November 11, 1996 between ROV Holding and the
Administrative Agent, a copy of which is attached hereto as Exhibit
H-3.
Honor Date - see subsection 3.3(b).
Indebtedness of any Person means, without duplication: (a)
all indebtedness of such Person for borrowed money; (b) all obligations
issued, undertaken or assumed by such Person as the deferred purchase
price of property or services (other than trade payables entered into
and accrued expenses arising in the ordinary course of business on
ordinary terms); (c) all non-contingent reimbursement or payment
obligations with respect to Surety Instruments; (d) all obligations of
such Person evidenced by notes, bonds, debentures or similar
instruments; (e) all indebtedness of such Person created or arising
under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to property acquired
by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to
repossession or sale of such property); (f) all obligations of such
Person with respect to capital leases; (g) all indebtedness referred to
in clauses (a) through (f) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in property (including accounts and
contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; and (h)
all Guaranty Obligations of such Person in respect of indebtedness or
obligations of others of the kinds referred to in clauses (a) through
(g) above.
Indemnified Liabilities - see Section 11.5.
Indemnified Person - see Section 11.5.
Independent Auditor - see subsection 7.1(a).
Insolvency Proceeding means, with respect to any Person, (a)
any case, action or proceeding with respect to such Person before any
court or other Governmental
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Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of debtors
or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar
arrangement in respect of such Person's creditors generally or any
substantial portion of such creditors, in each case undertaken under
any U.S. Federal, State or foreign law, including the Bankruptcy Code.
Interest Coverage Ratio means, as of the last day of any
fiscal quarter, the ratio of (a) EBITDA for the Computation Period
ending on such day to (b) Interest Expense for such Computation Period;
provided that for the first three fiscal quarters of 1998, "Interest
Coverage Ratio" means (i) in the case of the fiscal quarter ending
March 31, 1998, the ratio of (a) EBITDA for the period of two
consecutive fiscal quarters ending on such date to (b) the product of
Interest Expense for the fiscal quarter ending on such date multiplied
by 2; (ii) in the case of the fiscal quarter ending June 30, 1998, the
ratio of (a) EBITDA for the period of three consecutive fiscal quarters
ending on such date to (b) the product of Interest Expense for the
period of two fiscal quarters ending on such date multiplied by 1.5;
and (iii) in the case of the fiscal quarter ending September 30, 1998,
the ratio of (a) EBITDA for the period of four consecutive fiscal
quarters ending on such date to (b) the product of Interest Expense for
the period of three fiscal quarters ending on such date multiplied by
1.33.
Interest Expense means for any period the consolidated
interest expense of the Company and its Subsidiaries for such period
(including all imputed interest on capital leases).
Interest Payment Date means (i) as to any Offshore Rate
Loan, the last day of each Interest Period applicable to such Loan and,
in the case of any Offshore Rate Loan with a six-month Interest Period,
the three-month anniversary of the first day of such Interest Period,
and (ii) as to any Base Rate Loan, the last Business Day of each
calendar quarter.
Interest Period means, as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending one, two, three or six
months thereafter, as selected by the Company in its Notice of
Borrowing or Notice of Conversion/Continuation; provided that:
(i) if any Interest Period would otherwise end on
a day that is not a Business Day, such Interest Period shall
be extended to the following Business Day unless the result
of such extension would be to carry such Interest Period
into another calendar month, in which event such Interest
Period shall end on the preceding Business Day;
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(ii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the
last Business Day of the calendar month at the end of such
Interest Period;
(iii) no Interest Period for an Acquisition Loan
or any portion thereof shall extend beyond any date upon
which scheduled principal payment is due in respect of the
Acquisition Loans unless the aggregate principal amount of
all Acquisition Loans which are Base Rate Loans, or are
Offshore Rate Loans having Interest Periods that will expire
on or before such date, equals or exceeds the amount of such
principal payment;
(iv) no Interest Period for a Revolving Loan or
any portion thereof shall extend beyond any Revolving
Commitment Reduction Date unless the aggregate principal
amount of all Revolving Loans which are Base Rate Loans or
Swingline Loans, or are Offshore Rate Loans having Interest
Periods that will expire before such Revolving Commitment
Reduction Date, plus the aggregate amount of all Letters of
Credit scheduled to expire before (or, in the case of
Commercial Letters of Credit, 25 days before) such Revolving
Commitment Reduction Date, plus the unused portion of the
Revolving Commitment Amount, equals or exceeds the amount of
the scheduled reduction of the Revolving Commitment Amount
on such Revolving Commitment Reduction Date; and
(v) no Interest Period for any Revolving Loan
shall extend beyond the Revolving Termination Date.
IP Subsidiary means a direct, Wholly-Owned Subsidiary of the
Company organized under the laws of California, and having a principal
place of business in the State of California, the primary business of
which is the ownership of intellectual property and the licensing of
such property to the Company and its other Subsidiaries.
IRB Debt means Indebtedness of the Company arising as a
result of the issuance of tax-exempt industrial revenue bonds or
similar tax-exempt public financing.
IRS means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
Issuance Date - see subsection 3.1(a).
Issue means, with respect to any Letter of Credit, to issue
or to extend the expiry of, or to renew or increase the amount of, such
Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have
corresponding meanings.
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Issuing Lender means BofA in its capacity as issuer of one
or more Letters of Credit hereunder, together with any replacement
letter of credit issuer arising under subsection 10.1(b) or Section
10.9.
Joint Venture means a corporation, partnership, limited
liability company, joint venture or other similar legal arrangement
(whether created by contract or conducted through a separate legal
entity) which is not a Subsidiary of the Company or any of its
Subsidiaries and which is now or hereafter formed by the Company or any
of its Subsidiaries with another Person in order to conduct a common
venture or enterprise with such Person.
Jones Note means the $500,000 Full Recourse Promissory Note,
dated September 12, 1996, made by David A. Jones in favor of the
Company.
Judgment Currency - see subsection 3.10(f).
L/C Advance means each Lender's participation in any L/C
Borrowing in accordance with its Percentage.
L/C Amendment Application means an application form for
amendment of an outstanding standby or commercial documentary letter of
credit as shall at any time be in use at the Issuing Lender, as the
Issuing Lender shall request.
L/C Application means an application form for issuances of a
standby or commercial documentary letter of credit as shall at any time
be in use at the Issuing Lender, as the Issuing Lender shall request.
L/C Borrowing means an extension of credit resulting from a
drawing under any Letter of Credit which shall not have been reimbursed
on the date when made nor converted into a Borrowing of Revolving Loans
under subsection 3.3(c).
L/C Commitment means the commitment of the Issuing Lender to
Issue, and the commitments of the Lenders severally to participate in,
Letters of Credit (including the Existing Letters of Credit) from time
to time Issued or outstanding under Article III, in an aggregate amount
not to exceed on any date the lesser of $10,000,000 and the Revolving
Commitment Amount; it being understood that the L/C Commitment is a
part of the Revolving Commitments, rather than a separate, independent
commitment.
L/C Fee Rate means, at any time for any Letter of Credit,
the rate per annum determined pursuant to Schedule 1.1; provided that
such rate shall be increased by 2% at any time an Event of Default
exists.
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L/C Obligations means at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit then outstanding,
plus (b) the amount of all unreimbursed drawings under all Letters of
Credit, including all outstanding L/C Borrowings.
L/C-Related Documents means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document
relating to any Letter of Credit, including any of the Issuing Lender's
standard form documents for letter of credit issuances.
Lenders means the several financial institutions from time
to time party to this Agreement. References to the "Lenders" shall
include BofA in its capacity as the Issuing Lender and in its capacity
as Swingline Lender; for purposes of clarification only, to the extent
that the Issuing Lender or the Swingline Lender may have any rights or
obligations in addition to those of the other Lenders due to its status
as Issuing Lender or Swingline Lender, its status as such will be
specifically referenced.
Lending Office means, as to any Lender, the office or
offices of such Lender specified as its "Lending Office" or "Domestic
Lending Office" or "Offshore Lending Office", as the case may be, on
Schedule 11.2, or such other office or offices as such Lender may from
time to time specify to the Company and the Administrative Agent.
Letter of Credit means the Existing Letters of Credit and
any letter of credit (whether a standby letter of credit or commercial
documentary letter of credit) Issued by the Issuing Lender pursuant to
Article III.
Leverage Ratio means at, as of any date, the ratio of (i)
the aggregate outstanding principal amount of all Funded Debt as of
such date to (ii) EBITDA for the Computation Period most recently ended
on or before such date for which financial statements have been
delivered pursuant to Section 7.1.
Lien means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale or
other title retention agreement, the interest of a lessor under a
capital lease, or any financing lease having substantially the same
economic effect as any of the foregoing, but not including the interest
of a lessor under an operating lease).
Loan means an extension of credit by a Lender to the Company
under Article II or Article III in the form of a Revolving Loan,
Acquisition Loan, Swingline Loan or L/C Advance.
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Loan Documents means this Agreement, any Notes, the Fee
Letter, the L/CRelated Documents, the Guaranty, the Collateral
Documents and all other documents delivered to the Administrative Agent
or any Lender in connection herewith.
Management Agreement means the Management Agreement, dated
as of September 12, 1996, between Thomas H. Lee Company and the
Company, as amended from time to time in accordance with Section 8.19.
Margin means at any time the rate per annum determined
pursuant to Schedule 1.1.
Margin Stock means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
Material Adverse Effect means (a) a material adverse change
in, or a material adverse effect upon, the operations, business,
properties, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole; (b) a material
impairment of the ability of the Company or any Guarantor to perform
any of its obligations under any Loan Document; or (c) a material
adverse effect upon the legality, validity, binding effect or
enforceability against the Company or any Guarantor of any Loan
Document.
Minera Vindaluz means Minera Vindaluz, S.A. de C.V., a
corporation organized under the laws of Mexico.
Mortgage means (a) each mortgage or deed of trust listed on
Schedule 6.19(b) and (b) any other mortgage, leasehold mortgage, deed
of trust or similar document granting a Lien on real property in
appropriate form for filing or recording in the applicable jurisdiction
and otherwise reasonably satisfactory to the Administrative Agent.
Multiemployer Plan means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, with respect to which the
Company or any ERISA Affiliate may have any liability.
Netherlands Share Pledge Agreement means the Deed of Pledge
dated as of November 11, 1996 between ROV Holding and the
Administrative Agent, a copy of which is attached hereto as Exhibit
H-4.
Non-Dollar Letter of Credit - see Section 3.10.
Non-Use Fee Rate means at any time the rate per annum
determined pursuant to Schedule 1.1.
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Note means a promissory note executed by the Company in
favor of a Lender pursuant to subsection 2.2(b), in substantially the
form of Exhibit D.
Notice of Borrowing means a notice in substantially the form
of Exhibit A.
Notice of Conversion/Continuation means a notice in
substantially the form of Exhibit B.
Obligations means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document owing
by the Company to any Lender, the Administrative Agent, or any
Indemnified Person, whether direct or indirect (including those
acquired by assignment), absolute or contingent, due or to become due,
or now existing or hereafter arising.
OECD means the Organization for Economic Cooperation and
Development.
Offshore Rate means, for any Interest Period, with respect
to Offshore Rate Loans comprising part of the same Borrowing, the rate
of interest per annum (rounded upward, if necessary, to the next 1/16th
of 1%) determined by the Administrative Agent as follows:
Offshore Rate = IBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as
a decimal, rounded upward, if necessary, to the next 1/100th
of 1%) in effect on such day (whether or not applicable to
any Lender) under regulations issued from time to time by
the FRB for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities"); and
"IBOR" means the rate of interest per annum determined by the
Administrative Agent as the rate at which Dollar deposits in
the approximate amount of BofA's Offshore Rate Loan for such
Interest Period would be offered by BofA's Grand Cayman
Branch, Grand Cayman B.W.I. (or such other office as may be
designated for such purpose by BofA), to major banks in the
offshore Dollar interbank market at their request at
approximately 11:00 a.m. (New York City time) two Business
Days prior to the commencement of such Interest Period.
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The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
Offshore Rate Loan means a Loan that bears interest based on
the Offshore Rate.
Organization Documents means, (a) for any domestic
corporation, the certificate or articles of incorporation, the bylaws,
any certificate of determination or instrument relating to the rights
of preferred shareholders of such corporation, any shareholder rights
agreement, and all applicable resolutions of the board of directors (or
any committee thereof) of such corporation and (b) for any foreign
corporation, the equivalent documents.
Other Taxes means any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery, performance, enforcement or registration of, or
otherwise with respect to, this Agreement or any other Loan Document.
Overnight Rate - see subsection 3.10(g).
Participant - see subsection 11.8(c).
PBGC means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.
Pension Plan means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA with respect to which the
Company or any ERISA Affiliate may have any liability.
Percentage means, as to any Lender, the percentage which (a)
the amount of such Lender's Commitment is of (b) the aggregate amount
of all of the Lenders' Commitments (or, if the Commitments have
terminated, which the sum of such Lender's Loans plus such Lender's
participation interest in Swingline Loans and L/C Obligations is of the
aggregate amount of all Loans and L/C Obligations). The initial
Percentage for each Lender is set forth across from such Lender's name
on Schedule 2.1.
Permitted Liens - see Section 8.1.
Permitted Swap Obligations means all obligations (contingent
or otherwise) of the Company or any Subsidiary existing or arising
under Swap Contracts, provided that each of the following criteria is
satisfied: (a) such obligations are (or were) entered into by such
Person in the ordinary course of business for the purpose of directly
mitigating risks associated with liabilities, commitments or assets
held or reasonably anticipated by
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such Person, or changes in the value of securities issued by such
Person in conjunction with a securities repurchase program not
otherwise prohibited hereunder, and not for purposes of speculation or
taking a "market view;" and (b) such Swap Contracts do not contain (i)
any provision ("walk-away" provision) exonerating the non-defaulting
party from its obligation to make payments on outstanding transactions
to the defaulting party or (ii) any provision creating or permitting
the declaration of an event of default, termination event or similar
event upon the occurrence of an Event of Default hereunder (other than
an Event of Default under subsection 9.1(a)).
Person means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
Plan means an employee benefit plan (as defined in Section
3(3) of ERISA) with respect to which the Company may have any
liability.
Pledge Agreement means the Company Pledge Agreement and each
Subsidiary Pledge Agreement.
Present Fair Saleable Value means, at any time, the amount
that could be obtained at such time by an independent willing seller
from an independent willing buyer if the assets of each of the Company
and each Guarantor are sold with reasonable promptness in an
arm's-length transaction under present conditions for the sale of
comparable assets.
Qualified Foreign Credit Facility means a credit facility
provided by a Lender or an Affiliate of a Lender to any Foreign
Subsidiary which (i) is guarantied by the Company, (ii) is permitted
under subsection 8.5(d), and (iii) the Company has specified (in a
written notice to the Administrative Agent) is entitled to the benefit
of the Guaranty and the Collateral Documents.
Qualified Foreign Lender means any Lender or any Affiliate
of a Lender which is a party to a Qualified Foreign Credit Facility.
RCRA means the Resource Conservation and Recovery Act, 42
U.S.C. Section 690, et seq.
Release means a "release", as such term is defined in
CERCLA.
Replacement Lender - see Section 4.7.
Reportable Event means any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder, other than any
such event for which the 30-day
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notice requirement under ERISA has been waived in regulations issued by
the PBGC or administrative pronouncements.
Required Lenders means, at any time, Lenders having an
aggregate Percentage of 51% or more.
Requirement of Law means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of
an arbitrator or of a Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such
Person or any of its property is subject.
Responsible Officer means the chief executive officer or the
president of the Company, or any other officer having substantially the
same authority and responsibility or the chief financial officer or the
treasurer of the Company, or any other officer having substantially the
same authority and responsibility.
Revolving Commitment means, as to any Lender, the commitment
of such Lender to make Revolving Loans pursuant to subsection 2.1(a).
The initial amount of each Lender's Revolving Commitment is set forth
across from such Lender's name on Schedule 2.1.
Revolving Commitment Amount means $90,000,000, as reduced
from time to time in accordance with the terms hereof.
Revolving Commitment Reduction Date - see subsection 2.6(a).
Revolving Loan - see subsection 2.1(a).
Revolving Outstandings means, at any time, the sum of the
principal amount of all outstanding Revolving Loans and Swingline Loans
plus the Effective Amount of all L/C Obligations.
Revolving Termination Date means the earlier to occur of (a)
December 31, 2002; and (b) the date on which the Revolving Commitments
terminate in accordance with the provisions of this Agreement.
ROV Holding means ROV Holding, Inc., a Delaware corporation
and a Subsidiary.
SEC means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
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Security Agreement means the Security Agreement dated as of
September 12, 1996 among the Company, ROV Holding, any other Person
that becomes a party thereto and the Administrative Agent, a copy of
which is attached hereto as Exhibit E.
Senior Subordinated Notes means the 10-1/4% Senior
Subordinated Notes issued by the Company pursuant to the Senior
Subordinated Note Indenture.
Senior Subordinated Note Indenture means the Indenture dated
as of October 22, 1996 among the Company, ROV Holding and Marine
Midland Bank, as Trustee.
Senior Subordinated Note Prepayment means the prepayment by
the Company of $35,000,000 of principal of the Senior Subordinated
Notes (plus accrued and unpaid interest thereon and a redemption
premium of $3,237,500) on December 30, 1997.
Standby Letter of Credit means any Letter of Credit that is
not a Commercial Letter of Credit.
Stated Liabilities means, at any time, the recorded
liabilities (including Contingent Liabilities that would be recorded in
accordance with GAAP) of each of the Company and of each Guarantor at
such time after giving effect to the transactions contemplated under
this Agreement, determined in accordance with GAAP consistently
applied, together with the amount, without duplication, of all Loans
and Contingent Liabilities.
Subordinated Debt means (a) the Senior Subordinated Notes
and (b) all other unsecured Indebtedness of the Company for money
borrowed which is subject to, and is only entitled to the benefits of,
terms and provisions (including maturity, amortization, acceleration,
interest rate, sinking fund, covenant, default and subordination
provisions) satisfactory in form and substance to the Required Lenders,
in each case as evidenced by their written approval thereof (which may
be granted or withheld in their sole discretion).
Subsidiary of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests
or other equity interests is owned or controlled directly or indirectly
by such Person, or one or more of the Subsidiaries of such Person, or a
combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary of the
Company.
Subsidiary Pledge Agreement means the U.K. Charge, the Hong
Kong Charge, the Netherlands Share Pledge Agreement, the Canadian Share
Pledge Agreement and each other agreement pursuant to which any
Subsidiary pledges to the Administrative Agent shares of stock owned by
it or Indebtedness owing to it.
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Surety Instruments means all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties, surety
bonds and similar instruments.
Swap Contract means any agreement, whether or not in
writing, relating to any transaction that is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity option, equity or
equity index swap or option, bond, note or bill option, interest rate
option, forward foreign exchange transaction, cap, collar or floor
transaction, currency swap, cross-currency rate swap, swaption,
currency option or any other, similar transaction (including any option
to enter into any of the foregoing) or any combination of the
foregoing, and, unless the context otherwise clearly requires, any
master agreement relating to or governing any or all of the foregoing.
Swap Termination Value means, in respect of any one or more
Swap Contracts, after taking into account the effect of any legally
enforceable netting agreement relating to such Swap Contracts, (a) for
any date on or after the date such Swap Contracts have been closed out
and termination value(s) determined in accordance therewith, such
termination value(s), and (b) for any date prior to the date referenced
in clause (a) the amount(s) determined as the mark-to-market value(s)
for such Swap Contracts, as determined based upon one or more
mid-market or other readily available quotations provided by any
recognized dealer in such Swap Contracts (which may include any
Lender).
Swingline Lender means BofA in its capacity as lender of
Swingline Loans together with any replacement lender of Swingline Loans
arising under Section 10.9.
Swingline Loan has the meaning specified in subsection
2.5(a).
Taxes means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, charges or withholdings, fees
or similar charges and all liabilities with respect thereto, excluding,
in the case of each Lender and the Administrative Agent, such taxes
(including income taxes, branch profit taxes or franchise taxes) as are
imposed on or measured by such Lender's or the Administrative Agent's,
as the case may be, net income by the jurisdiction (or any political
subdivision thereof) under the laws of which such Lender or the
Administrative Agent, as the case may be, is organized, maintains a
lending office or conducts business (collectively, "Excluded Taxes").
Type of Loan means the characterization of a Loan as a Base
Rate Loan or an Offshore Rate Loan.
U.K. Charge means the Deed of Charge and Memorandum of
Deposit dated September 12, 1996 between ROV Holding and the
Administrative Agent, a copy of which is attached hereto as Exhibit
H-1.
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Unfunded Pension Liability means the excess of a Pension
Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the
current value of such Pension Plan's assets, determined in accordance
with the assumptions used for funding such Pension Plan pursuant to
Section 412 of the Code for the applicable plan year.
United States and U.S. each means the United States of
America.
Unmatured Event of Default means any event or circumstance
which, with the giving of notice, the lapse of time, or both, would (if
not cured or otherwise remedied during such time) constitute an Event
of Default.
Vidor Battery means Vidor Battery Company, a Wisconsin
corporation.
Voting Stock means, with respect to any corporation, the
capital stock of such corporation having general voting power under
ordinary circumstances to elect directors to the board of directors of
such corporation, but shall not include any capital stock that has or
would have such voting power solely by reason of the happening of any
contingency.
Wholly-Owned Subsidiary means any corporation in which
(other than director's qualifying shares or due to native ownership
requirements) 100% of the capital stock of each class is owned
beneficially and of record by the Company or by one or more other
Wholly-Owned Subsidiaries.
Zoe-Phos International means Zoe-Phos International N.V., a
corporation organized under the laws of the Netherlands Antilles.
1.2 Other Interpretive Provisions. (a) The meanings of
defined terms are equally applicable to the singular and plural forms
of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from
and including"; the words "to" and "until" each mean "to but
excluding"; and the word "through" means "to and including."
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(d) Unless otherwise expressly provided herein, (i)
references to agreements (including this Agreement) and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document and (ii)
references to any statute or regulation are to be construed as including all
statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting the statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and the other Loan Documents may use
several different limitations, tests or measurements to regulate the same or
similar matters. All such limitations, tests and measurements are cumulative and
shall each be performed in accordance with their terms.
1.3 Accounting Principles.
(a) Unless the context otherwise clearly requires, all
accounting terms not expressly defined herein shall be construed, and all
financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied; provided that if the Company
notifies the Administrative Agent that the Company wishes to amend any covenant
in Article VIII or any corresponding definition to eliminate the effect of any
change in GAAP on the operation of such covenant (or if the Administrative Agent
notifies the Company that the Required Lenders wish to amend Article VIII or any
corresponding definition for such purpose), then the Company's compliance with
such covenant shall be determined on the basis of GAAP in effect immediately
before the relevant change in GAAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Company
and the Required Lenders.
(b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Company.
1.4 Reallocation of Loans and Commitments.
(a) The Company and each Lender agree that, effective on the
Effective Date, this Agreement amends and restates in its entirety the Existing
Agreement. On the Effective Date, the Commitments of the Lenders shall be
reallocated in accordance with the terms hereof and each Lender shall have a
direct or participation share equal to its Percentage of all outstanding Credit
Extensions.
(b) To facilitate the reallocation described in subsection
(a), on the Effective Date, (i) all loans under the Existing Agreement shall be
deemed to be Revolving Loans hereunder, (ii) each Lender which is a party to the
Existing Agreement shall transfer to the
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Administrative Agent an amount equal to the excess, if any, of such Lender's
Percentage of all outstanding Revolving Loans hereunder (including any Revolving
Loans requested by the Company on the Effective Date) over the amount of all of
such Lender's loans under the Existing Agreement, (iii) each Lender which is not
a party to the Existing Agreement shall transfer to the Administrative Agent an
amount equal to such Lender's Percentage of all outstanding Revolving Loans
hereunder (including any Revolving Loans requested by the Company on the
Effective Date), (iv) the Administrative Agent shall apply the funds received
from the Lenders pursuant to clauses (ii) and (iii), first, on behalf of the
Lenders (pro rata according to the amount of the loans each is required to
purchase to achieve the reallocation described in subsection (a)), to purchase
from each Existing Lender which is not a party hereto the loans of such Existing
Lender under the Existing Agreement (and, if applicable to purchase from any
Existing Lender which is a party hereto but which has loans under the Existing
Agreement in excess of such Lender's Percentage of all then-outstanding
Revolving Loans hereunder (including any Revolving Loans requested by the
Company on the Effective Date), a portion of such loans equal to such excess),
second, to pay to each Existing Lender all interest, fees and other amounts
(including amounts payable to Section 4.4 of the Existing Agreement, assuming
for such purpose that the loans under the Existing Agreement were prepaid rather
than reallocated on the Effective Date) owed to such Existing Lender under the
Existing Agreement (whether or not otherwise then due) and, third, as the
Company shall direct, (v) the Company shall select new Interest Periods to apply
to all Revolving Loans hereunder (or, to the extent the Company fails to do so,
such Revolving Loans shall be Base Rate Loans).
ARTICLE II
THE CREDITS
2.1 Amounts and Terms of Commitments.
(a) The Revolving Facility. Each Lender severally agrees, on
the terms and conditions set forth herein, to make loans to the Company (each
such loan, a "Revolving Loan") from time to time on any Business Day during the
period from the Effective Date to the Revolving Termination Date, in an
aggregate amount not to exceed at any time outstanding such Lender's Percentage
of the Revolving Commitment Amount; provided that, after giving effect to any
Borrowing of Revolving Loans, the Revolving Outstandings shall not exceed the
Revolving Commitment Amount. Within the foregoing limits, and subject to the
other terms and conditions hereof, the Company may borrow under this subsection
2.1(a), prepay under Section 2.7 or 2.8 and reborrow under this subsection
2.1(a).
(b) The Acquisition Facility. Each Lender severally agrees,
on the terms and conditions set forth herein, to make loans to the Company (each
such loan, an "Acquisition Loan"), from time to time on any Business Day during
the period from the Effective Date to December 31, 1998, in an aggregate amount
not to exceed such Lender's Percentage of the Acquisition Commitment Amount as
in effect on such day.
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2.2 Loan Accounts. (a) The Loans made by each Lender and the Letters of
Credit Issued by the Issuing Lender shall be evidenced by one or more accounts
or records maintained by such Lender or the Issuing Lender, as the case may be,
in the ordinary course of business. The accounts or records maintained by the
Administrative Agent, the Issuing Lender and each Lender shall be conclusive
(absent manifest error) as to the amount of the Loans made by the Lenders to the
Company and the Letters of Credit Issued for the account of the Company, and the
interest and payments thereon. Any failure to record or any error in doing so
shall not, however, limit or otherwise affect the obligation of the Company
hereunder to pay any amount owing with respect to any Loan or any Letter of
Credit.
(b) Upon the request of any Lender made through the
Administrative Agent, the Loans made by such Lender may be evidenced by one or
more Notes in addition to loan accounts. Each such Lender shall endorse on the
schedules annexed to its Note(s) the date, amount and maturity of each Loan made
by it and the amount of each payment of principal made by the Company with
respect thereto. Each such Lender is irrevocably authorized by the Company to
endorse its Note(s) and each Lender's record shall be conclusive absent manifest
error; provided, however, that the failure of a Lender to make, or an error in
making, a notation thereon with respect to any Loan shall not limit or otherwise
affect the obligations of the Company hereunder or under any Note to such
Lender.
2.3 Procedure for Borrowing. (a) Each Borrowing shall be made upon the
Company's irrevocable written notice delivered to the Administrative Agent in
the form of a Notice of Borrowing (which notice must be received by the
Administrative Agent (i) prior to 11:00 a.m. (Chicago time) three Business Days
prior to the requested Borrowing Date, in the case of Offshore Rate Loans and
(ii) prior to 11:00 a.m. (Chicago time) one Business Day prior to the requested
Borrowing Date, in the case of Base Rate Loans), specifying:
(A) the amount of the Borrowing, which shall be
in an amount of $1,000,000 or a higher integral multiple of
$250,000;
(B) the requested Borrowing Date, which shall be
a Business Day;
(C) the Type of Loans comprising the Borrowing;
and
(D) in the case of Offshore Rate Loans, the
duration of the Interest Period applicable to such
Borrowing.
(b) The Administrative Agent will promptly notify each
Lender of its receipt of any Notice of Borrowing and of the amount of such
Lender's share of the related Borrowing.
(c) Each Lender will make the amount of its share of each
Borrowing available to the Administrative Agent for the account of the Company
at the Agent's Payment Office by 1:00 p.m. (Chicago time) on the Borrowing Date
requested by the Company in funds
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immediately available to the Administrative Agent. The proceeds of all Loans
will then be made available to the Company by the Administrative Agent at such
office by crediting the account of the Company on the books of BofA with the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent.
(d) After giving effect to any Borrowing, there may not be
more than twelve different Interest Periods in effect.
2.4 Conversion and Continuation Elections. (a) The Company may, upon
irrevocable written notice to the Administrative Agent in accordance with
subsection 2.4(b):
(i) elect to convert, on any Business Day, any Base Rate
Loans (in an aggregate amount of $1,000,000 or a higher integral
multiple of $250,000) into Offshore Rate Loans;
(ii) elect to convert, on the last day of the applicable
Interest Period, any Offshore Rate Loans (or any part thereof in an
aggregate amount of $1,000,000 or a higher integral multiple of
$250,000) into Base Rate Loans; or
(iii) elect to continue, as of the last day of the
applicable Interest Period, any Offshore Rate Loans having Interest
Periods expiring on such day (or any part thereof in an aggregate
amount of $1,000,000 or a higher integral multiple of $250,000);
provided that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing shall have been reduced, by payment, prepayment or
conversion of part thereof, to be less than $1,000,000, such Offshore Rate Loans
shall automatically convert into Base Rate Loans.
(b) The Company shall deliver a Notice of
Conversion/Continuation to be received by the Administrative Agent not later
than (i) 11:00 a.m. (Chicago time) at least three Business Days in advance of
the Conversion/Continuation Date, if the Loans are to be converted into or
continued as Offshore Rate Loans and (ii) not later than 11:00 a.m. (Chicago
time) one Business Day prior to the Conversion/Continuation Date, if the Loans
are to be converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate principal amount of Loans to be
converted or continued;
(C) the Type of Loans resulting from the proposed
conversion or continuation; and
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(D) in the case of conversions into Offshore Rate
Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable
to Offshore Rate Loans, the Company has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans, the Company shall be deemed
to have elected to convert such Offshore Rate Loans into Base Rate Loans
effective as of the expiration date of such Interest Period.
(d) The Administrative Agent will promptly notify each
Lender of its receipt of a Notice of Conversion/Continuation or, if no timely
notice is provided by the Company, the Administrative Agent will promptly notify
each Lender of the details of any automatic conversion. All conversions and
continuations shall be made ratably according to the Percentages of the Lenders.
(e) Unless the Required Lenders otherwise agree, during the
existence of an Event of Default or Unmatured Event of Default, the Company may
not elect to have a Loan converted into or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of
Loans, there may not be more than twelve different Interest Periods in effect.
2.5 Swingline Loans.
(a) Subject to the terms and conditions hereof, the
Swingline Lender may, in its sole discretion (subject to subsection 2.5(b)),
make a portion of the Revolving Commitments available to the Company by making
swingline loans (each such loan, a "Swingline Loan") to the Company on any
Business Day during the period from the Effective Date to the Revolving
Termination Date in accordance with the procedures set forth in this Section 2.5
in an aggregate principal amount at any one time outstanding not to exceed the
lesser of (x) the Revolving Commitment Amount and (y) $5,000,000,
notwithstanding the fact that such Swingline Loans, when aggregated with the
Swingline Lender's outstanding Revolving Loans and direct or participation
interest in Letters of Credit, may exceed the Swingline Lender's Percentage of
the Revolving Commitment Amount; provided that at no time shall Revolving
Outstandings exceed the Revolving Commitment Amount. Subject to the other terms
and conditions hereof, the Company may borrow under this subsection 2.5(a),
prepay pursuant to subsection 2.5(d) and reborrow pursuant to this subsection
2.5(a) from time to time; provided that the Swingline Lender shall not be
obligated to make any Swingline Loan.
(b) The Company shall provide the Administrative Agent and
the Swingline Lender irrevocable written notice (or notice by a telephone call
confirmed promptly by facsimile) of any Swingline Loan requested hereunder
(which notice must be received by the Swingline Lender and the Administrative
Agent prior to 12:00 p.m. (Chicago time) on the requested Borrowing Date)
specifying (i) the amount to be borrowed, and (ii) the requested
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Borrowing Date, which must be a Business Day. Upon receipt of such notice, the
Swingline Lender will promptly confirm with the Administrative Agent (by
telephone or in writing) that the Administrative Agent has received a copy of
such notice from the Company and, if not, the Swingline Lender will provide the
Administrative Agent with a copy thereof. If and only if the Administrative
Agent notifies the Swingline Lender on the proposed Borrowing Date that it may
make available to the Company the amount of the requested Swingline Loan, then,
subject to the terms and conditions hereof, the Swingline Lender may make the
amount of the requested Swingline Loan available to the Company by crediting the
account of the Company on the books of BofA with the amount of such Swingline
Loan. The Administrative Agent will not so notify the Swingline Lender if the
Administrative Agent has knowledge that (A) the limitations set forth in the
proviso set forth in the first sentence of subsection 2.5(a) are being violated
or would be violated by such Swingline Loan or (B) one or more conditions
specified in Article V is not then satisfied. Each Swingline Loan shall be in an
aggregate principal amount equal to $100,000 or a higher integral multiple
thereof. The Swingline Lender will promptly notify the Administrative Agent of
the amount of each Swingline Loan.
(c) Principal of and accrued interest on each Swingline Loan
shall be due and payable (i) on demand made by the Swingline Lender at any time
upon one Business Day's prior notice to the Company furnished at or before 10:45
a.m. (Chicago time), and (ii) in any event on the Revolving Termination Date. In
addition, interest on each Swingline Loan shall be due and payable on each
Interest Payment Date. Interest on Swingline Loans shall be for the sole account
of the Swingline Lender (except to the extent that the other Lenders have funded
the purchase of participations therein pursuant to subsection 2.5(e)).
(d) The Company may, from time to time on any Business Day,
make a voluntary prepayment, in whole or in part, of the outstanding principal
amount of any Swingline Loan, without incurring any premium or penalty; provided
that
(i) each such voluntary prepayment shall require
prior written notice given to the Administrative Agent and the
Swingline Lender no later than 1:00 p.m. (Chicago time) on the day on
which the Company intends to make a voluntary prepayment, and
(ii) each such voluntary prepayment shall be in
an amount equal to $100,000 or a higher integral multiple thereof.
Voluntary prepayments of Swingline Loans shall be made by the Company
to the Swingline Lender at such office as the Swingline Lender may designate by
notice to the Company from time to time. All such payments shall be made in
Dollars and in immediately available funds no later than 4:00 p.m. (Chicago
time) on the date specified by the Company pursuant to clause (i) above (and any
payment received later than such time shall be deemed to have been received on
the next Business Day). The Swingline Lender will promptly notify the
Administrative Agent of the amount of each prepayment of Swingline Loans.
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(e) If (i) any Swingline Loan shall remain outstanding at
11:00 a.m. (Chicago time) on the Business Day immediately prior to a Business
Day on which Swingline Loans are due and payable pursuant to subsection 2.5(c)
and by such time on such Business Day the Administrative Agent shall have
received neither (A) a Notice of Borrowing delivered pursuant to Section 2.3
requesting that Revolving Loans be made pursuant to subsection 2.1(a) on such
following Business Day in an amount at least equal to the aggregate principal
amount of such Swingline Loans, nor (B) any other notice indicating the
Company's intent to repay such Swingline Loans with funds obtained from other
sources, or (ii) any Swingline Loans shall remain outstanding during the
existence of an Unmatured Event of Default or Event of Default and the Swingline
Lender shall in its sole discretion notify the Administrative Agent that the
Swingline Lender desires that such Swingline Loans be converted into Revolving
Loans, then the Administrative Agent shall be deemed to have received a Notice
of Borrowing from the Company pursuant to Section 2.3 requesting that Base Rate
Loans be made pursuant to subsection 2.1(a) on the following Business Day in an
amount equal to the aggregate amount of such Swingline Loans, and the procedures
set forth in subsections 2.3(b) and 2.3(c) shall be followed in making such Base
Rate Loans; provided that such Base Rate Loans shall be made notwithstanding the
Company's failure to comply with Section 5.2; and provided, further, that if a
Borrowing of Revolving Loans becomes legally impractical and if so required by
the Swingline Lender at the time such Revolving Loans are required to be made by
the Lenders in accordance with this subsection 2.5(e), each Lender agrees that
in lieu of making Revolving Loans as described in this subsection 2.5(e), such
Lender shall purchase a participation from the Swingline Lender in the
applicable Swingline Loans in an amount equal to such Lender's Percentage of
such Swingline Loans, and the procedures set forth in subsections 2.3(b) and
2.3(c) shall be followed in connection with the purchases of such
participations. The proceeds of such Base Rate Loans (or participations
purchased) shall be delivered by the Administrative Agent to the Swingline
Lender to repay such Swingline Loans (or as payment for such participations). A
copy of each notice given by the Administrative Agent to the Lenders pursuant to
this subsection 2.5(e) with respect to the making of Loans, or the purchases of
participations, shall be promptly delivered by the Administrative Agent to the
Company. Each Lender's obligation in accordance with this Agreement to make the
Revolving Loans, or purchase the participations, as contemplated by this
subsection 2.5(e), shall be absolute and unconditional and shall not be affected
by any circumstance, including (1) any set-off, counterclaim, recoupment,
defense or other right which such Lender may have against the Swingline Lender,
the Company or any other Person for any reason whatsoever; (2) the occurrence or
continuance of an Unmatured Event of Default, an Event of Default or a Material
Adverse Effect; or (3) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
2.6 Termination or Reduction of Commitments.
(a) Scheduled Reductions of Revolving Commitment Amount. The
Revolving Commitment Amount shall be reduced on each of the following dates
(each a "Revolving Commitment Reduction Date") by the amount set forth opposite
such date:
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Revolving Commitment Reduction
Reduction Date Amount
-------------------- ----------
December 31, 1999 $10,000,000
December 31, 2000 $15,000,000
December 31, 2001 $15,000,000.
(b) Reduction of Acquisition Commitment Amount. On each date
that the Company borrows Acquisition Loans, the Acquisition Commitment Amount
shall be reduced by the aggregate amount of such Acquisition Loans.
(c) Termination of the Acquisition Commitment Amount. At the
close of business on December 31, 1998, the Acquisition Commitment Amount shall
be reduced to zero and the Lenders shall have no further obligation to make
Acquisition Loans.
(d) Voluntary Reduction or Termination of Commitments. The
Company may, upon not less than three Business Days' prior written notice to the
Administrative Agent, (i) permanently reduce the Revolving Commitment Amount to
an amount which is not less than the Revolving Outstandings or (ii) permanently
reduce the Acquisition Commitment Amount. Any such reduction shall be in an
aggregate amount of $2,000,000 or a higher integral multiple of $1,000,000. The
Company may at any time on like notice (i) terminate the Revolving Commitments
upon payment in full of all Revolving Loans and Swingline Loans and Cash
Collateralization in full of all L/C Obligations or (ii) terminate the
Acquisition Commitments.
(e) All Reductions or Terminations of Commitments. Once
reduced in accordance with this Section, neither the Revolving Commitment Amount
nor the Acquisition Commitment Amount may be increased without the consent of
all Lenders. Any reduction of the Revolving Commitments or the Acquisition
Commitments shall be applied to the Revolving Commitment or the Acquisition
Commitment, as the case may be, of each Lender according to its Percentage. All
accrued commitment fees to, but not including, the effective date of any
reduction or termination of the Revolving Commitments or the Acquisition
Commitments shall be paid on the effective date of such reduction or
termination.
2.7 Optional Prepayments. (a) Subject to Section 4.4, the Company may,
from time to time, upon irrevocable written notice to the Administrative Agent
(which notice must be received by 11:00 a.m. (Chicago time) one Business Day
prior to the requested day of prepayment in the case of Base Rate Loans and
11:00 a.m. (Chicago time) three Business Days prior to the date of prepayment in
the case of Offshore Rate Loans), prepay any Borrowing of Revolving Loans or
Acquisition Loans in whole or in part, without premium or penalty, in an
aggregate amount of $1,000,000 or a higher integral multiple of $250,000.
(b) Each notice of prepayment shall specify the date and
amount of such prepayment and the Loans to be prepaid. The Administrative Agent
will promptly notify each Lender of its receipt of any such notice and of such
Lender's share of such prepayment. If any
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such notice is given by the Company, the Company shall make such prepayment and
the payment amount specified in such notice shall be due and payable on the date
specified therein, together with accrued interest to such date on the amount
prepaid and any amounts required pursuant to Section 4.4. All prepayments of
Acquisition Loans shall be applied, at the Company's election (expressed in
writing to the Administrative Agent no later than one Business Day prior to such
prepayment), (x) against one or both of the next two unpaid principal
installments of the Acquisition Loans, (y) pro rata to the unpaid installments
of the Acquisition Loans or (z) in such combination of the alternatives
expressed in clauses (x) and (y) as the Company shall specify in writing to the
Administrative Agent (it being understood that if the Company fails to give any
notice as to application of such prepayment, such prepayment will be applied as
set forth in clause (y)).
2.8 Mandatory Prepayments of Revolving Loans. If, on any Revolving
Commitment Reduction Date, the Revolving Outstandings exceed the Revolving
Commitment Amount (after giving effect to the reduction of the Revolving
Commitment Amount on such date), the Company shall immediately prepay an
outstanding principal amount of the Revolving Loans, Swingline Loans and/or L/C
Advances in an amount equal to such excess (and any such prepayment shall be
subject to the provisions of Section 4.4).
2.9 Repayment.
(a) The Acquisition Facility Credit. The Company shall repay
the Acquisition Loans in quarterly installments on the last day of each calendar
quarter, commencing on March 31, 1999, in an amount equal to the applicable
percentage set forth below of the total amount of the Acquisition Loans
outstanding on December 31, 1998:
Date Percentage
---- ----------
3/31/99 through 12/31/00 5.0%
3/31/01 through 12/31/02 7.5%.
(b) The Revolving Facility. The Company shall pay to the
Administrative Agent, for the account of the Lenders, on the Revolving
Termination Date the aggregate principal amount of all Revolving Loans
outstanding on such date.
2.10 Interest. (a) Each Revolving Loan and Acquisition Loan shall bear
interest on the outstanding principal amount thereof from the applicable
Borrowing Date at a rate per annum equal to the Base Rate or the Offshore Rate,
as the case may be (and subject to the Company's right to convert to the other
Type of Loans under Section 2.4), plus, in the case of Offshore Rate Loans, the
Margin. Each Swingline Loan shall bear interest on the outstanding principal
amount thereof from the applicable Borrowing Date at a rate per annum equal to
the Base Rate.
(b) Interest on each Loan shall be paid in arrears on each
Interest Payment Date therefor. Interest shall also be paid on the date of any
prepayment of Offshore Rate Loans
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under Section 2.7 or 2.8 for the portion of the Loans so prepaid and upon
payment (including prepayment) in full thereof.
(c) Notwithstanding subsection (a) of this Section, during
the existence of any Event of Default, the Company shall pay interest (after as
well as before entry of judgment thereon to the extent permitted by law) on the
principal amount of all outstanding Loans and, to the extent permitted by
applicable law, on any other amount payable hereunder or under any other Loan
Document, at a rate per annum equal to the rate otherwise applicable thereto
pursuant to the terms hereof or such other Loan Document (or, if no such rate is
specified, the Base Rate) plus 2%. All such interest shall be payable on demand.
(d) Anything herein to the contrary notwithstanding, the
obligations of the Company to any Lender hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder to the extent (but only to the extent) that
contracting for or receiving such payment by such Lender would be contrary to
the provisions of any law applicable to such Lender limiting the highest rate of
interest that may be lawfully contracted for, charged or received by such
Lender, and in such event the Company shall pay such Lender interest at the
highest rate permitted by applicable law.
2.11 Fees. In addition to certain fees described in Section 3.8:
(a) Arranger and Agency Fees. The Company shall pay
arrangement fees to the Arranger for the Arranger's own account and agency fees
to the Administrative Agent for the Administrative Agent's own account, in each
case as required by the letter agreement (the "Fee Letter") among the Company,
the Arranger and the Administrative Agent dated as of November 4, 1997.
(b) Commitment Fees. The Company shall pay to the
Administrative Agent for the account of each Lender a commitment fee calculated
at a rate per annum equal to the Non-Use Fee Rate on the average daily unused
portion of such Lender's Percentage of the Revolving Commitment Amount and the
Acquisition Commitment Amount, computed on a quarterly basis in arrears on the
last Business Day of each calendar quarter based upon the daily utilization for
that quarter as calculated by the Administrative Agent. For purposes of
calculating utilization under this subsection, the Revolving Commitment Amount
shall be deemed used to the extent of the principal amount of all Revolving
Loans then outstanding (but Swingline Loans shall not constitute usage of the
Revolving Commitment Amount) plus the Effective Amount of all L/C Obligations
then outstanding. Such commitment fee shall accrue from the Effective Date to
the Revolving Termination Date (or, if later, the date on which the Acquisition
Commitment Amount is reduced to zero) and shall be due and payable quarterly in
arrears on the last Business Day of each calendar quarter, with the final
payment to be made on the Revolving Termination Date (or such later date on
which the Acquisition Commitment Amount is reduced to zero). The commitment fees
provided in this subsection shall accrue at all times after the Effective Date,
including at any time during which one or more conditions in Article V are not
met.
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2.12 Computation of Fees and Interest. (a) All computations of interest
for Base Rate Loans when the Base Rate is determined by BofA's "reference rate"
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed. All other computations of interest and fees shall be made
on the basis of a 360-day year and actual days elapsed. Interest and fees shall
accrue during each period during which interest or such fees are computed from
the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the
Administrative Agent shall be conclusive and binding on the Company and the
Lenders in the absence of manifest error. The Administrative Agent will, at the
request of the Company or any Lender, deliver to the Company or such Lender, as
the case may be, a statement showing the quotations used by the Administrative
Agent in determining any interest rate and the resulting interest rate.
2.13 Payments by the Company. (a) All payments to be made by the
Company shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Company shall be made
to the Administrative Agent for the account of the Lenders at the Agent's
Payment Office, and shall be made in Dollars and in immediately available funds,
no later than 1:00 p.m. (Chicago time) on the date specified herein. Except as
expressly otherwise provided herein, the Administrative Agent will promptly
distribute, in like funds as received, to each Lender its Percentage (or other
applicable portion) of such payment. Any payment received by the Administrative
Agent later than 1:00 p.m. (Chicago time) shall be deemed to have been received
on the following Business Day and any applicable interest or fee shall continue
to accrue.
(b) Whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day (unless,
in the case of an Offshore Rate Loan, such following Business Day is in another
calendar month, in which case such payment shall be made on the preceding
Business Day), and such extension of time shall in such case be included in the
computation of interest or fees, as the case may be.
(c) Unless the Administrative Agent receives notice from the
Company prior to the date on which any payment is due to the Lenders that the
Company will not make such payment in full as and when required, the
Administrative Agent may assume that the Company has made such payment in full
to the Administrative Agent on such date in immediately available funds and the
Administrative Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent the Company has not made such
payment in full to the Administrative Agent, each Lender shall repay to the
Administrative Agent on demand such amount distributed to such Lender, together
with interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Lender until the date repaid.
2.14 Payments by the Lenders to the Administrative Agent. (a) Unless
the Administrative Agent receives notice from a Lender on or prior to the
Effective Date, or, with
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respect to any Borrowing after the Effective Date, at least one Business Day
prior to the date of such Borrowing, that such Lender will not make available as
and when required hereunder to the Administrative Agent for the account of the
Company the amount of such Lender's Percentage of such Borrowing, the
Administrative Agent may assume that each Lender has made such amount available
to the Administrative Agent in immediately available funds on the Borrowing Date
and the Administrative Agent may (but shall not be required to), in reliance
upon such assumption, make available to the Company on such date a corresponding
amount. If and to the extent any Lender shall not have made its full amount
available to the Administrative Agent in immediately available funds and the
Administrative Agent in such circumstances has made available to the Company
such amount, such Lender shall on the Business Day following such Borrowing Date
make such amount available to the Administrative Agent, together with interest
at the Federal Funds Rate for each day during such period. A notice of the
Administrative Agent submitted to any Lender with respect to amounts owing under
this subsection (a) shall be conclusive, absent manifest error. If such amount
is so made available, such payment to the Administrative Agent shall constitute
such Lender's Loan on the date of Borrowing for all purposes of this Agreement.
If such amount is not made available to the Administrative Agent on the Business
Day following the Borrowing Date, the Administrative Agent will notify the
Company of such failure to fund and, upon demand by the Administrative Agent,
the Company shall pay such amount to the Administrative Agent for the
Administrative Agent's account, together with interest thereon for each day
elapsed since the date of such Borrowing, at a rate per annum equal to the
interest rate applicable at the time to the Loans comprising such Borrowing.
(b) The failure of any Lender to make any Loan on any
Borrowing Date shall not relieve any other Lender of any obligation hereunder to
make a Loan on such Borrowing Date, but no Lender shall be responsible for the
failure of any other Lender to make the Loan to be made by such other Lender on
any Borrowing Date.
2.15 Sharing of Payments, Etc. If, other than as expressly provided
elsewhere herein, any Lender shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share of such payment
(determined in accordance with the provisions of this Agreement), such Lender
shall immediately (a) notify the Administrative Agent of such fact and (b)
purchase from the other Lenders such participations in the Loans made by them as
shall be necessary to cause such purchasing Lender to share the excess payment
pro rata with each other Lender; provided, however, that if all or any portion
of such excess payment is thereafter recovered from the purchasing Lender, such
purchase shall to that extent be rescinded and each other Lender shall repay to
the purchasing Lender the purchase price paid therefor, together with an amount
equal to such paying Lender's ratable share (according to the proportion of (i)
the amount of such paying Lender's required repayment to (ii) the total amount
so recovered from the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect of the total amount so recovered.
The Company agrees that any Lender so purchasing a participation from another
Lender may, to the fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off, but subject to Section 11.10) with
respect to such participation as fully as if such Lender were the direct
creditor of the Company in the
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amount of such participation. The Administrative Agent will keep records (which
shall be conclusive and binding in the absence of manifest error) of
participations purchased under this Section and will in each case notify the
Lenders following any such purchases or repayments.
ARTICLE III
THE LETTERS OF CREDIT
3.1 The Letter of Credit Subfacility; Existing Letters of Credit. (a)
On the terms and conditions set forth herein: (i) the Issuing Lender agrees, (A)
from time to time on any Business Day during the period from the Effective Date
to the Revolving Termination Date to issue Letters of Credit for the account of
the Company, and to amend or renew Letters of Credit previously issued by it, in
accordance with subsections 3.2(c) and 3.2(d), and (B) to honor properly drawn
drafts under the Letters of Credit issued by it; and (ii) the Lenders severally
agree to participate in Letters of Credit Issued for the account of the Company;
provided that the Issuing Lender shall not be obligated to Issue, and no Lender
shall be obligated to participate in, any Letter of Credit if as of the date of
Issuance of such Letter of Credit (the "Issuance Date") (1) the Revolving
Outstandings exceed the Revolving Commitment Amount, (2) the Effective Amount of
all L/C Obligations exceeds the amount of the L/C Commitment or (3) the sum of
the participation of any Lender in the Effective Amount of all L/C Obligations
and Swingline Loans plus the outstanding principal amount of the Revolving Loans
of such Lender shall exceed such Lender's Revolving Commitment. Within the
foregoing limits, and subject to the other terms and conditions hereof, the
Company's ability to obtain Letters of Credit shall be fully revolving, and,
accordingly, the Company may, during the foregoing period, obtain Letters of
Credit to replace Letters of Credit which have expired or which have been drawn
upon and reimbursed.
(b) The Issuing Lender shall not be under any obligation to
Issue any Letter of Credit if:
(i) any order, judgment or decree of any
Governmental Authority or arbitrator shall by its terms purport to
enjoin or restrain the Issuing Lender from Issuing such Letter of
Credit, or any Requirement of Law applicable to the Issuing Lender or
any request or directive (whether or not having the force of law) from
any Governmental Authority with jurisdiction over the Issuing Lender
shall prohibit, or request that the Issuing Lender refrain from, the
Issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon the Issuing Lender with respect to such
Letter of Credit any restriction, reserve or capital requirement (for
which the Issuing Lender is not otherwise compensated hereunder) not in
effect on the Effective Date, or shall impose upon the Issuing Lender
any unreimbursed loss, cost or expense which was not applicable on the
Effective Date and which the Issuing Lender in good faith deems
material to it;
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(ii) the Issuing Lender has received written
notice from any Lender, the Administrative Agent or the Company, on or
prior to the Business Day prior to the requested date of Issuance of
such Letter of Credit, that one or more of the applicable conditions
contained in Article V is not then satisfied;
(iii) the expiry date of such Letter of Credit is
after the Revolving Termination Date, or, in the case of a Commercial
Letter of Credit, the expiry date of such Letter of Credit is less than
25 days prior to the Revolving Termination Date, unless all of the
Lenders have approved such expiry date in writing;
(iv) such Letter of Credit does not provide for
drafts, or is not otherwise in form and substance acceptable to the
Issuing Lender, or the Issuance of such Letter of Credit shall violate
any applicable policies of the Issuing Lender; or
(v) except as provided in Section 3.10, such
Letter of Credit is denominated in a currency other than Dollars.
(c) On and after the Effective Date, the Existing Letters of
Credit shall be deemed for all purposes to be Letters of Credit outstanding
under this Agreement. Each Lender shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from the Issuing Lender on the Effective
Date a participation in each Existing Letter of Credit and each drawing
thereunder in an amount equal to the product of (i) such Lender's Percentage
times (ii) the maximum amount available to be drawn under such Letter of Credit
and the amount of such drawing, respectively.
3.2 Issuance, Amendment and Renewal of Letters of Credit. (a) Each
Letter of Credit shall be issued upon the irrevocable written request of the
Company received by the Issuing Lender and the Administrative Agent at least
four Business Days (or such shorter time as the Issuing Lender and the
Administrative Agent may agree in a particular instance in their sole
discretion) prior to the proposed date of issuance. Each such request for
issuance of a Letter of Credit shall be by facsimile, confirmed immediately in
an original writing, in the form of an L/C Application, and shall specify in
form and detail satisfactory to the Issuing Lender: (i) the face amount of the
Letter of Credit; (ii) the expiry date of the Letter of Credit; (iii) the name
and address of the beneficiary thereof; (iv) the documents to be presented by
the beneficiary of the Letter of Credit in case of any drawing thereunder; (v)
the full text of any certificate to be presented by the beneficiary in case of
any drawing thereunder; and (vi) such other matters as the Issuing Lender may
require.
(b) At least two Business Days prior to the Issuance of any
Letter of Credit, the Issuing Lender will confirm with the Administrative Agent
(by telephone or in writing) that the Administrative Agent has received a copy
of the L/C Application or L/C Amendment Application from the Company and, if
not, the Issuing Lender will provide the Administrative Agent with a copy
thereof. If and only if the Administrative Agent notifies the Issuing Lender on
or before the Business Day immediately preceding the proposed date of
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Issuance of a Letter of Credit that the Issuing Lender may Issue such Letter of
Credit, then, subject to the terms and conditions hereof, the Issuing Lender
shall, on the requested date, Issue such Letter of Credit for the account of the
Company in accordance with the Issuing Lender's usual and customary business
practices. The Administrative Agent shall not give such notice if the
Administrative Agent has knowledge that (A) such Issuance is not then permitted
under subsection 3.1(a) as a result of the limitations set forth in clause (1)
or (2) thereof or (B) the Issuing Lender has received a notice described in
subsection 3.1(b)(ii). The Administrative Agent will promptly notify the Lenders
of any Letter of Credit Issuance hereunder.
(c) From time to time while a Letter of Credit is
outstanding and prior to the Revolving Termination Date, the Issuing Lender
will, upon the written request of the Company received by the Issuing Lender
(with a copy sent by the Company to the Administrative Agent) at least four
Business Days (or such shorter time as the Issuing Lender and the Administrative
Agent may agree in a particular instance in their sole discretion) prior to the
proposed date of amendment, amend any Letter of Credit issued by it. Each such
request for amendment of a Letter of Credit shall be made by facsimile,
confirmed immediately in an original writing, made in the form of an L/C
Amendment Application and shall specify in form and detail satisfactory to the
Issuing Lender: (i) the Letter of Credit to be amended; (ii) the proposed date
of amendment of such Letter of Credit (which shall be a Business Day); (iii) the
nature of the proposed amendment; and (iv) such other matters as the Issuing
Lender may require. The Issuing Lender shall not have any obligation to amend
any Letter of Credit if: (A) the Issuing Lender would have no obligation at such
time to Issue such Letter of Credit in its amended form under the terms of this
Agreement; or (B) the beneficiary of such Letter of Credit does not accept the
proposed amendment to such Letter of Credit.
(d) The Issuing Lender and the Lenders agree that, while a
Letter of Credit is outstanding and prior to the Revolving Termination Date, at
the option of the Company and upon the written request of the Company received
by the Issuing Lender (with a copy sent by the Company to the Administrative
Agent) at least four Business Days (or such shorter time as the Issuing Lender
and the Administrative Agent may agree in a particular instance in their sole
discretion) prior to the proposed date of notification of renewal, the Issuing
Lender shall be entitled, with the approval of the Administrative Agent, to
authorize the automatic renewal of any Letter of Credit issued by it. Each such
request for renewal of a Letter of Credit shall be made by facsimile, confirmed
immediately in an original writing, in the form of an L/C Amendment Application,
and shall specify in form and detail satisfactory to the Issuing Lender: (i) the
Letter of Credit to be renewed; (ii) the proposed date of notification of
renewal of such Letter of Credit (which shall be a Business Day); (iii) the
revised expiry date of such Letter of Credit (which, unless all Lenders
otherwise consent in writing, shall be prior to the Revolving Termination Date);
and (iv) such other matters as the Issuing Lender may require. The Issuing
Lender shall not be under any obligation to renew any Letter of Credit if: (A)
the Issuing Lender would have no obligation at such time to issue or amend such
Letter of Credit in its renewed form under the terms of this Agreement; or (B)
the beneficiary of such Letter of Credit does not accept the proposed renewal of
such Letter of Credit. If any outstanding Letter of Credit shall provide that it
shall be automatically renewed unless the beneficiary thereof receives notice
from
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the Issuing Lender that such Letter of Credit shall not be renewed, and if at
the time of renewal the Issuing Lender would be entitled to authorize the
automatic renewal of such Letter of Credit in accordance with this subsection
3.2(d) upon the request of the Company but the Issuing Lender shall not have
received any L/C Amendment Application from the Company with respect to such
renewal or other written direction by the Company with respect thereto, the
Issuing Lender shall nonetheless be permitted to allow such Letter of Credit to
renew, subject to the approval of the Administrative Agent, and the Company and
the Lenders hereby authorize such renewal, and, accordingly, the Issuing Lender
shall be deemed to have received an L/C Amendment Application from the Company
requesting such renewal.
(e) The Issuing Lender may, at its election (or as required
by the Administrative Agent at the direction of the Required Lenders), deliver
any notices of termination or other communications to any Letter of Credit
beneficiary or transferee, and take any other action as necessary or
appropriate, at any time and from time to time, in order to cause the expiry
date of such Letter of Credit to be a date not later than the Revolving
Termination Date.
(f) This Agreement shall control in the event of any
conflict with any L/C-Related Document (other than any Letter of Credit).
(g) The Issuing Lender will deliver to the Administrative
Agent, concurrently or promptly following its delivery of a Letter of Credit, or
amendment to or renewal of a Letter of Credit, to an advising bank or a
beneficiary, a true and complete copy of each such Letter of Credit or amendment
to or renewal of a Letter of Credit.
3.3 Risk Participations, Drawings and Reimbursements. (a) Immediately
upon the Issuance of each Letter of Credit, each Lender shall be deemed to, and
hereby irrevocably and unconditionally agrees to, purchase from the Issuing
Lender a participation in such Letter of Credit and each drawing thereunder in
an amount equal to the product of (i) such Lender's Percentage times (ii) the
maximum amount available to be drawn under such Letter of Credit and the amount
of such drawing, respectively.
(b) In the event of any request for a drawing under a Letter
of Credit by the beneficiary or transferee thereof, the Issuing Lender will
promptly notify the Company and the Administrative Agent. The Company shall
reimburse the Issuing Lender prior to 10:30 a.m. (Chicago time), on each date
that any amount is paid by the Issuing Lender under any Letter of Credit (each
such date, an "Honor Date") in an amount equal to the amount so paid by the
Issuing Lender; provided that, to the extent that the Issuing Lender accepts a
drawing under a Letter of Credit after 10:30 a.m. (Chicago time), the Company
will not be obligated to reimburse the Issuing Lender until the next Business
Day and the "Honor Date" for such Letter of Credit shall be such next Business
Day. If the Company fails to reimburse the Issuing Lender for the full amount of
any drawing under any Letter of Credit by 10:30 a.m. (Chicago time) on the Honor
Date, the Issuing Lender will promptly notify the Administrative Agent and the
Administrative Agent will promptly notify each Lender thereof, and the Company
shall be
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deemed to have requested that Base Rate Loans be made by the Lenders to be
disbursed on the Honor Date under such Letter of Credit, subject to the amount
of the unutilized portion of the Revolving Commitment Amount and subject to the
conditions set forth in Section 5.3 other than Section 5.3(a). Any notice given
by the Issuing Lender or the Administrative Agent pursuant to this subsection
3.3(b) may be oral if immediately confirmed in writing (including by facsimile);
provided that the lack of such an immediate confirmation shall not affect the
conclusiveness or binding effect of such notice.
(c) Each Lender shall upon any notice pursuant to subsection
3.3(b) make available to the Administrative Agent for the account of the Issuing
Lender an amount in Dollars and in immediately available funds equal to its
Percentage of the amount of the drawing, whereupon the participating Lenders
shall (subject to subsection 3.3(d)) each be deemed to have made a Revolving
Loan consisting of a Base Rate Loan to the Company in such amount. If any Lender
so notified fails to make available to the Administrative Agent for the account
of the Issuing Lender the amount of such Lender's Percentage of the amount of
such drawing by no later than 1:00 p.m. (Chicago time) on the Honor Date, then
interest shall accrue on such Lender's obligation to make such payment, from the
Honor Date to the date such Lender makes such payment, at a rate per annum equal
to the Federal Funds Rate in effect from time to time during such period. The
Administrative Agent will promptly give notice of the occurrence of the Honor
Date, but failure of the Administrative Agent to give any such notice on the
Honor Date or in sufficient time to enable any Lender to effect such payment on
such date shall not relieve such Lender from its obligations under this Section
3.3.
(d) With respect to any unreimbursed drawing that is not
converted into Revolving Loans consisting of Base Rate Loans in whole or in
part, because of the Company's failure to satisfy the conditions set forth in
Section 5.3 (other than Section 5.3(a), which need not be satisfied) or for any
other reason, the Company shall be deemed to have incurred from the Issuing
Lender an L/C Borrowing in the amount of such drawing, which L/C Borrowing shall
be due and payable on demand (together with interest) and shall bear interest at
a rate per annum equal to the sum of the Base Rate plus 2%, and each Lender's
payment to the Issuing Lender pursuant to subsection 3.3(c) shall be deemed
payment in respect of its participation in such L/C Borrowing and shall
constitute an L/C Advance from such Lender in satisfaction of its participation
obligation under this Section 3.3.
(e) Each Lender's obligation in accordance with this
Agreement to make Revolving Loans or L/C Advances, as contemplated by this
Section 3.3, as a result of a drawing under a Letter of Credit, shall be
absolute and unconditional and without recourse to the Issuing Lender and shall
not be affected by any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against the
Issuing Lender, the Company or any other Person for any reason whatsoever, (ii)
the occurrence or continuance of an Event of Default, an Unmatured Event of
Default or a Material Adverse Effect or (iii) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing; provided
that each Lender's obligation to make Revolving Loans under this Section 3.3 is
subject to the conditions set forth in Section 5.3.
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3.4 Repayment of Participations. (a) Upon (and only upon) receipt by
the Administrative Agent for the account of the Issuing Lender of immediately
available funds from the Company (i) in reimbursement of any payment made by the
Issuing Lender under a Letter of Credit with respect to which any Lender has
paid the Administrative Agent for the account of the Issuing Lender for such
Lender's participation in such Letter of Credit pursuant to Section 3.3 or (ii)
in payment of interest thereon, the Administrative Agent will pay to each
Lender, in like funds as those received by the Administrative Agent for the
account of the Issuing Lender, the amount of such Lender's Percentage of such
funds, and the Issuing Lender shall receive the amount of the Percentage of such
funds of any Lender that did not so pay the Administrative Agent for the account
of the Issuing Lender.
(b) If the Administrative Agent or the Issuing Lender is
required at any time to return to the Company, or to a trustee, receiver,
liquidator or custodian, or to any official in any Insolvency Proceeding, any
portion of any payment made by the Company to the Administrative Agent for the
account of the Issuing Lender pursuant to subsection 3.4(a) in reimbursement of
a payment made under a Letter of Credit or interest or fee thereon, each Lender
shall, on demand of the Administrative Agent, forthwith return to the
Administrative Agent or the Issuing Lender the amount of its Percentage of any
amount so returned by the Administrative Agent or the Issuing Lender plus
interest thereon from the date such demand is made to the date such amount is
returned by such Lender to the Administrative Agent or the Issuing Lender, at a
rate per annum equal to the Federal Funds Rate in effect from time to time.
3.5 Role of the Issuing Lender. (a) Each Lender and the Company agree
that, in paying any drawing under a Letter of Credit, the Issuing Lender shall
not have any responsibility to obtain any document (other than any sight draft
and certificate expressly required by such Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document.
(b) None of any Agent-Related Person, the Issuing Lender or
any of their respective correspondents, participants or assignees shall be
liable to any Lender for: (i) any action taken or omitted in connection herewith
at the request or with the approval of the Lenders (including the Required
Lenders, as applicable); (ii) any action taken or omitted in the absence of
gross negligence or willful misconduct; or (iii) the due execution,
effectiveness, validity or enforceability of any L/C-Related Document.
(c) The Company hereby assumes all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of any Letter
of Credit; provided that this assumption is not intended to, and shall not,
preclude the Company's pursuing such rights and remedies as it may have against
the beneficiary or transferee at law or under this Agreement or any other
agreement. None of any Agent-Related Person, the Issuing Lender or any of their
respective correspondents, participants or assignees shall be liable or
responsible for any of the matters described in clauses (i) through (vii) of
Section 3.6; provided that, anything in such clauses to the contrary
notwithstanding, the Company may have a claim against the Issuing Lender, and
the Issuing Lender may be liable to the Company, to the extent, but only to the
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extent, of any direct, as opposed to consequential or exemplary, damages
suffered by the Company which the Company proves were caused by the Issuing
Lender's willful misconduct or gross negligence or the Issuing Lender's willful
or grossly negligent failure to pay under any Letter of Credit after the
presentation to it by the beneficiary of a sight draft and certificate(s)
strictly complying with the terms and conditions of such Letter of Credit. In
furtherance and not in limitation of the foregoing: (i) the Issuing Lender may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary; and (ii) the Issuing Lender shall not be
responsible for the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign a Letter of Credit or the rights
or benefits thereunder or proceeds thereof, in whole or in part, which may prove
to be invalid or ineffective for any reason.
3.6 Obligations Absolute. The obligations of the Company under this
Agreement and any L/C-Related Document to reimburse the Issuing Lender for a
drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing
under a Letter of Credit converted into Revolving Loans, shall be unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement and each such other L/C-Related Document under all circumstances,
including the following:
(i) any lack of validity or enforceability of
this Agreement or any L/C- Related Document;
(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the obligations of
the Company in respect of any Letter of Credit or any other amendment
or waiver of or any consent to departure from all or any of the
L/C-Related Documents;
(iii) the existence of any claim, set-off,
defense or other right that the Company may have at any time against
any beneficiary or any transferee of any Letter of Credit (or any
Person for whom any such beneficiary or any such transferee may be
acting), the Issuing Lender or any other Person, whether in connection
with this Agreement, the transactions contemplated hereby or by the
L/C-Related Documents or any unrelated transaction;
(iv) any draft, demand, certificate or other
document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect or any loss or delay
in the transmission or otherwise of any document required in order to
make a drawing under any Letter of Credit;
(v) any payment by the Issuing Lender under any
Letter of Credit against presentation of a draft or certificate that
does not strictly comply with the terms of such Letter of Credit; or
any payment made by the Issuing Lender under any Letter of Credit to
any Person purporting to be a trustee in bankruptcy,
debtor-in-possession,
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assignee for the benefit of creditors, liquidator, receiver or other
representative of or successor to any beneficiary or any transferee of
any Letter of Credit, including any arising in connection with any
Insolvency Proceeding;
(vi) any exchange, release or non-perfection of
any collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any of the obligations of the
Company in respect of any Letter of Credit; or
(vii) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing, including
any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Company or a guarantor.
3.7 Cash Collateral Pledge. If any Letter of Credit remains outstanding
and partially or wholly undrawn as of the Revolving Termination Date, then the
Company shall immediately Cash Collateralize the L/C Obligations in an amount
equal to the maximum amount then available to be drawn under all Letters of
Credit.
3.8 Letter of Credit Fees. (a) The Company shall pay to the
Administrative Agent for the account of each Lender a letter of credit fee with
respect to each Letter of Credit at a rate per annum equal to the L/C Fee Rate
on the average daily maximum amount available to be drawn on such Letter of
Credit, computed on a quarterly basis in arrears on the last Business Day of
each calendar quarter.
(b) The Company shall pay to the Issuing Lender a letter of
credit fronting fee for each Letter of Credit Issued equal to 0.25% per annum of
the average daily maximum amount available to be drawn on such Letter of Credit,
computed on the last Business Day of each calendar quarter and on the Revolving
Termination Date (or such later date on which such Letter of Credit shall expire
or be fully drawn).
(c) The letter of credit fees payable under subsection
3.8(a) and the fronting fees payable under subsection 3.8(b) shall be due and
payable quarterly in arrears on the last Business Day of each calendar quarter
during which Letters of Credit are outstanding, commencing on the first such
quarterly date to occur after the Effective Date, through the Revolving
Termination Date (or such later date upon which all outstanding Letters of
Credit shall expire or be fully drawn), with the final payment to be made on the
Revolving Termination Date (or such later date). For purposes of calculating the
fees payable under subsection 3.8(a) and subsection 3.8(b), any undrawn
Commercial Letters of Credit should be considered outstanding and available to
be drawn upon for 25 days after its expiry date.
(d) The Company shall pay to the Issuing Lender from time to
time on demand the normal issuance, presentation, amendment and other processing
fees, and other standard costs and charges, of the Issuing Lender relating to
letters of credit as from time to time in effect.
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3.9 Uniform Customs and Practice. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in such Letter of Credit) apply to each Letter of Credit.
3.10 Non-Dollar Letters of Credit. (a) The Company, the Administrative
Agent, the Issuing Lender and the Lenders (i) agree that the Issuing Lender may
(in its sole discretion) issue Letters of Credit ("Non-Dollar Letters of
Credit") in currencies other than Dollars and (ii) further agree as follows with
respect to such Non-Dollar Letters of Credit:
(b) The Company agrees that its reimbursement obligation
under subsection 3.3(b) and any resulting L/C Borrowing, in each case in respect
of a drawing under any Non-Dollar Letter of Credit, (i) shall be payable in
Dollars at the Dollar Equivalent of such obligation in the currency in which
such Non-Dollar Letter of Credit was issued (determined on the date of payment)
and (ii) shall bear interest at a rate per annum equal to the sum of the
Overnight Rate plus the Margin plus 3% for each day from and including the Honor
Date to but excluding the date such obligation is paid in full (it being
understood that any payment received after 10:30 a.m., Chicago time, on any day
shall be deemed received on the following Business Day).
(c) Each Lender agrees that its obligation to make Revolving
Loans under subsection 3.3(b) and to make L/C Advances for any unpaid
reimbursement obligation or L/C Borrowing in respect of a drawing under any
Non-Dollar Letter of Credit shall be payable in Dollars at the Dollar Equivalent
of such obligation in the currency in which such Non-Dollar Letter of Credit was
issued (calculated on the date of payment) (and any such amount which is not
paid when due shall bear interest at a rate per annum equal to the Overnight
Rate plus, beginning on the third Business Day after such amount was due, the
Margin.
(d) For purposes of determining whether there is
availability for the Company to request, continue or convert any Loan, or
request, extend or increase the face amount of any Letter of Credit, the Dollar
Equivalent of the Effective Amount of each Non- Dollar Letter of Credit shall be
calculated on the date such Loan is to be made, continued or converted or such
Letter of Credit is to be issued, extended or increased.
(e) For purposes of determining (i) the amount of the unused
portion of the Revolving Commitment Amount under subsection
2.11(b), (ii) the
letter of credit fee under subsection 3.8(a) and (iii) the letter of credit
fronting fee under subsection 3.8(b), the Dollar Equivalent of the Effective
Amount of any Non-Dollar Letter of Credit shall be determined on each of (1) the
date of an issuance, extension or change in the face amount of such Non-Dollar
Letter of Credit, (2) the date of any payment by the Issuing Lender in respect
of a drawing under such Non-Dollar Letter of Credit, (3) the last day of each
calendar month and (4) each day on which the Revolving Commitment Amount is
reduced.
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(f) If, on the last day of any calendar month or any day on
which the Revolving Commitment Amount is reduced, the sum of the principal
amount of all Revolving Loans and Swingline Loans plus the Effective Amount of
all Letters of Credit (valuing the Effective Amount of, and all reimbursement
obligations and L/C Borrowings of the Company in respect of, any Non-Dollar
Letter of Credit at the Dollar Equivalent thereof as of such day) would exceed
the Revolving Commitment Amount, then the Company will immediately eliminate
such excess by prepaying Revolving Loans and/or Swingline Loans and/or causing
one or more Letters of Credit to be reduced or terminated.
(g) If, for the purposes of obtaining judgment in any court,
it is necessary to convert a sum due in respect of any Non-Dollar Letter of
Credit in one currency into another currency, the rate of exchange used shall be
that at which in accordance with normal banking procedures the Issuing Lender
could purchase the first currency with such other currency on the Business Day
preceding that on which final judgment is given. The obligation of the Company
in respect of any such sum due from it to the Issuing Lender or any Lender
hereunder shall, notwithstanding any judgment in a currency (the "Judgment
Currency") other than that in which such sum is denominated in accordance with
the applicable provisions of the applicable Non- Dollar Letter of Credit (the
"Agreement Currency"), be discharged only to the extent that on the Business Day
following receipt by the Issuing Lender or such Lender of any sum adjudged to be
so due in the Judgment Currency, the Issuing Lender or such Lender may in
accordance with normal banking procedures purchase the Agreement Currency with
the Judgment Currency. If the amount of the Agreement Currency so purchased is
less than the sum originally due to the Issuing Lender or such Lender in the
Agreement Currency, the Company agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify the Issuing Lender or such
Lender, as applicable, against such loss. If the amount of the Agreement
Currency so purchased is greater than the sum originally due to the Issuing
Lender or such Lender in such currency, the Issuing Lender and each other Lender
agrees to return the amount of any excess to the Company (or to any other Person
who may be entitled thereto under applicable law).
(h) For purposes of this Section, "Overnight Rate" means,
for any day, the rate of interest per annum at which overnight deposits in the
applicable currency, in an amount approximately equal to the amount with respect
to which such rate is being determined, would be offered for such day by the
London Branch of BofA to major banks in the London or other applicable offshore
interbank market. The Overnight Rate for any day which is not a Business Day (or
on which dealings are not carried on in the applicable offshore interbank
market) shall be the Overnight Rate for the immediately preceding Business Day.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1 Taxes. (a) Any and all payments by the Company to each Lender or
the Administrative Agent under this Agreement and any other Loan Document shall
be made free
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and clear of, and without deduction or withholding for, any Taxes. In addition,
the Company shall pay all Other Taxes.
(b) The Company agrees to indemnify and hold harmless each
Lender and the Administrative Agent for the full amount of Taxes, Other Taxes
and Further Taxes paid by such Lender in the amount necessary to preserve the
after-tax yield such Lender would have received if such Taxes, Other Taxes or
Further Taxes had not been imposed, and any liability (including penalties,
interest, additions to tax and reasonable out-of-pocket expenses) arising
therefrom or with respect thereto, whether or not such Taxes, Other Taxes or
Further Taxes were correctly or legally asserted; provided, however, that no
participant of any Lender shall be entitled to receive any greater payment under
this subsection 4.1(b) than such Lender would have been entitled to receive with
respect to the rights participated; and provided further that the Company shall
not indemnify any Lender (or participant thereof) or the Administrative Agent
for Taxes, Other Taxes, Further Taxes, penalties, additions to tax, interest and
expenses arising as a result of any of their own willful misconduct or gross
negligence. Payment under this subsection 4.1(b) shall be made within 30 days
from the date such Lender or the Administrative Agent (as the case may be) makes
written demand therefor, including with such demand an identification of the
Taxes, Other Taxes or Further Taxes (together with the amounts thereof) with
respect to which such demand for indemnification is being made.
(c) If the Company shall be required by law to deduct or
withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum
payable hereunder to any Lender or the Administrative Agent, then:
(i) the sum payable shall be increased as
necessary so that, after making all required deductions and
withholdings (including deductions and withholdings applicable to
additional sums payable under this Section), such Lender or the
Administrative Agent, as the case may be, receives and retains an
amount equal to the sum it would have received and retained had no such
deductions or withholdings been made;
(ii) the Company shall make such deductions and
withholdings; and
(iii) the Company shall pay the full amount
deducted or withheld to the relevant taxing authority or other
authority in accordance with applicable law.
(d) Within 10 days after the date the Company receives any
receipt for the payment of Taxes, Other Taxes or Further Taxes, the Company
shall furnish to each Lender and the Administrative Agent the original or a
certified copy of such receipt evidencing payment thereof, or other evidence of
payment satisfactory to such Lender or the Administrative Agent.
(e) If the Company is required to pay additional amounts to
any Lender or the Administrative Agent pursuant to subsection (b) of this
Section or Section 4.3, then such Lender shall use reasonable efforts
(consistent with legal and regulatory restrictions) to change
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the jurisdiction of its Lending Office so as to reduce or eliminate any such
additional payment by the Company which may thereafter accrue, if such change in
the sole judgment of such Lender is not otherwise disadvantageous to such
Lender.
(f) If a Lender (or participant thereof) or the
Administrative Agent shall become aware that it is entitled to receive a refund
(including interest and penalties, if any) in respect of Taxes, Other Taxes or
Further Taxes as to which it has been indemnified by the Company pursuant to
this Section 4.1, it shall promptly notify the Company in writing of the
availability of such refund (including interest and penalties, if any) and
shall, within 30 days after receipt of a request by the Company, apply for such
refund. If any Lender (or participant thereof) or the Administrative Agent
receives a refund (including interest and penalties, if any) in respect of any
Taxes, Other Taxes or Further Taxes as to which it has been indemnified by the
Company pursuant to this Section 4.1, it shall promptly notify the Company of
the receipt of such refund and shall, within 15 days of receipt, repay such
refund (to the extent of amounts that have been paid by the Company under this
Section 4.1 with respect to such refund and not previously reimbursed) to the
Company, net of all reasonable out-of-pocket expenses of such Lender or the
Administrative Agent and without any interest (other than the interest, if any,
included in such refund).
4.2 Illegality. (a) After the date hereof, if any Lender determines
that the introduction of any Requirement of Law, or any change in any
Requirement of Law, or in the interpretation or administration of any
Requirement of Law, has made it unlawful, or that any central bank or other
Governmental Authority has asserted that it is unlawful, for such Lender or its
applicable Lending Office to make Offshore Rate Loans, then, on notice thereof
by the Lender to the Company through the Administrative Agent, any obligation of
such Lender to make Offshore Rate Loans shall be suspended until such Lender
notifies the Administrative Agent and the Company that the circumstances giving
rise to such determination no longer exist.
(b) After the date hereof, if a Lender determines that it is
unlawful to maintain any Offshore Rate Loan, the Company shall, upon its receipt
of notice of such fact and demand from such Lender (with a copy to the
Administrative Agent), prepay in full such Offshore Rate Loan, together with
interest accrued thereon and any amount required under Section 4.4, either on
the last day of the Interest Period thereof, if such Lender may lawfully
continue to maintain such Offshore Rate Loan to such day, or on such earlier
date on which such Lender may no longer lawfully continue to maintain such
Offshore Rate Loan (as determined by such Lender). If the Company is required to
so prepay any Offshore Rate Loan, then concurrently with such prepayment, the
Company shall borrow from the affected Lender, in the amount of such repayment,
a Base Rate Loan.
(c) If the obligation of any Lender to make or maintain
Offshore Rate Loans has been terminated or suspended pursuant to subsection (a)
or (b) above, all Loans which would otherwise be made by such Lender as Offshore
Rate Loans shall be instead Base Rate Loans.
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(d) Before giving any notice to the Administrative Agent or
demand upon the Company under this Section, the affected Lender shall designate
a different Lending Office with respect to its Offshore Rate Loans if such
designation will avoid the need for giving such notice or making such demand and
will not, in the judgment of such Lender, be illegal or otherwise
disadvantageous to such Lender.
4.3 Increased Costs and Reduction of Return. (a) After the date hereof,
if any Lender determines that, due to either (i) the introduction of or any
change (other than any change by way of imposition of or increase in reserve
requirements included in the calculation of the Offshore Rate) in or in the
interpretation of any law or regulation or (ii) compliance by such Lender with
any guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to such Lender of agreeing to make or making, funding or maintaining any
Offshore Rate Loan or participating in Letters of Credit or, in the case of the
Issuing Lender, any increase in the cost to the Issuing Lender of agreeing to
issue, issuing or maintaining any Letter of Credit or of agreeing to make or
making, funding or maintaining any unpaid drawing under any Letter of Credit,
then the Company shall be liable for, and shall from time to time, upon demand
(with a copy of such demand to be sent to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender, additional amounts as are
sufficient to compensate such Lender for such increased costs.
(b) After the date hereof, if any Lender shall have
determined that (i) the introduction of any Capital Adequacy Regulation, (ii)
any change in any Capital Adequacy Regulation, (iii) any change in the
interpretation or administration of any Capital Adequacy Regulation by any
central bank or other Governmental Authority charged with the interpretation or
administration thereof, or (iv) compliance by such Lender (or its Lending
Office) or any corporation controlling such Lender with any Capital Adequacy
Regulation, affects or would affect the amount of capital required or expected
to be maintained by such Lender or any corporation controlling such Lender and
(taking into consideration such Lender's or such corporation's policies with
respect to capital adequacy and such Lender's desired return on capital)
determines that the amount of such capital is increased as a consequence of any
of its Commitments, Loans or obligations under this Agreement, then, upon demand
of such Lender to the Company through the Administrative Agent, the Company
shall pay to such Lender, from time to time as specified by such Lender,
additional amounts sufficient to compensate such Lender for such increase.
(c) This Section 4.3 shall not require the Company to
reimburse the Administrative Agent or any Lender for any Taxes which are
otherwise covered by the indemnity set forth in Section 4.1 or any Excluded
Taxes.
4.4 Funding Losses. The Company shall reimburse each Lender and hold
each Lender harmless from any loss or expense which such Lender may sustain or
incur as a consequence of:
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(a) the failure of the Company to make on a timely basis any
payment of principal of any Offshore Rate Loan;
(b) the failure of the Company to borrow, continue or
convert a Loan after the Company has given (or is deemed to have given) a Notice
of Borrowing or a Notice of Conversion/ Continuation;
(c) the failure of the Company to make any prepayment in
accordance with any notice delivered under Section 2.7;
(d) the prepayment (including pursuant to Section 2.8) or
other payment (including after acceleration thereof) of an Offshore Rate Loan on
a day that is not the last day of the relevant Interest Period; or
(e) the automatic conversion under subsection 2.4(a) of any
Offshore Rate Loan to a Base Rate Loan on a day that is not the last day of the
relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained. For purposes of
calculating amounts payable by the Company to the Lenders under this Section and
under subsection 4.3(a), each Offshore Rate Loan made by a Lender (and each
related reserve, special deposit or similar requirement) shall be conclusively
deemed to have been funded at the IBOR used in determining the Offshore Rate for
such Offshore Rate Loan by a matching deposit or other borrowing in the
interbank eurodollar market for a comparable amount and for a comparable period,
whether or not such Offshore Rate Loan is in fact so funded.
4.5 Inability to Determine Rates. If the Administrative Agent
determines that for any reason adequate and reasonable means do not exist for
determining the Offshore Rate for any requested Interest Period with respect to
a proposed Offshore Rate Loan, or the Required Lenders determine (and notify the
Administrative Agent) that the Offshore Rate applicable pursuant to subsection
2.10(a) for any requested Interest Period with respect to a proposed Offshore
Rate Loan does not adequately and fairly reflect the cost to such Lenders of
funding such Loan, the Administrative Agent will promptly so notify the Company
and each Lender. Thereafter, the obligation of the Lenders to make or maintain
Offshore Rate Loans hereunder shall be suspended until the Administrative Agent,
with the consent of the Required Lenders, revokes such notice in writing. Upon
receipt of such notice, the Company may revoke any Notice of Borrowing or Notice
of Conversion/Continuation then submitted by it. If the Company does not revoke
such Notice, the Lenders shall make, convert or continue the Loans, as proposed
by the Company, in the amount specified in the applicable notice submitted by
the Company, but such Loans shall be made, converted or continued as Base Rate
Loans instead of Offshore Rate Loans.
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4.6 Certificates of Lenders. Any Lender claiming reimbursement or
compensation under this Article IV shall deliver to the Company (with a copy to
the Administrative Agent) a certificate setting forth in reasonable detail the
basis for such claim and a calculation of the amount payable to such Lender and
such certificate shall be conclusive and binding on the Company in the absence
of manifest error.
4.7 Substitution of Lenders. In the event the Company becomes obligated
to pay additional amounts to any Lender pursuant to Sections 4.1(b) or (c) or
Section 4.3, or if it becomes illegal for any Lender to continue to fund or to
make Offshore Rate Loans pursuant to Section 4.2, as a result of any condition
described in any such Section, then, unless such Lender has theretofore taken
steps to remove or cure, and has removed or cured, the conditions creating the
cause for such obligation to pay such additional amounts or for such illegality,
the Company may designate another Lender which is acceptable to the
Administrative Agent, the Issuing Lender and the Swingline Lender in their sole
discretion (such Lender being herein called a "Replacement Lender") to purchase
the Loans of such Lender and such Lender's rights hereunder, without recourse to
or warranty by, or expense to, such Lender for a purchase price equal to the
outstanding principal amount of the Loans payable to such Lender plus any
accrued but unpaid interest on such Loans and accrued but unpaid commitment fees
in respect of such Lender's Commitments and any other amounts payable to such
Lender under this Agreement, and to assume all the obligations of such Lender
hereunder, and, upon such purchase, such Lender shall no longer be a party
hereto or have any rights hereunder and shall be relieved from all obligations
to the Company hereunder, and the Replacement Lender shall succeed to the rights
and obligations of such Lender hereunder.
4.8 Survival. The agreements and obligations of the Company in this
Article IV shall survive the payment of all other Obligations.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions of Effectiveness. This Agreement shall become effective
(and the Existing Agreement shall be deemed to have been amended and restated
hereby) on the date that (i) the Effective Date shall have occurred on or before
January 31, 1998; (ii) the conditions precedent to the making of a Credit
Extension set forth in Section 5.2 shall be satisfied; and (iii) the
Administrative Agent shall have received all of the following, in form and
substance satisfactory to the Administrative Agent and each Lender, and (except
for any Notes) in sufficient copies for each Lender.
(a) Credit Agreement and Notes. This Agreement and the Notes
(if any) executed by each party thereto.
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(b) Resolutions and Incumbency.
(i) Copies of resolutions of the board of
directors of the Company and each Guarantor authorizing the
transactions contemplated hereby, certified as of the Effective Date by
the Secretary or an Assistant Secretary of such Person; and
(ii) A certificate of the Secretary or an
Assistant Secretary of the Company and each Guarantor certifying the
names and true signatures of the officers of such Person authorized to
execute, deliver and perform this Agreement and the other Documents to
be delivered by it hereunder.
(c) Organization Documents; Good Standing. Each of the
following documents:
(i) for the Company and each Guarantor, the
articles or certificate of incorporation and the bylaws of each such
Person, as the case may be, as in effect on the Effective Date,
certified by the Secretary or Treasurer of such Person, as of the
Effective Date; and
(ii) a good standing certificate for the Company
and each Guarantor from the Secretary of State (or similar applicable
Governmental Authority) of the jurisdiction of its organization.
(d) Legal Opinions.
(i) An opinion of James A. Broderick, Vice
President and General Counsel of the Company, substantially in the form
of Exhibit J, and
(ii) An opinion of Mayer, Brown & Platt, special
counsel to the Administrative Agent, substantially in the form of
Exhibit K.
(e) Payment of Fees. Evidence of payment by the Company of
all accrued and unpaid fees, costs and expenses to the extent then due and
payable on the Effective Date, together with Attorney Costs of the
Administrative Agent and the Arranger to the extent invoiced prior to or on the
Effective Date, plus such additional amounts of Attorney Costs as shall
constitute the Administrative Agent's reasonable estimate of Attorney Costs
incurred or to be incurred by it through the closing proceedings (it being
understood that such estimate shall not thereafter preclude final settling of
accounts between the Company and the Administrative Agent), including any such
costs, fees and expenses arising under or referenced in Section 2.11 or 11.4.
(f) Certificate. A certificate signed by a Responsible
Officer, dated as of the Effective Date, stating that:
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(i) the representations and warranties contained
in Article VI are true and correct on and as of such date, as though
made on and as of such date;
(ii) no Event of Default or Unmatured Event of
Default exists or will result from the effectiveness hereof; and
(iii) no event or circumstance has occurred since
September 30, 1997 that has resulted, or would reasonably be expected
to result, in a Material Adverse Effect.
(g) Confirmation. A Confirmation and Omnibus Amendment,
substantially in the form of Exhibit I, executed by the Company and each
Guarantor.
(h) Other Documents. Such other approvals, opinions,
documents or materials as the Administrative Agent or any Lender may reasonably
request.
5.2 Conditions to All Credit Extensions. The obligation of each Lender
to make any Loan to be made by it and the obligation of the Issuing Lender to
Issue any Letter of Credit is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date or Issuance Date:
(a) Notice, Application. In the case of any Loan, the
Administrative Agent shall have received a Notice of Borrowing, and in the case
of any Issuance of any Letter of Credit, the Issuing Lender and the
Administrative Agent shall have received an L/C Application or L/C Amendment
Application, as required under Section 3.2.
(b) Continuation of Representations and Warranties. The
representations and warranties in Article VI shall be true and correct in all
material respects on and as of the date of such Credit Extension with the same
effect as if made on and as of such date (except to the extent such
representations and warranties expressly refer to an earlier date, in which case
they shall be true and correct as of such earlier date).
(c) No Existing Default. No Event of Default or Unmatured
Event of Default shall exist or shall result from such Credit Extension.
Each Notice of Borrowing and L/C Application or L/C Amendment Application
submitted by the Company hereunder shall constitute a representation and
warranty by the Company hereunder, as of the date of such notice and as of the
applicable Borrowing Date or Issuance Date, that the conditions in this Section
5.2 are satisfied.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to each Agent and each Lender that:
6.1 Corporate Existence and Power. The Company and each of its
Subsidiaries (other than any Dormant Subsidiary):
(a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental
licenses, authorizations, consents and approvals (i) to own its assets and to
carry on its business and (ii) to execute, deliver and perform its obligations
under the Loan Documents;
(c) is duly qualified as a foreign corporation and is
licensed and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification or license; and
(d) is in compliance with all Requirements of Law;
except, in each case referred to in clause (b)(i), (c) or (d), to the extent
that the failure to do so would not reasonably be expected to have a Material
Adverse Effect.
6.2 Corporate Authorization; No Contravention. The execution and
delivery by the Company of this Agreement and each other Loan Document to which
it is a party, the Borrowings hereunder, the execution and delivery by each
Guarantor of each Loan Document to which it is a party and the performance by
each of the Company and each Guarantor of its obligations under each Loan
Document to which it is a party (i) are within the corporate powers of the
Company and each Guarantor, as applicable, (ii) have been duly authorized by all
necessary corporate action on the part of the Company and each Guarantor
(including any necessary shareholder action) and (iii) do not and will not:
(a) contravene the terms of any of the Organization
Documents of the Company or any Guarantor;
(b) conflict with or result in a breach or contravention of,
or the creation of any Lien under, any document evidencing any Contractual
Obligation to which the Company or any Guarantor is a party or any order,
injunction, writ or decree of any Governmental Authority to which the Company,
any Guarantor or any of their properties are subject; or
(c) violate any Requirement of Law.
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6.3 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Company of
this Agreement or any other Loan Document to which it is a party or any
Guarantor with respect to each Loan Document to which it is a party, except, in
each case, for filings required to perfect Liens in favor of the Administrative
Agent granted under the Loan Documents.
6.4 Binding Effect. This Agreement and each other Loan Document to
which the Company is a party constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability; and with respect to each
Guarantor, each Loan Document to which such Guarantor is a party constitutes the
legal, valid and binding obligation of such Guarantor, enforceable against such
Guarantor in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, or similar laws affecting the enforcement
of creditors' rights generally and by equitable principles relating to
enforceability.
6.5 Litigation. Except as specifically disclosed in Schedule 6.5, there
are no actions, suits, proceedings, claims or disputes pending or, to the best
knowledge of the Company, threatened or contemplated, at law, in equity, in
arbitration or before any Governmental Authority, against the Company or any
Subsidiary or any of their respective properties which: purport to affect or
pertain to this Agreement or any other Loan Document, or any of the transactions
contemplated hereby or thereby; or would reasonably be expected to have a
Material Adverse Effect. No injunction, writ, temporary restraining order or
other order of any nature has been issued by any court or other Governmental
Authority purporting to enjoin or restrain the execution, delivery or
performance of this Agreement or any other Loan Document, or directing that the
transactions provided for herein or therein not be consummated as herein or
therein provided.
6.6 No Default. No Event of Default or Unmatured Event of Default
exists or would result from the incurring of any Obligations by the Company. As
of the Effective Date, neither the Company nor any Subsidiary is in default
under or with respect to any Contractual Obligation in any respect which,
individually or together with all such defaults, would reasonably be expected to
have a Material Adverse Effect, or that would, if such default had occurred
after the Effective Date, create an Event of Default under subsection 9.1(e).
6.7 ERISA Compliance.
(a) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and, to the best
knowledge of the Company, nothing has occurred which would cause the
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loss of such qualification. The Company and each ERISA Affiliate has made all
required contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of the
Company, threatened claims, actions or lawsuits, or actions by any Governmental
Authority, with respect to any Plan which has resulted or would reasonably be
expected to result in a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or would reasonably be expected to result in a
Material Adverse Effect.
(c) No ERISA Event has occurred or is reasonably expected to
occur that would reasonably be expected to have a Material Adverse Effect; no
contribution failure has occurred with respect to a Pension Plan sufficient to
give rise to a Lien under Section 302(f) of ERISA; neither the Company nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any liability to
the PBGC under Title IV of ERISA with respect to any Pension Plan; neither the
Company nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Section 4201 or
4243 of ERISA with respect to any Multiemployer Plan that would reasonably be
expected to have a Material Adverse Effect; and neither the Company nor any
ERISA Affiliate has engaged in a transaction that could be subject to Section
4069 or 4212(c) of ERISA.
6.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
to be used solely for the purposes set forth in and permitted by Sections 7.12
and 8.7. Neither the Company nor any Subsidiary is generally engaged in the
business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock.
6.9 Title to Properties. Each of the Company and each Subsidiary has
good record and marketable title in fee simple to, or a valid leasehold interest
in, all real property necessary or used in the ordinary conduct of its
businesses, except for such defects in title as would not, individually or in
the aggregate, have a Material Adverse Effect. Each of the Company and each
Subsidiary has good title to all their other respective material properties and
assets (except for those assets disposed of not in violation of this Agreement
and the other Loan Documents). As of the Effective Date, the property of the
Company and its Subsidiaries is subject to no Liens, other than Permitted Liens.
6.10 Taxes. The Company and its Subsidiaries have filed all Federal and
State income tax returns and all other material tax returns and reports required
to be filed, and have paid all Federal and State income taxes and all other
material taxes, assessments, fees and other governmental charges levied or
imposed upon them or their properties, income or assets otherwise due and
payable, except those which are being contested in good faith by appropriate
proceedings and for which adequate reserves have been provided in accordance
with GAAP.
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There is no written, and, to the best of the Company's knowledge, there is no
oral, proposed tax assessment against the Company or any Subsidiary that would,
if made, have a Material Adverse Effect.
6.11 Financial Condition. (a) The audited consolidated financial
statements of the Company dated September 30, 1997, and the related consolidated
statements of income or operations, shareholders' equity and cash flows for the
fiscal year then ended:
(i) were prepared in accordance with GAAP;
(ii) present fairly the financial condition of the Company
and its Subsidiaries as of the date thereof and the results of
operations for the period covered thereby; and
(iii) except as specifically disclosed in Schedule 6.11,
show all material indebtedness and other liabilities, direct or
contingent, of the Company and its Subsidiaries as of the date thereof,
including liabilities for taxes, material commitments and Contingent
Obligations.
(b) Since September 30, 1997 there has been no Material
Adverse Effect.
6.12 Regulated Entities. None of the Company or any Subsidiary is an
"investment company" within the meaning of the Investment Company Act of 1940.
None of the Company or any Subsidiary is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code, or any other Federal or state
statute or regulation limiting its ability to incur Indebtedness.
6.13 No Burdensome Restrictions. Neither the Company nor any Subsidiary
is a party to or bound by any Contractual Obligation or subject to any
restriction in any Organization Document or any Requirement of Law which would
reasonably be expected to have a Material Adverse Effect.
6.14 Copyrights, Patents, Trademarks and Licenses, etc. The Company and
its Subsidiaries own or are licensed or otherwise have the right to use all of
the patents, trademarks, service marks, trade names, copyrights and other
similar rights that are reasonably necessary for the operation of their
respective businesses, without conflict with the rights of any other Person. To
the best knowledge of the Company, no slogan or other advertising device,
product, process, method, substance, part or other material now employed, or now
contemplated to be employed, by the Company or any Subsidiary infringes upon any
valid rights held by any other Person. Except as specifically disclosed in
Schedule 6.5, no claim or litigation regarding any of the foregoing is pending
or threatened against the Company or any Subsidiary, and no patent, invention,
device, application, principle or any statute, law, rule, regulation, standard
or code, relating in each case to intellectual property, is, to the knowledge of
the Company, pending or proposed, which, in either case, would reasonably be
expected to have a Material Adverse Effect.
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6.15 Subsidiaries. As of the Effective Date, the Company has no
Subsidiaries other than those specifically disclosed in part (a) of Schedule
6.15 hereto and has no equity investments in any other corporation or entity
other than those specifically disclosed in part (b) of Schedule 6.15. As of the
Effective Date, none of Minera Vindaluz, Zoe-Phos International or Vidor Battery
has assets with a fair market value in excess of $100,000 or conducts any
business. As of the Effective Date, none of the Company or any of its
Subsidiaries provides any credit support to, or is liable in any manner for any
liabilities of, Minera Vindaluz, Zoe-Phos International or Vidor Battery.
6.16 Insurance. Except as specifically disclosed in Schedule 6.16, the
properties of the Company and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Company, in such
amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses and owning similar properties
in localities where the Company or such Subsidiary operates.
6.17 Solvency, etc. On the Effective Date (or, in the case of any
Person that becomes a Guarantor after the Effective Date, on the date such
Person becomes a Guarantor), and immediately prior to and after giving effect to
each Credit Extension and the use of the proceeds thereof, each of the Company
and each Guarantor will not have an unreasonably small capital (meaning that for
the period from the date of determination through December 31, 2002, each of the
Company and each Guarantor, after consummation of the transactions contemplated
by this Agreement, is a going concern and has sufficient capital to ensure that
it will be able to pay its debts and liabilities as they mature and continue to
be a going concern in the business in which such entities are engaged and
proposed to be engaged for such period), each of the Company's and each
Guarantor's assets will exceed its liabilities, each of the Company and each
Guarantor will be solvent, will be able to pay its Stated Liabilities as they
mature (meaning that each of the Company and such Guarantor will have sufficient
assets and cash flow to pay their respective Stated Liabilities as those
liabilities mature or otherwise become payable in the normal course of business)
and both the Fair Value and Present Fair Saleable Value of the assets of the
Company and each Guarantor exceeds the Stated Liabilities, respectively, of each
of the Company and each Guarantor.
6.18 Real Property; Mortgages. (a) Set forth on Schedule 6.18(a) is a
complete and accurate list, as of the date of this Agreement, of the address of
any real property owned or leased by the Company or any Subsidiary, together
with, in the case of leased property, the last known name and mailing address of
the lessor of such property; and (b) each Mortgage listed on Schedule 6.18(b)
creates a valid Lien in favor of the Administrative Agent on the property
subject thereto.
6.19 Swap Obligations. Neither the Company nor any of its Subsidiaries
has incurred any outstanding obligations under any Swap Contracts, other than
Permitted Swap Obligations. The Company has undertaken its own independent
assessment of its consolidated assets, liabilities and commitments and has
considered appropriate means of mitigating and
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managing risks associated with such matters and has not relied on any swap
counterparty or any Affiliate of any swap counterparty in determining whether to
enter into any Swap Contract.
6.20 Senior Indebtedness. The Company's obligation to pay the
Obligations, including interest thereon and all fees, costs, expenses and
indemnities related thereto, constitute "Designated Senior Debt" of the Company
as such term is defined in the Senior Subordinated Note Indenture. The Guaranty
Obligations of each Subsidiary party to the guaranty of the Senior Subordinated
Notes are subordinated to the prior payment in full in cash of such Subsidiary's
Guaranty Obligations under the Guaranty. The Company acknowledges that the
Lenders and the Administrative Agent have entered into this Agreement, and have
extended Commitments, in reliance upon the subordination provisions in the
Senior Subordinated Note Indenture and in the Subsidiary guaranties thereof.
6.21 Environmental Warranties. Except as set forth in Schedule 6.21:
(a) all facilities and property (including underlying
groundwater) owned or leased by the Company or any of its Subsidiaries are in
compliance with all Environmental Laws, except for such non-compliance as would
not reasonably be expected to result in a Material Adverse Effect;
(b) there are no pending or threatened Environmental Claims,
except for such Environmental Claims that are not reasonably likely, either
singly or in the aggregate, to result in a Material Adverse Effect;
(c) there have been no Releases of Hazardous Materials at,
on or under any property now or, to the best of the Company's knowledge,
previously owned or leased by the Company or any of its Subsidiaries that,
singly or in the aggregate, have, or may reasonably be expected to have, a
Material Adverse Effect;
(d) the Company and its Subsidiaries have been issued and
are in compliance with all permits, certificates, approvals, licenses and other
authorizations relating to environmental matters and necessary or desirable for
their businesses, except to the extent that the failure to have or comply with
such permits, certificates, approvals, licenses and other authorizations
relating to environmental matters would not be reasonably likely to have a
Material Adverse Effect;
(e) no property now or, to the best of the Company's
knowledge, previously owned or leased by the Company or any of its Subsidiaries
is listed or proposed for listing (with respect to owned property only) on the
National Priorities List pursuant to CERCLA, or, to the best of the Company's
knowledge, is on the Comprehensive Environmental Response Compensation Liability
Information List or on any similar state list of sites requiring investigation
or clean-up, except, in each case, for any such listing that, singly or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect;
and
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(f) to the best of the Company's knowledge, neither the
Company nor any Subsidiary of the Company has directly transported or directly
arranged for the transportation of any Hazardous Material to any location which
is listed or proposed for listing on the National Priorities List pursuant to
CERCLA, or which is the subject of federal, state or local enforcement actions
or other investigations which may lead to Environmental Claims against the
Company or such Subsidiary except, in each case, to the extent that the
foregoing would not reasonably be expected to have a Material Adverse Effect.
6.22 Full Disclosure. None of the representations or warranties made by
the Company or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made and none of the written
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Company or any Subsidiary in connection with the Loan
Documents, considering each of the foregoing taken as a whole and in the context
in which it was made and together with all other representations, warranties and
written statements taken as a whole theretofore furnished by the Company and its
Subsidiaries to the Administrative Agent and the Lenders in connection with the
Loan Documents, contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make such
representation, warranty or written statement, in light of the circumstances
under which it is made, not misleading as of the time when made or delivered;
provided that the Company's representation and warranty as to any forecast,
projection or other statement regarding future performance, future financial
results or other future development is limited to the fact that such forecast,
projection or statement was prepared in good faith on the basis of information
and assumptions that the Company believed to be reasonable as of the date such
material was provided (it being understood that projections are subject to
significant uncertainties and contingencies, many of which are beyond the
Company's control, and that no assurance can be given that the projections will
be realized).
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Required Lenders waive compliance in
writing:
7.1 Financial Statements. The Company shall deliver to the
Administrative Agent, in form and detail satisfactory to the Required Lenders:
(a) as soon as available, but not later than 90 days after
the end of each fiscal year, a copy of the audited consolidated balance sheet of
the Company and its Subsidiaries as at the end of such year and the related
consolidated statements of income or operations, shareholders' equity and cash
flows for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, and accompanied by the opinion of a
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nationally-recognized independent public accounting firm (the "Independent
Auditor"), which report (x) shall state that such consolidated financial
statements present fairly the consolidated financial position of the Company and
its Subsidiaries for the periods indicated in conformity with GAAP applied on a
basis consistent with prior years and (y) shall not be qualified or limited
because of a restricted or limited examination by the Independent Auditor of any
material portion of the Company's or any Subsidiary's (other than a Dormant
Subsidiary's) records;
(b) promptly when available, and in any event within 45 days
after the end of each fiscal quarter (other than the last fiscal quarter of each
fiscal year), a copy of the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of the end of such quarter, and the related consolidated
statements of income, shareholders' equity and cash flows for such quarter and
for the period beginning with the first day of the applicable fiscal year and
ending on the last day of such quarter, including a comparison with the
corresponding quarter and period of the previous fiscal year and a comparison
with the budget for such quarter and for such period of the current fiscal year,
together with a certificate of the chief executive officer or the chief
financial officer of the Company that each such statement fairly presents the
financial condition and results of operations of the Company and its
Subsidiaries (subject to normal year-end audit adjustments) and has been
prepared in accordance with the management policies consistently applied; and
(c) not later than 90 days after the end of each fiscal year
(beginning with the fiscal year ended September 30, 1998), a copy of the
projections of the Company of the consolidated operating budget and cash flow
budget of the Company and its Subsidiaries for the succeeding fiscal year, such
projections to be accompanied by a certificate of the chief financial officer of
the Company to the effect that (i) such projections were prepared by the Company
in good faith, (ii) the Company has a reasonable basis for the assumptions
contained in such projections and (iii) such projections have been prepared
according to such assumptions.
7.2 Certificates; Other Information. The Company shall furnish to the
Administrative Agent:
(a) concurrently with the delivery of the financial
statements referred to in subsection 7.1(a), a certificate of the Independent
Auditor stating that in making the examination necessary therefor no knowledge
was obtained of any Event of Default or Unmatured Event of Default, except as
specified in such certificate;
(b) concurrently with the delivery of the financial
statements referred to in subsection 7.1(a) and each set of quarterly statements
referred to in subsection 7.1(b), a Compliance Certificate executed by a
Responsible Officer;
(c) promptly, copies of all financial statements and reports
that the Company sends to its shareholders, and copies of all financial
statements and regular, periodic or special reports (including Forms 10K, 10Q
and 8K) that the Company or any Subsidiary may make to, or file with, the SEC;
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(d) promptly from time to time, any notices (including
without limitation notices of default or acceleration thereunder) received from
any holder or trustee of, under or with respect to any Subordinated Debt; and
(e) promptly, such additional information regarding the
business, financial or corporate affairs of the Company or any Subsidiary as the
Administrative Agent, at the request of any Lender, may from time to time
reasonably request.
7.3 Notices. Promptly upon a Responsible Officer obtaining knowledge
thereof, the Company shall notify the Administrative Agent (and the
Administrative Agent will promptly distribute such notice to the Lenders) of:
(a) the occurrence of any Event of Default or Unmatured
Event of Default;
(b) any matter that has resulted or would reasonably be
expected to result in a Material Adverse Effect, including, if applicable, any
breach or non-performance of, or any default under, a Contractual Obligation of
the Company or any Subsidiary, any dispute, litigation, investigation,
proceeding or suspension between the Company or any Subsidiary and any
Governmental Authority or the commencement of, or any material development in,
any litigation or proceeding affecting the Company or any Subsidiary;
(c) the occurrence of any of the following events affecting
the Company or any ERISA Affiliate (but in no event more than ten days after
such event, provided that the Company shall notify the Administrative Agent
(which shall promptly inform each Lender thereof) not less than ten days before
the occurrence of any event described in clause (ii) below), and deliver to the
Administrative Agent (which shall promptly deliver to each Lender a copy
thereof) a copy of any notice with respect to such event that is filed with a
Governmental Authority and any notice delivered by a Governmental Authority to
the Company or any ERISA Affiliate with respect to such event:
(i) an ERISA Event;
(ii) a contribution failure with respect to a
Pension Plan sufficient to give rise to a Lien under Section 302(f) of
ERISA;
(iii) a material increase in Unfunded Pension
Liabilities;
(iv) the adoption of, or the commencement of
contributions to, any Plan subject to Section 412 of the Code by the
Company or any ERISA Affiliate; or
(v) the adoption of any amendment to a Plan
subject to Section 412 of the Code, if such amendment results in a
material increase in contributions or Unfunded Pension Liabilities;
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(d) any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated Subsidiaries;
(e) any proposed payment of or on Subordinated Debt (other
than the Senior Subordinated Note Prepayment) prior to the making thereof; and
(f) upon the request from time to time of the Administrative
Agent, the Swap Termination Values, together with a description of the method by
which such values were determined, relating to any then-outstanding Swap
Contracts to which the Company or any of its Subsidiaries is party.
Each notice under clause(a), (b) or (c) of this Section shall be
accompanied by a written statement by a Responsible Officer setting forth
details of the occurrence referred to therein and stating what action the
Company or any affected Subsidiary proposes to take with respect thereto and at
what time. Each notice under subsection 7.3(a) shall describe with particularity
any and all clauses or provisions of this Agreement or any other Loan Document
that have been breached or violated.
7.4 Preservation of Corporate Existence, etc. The Company shall, and
shall cause each Subsidiary (other than a Dormant Subsidiary) to:
(a) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its state or
jurisdiction of incorporation except a Subsidiary need not be in compliance with
the foregoing to the extent such Subsidiary is sold pursuant to Section 8.2 or
merged or consolidated unto another Person pursuant to Section 8.3;
(b) preserve and maintain in full force and effect all
governmental rights, privileges, qualifications, permits, licenses and
franchises, in each case which are material and which are necessary or desirable
in the normal conduct of its business, except in connection with transactions
permitted by Section 8.3 and dispositions of assets permitted by Section 8.2;
and
(c) preserve or renew all of its registered patents,
copyrights, trademarks, trade names and service marks, the non-preservation of
which would reasonably be expected to have a Material Adverse Effect.
7.5 Maintenance of Property. The Company shall, and shall cause each
Subsidiary (other than a Dormant Subsidiary) to, maintain and preserve all
property material to the normal conduct of its business in good working order
and condition, ordinary wear and tear excepted, other than obsolete, worn out or
surplus equipment; provided, however, that nothing in this Section 7.5 shall
prevent the Company or any of its Subsidiaries from discontinuing the operation
and the maintenance of any of its properties or any Dormant Subsidiary if such
discontinuance is, in the opinion of the Board of Directors or senior management
of the Company, desirable in the conduct of its business and not disadvantageous
in any material respect to the Lenders.
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7.6 Insurance. The Company shall, and shall cause each Subsidiary
(other than a Dormant Subsidiary) to, maintain with financially sound and
reputable independent insurers, insurance with respect to its properties and
business against loss or damage of the kinds customarily insured against by
Persons engaged in the same or similar business, of such types and in such
amounts as are customarily carried under similar circumstances by such other
Persons.
7.7 Payment of Obligations. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable all of
its material obligations and liabilities, including:
(a) all material tax liabilities, assessments and
governmental charges or levies upon it or its properties or assets unless the
same are being contested in good faith by appropriate proceedings and adequate
reserves in accordance with GAAP are being maintained by the Company or such
Subsidiary; and
(b) all lawful claims which, if unpaid, would by law become
a Lien upon its property.
7.8 Compliance with Laws. The Company shall, and shall cause each
Subsidiary to, comply in all material respects with all material Requirements of
Law of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
7.9 Compliance with ERISA. The Company shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
7.10 Inspection of Property and Books and Records. The Company shall,
and shall cause each Subsidiary to, maintain proper books of record and account,
in which full, true and correct entries in conformity with GAAP consistently
applied shall be made of all financial transactions and matters involving the
assets and business of the Company and such Subsidiary. The Company shall
permit, and shall cause each Subsidiary to permit, representatives and
independent contractors of the Administrative Agent or any Lender to visit and
inspect any of their respective properties, to examine their respective
corporate, financial and operating records, and to make copies thereof or
abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, officers, and independent public
accountants and to inspect any of their inventory and equipment, to perform
appraisals of any of their equipment, and to inspect, audit, check and make
copies and/or extracts from the books, records, computer data and records,
computer programs, journals, orders, receipts, correspondence and other data
relating to inventory, accounts receivable, contract rights, general
intangibles, equipment and any other collateral, or relating to any other
transactions between the parties hereto; at such
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reasonable times during normal business hours and as often as may be reasonably
desired, upon reasonable advance notice to the Company; provided, however, that
when an Event of Default exists, the Administrative Agent or any Lender may do
any of the foregoing without advance notice. After the occurrence and during the
continuance of any Event of Default, any such inspection shall be at the
Company's expense.
7.11 Environmental Covenant. The Company will, and will cause each of
its Subsidiaries to,
(a) use and operate all of its facilities and properties in
material compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance therewith, and
handle all Hazardous Materials in material compliance with all applicable
Environmental Laws;
(b) promptly notify the Administrative Agent and provide
copies of all written Environmental Claims, and shall act in a diligent and
prudent fashion to address such Environmental Claims, including Environmental
Claims that allege that the Company or any of its Subsidiaries is not in
compliance with Environmental Laws; and
(c) provide such information and certifications which the
Administrative Agent may reasonably request from time to time to evidence
compliance with this Section 7.12.
7.12 Use of Proceeds. The Company shall use the proceeds of the
Revolving Loans and Swingline Loans and the Letters of Credit (i) to make the
Senior Subordinated Note Prepayment and (ii) for working capital and other
general corporate purposes not in contravention of any Requirement of Law or of
any Loan Document; and the Company shall use the proceeds of the Acquisition
Loans solely to consummate Acquisitions permitted by subsection 8.4(i).
7.13 Further Assurances. (a) The Company shall, and shall cause each
Subsidiary to, take such actions, and to execute, acknowledge, deliver, record,
file and register any and all such security agreements, mortgages, assignments,
estoppel certificates, financing statements and continuations thereof, notices
of assignment and other documents and instruments, as the Administrative Agent
or the Required Lenders may reasonably request from time to time in order (i) to
ensure that (x) the obligations of the Company hereunder and under the other
Loan Documents are secured by substantially all assets of the Company (provided
that, unless otherwise reasonably required by the Required Lenders, the pledge
of the capital stock of a Foreign Subsidiary shall be limited to 65% of the
outstanding capital stock of such Subsidiary and, so long as ROV Holding owns no
substantial business assets other than stock of Foreign Subsidiaries, the pledge
of stock of ROV Holding shall be limited to 65% of the outstanding capital stock
of ROV Holding) other than stock of Dormant Subsidiaries and guaranteed,
pursuant to the Guaranty, by all Subsidiaries (other than Foreign Subsidiaries
and Dormant Subsidiaries) (including, promptly upon the acquisition or creation
thereof, any Subsidiary
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acquired or created after the date hereof) and (y) the obligations of each
Subsidiary under the Guaranty are secured by substantially all of the assets of
such Subsidiary other than stock of Dormant Subsidiaries (provided that, unless
reasonably required by the Required Lenders, the pledge of the capital stock of
a Foreign Subsidiary shall be limited to 65% of the outstanding capital stock of
such Subsidiary), (b) to perfect and maintain the validity, effectiveness and
priority of any of the Collateral Documents and the Liens intended to be created
thereby and (c) to better assure, convey, grant, assign, transfer, preserve,
protect and confirm to the Administrative Agent and the Lenders the rights
granted or now or hereafter intended to be granted to the Administrative Agent
and the Lenders under any Loan Document or under any other document executed in
connection therewith. Contemporaneously with the execution and delivery of any
document referred to above, the Company shall, and shall cause each Subsidiary
to, deliver all resolutions, opinions and corporate documents as the
Administrative Agent or the Required Lenders may reasonably request to confirm
the enforceability of such document and the perfection of the security interest
created thereby, if applicable. Notwithstanding the foregoing provisions of this
subsection (a), (A) the IP Subsidiary shall not be obligated to guaranty the
obligations of the Company hereunder or under the other Loan Documents or to
grant a Lien on any of its property to the Administrative Agent or any Lender;
and (B) unless the Required Lenders otherwise request in writing (in which case
the Company will, or will cause the applicable Subsidiary to, promptly comply
with such request), neither the Company nor any Subsidiary shall have any
obligation to (i) perfect the Lien of the Administrative Agent on (x) any motor
vehicle which is subject to a certificate of title statute or (y) any note,
shares of stock or other security taken in settlement of claim so long as the
aggregate value of all such notes, shares and other securities not pledged to
(or otherwise subject to a perfected Lien in favor of) the Administrative Agent
does not exceed $250,000; or (ii) grant a Lien to the Administrative Agent on
its real property located at 922 South Main Street, Covington, Tennessee, 7276
Old Sauk Road, Madison, Wisconsin or 3436 Nappe Drive, Middleton, Wisconsin.
(b) If any Subsidiary that on the date hereof is a Dormant
Subsidiary ceases to be a Dormant Subsidiary, the Company shall promptly pledge
or cause to be pledged, pursuant to documentation in form and substance
satisfactory to the Administrative Agent,(so long as such Subsidiary is not
owned by a Foreign Subsidiary), (ii) in connection with such pledge, deliver or
cause to be delivered to the Administrative Agent such certificates and opinions
of counsel as requested by the Administrative Agent, and (iii) deliver or cause
to be delivered to the Administrative Agent the stock certificates (if any) to
be pledged thereunder, together with undated stock powers duly executed in
blank.
ARTICLE VIII
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Required Lenders waive compliance in
writing:
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8.1 Limitation on Liens. The Company shall not, and shall not permit
any Subsidiary to, directly or indirectly, make, create, incur, assume or suffer
to exist any Lien upon or with respect to any part of its property, whether now
owned or hereafter acquired, other than the following ("Permitted Liens"):
(a) any Lien existing on property of the Company or any
Subsidiary on the Effective Date and set forth on Schedule 8.1 securing
Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty, or to the
extent that non-payment thereof is permitted by Section 7.7, provided that no
notice of lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or which are being contested in good faith
and by appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the property subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting
of pledges or deposits required in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation;
(f) Liens on property of the Company or any Subsidiary
securing the non-delinquent performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, surety bonds (excluding appeal
bonds and other bonds posted in connection with court proceedings or judgments)
and other non-delinquent obligations of a like nature, in each case, incurred in
the ordinary course of business; provided that all such Liens in the aggregate
would not (even if enforced) cause a Material Adverse Effect;
(g) Liens consisting of judgment or judicial attachment
Liens and Liens securing contingent obligations on appeal bonds and other bonds
posted in connection with court proceedings or judgments, provided that the
enforcement of such Liens is effectively stayed and all such Liens in the
aggregate at any time outstanding for the Company and its Subsidiaries do not
exceed $5,000,000;
(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Company and its Subsidiaries
taken as a whole;
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(i) purchase money security interests on any property
acquired by the Company or any Subsidiary in the ordinary course of business,
securing Indebtedness incurred or assumed for the purpose of financing all or
any part of the cost of acquiring such property, provided that any such Lien
attaches to such property concurrently with or within 90 days after the
acquisition thereof, such Lien attaches solely to the property so acquired in
such transaction, the principal amount of the Indebtedness secured thereby does
not exceed 100% of the cost of such property and the principal amount of the
Indebtedness secured by all such purchase money security interests shall not at
any time exceed $5,000,000;
(j) Liens securing obligations in respect of capital leases
on assets subject to such leases, provided that such capital leases are
otherwise permitted hereunder;
(k) Liens arising solely by virtue of any statutory or
common law provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution, provided that such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations promulgated by
the FRB and such deposit account is not intended by the Company or any
Subsidiary to provide collateral to the depository institution;
(l) extensions, renewals and replacements of Liens referred
to in clauses (a) through (k) above; provided that any such extension, renewal
or replacement Lien is limited to the property or assets covered by the Lien
extended, renewed or replaced and does not secure any Indebtedness in addition
to that secured immediately prior to such extension, renewal or replacement;
(m) Liens relating to IRB Debt permitted by subsection
8.5(k) covering only those capital improvements financed by such IRB Debt; and
(n) Liens securing other Indebtedness of the Company and its
Subsidiaries not expressly permitted by clauses (a) through (m) above; provided
that the aggregate amount of the Indebtedness secured by Liens permitted
pursuant to this clause (n) does not exceed $5,000,000 in the aggregate;
provided that no Lien (other than as set forth in clause (b) above) may attach
to (i) any Excluded Assets or (ii) any assets of the IP Subsidiary.
8.2 Disposition of Assets. The Company shall not, and shall not permit
any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer
or otherwise dispose of (whether in one or a series of transactions) any
property (including accounts and notes receivable, with or without recourse) or
enter into any agreement to do any of the foregoing, except:
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(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment
is exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment;
(c) dispositions not otherwise permitted hereunder
(including the disposition of all of the capital stock of any operating
Subsidiary and including a disposition pursuant to a sale and lease-back
transaction) which are made for fair market value if the fair market value of
all assets so disposed of by the Company and its Subsidiaries under this clause
(c) does not exceed $10,000,000 in the aggregate; provided that (i) at the time
of any disposition, no Event of Default or Unmatured Event of Default shall
exist or will result from such disposition and (ii) at least 75% of the
consideration received by the Company or such Subsidiary from such disposition
is in cash or Cash Equivalent Investments;
(d) mergers expressly permitted by Section 8.3 or transfers
by any Wholly- Owned Subsidiary of the Company of its assets upon its
liquidation to the Company or any of its Wholly-Owned Subsidiaries;
(e) the sale of patents, trademarks and other intellectual
property to the IP Subsidiary pursuant to documentation reasonably acceptable to
the Required Lenders; and
(f) in addition to any other disposition permitted by this
Section 8.2, the sale or disposition of any assets (including the disposition of
all of the capital stock of any operating Subsidiary and including a disposition
pursuant to a sale and lease-back transaction) if the fair market value of all
assets so disposed of by the Company and its Subsidiaries under this clause (f)
does not exceed $1,000,000 in the aggregate; provided that at the time of any
disposition, no Event of Default or Unmatured Event of Default shall exist or
will result from such disposition.
8.3 Consolidations and Mergers. The Company shall not, and shall not
permit any Subsidiary to, merge or consolidate with or into any other Person,
except that (a) any Subsidiary may merge with the Company (provided that the
Company shall be the continuing or surviving corporation) or with any one or
more Wholly-Owned Subsidiaries (provided that a Wholly-Owned Subsidiary shall be
the continuing or surviving corporation); and (b) the Company or any Subsidiary
may merge or consolidate in connection with any Acquisition permitted by
subsection 8.4(i).
8.4 Loans and Investments. The Company shall not, and shall not permit
any Subsidiary to, purchase or acquire, or make any commitment to purchase or
acquire, any capital stock, equity interest or other obligations or securities
of, or any interest in, any other Person, or make or commit to make any
Acquisition, or make or commit to make any advance, loan,
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extension of credit or capital contribution to or any other investment in, any
other Person, except for:
(a) investments in Cash Equivalent Investments;
(b) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of goods or
services in the ordinary course of business;
(c) investments by the Company in its Wholly-Owned
Subsidiaries or by any Subsidiary in any Wholly-Owned Subsidiary, in the form of
contributions to capital or loans or advances; provided that, immediately before
and after giving effect to such investment, no Event of Default or Unmatured
Event of Default shall have occurred and be continuing and the aggregate amount
invested in Foreign Subsidiaries after the Effective Date (excluding investments
which constitute Guaranty Obligations) shall not exceed $20,000,000;
(d) loans or advances made by any Subsidiary to the Company;
(e) loans and advances to employees in the ordinary course
of business (such as travel advances and including the Jones Note) in an
aggregate amount not at any time exceeding $3,000,000;
(f) investments by the Company and its Subsidiaries in Joint
Ventures in the form of contributions of capital, loans, advances or Contingent
Obligations; provided that, immediately before and after giving effect to such
investment, (x) no Event of Default or Unmatured Event of Default shall have
occurred and be continuing, including without limitation pursuant to Section
8.9, and (y) the aggregate amount of all investments pursuant to this clause (f)
shall not exceed $5,000,000 in the aggregate (with all such investments valued
at the time of investment at the cash amount thereof, if in cash, the fair
market value thereof as determined by the board of directors of the Company, if
in property, and at the maximum amount thereof if in Contingent Obligations);
(g) investments constituting Permitted Swap Obligations or
payments or advances under Swap Contracts relating to Permitted Swap
Obligations;
(h) investments existing on the Effective Date and set forth
on Schedule 8.4;
(i) Investments incurred in order to consummate
Acquisitions, provided that (i) no Unmatured Event of Default or Event of
Default exists or will result therefrom, (ii) the acquired Person is engaged in,
or the acquired assets will be used in, a line of business engaged in by the
Company and its Subsidiaries on the date of this agreement or a business or
activity that is substantially similar, related or incidental thereto or which
constitutes a reasonable extension of product lines of the Company in existence
on the date of this Agreement, (iii) after giving effect to such Acquisition,
the Company would have been in compliance on a pro forma basis, after giving
effect to such Acquisition (as if such Acquisition had occurred, and any
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related Indebtedness had been assumed or incurred, on the first day of the most
recently-ended Computation Period, but without adjustment for expected cost
savings and other synergies) with Sections 8.11 and 8.12 as of such most
recently-ended Computation Period; provided that for purposes of testing
compliance herewith, the "Permitted Ratio" for the applicable period as set
forth in Section 8.12 shall be reduced by 0.25 to 1, (iv) the board of directors
of any entity proposed to be acquired has not announced that it will oppose such
Acquisition and has not commenced any litigation which alleges that such
Acquisition violates, or will violate, any Requirement of Law or any Contractual
Obligation of such entity, and (v) if the total consideration to be paid in
connection with such proposed Acquisition exceeds $3,000,000, the Company shall
have delivered to the Agent a certificate setting forth calculations
demonstrating compliance with the requirements set forth in clause (iii) above;
and
(j) other investments in an aggregate amount not exceeding
$5,000,000 during the term of this Agreement (with all such investments valued
at the time of investment at the cash amount thereof, if in cash, the fair
market value thereof as determined by the board of directors of the Company, if
in property, and at the maximum amount thereof if in Contingent Obligations).
8.5 Limitation on Indebtedness. The Company shall not, and shall not
permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise
become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
Guaranty;
(b) Subordinated Debt;
(c) Indebtedness consisting of Contingent Obligations
permitted pursuant to Section 8.8;
(d) Indebtedness of Foreign Subsidiaries to Persons other
than the Company and its Subsidiaries in an aggregate amount not at any time
exceeding $25,000,000;
(e) Indebtedness of Subsidiaries to the Company or
Wholly-Owned Subsidiaries;
(f) Indebtedness secured by Liens permitted by subsection
8.1(i);
(g) Indebtedness incurred in connection with leases
permitted
pursuant to Section 8.10;
(h) Indebtedness of the Company or any Subsidiary of the
Company in connection with guaranties resulting from endorsement of negotiable
instruments in the ordinary course of business;
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(i) surety bonds and appeal bonds required in the ordinary
course of business or in connection with the enforcement of rights or claims of
the Company or in connection with judgments that do not result in an Unmatured
Event of Default or an Event of Default;
(j) IRB Debt in a principal amount not to exceed $10,000,000
at any one time outstanding; and
(k) other Indebtedness (excluding Indebtedness of Foreign
Subsidiaries) in an aggregate amount not at any time exceeding $5,000,000.
Notwithstanding the foregoing, the IP Subsidiary shall not incur any
Indebtedness other than Indebtedness to the Company.
8.6 Transactions with Affiliates. The Company shall not, and shall not
permit any Subsidiary to, enter into any transaction with any Affiliate of the
Company (other than a Subsidiary), except upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate of the
Company; it being understood that the Management Agreement, the Jones Note and
the Employment Agreement shall not violate this Section.
8.7 Use of Proceeds. The Company shall not, and shall not permit any
Subsidiary to, use any portion of the proceeds of any Loan or any Letter of
Credit, directly or indirectly, to purchase or carry Margin Stock, to repay or
otherwise refinance indebtedness of the Company or others incurred to purchase
or carry Margin Stock, to extend credit for the purpose of purchasing or
carrying any Margin Stock or acquire any security in any transaction that is
subject to Section 13 or 14 of the Exchange Act.
8.8 Contingent Obligations. The Company shall not, and shall not permit
any Subsidiary to, create, incur, assume or suffer to exist any Contingent
Obligation except:
(a) endorsements for collection or deposit in the ordinary
course of business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations of the Company and its
Subsidiaries existing as of the Effective Date and listed in Schedule 8.8;
(d) Guaranty Obligations by the Company relating to
Indebtedness of Wholly-Owned Subsidiaries which is permitted hereunder;
(e) Contingent Obligations arising under the Loan Documents;
and
(f) Contingent Obligations with respect to Joint Ventures to
the extent permitted by Section 8.9; and
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(g) Guaranty Obligations of ROV Holding (and any other
Subsidiary which is required to execute a guaranty pursuant to Section 4.16 or
4.17 of the Senior Subordinated Note Indenture as in effect on the date hereof)
of the obligations of the Company under the Senior Subordinated Notes.
8.9 Joint Ventures. The Company shall not, and shall not permit any
Subsidiary to, enter into any Joint Venture, except that the Company or any
Subsidiary may enter into any Joint Venture so long as the aggregate amount
invested by the Company and its Subsidiaries in all Joint Ventures in any form
(including without limitation by capital contribution, incurrence of
Indebtedness by any such Joint Venture to the Company or any Subsidiary or the
incurrence of Contingent Obligations by the Company or any Subsidiary with
respect to any such Joint Venture), during the term of this Agreement does not
exceed $5,000,000; provided, however, that for purposes of determining the
aggregate amount invested in Joint Ventures hereunder (x) any return of
principal or equity received in cash on any amount invested hereunder and (y)
the fair market value of any other property received in exchange for any amount
invested hereunder shall be deducted.
8.10 Lease Obligations. The Company shall not, and shall not permit any
Subsidiary to, create or suffer to exist any obligations for the payment of rent
for any property under lease or agreement to lease, except for:
(a) leases of the Company and its Subsidiaries in existence
on the Effective Date and any renewal, extension or refinancing thereof;
(b) operating leases entered into by the Company or any
Subsidiary after the Effective Date in the ordinary course of business; and
(c) capital leases entered into by the Company to finance
the acquisition of equipment; provided that no Event of Default or Unmatured
Event of Default has occurred and is continuing or will result from the
incurrence of the obligations of the Company contemplated thereby.
8.11 Minimum Interest Coverage Ratio. The Company will not permit the
Interest Coverage Ratio for any Computation Period to be less than 3.0 to 1.
8.12 Maximum Leverage Ratio. The Company will not permit the Leverage
Ratio for any Computation Period to exceed the ratio set forth below opposite
the period in which such Computation Period ends:
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Period Ratio
------ -----
12/31/97 - 09/30/99 3.75:1.0
12/31/99 - 09/30/00 3.50:1.0
12/31/00 and thereafter 3.25:1.0.
8.13 Restricted Payments. The Company shall not, and shall not permit
any Subsidiary to, (i) declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock, or purchase, redeem or
otherwise acquire for value any shares of its capital stock or any warrants,
rights or options to acquire such shares, now or hereafter outstanding (any of
the foregoing, a "Distribution"), or (ii) make any redemption, prepayment,
defeasance, purchase or repurchase of any Subordinated Debt except that:
(a) any Subsidiary may declare and pay dividends to the
Company or a Wholly-Owned Subsidiary;
(b) the Company may declare and make dividend payments or
other distributions payable solely in Common Stock;
(c) the Company or any of its Subsidiaries may purchase
Common Stock or options with respect to Common Stock held by employees or
management of the Company or any of its Subsidiaries in connection with the
termination of employment of any such employees or management, provided that all
such payments do not exceed $5,000,000 in the aggregate, and the price paid for
such Common Stock or options does not exceed the market value of such Common
Stock or options at the time paid; and
(d) so long as no Event of Default or Unmatured Event of
Default has occurred and is continuing or would result therefrom (i) the Company
may make the Senior Subordinated Note Prepayment and (ii) the Company may make
Distributions in an aggregate amount not exceeding (at the time of such
Distribution) 25% of the Company's Consolidated Net Income during the period
from October 1, 1997 through the most recent date for which the Company has
delivered financial statements pursuant to Section 7.1(a) or (b).
8.14 ERISA. The Company shall not, and shall not permit any of its
ERISA Affiliates to: engage in a prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has resulted or
would reasonably be expected to result in liability of the Company in an
aggregate amount in excess of $1,000,000 at any time; or engage in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA.
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8.15 Limitations on Sale and Leaseback Transactions. The Company shall
not, and shall not permit any Subsidiary to, enter into any arrangement with any
Person providing for the leasing by the Company or any Subsidiary of any real or
personal property, which property is or has been sold or transferred by the
Company or any Subsidiary to such Person in contemplation of taking back a lease
thereof in an aggregate amount in excess of $10,000,000.
8.16 Inconsistent Agreements. The Company will not, and will not permit
any Subsidiary to, enter into any agreement containing any provision which would
be violated or breached by any borrowing by the Company hereunder or by the
performance by the Company or any Subsidiary of their respective obligations
hereunder or under any other Loan Document.
8.17 Change in Business. The Company shall not, and shall not permit
any Subsidiary to, engage in any business other than those lines of business
carried on by the Company and its Subsidiaries on the date hereof, any business
or activities that are substantially similar, related or incidental thereto and
reasonable extensions of product lines of the Company in existence on the date
hereof.
8.18 Amendments to Certain Documents. The Company shall not make or
agree to any amendment to or modification of, or waive any of its rights under,
any of the terms of (a) the Management Agreement or (b) the Subordinated Note
Indenture, unless such amendment is not adverse in any respect to the Lenders.
8.19 Limitation on Issuance of Guaranty Obligations. The Company will
not permit any Subsidiary to create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to any
Guaranty Obligation relating to any Indebtedness of the Company unless
(i) such Subsidiary, if it is not already a party to the
Guaranty, simultaneously executes and delivers to the Administrative
Agent a counterpart of the Guaranty, together with such supporting
documentation as the Administrative Agent may reasonably request,
notwithstanding Section 7.14,
(ii) if such Indebtedness is by its terms subordinated to
the Obligations, any such assumption, guaranty or other liability of
such Subsidiary with respect to such Indebtedness shall be
subordinated, in form and substance satisfactory to the Administrative
Agent, to such Subsidiary's Guaranty Obligation with respect to the
Obligations to the same extent as such Indebtedness is subordinated to
the Obligations (provided that such Subsidiary's Guaranty Obligation of
such Indebtedness of the Company shall be subordinated to the full
amount of such Subsidiary's Guaranty Obligation under the Guaranty
without giving effect to any reduction thereto necessary to render the
Guaranty Obligation of such Subsidiary thereunder not voidable under
applicable law relating to fraudulent conveyance or fraudulent
transfer), and
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(iii) such Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any right of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Subsidiary as a result of any payment by such
Subsidiary under such Guaranty Obligation.
ARTICLE IX
EVENTS OF DEFAULT
9.1 Event of Default. Any of the following shall constitute an "Event
of Default":
(a) Non-Payment. The Company fails to pay, when and as
required to be paid herein, any amount of principal of any Loan or of any L/C
Obligation, or, within three Business Days after the same becomes due, any
amount of interest or any fees or other amounts payable hereunder or under any
other Loan Document.
(b) Representation or Warranty. Any representation or
warranty by the Company or any Subsidiary made or deemed made herein or in any
other Loan Document, or which is contained in any certificate, document or
financial or other statement by the Company, any Subsidiary or any Responsible
Officer furnished at any time under this Agreement or any other Loan Document,
is incorrect in any material respect on or as of the date made or deemed made.
(c) Specific Defaults. The Company fails to perform or
observe any term, covenant or agreement contained in any of Section 7.3 or
Article VIII.
(d) Other Defaults. The Company or any Guarantor party
thereto fails to perform or observe any other term or covenant contained in this
Agreement or any other Loan Document, and such default shall continue unremedied
for a period of 30 days after the earlier of the date upon which a Responsible
Officer knew or reasonably should have known of such failure or the date upon
which written notice thereof is given to the Company by the Administrative Agent
or any Lender.
(e) Cross-Default. The Company or any Guarantor fails to
make any payment in respect of any Indebtedness or Contingent Obligation (other
than in respect of Swap Contracts) having an aggregate principal amount
(including undrawn committed or available amounts and including amounts owing to
all creditors under any combined or syndicated credit arrangement) of more than
$3,000,000 when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise but subject to any applicable grace period)
or fails to perform or observe any other condition or covenant, or any other
event shall occur or condition shall exist, under any agreement or instrument
relating to any such Indebtedness or Contingent Obligation, if the effect of
such failure, event or condition is to cause, or to permit the holder or holders
of such Indebtedness or beneficiary or beneficiaries of such Indebtedness
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(or a trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, such Indebtedness to be declared to be due and payable
prior to its stated maturity, or such Contingent Obligation to become payable,
or cash collateral in respect thereof to be demanded or there occurs under any
Swap Contract an Early Termination Date (as defined in such Swap Contract)
resulting from any event of default under such Swap Contract as to which the
Company or any Subsidiary is the Defaulting Party (as defined in such Swap
Contract) or any Termination Event (as so defined) as to which the Company or
any Subsidiary is an Affected Party (as so defined), and, in either event, the
Swap Termination Value owed by the Company or such Subsidiary as a result
thereof is greater than $3,000,000.
(f) Insolvency; Voluntary Proceedings. The Company or any
Subsidiary (other than a Dormant Subsidiary): ceases or fails to be solvent, or
generally fails to pay, or admits in writing its inability to pay, its debts as
they become due; voluntarily ceases to conduct its business in the ordinary
course; commences any Insolvency Proceeding with respect to itself; or takes any
action to effectuate or authorize any of the foregoing.
(g) Involuntary Proceedings. Any involuntary Insolvency
Proceeding is commenced or filed against the Company or any Subsidiary (other
than a Dormant Subsidiary), or any writ, judgment, warrant of attachment,
warrant of execution or similar process is issued or levied against a
substantial part of the Company's or any Subsidiary's properties, and such
proceeding or petition shall not be dismissed, or such writ, judgment, warrant
of attachment, warrant of execution or similar process shall not be released,
vacated or fully bonded within 60 days after commencement, filing or levy; the
Company or any Subsidiary (other than a Dormant Subsidiary) admits the material
allegations of a petition against it in any Insolvency Proceeding, or an order
for relief (or similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or the Company or any Subsidiary (other than a Dormant Subsidiary)
acquiesces in the appointment of a receiver, trustee, custodian, conservator,
liquidator, mortgagee in possession (or agent therefor) or other similar Person
for itself or a substantial portion of its property or business.
(h) ERISA. One or more ERISA Events shall occur with respect
to a Pension Plan or Multiemployer Plan which has resulted or could reasonably
be expected to result in liability of the Company under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$3,000,000; a contribution failure shall have occurred with respect to a Pension
Plan sufficient to give rise to a Lien under Section 302(f) of ERISA; the
aggregate amount of Unfunded Pension Liability among all Pension Plans at any
time exceeds $3,000,000; or the Company or any ERISA Affiliate shall fail to pay
when due, after the expiration of any applicable grace period, one or more
installment payments with respect to its withdrawal liability under Section 4201
of ERISA under a Multiemployer Plan which results in an aggregate withdrawal
liability in excess of $3,000,000.
(i) Monetary Judgments. One or more judgments, orders,
decrees or arbitration awards is entered against the Company or any Subsidiary
involving in the aggregate a liability (to the extent not covered by independent
third-party insurance as to which the insurer
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does not dispute coverage), as to any single or related series of transactions,
incidents or conditions, of $3,000,000 or more, and the same shall remain
undischarged, unvacated and unstayed pending appeal for a period of 30 days
after the entry thereof, or the Company or any Subsidiary shall enter into any
agreement to settle or compromise any pending or threatened litigation (to the
extent not covered by independent third party insurance as to which the insurer
does not dispute coverage), as to any single or related series of claims,
involving payment by the Company or any Subsidiary of $3,000,000 or more.
(j) Non-Monetary Judgments. Any non-monetary judgment, order
or decree is entered against the Company or any Subsidiary which has or would
reasonably be expected to have a Material Adverse Effect, and there shall be any
period of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect.
(k) Change of Control. Any Change of Control occurs.
(l) Guarantor Defaults. The Guaranty shall cease to be in
full force and effect with respect to any Guarantor (other than as expressly
permitted hereunder), any Guarantor shall fail to comply with or to perform any
applicable provision of the Guaranty, or any Guarantor (or any Person acting by,
through or on behalf of such Guarantor) shall contest in any manner the
validity, binding nature or enforceability of the Guaranty with respect to such
Guarantor.
(m) Collateral Documents, etc. Any Collateral Document shall
cease to be in full force and effect with respect to the Company or any
Guarantor (other than as expressly permitted hereunder), the Company or any
Guarantor shall fail to comply with or to perform any applicable provision of
any Collateral Document, or the Company or any Guarantor (or any Person acting
by, through or on behalf of the Company or any Guarantor) shall contest in any
manner the validity, binding nature or enforceability of any Collateral
Document.
9.2 Remedies. If any Event of Default occurs, the Administrative Agent
shall, at the request of, or may, with the consent of, the Required Lenders do
any or all of the following:
(a) declare the commitment of each Lender to make Loans and
any obligation of the Issuing Lender to Issue Letters of Credit to be
terminated, whereupon such commitments and obligations shall be terminated;
(b) declare an amount equal to the maximum aggregate amount
that is or at any time thereafter may become available for drawing under any
outstanding Letter of Credit (whether or not any beneficiary shall have
presented, or shall be entitled at such time to present, the drafts or other
documents required to draw under such Letter of Credit) to be immediately due
and payable, and declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company; and
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(c) exercise on behalf of itself and the Lenders all rights
and remedies available to it and the Lenders under the Loan Documents or
applicable law;
provided, however, that upon the occurrence of any Event of Default specified in
subsection 9.1(f) or (g), the obligation of each Lender to make Loans and the
obligation of the Issuing Lender to Issue Letters of Credit shall automatically
terminate and the unpaid principal amount of all outstanding Loans and all
interest and other amounts as aforesaid shall automatically become due and
payable without further act of the Administrative Agent, the Issuing Lender or
any other Lender.
9.3 Rights Not Exclusive. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE X
THE ADMINISTRATIVE AGENT
10.1 Appointment and Authorization.
(a) Each Lender hereby irrevocably (subject to Section 10.9)
appoints, designates and authorizes the Administrative Agent to take such action
on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the
Administrative Agent have or be deemed to have any fiduciary relationship with
any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Administrative Agent. Without limiting
the generality of the foregoing sentence, the use of the term "agent" in this
Agreement and in the other Loan Documents with reference to the Administrative
Agent is not intended to connote any fiduciary or other implied (or express)
obligation arising under agency doctrine of any applicable law. Instead, such
term is used merely as a matter of market custom, and is intended to create or
reflect only an administrative relationship between independent contracting
parties.
(b) The Issuing Lender shall act on behalf of the Lenders
with respect to any Letters of Credit Issued by it and the documents associated
therewith until such time and except for so long as the Administrative Agent may
agree at the request of the Required Lenders to act for the Issuing Lender with
respect thereto; provided, however, that the Issuing Lender shall have all of
the benefits and immunities provided to the Administrative Agent in this Article
X
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with respect to any acts taken or omissions suffered by the Issuing Lender in
connection with Letters of Credit Issued by it or proposed to be Issued by it
and the applications and agreements for letters of credit pertaining to the
Letters of Credit as fully as if the term "Administrative Agent", as used in
this Article X, included the Issuing Lender with respect to such acts or
omissions and as additionally provided in this Agreement with respect to the
Issuing Lender.
(c) The Swingline Lender shall act on behalf of the Lenders
with respect to any Swingline Loan until such time and except for so long as the
Administrative Agent may agree at the request of the Required Lenders to act for
the Swingline Lender with respect thereto; provided, however, that the Swingline
Lender shall have all of the benefits and immunities provided to the
Administrative Agent in this Article X with respect to any acts taken or
omissions suffered by the Issuing Lender in connection with Swingline Loans made
or proposed to be made by it as fully as if the term "Administrative Agent", as
used in this Article X, included the Swingline Lender with respect to such acts
or omissions and as additionally provided in this Agreement with respect to the
Swingline Lender.
10.2 Delegation of Duties. The Administrative Agent may execute any of
its duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
10.3 Liability of Administrative Agent. None of the Agent-Related
Persons shall be liable for any action taken or omitted to be taken by any of
them under or in connection with this Agreement or any other Loan Document or
the transactions contemplated hereby (except for its own gross negligence or
willful misconduct) or be responsible in any manner to any of the Lenders for
any recital, statement, representation or warranty made by the Company or any
Subsidiary or Affiliate of the Company, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, this Agreement or any other
Loan Document, or the validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document, or the existence,
creation, validity, attachment, perfection, enforceability, value or sufficiency
of any collateral security for the Obligations or for any failure of the Company
or any other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Company or any
of the Company's Subsidiaries or Affiliates.
10.4 Reliance by Administrative Agent. (a) The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
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sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to the Company), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement or any other Loan Document in accordance with a request or
consent of the Required Lenders and such request and any action taken or failure
to act pursuant thereto shall be binding upon all of the Lenders.
(b) For purposes of determining compliance with the
conditions specified in Sections 5.1 and 5.2, each Lender that has executed this
Agreement shall be deemed to have consented to, approved or accepted, or to be
satisfied with, each document or other matter either sent by the Administrative
Agent to such Lender for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to such Lender.
10.5 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Event of Default or Unmatured
Event of Default, except with respect to defaults in the payment of principal,
interest and fees required to be paid to the Administrative Agent for the
account of the Lenders, unless the Administrative Agent shall have received
written notice from a Lender or the Company referring to this Agreement,
describing such Event of Default or Unmatured Event of Default and stating that
such notice is a "notice of default". The Administrative Agent will notify the
Lenders of its receipt of any such notice. The Administrative Agent shall take
such action with respect to such Event of Default or Unmatured Event of Default
as may be requested by the Required Lenders in accordance with Article IX;
provided, however, that unless and until the Administrative Agent has received
any such request, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such Event
of Default or Unmatured Event of Default as it shall deem advisable or in the
best interest of the Lenders.
10.6 Credit Decision. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Administrative Agent hereafter taken, including any review of the
affairs of the Company and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Company and its Subsidiaries, and
all applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Company hereunder. Each Lender also represents that it will,
independently
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and without reliance upon any Agent-Related Person and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Company. Except for notices, reports and other documents
expressly herein required to be furnished to the Lenders by the Administrative
Agent, the Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Company which may come into the possession of any of the
Agent-Related Persons.
10.7 Indemnification. Whether or not the transactions contemplated
hereby are consummated, the Lenders shall indemnify upon demand the
Administrative Agent and the Agent-Related Persons (to the extent not reimbursed
by or on behalf of the Company and without limiting the obligation of the
Company to do so), pro rata, from and against any and all Indemnified
Liabilities; provided, however, that no Lender shall be liable for the payment
to the Administrative Agent or any Agent-Related Person of any portion of the
Indemnified Liabilities resulting solely from such Person's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender shall
reimburse the Administrative Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including Attorney Costs) incurred by the
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that the
Administrative Agent is not reimbursed for such expenses by or on behalf of the
Company. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of the Administrative
Agent.
10.8 Administrative Agent in Individual Capacity. BofA and its
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory, underwriting or other business with the
Company and its Subsidiaries and Affiliates as though BofA were not the
Administrative Agent hereunder and without notice to or consent of the Lenders.
The Lenders acknowledge that, pursuant to such activities, BofA or its
Affiliates may receive information regarding the Company or its Affiliates
(including information that may be subject to confidentiality obligations in
favor of the Company or such Affiliates) and acknowledge that the Administrative
Agent shall be under no obligation to provide such information to them. With
respect to its Loans, BofA and any Affiliate thereof shall have the same rights
and powers under this Agreement as any other Lender and may exercise the same as
though BofA were not the Administrative Agent.
10.9 Successor Administrative Agent. The Administrative Agent may, and
at the request of the Required Lenders shall, resign as Administrative Agent
upon 30 days' notice to the Lenders and the Company. If the Administrative Agent
resigns under this Agreement, the
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Required Lenders shall have the right, with the consent of the Company so long
as no Event of Default or Unmatured Event of Default has occurred and is
continuing (which consent shall not be unreasonably withheld or delayed), to
appoint from among the Lenders a successor agent for the Lenders. If no
successor agent is appointed prior to the effective date of the resignation of
the Administrative Agent, the Administrative Agent may appoint, after consulting
with the Lenders and the Company, a successor agent from among the Lenders. Upon
the acceptance of its appointment as successor agent hereunder, such successor
agent shall succeed to all the rights, powers and duties of the retiring
Administrative Agent and the term "Administrative Agent" shall mean such
successor agent and the retiring Administrative Agent's appointment, powers and
duties as Administrative Agent shall be terminated. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Article X and Sections 11.4 and 11.5 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement. If no successor agent has accepted
appointment as Administrative Agent by the date which is 30 days following a
retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become effective
and the Lenders shall perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above. Notwithstanding the foregoing, however, BofA may
not be removed as the Administrative Agent at the request of the Required
Lenders unless BofA and any Affiliate thereof acting as the Issuing Lender or
Swingline Lender hereunder shall also simultaneously be replaced as the Issuing
Lender and Swingline Lender pursuant to documentation in form and substance
reasonably satisfactory to BofA (and, if applicable, such Affiliate).
10.10 Withholding Tax. (a) If any Lender is a "foreign corporation,
partnership or trust" within the meaning of the Code and such Lender claims
exemption from, or a reduction of, U.S. withholding tax under Section 1441 or
1442 of the Code, such Lender shall deliver to the Administrative Agent and the
Company:
(i) if such Lender claims an exemption from, or a reduction
of, withholding tax under a United States tax treaty, properly
completed IRS Forms 1001 and W-8 before the payment of any interest in
the first calendar year and before the payment of any interest in each
third succeeding calendar year during which interest may be paid under
this Agreement;
(ii) if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such
Lender, two properly completed and executed copies of IRS Form 4224
before the payment of any interest is due in the first taxable year of
such Lender and in each succeeding taxable year of such Lender during
which interest may be paid under this Agreement, and IRS Form W-9;
(iii) if such Lender is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal
Revenue Service Form 1001 or 4224, such
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Lender shall deliver (A) a certificate substantially in the form of
Exhibit M and (B) two properly completed and signed copies of Internal
Revenue Service Form W-8 certifying that such Lender is entitled to an
exemption from United States withholding tax with respect to payments
of interest to be made under this Agreement and any Note; and
(iv) such other form or forms as may be required under the
Code or other laws of the United States as a condition to exemption
from, or reduction of, United States withholding tax.
Each such Lender agrees to promptly notify the Administrative Agent and the
Company of any change in circumstances which would modify or render invalid any
claimed exemption or reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of the Company to such Lender, such Lender agrees
to notify the Administrative Agent and the Company of the percentage amount in
which it is no longer the beneficial owner of Obligations of the Company to such
Lender. To the extent of such percentage amount, the Administrative Agent and
the Company will treat such Lender's IRS Form 1001 as no longer valid.
(c) If any Lender claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Administrative Agent and the
Company sells, assigns, grants a participation in, or otherwise transfers all or
part of the Obligations of the Company to such Lender, such Lender agrees to
undertake sole responsibility for complying with the withholding tax
requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Lender is entitled to a reduction in the
applicable withholding tax, the Administrative Agent or the Company, as the case
may be, may withhold from any interest payment to such Lender an amount
equivalent to the applicable withholding tax after taking into account such
reduction. If the forms or other documentation required by subsection (a) of
this Section are not timely delivered to the Administrative Agent, or the
Company, as the case may be, then the Administrative Agent or the Company, as
the case may be, may withhold from any interest payment to such Lender not
providing such forms or other documentation an amount equivalent to the
applicable withholding tax without deduction.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that the Administrative
Agent or the Company did not properly withhold tax from amounts paid to or for
the account of any Lender (because the appropriate form was not delivered or was
not properly executed, or because such Lender failed to notify the
Administrative Agent or the Company of a change in circumstances which rendered
the exemption from, or reduction of, withholding tax ineffective, or for any
other reason) such Lender shall indemnify the Administrative Agent or the
Company, as the case may be, fully for all amounts paid, directly or indirectly,
by the Administrative Agent or the Company, as the case
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may be, as Tax or otherwise, including penalties and interest, and including any
Taxes imposed by any jurisdiction on the amounts payable to the Administrative
Agent or the Company, as the case may be, under this Section, together with all
costs and expenses (including Attorney Costs). The obligation of the Lenders
under this subsection shall survive the payment of all Obligations and the
resignation or replacement of the Administrative Agent.
(f) If any Lender claims exemption from, or reduction of,
withholding tax under the Code by providing IRS Form W-8 and a certificate in
the form of Exhibit M and such Lender sells, assigns, grants a participation in,
or otherwise transfers all or part of the Obligations of the Company to such
Lender, such Lender agrees to notify the Administrative Agent and the Company of
the percentage amount in which it is no longer the beneficial owner of
Obligations of the Company to such Lender. To the extent of such percentage
amount, the Administrative Agent and the Company will treat such Lender's IRS
Form W-8 and certificate in the form of Exhibit M as no longer valid.
10.11 Collateral Matters.
(a) The Administrative Agent is authorized on behalf of all
the Lenders, without the necessity of any notice to or further consent from the
Lenders, from time to time to take any action with respect to any collateral or
the Collateral Documents which may be necessary to perfect and maintain
perfected the security interest in and Liens upon the collateral granted
pursuant to the Collateral Documents.
(b) The Lenders irrevocably authorize the Administrative
Agent, at its option and in its discretion, to release any Lien granted to or
held by the Administrative Agent upon any collateral: (i) upon termination of
the Commitments and payment in full of all Loans and all other obligations known
to the Administrative Agent and payable under this Agreement or any other Loan
Document; (ii) constituting property sold or to be sold or disposed of as part
of or in connection with any disposition permitted hereunder; (iii) constituting
property in which the Company or any Subsidiary owned no interest at the time
the Lien was granted or at any time thereafter; (iv) constituting property
leased to the Company or any Subsidiary under a lease which has expired or been
terminated in a transaction permitted under this Agreement or is about to expire
and which has not been, and is not intended by the Company or such Subsidiary to
be, renewed or extended; (v) consisting of an instrument evidencing Indebtedness
or other debt instrument, if the indebtedness thereby has been paid in full; or
(vi) if approved, authorized or ratified in writing by the Required Lenders or,
if required by Section 11.1(f), all the Lenders. Upon request by the
Administrative Agent at any time, the Lenders will confirm in writing the
Administrative Agent's authority to release particular types or items of
collateral pursuant to this subsection 10.11(b).
(c) Each Lender agrees with and in favor of each other
(which agreement shall not be for the benefit of the Company or any Subsidiary)
that any security interest in real property collateral received by a Lender in
connection with the extension of any loan or financial commitment between such
Lender and the Company or any of its Affiliates and not related to the
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transactions contemplated hereby shall not constitute collateral for the
Company's obligations under this Agreement or any other Loan Document.
ARTICLE XI
MISCELLANEOUS
11.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall be
in writing and signed by the Required Lenders and the Company and acknowledged
by the Administrative Agent, and then any such amendment, waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided that no such amendment, waiver or consent:
(a) shall increase or extend any Commitment of any Lender
(or reinstate any Commitment terminated pursuant to Section 9.2) without the
written consent of such Lender;
(b) shall postpone or delay any date fixed by this Agreement
or any other Loan Document for any payment of principal of or interest on any
Loan without the written consent of the Lender holding such Loan;
(c) shall reduce the principal of, or the rate of interest
specified herein on, any Loan without the written consent of the Lender holding
such Loan;
(d) shall reduce any fees payable hereunder or under any
other Loan Document, or postpone or delay any date fixed by this Agreement or
any other Loan Document for the payment of fees or any other amounts due to any
Lender hereunder or under any other Loan Document, without the written consent
of the Person to whom such fee or other amount is to be paid;
(e) shall change the Percentage of the Lenders which is
required for any waiver, amendment or consent hereunder, or amend the definition
of "Required Lenders", without the written consent of all Lenders;
(f) shall release the Guaranty or any Guarantor or release
all or substantially all of the collateral securing the Obligations without the
written consent of all Lenders;
(g) shall amend or waive any provision of this Section or
Section 2.15, or any other provision herein providing for consent or other
action by all Lenders, without the written consent of all Lenders;
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(h) shall, unless in writing and signed by the Issuing
Lender in addition to the Required Lenders or all Lenders, as the case may be,
affect the rights or duties of the Issuing Lender under this Agreement or any
L/C-Related Document;
(i) shall, unless in writing and signed by the Swingline
Lender in addition to the Required Lenders or all Lenders, as the case may be,
affect the rights and duties of the Swingline Lender under this Agreement; and
(j) shall, unless in writing and signed by the
Administrative Agent in addition to the Required Lenders or all Lenders, as the
case may be, affect the rights or duties of the Administrative Agent under this
Agreement or any other Loan Document.
11.2 Notices. (a) All notices, requests and other communications
hereunder shall be in writing (including, unless the context expressly otherwise
provides, by facsimile transmission, provided that any matter transmitted by the
Company by facsimile (i) shall be immediately confirmed by a telephone call to
the recipient at the number specified on Schedule 11.2, and (ii) shall be
followed promptly by delivery of a hard copy original thereof) and mailed, faxed
or delivered to the address or facsimile number specified for notices on
Schedule 11.2 or (x) in the case of the Company or the Administrative Agent, to
such other address as shall be designated by such party in a written notice to
the other parties and (y) in the case of any other party, at such other address
as shall be designated by such party in a written notice to the Company and the
Administrative Agent.
(b) All such notices, requests and communications shall, if
transmitted by overnight delivery, or faxed, be effective when delivered, or
transmitted in legible form by facsimile machine, respectively, or if mailed, on
the third Business Day after the date deposited into the U.S. mail; except that
notices to the Administrative Agent pursuant to Article II, III or X shall not
be effective until actually received by the Administrative Agent, and notices
pursuant to Article III to the Issuing Lender shall not be effective until
actually received by the Issuing Lender.
(c) Any agreement of the Administrative Agent and the
Lenders herein to receive certain notices by telephone or facsimile is solely
for the convenience and at the request of the Company. The Administrative Agent
and the Lenders shall be entitled to rely on the authority of any Person
purporting to be a Person authorized by the Company to give such notice and the
Administrative Agent and the Lenders shall not have any liability to the Company
or any other Person on account of any action taken or not taken by the
Administrative Agent or the Lenders in reliance upon such telephonic or
facsimile notice. The obligation of the Company to repay the Loans and L/C
Obligations shall not be affected in any way or to any extent by any failure of
the Administrative Agent and the Lenders to receive written confirmation of any
telephonic or facsimile notice or the receipt by the Administrative Agent and
the Lenders of a confirmation which is at variance with the terms understood by
the Administrative Agent and the Lenders to be contained in the telephonic or
facsimile notice.
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11.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.
11.4 Costs and Expenses. The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse the Administrative Agent and its Affiliates
(including the Arranger) within five Business Days after demand (subject to
subsection 5.1(e)) for all reasonable and documented costs and expenses incurred
by the Administrative Agent and its Affiliates in connection with the
preparation, delivery, administration and execution of, and any amendment,
supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any other Loan Document and any other document
prepared in connection herewith or therewith, and the consummation of the
transactions contemplated hereby and thereby, including Attorney Costs incurred
by the Administrative Agent and the Arranger with respect thereto; and
(b) pay or reimburse the Administrative Agent and each
Lender within five Business Days after demand (subject to subsection 5.1(e)) for
all costs and expenses (including Attorney Costs) incurred by them in connection
with the enforcement, attempted enforcement or preservation of any right or
remedy under this Agreement or any other Loan Document during the existence of
an Event of Default or after acceleration of the Loans (including in connection
with any "workout" or restructuring regarding the Loans and including in any
Insolvency Proceeding or appellate proceeding).
11.5 Company Indemnification. Whether or not the transactions
contemplated hereby are consummated, the Company shall indemnify and hold the
Agent-Related Persons and each Lender and each of their respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans, the termination of the Letters of Credit and the
termination, resignation or replacement of the Administrative Agent or
replacement of any Lender) be imposed on, incurred by or asserted against any
such Person in any way relating to or arising out of this Agreement or any
document contemplated by or referred to herein, or the transactions contemplated
hereby or thereby, or any action taken or omitted by any such Person under or in
connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding or any investigation, litigation or proceeding related to
any environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the Release by the Company or any of its
Subsidiaries of any Hazardous Material) related to or arising out of this
Agreement or the Loans or Letters of Credit or the use of the proceeds thereof,
whether or not any Indemnified Person is a party thereto (all the foregoing,
collectively, the
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"Indemnified Liabilities"); provided that the Company shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
resulting solely from the gross negligence or willful misconduct of such
Indemnified Person. The agreements in this Section shall survive payment of all
other Obligations. Each Agent-Related Person and each Lender agrees that if any
investigation, litigation or proceeding is asserted or threatened in writing or
instituted against it or any other Indemnified Person, or any remedial, removal
or response action is requested of it or any other Indemnified Party, for which
such Agent-Related Person or such Lender may desire indemnity or defense
hereunder, such Agent-Related Person or such Lender shall notify the Company in
writing of such event; provided that failure to so notify the Company shall not
affect the right of any Agent-Related Person or Lender to seek indemnification
under this Section.
11.6 Payments Set Aside. To the extent that the Company makes a payment
to the Administrative Agent or any Lender, or the Administrative Agent or any
Lender exercises its right of set-off, and such payment or the proceeds of such
set-off or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by the Administrative Agent or such Lender in its
discretion) to be repaid to a trustee or receiver, or any other party, in
connection with any Insolvency Proceeding or otherwise, then (a) to the extent
of such recovery, the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such set-off had not occurred and (b) each Lender
severally agrees to pay to the Administrative Agent upon demand its pro rata
share of any amount so recovered from or repaid by the Administrative Agent.
11.7 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Administrative Agent and each Lender.
11.8 Assignments, Participations, etc. (a) Any Lender may, with the
written consent of the Company (at all times other than during the existence of
an Event of Default), the Administrative Agent, the Issuing Lender and the
Swingline Lender, which consents shall not be unreasonably withheld or delayed,
at any time assign and delegate to one or more Eligible Assignees (provided that
no written consent of the Company, the Administrative Agent, the Issuing Lender
or the Swingline Lender shall be required in connection with any assignment and
delegation by a Lender to a Person described in clause (iii) of the definition
of Eligible Assignee) (each, an "Assignee") all, or a ratable part of all, of
the Loans, the Commitments, the L/C Obligations and the other rights and
obligations of such Lender hereunder, in a minimum amount of $5,000,000 (or, if
less, all of such Lender's remaining rights and obligations hereunder); provided
that (A) the Company, the Administrative Agent, the Issuing Lender and the
Swingline Lender may continue to deal solely and directly with such Lender in
connection with the interest so assigned to an Assignee until (i) written notice
of such assignment, together with payment instructions, addresses and related
information with respect to the Assignee shall have been given to the Company
and the Administrative Agent by such Lender and the Assignee, (ii) such
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<PAGE>
Lender and the Assignee shall have delivered to the Company and the
Administrative Agent an Assignment and Acceptance in the form of Exhibit L (an
"Assignment and Acceptance") together with any Note or Notes subject to such
assignment and (iii) the assignor Lender or the Assignee shall have paid to the
Administrative Agent a processing fee in the amount of $3,500 and (B) the
Company shall not, as a result of any assignment by any Lender to any of such
Lender's Affiliates, incur any increased liability for Taxes, Other Taxes or
Further Taxes pursuant to Section 4.1. The Company designates the Administrative
Agent as its agent for maintaining a book entry record of ownership identifying
the Lenders and the amount of the respective Loans and Notes which they own. The
foregoing provisions are intended to comply with the registration requirements
in Treasury Regulation Section 5f.103-1 so that the Loans and Notes are
considered to be in "registered form" pursuant to such regulation.
(b) From and after the date that the Administrative Agent
notifies the assignor Lender that it has provided its consent, and received the
consents of the Swingline Lender, the Issuing Lender and (if applicable) the
Company, with respect to an executed Assignment and Acceptance and payment of
the above-referenced processing fee, (i) the Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, shall have the rights
and obligations of a Lender under the Loan Documents, and (ii) the assignor
Lender shall, to the extent that rights and obligations hereunder and under the
other Loan Documents have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Loan Documents.
(c) Any Lender may at any time sell to one or more
commercial banks or other Persons not Affiliates of the Company (a
"Participant") participating interests in any Loan, the Commitments of such
Lender and the other interests of such Lender (the "originating Lender")
hereunder and under the other Loan Documents; provided, however, that (i) the
originating Lender's obligations under this Agreement shall remain unchanged,
(ii) the originating Lender shall remain solely responsible for the performance
of such obligations, (iii) the Company, the Swingline Lender, the Issuing Lender
and the Administrative Agent shall continue to deal solely and directly with the
originating Lender in connection with the originating Lender's rights and
obligations under this Agreement and the other Loan Documents and (iv) no Lender
shall transfer or grant any participating interest under which the Participant
has rights to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any other Loan Document, except to the extent such
amendment, consent or waiver would require unanimous consent of the Lenders or
the consent of a particular Lender, in each case as described in the proviso to
Section 11.1. In the case of any such participation, the Participant shall be
entitled to the benefit of Sections 4.1, 4.3 and 11.5 as though it were also a
Lender hereunder (provided, with respect to Sections 4.1 and 4.3, the Company
shall not be required to pay any amount which it would not have been required to
pay if no participating interest had been sold), and if amounts outstanding
under this Agreement are due and unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of Default, the
Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount
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of its participating interest were owing directly to it as a Lender under this
Agreement. Each Lender may furnish any information concerning the Company and
its Subsidiaries in the possession of such Lender from time to time to
participants and prospective participants and may furnish information in
response to credit inquiries consistent with general banking practice. Each
Lender which sells a participation will maintain a book entry record of
ownership identifying the Participant(s) and the amount of such participation(s)
owned by such Participant(s). Such book entry record of ownership shall be
maintained by the Lender as agent for the Company and the Administrative Agent.
This provision is intended to comply with the registration requirements in
Treasury Regulation Section 5f.103-1 so that the Loans and Notes are considered
to be in "registered form" pursuant to such regulation.
(d) Notwithstanding any other provision of this Agreement,
any Lender may at any time create a security interest in, or pledge all or any
portion of, its rights under and interest in this Agreement and any Note held by
it in favor of any Federal Reserve Bank in accordance with Regulation A of the
FRB or U.S. Treasury Regulation 31 CFR ss.203.14, and such Federal Reserve Bank
may enforce such pledge or security interest in any manner permitted under
applicable law.
11.9 Confidentiality. Each Lender agrees to take, and to cause its
Affiliates to take, normal and reasonable precautions and exercise due care to
maintain the confidentiality of all non-public information provided to it by the
Company or any Subsidiary, or by the Administrative Agent on the Company's or
any Subsidiary's behalf, under this Agreement or any other Loan Document, and
neither such Lender nor any of its Affiliates shall use any such information
other than in connection with or in enforcement of this Agreement and the other
Loan Documents or in connection with other business now or hereafter existing or
contemplated with the Company or any Subsidiary, except to the extent such
information (i) was or becomes generally available to the public other than as a
result of disclosure by such Lender or (ii) was or becomes available on a
non-confidential basis from a source other than the Company (provided that such
source is not bound by a confidentiality agreement with the Company or any
Subsidiary known to such Lender); provided, however, that any Lender may
disclose such information (A) at the request or pursuant to any requirement of
any Governmental Authority to which such Lender is subject or in connection with
an examination of such Lender by any such authority, (B) pursuant to subpoena or
other court process, (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law, (D) to the extent reasonably
required in connection with any litigation or proceeding to which the
Administrative Agent or any Lender or any of their respective Affiliates may be
party, (E) to the extent reasonably required in connection with the exercise of
any remedy hereunder or under any other Loan Document, (F) to such Lender's
independent auditors and other professional advisors, (G) to any Participant or
Assignee, actual or potential, provided that such Person agrees in writing to
keep such information confidential to the same extent required of the Lenders
hereunder, (H) as to any Lender or its Affiliate, as expressly permitted under
the terms of any other document or agreement regarding confidentiality to which
the Company or any Subsidiary is party or is deemed party with such Lender or
such Affiliate and (I) to its Affiliates.
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11.10 Set-off. In addition to any right or remedy of the Lenders
provided by law, if an Event of Default exists, or the Loans have been
accelerated, each Lender is authorized at any time and from time to time,
without prior notice to the Company, any such notice being waived by the Company
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held by, and other indebtedness at any time owing by, such Lender to or for the
credit or the account of the Company against any and all Obligations owing to
such Lender, now or hereafter existing, irrespective of whether or not the
Administrative Agent or such Lender shall have made demand under this Agreement
or any other Loan Document and although such Obligations may be contingent or
unmatured. Each Lender agrees promptly to notify the Company and the
Administrative Agent after any such set-off and application made by such Lender;
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
11.11 Automatic Debits of Fees. With respect to any commitment fee,
arrangement fee, agency fee, letter of credit fee or other fee, or any other
cost or expense (including Attorney Costs) due and payable to the Administrative
Agent, the Swingline Lender or the Issuing Lender under the Loan Documents, the
Company hereby irrevocably authorizes BofA to debit any deposit account of the
Company with BofA in an amount such that the aggregate amount debited from all
such deposit accounts does not exceed such fee or other cost or expense. If
there are insufficient funds in such deposit accounts to cover the amount of the
fee or other cost or expense then due, such debits will be reversed (in whole or
in part, in BofA's sole discretion) and such amount not debited shall be deemed
to be unpaid. No such debit under this Section shall be deemed a set-off.
11.12 Notification of Addresses, Lending Offices, etc. Each Lender
shall notify the Administrative Agent in writing of any change in the address to
which notices to such Lender should be directed, of addresses of any Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Administrative
Agent shall reasonably request.
11.13 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of which taken together shall constitute but one and the same
instrument.
11.14 Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or such instrument or agreement.
11.15 No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Company, the Lenders, the
Administrative Agent and the Agent-Related Persons, and their permitted
successors and assigns, and no other Person shall be a direct or indirect legal
beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any other Loan Document.
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<PAGE>
11.16 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND ANY NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE
STATE OF NEW YORK; PROVIDED THAT THE ADMINISTRATIVE AGENT AND THE LENDERS SHALL
RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE
ADMINISTRATIVE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS. EACH OF THE COMPANY,
THE ADMINISTRATIVE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION
OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. THE COMPANY, THE ADMINISTRATIVE AGENT AND THE LENDERS EACH WAIVE
PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE
BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
11.17 Waiver of Jury Trial. THE COMPANY, THE LENDERS AND THE
ADMINISTRATIVE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON,
PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR
OTHERWISE. THE COMPANY, THE LENDERS AND THE ADMINISTRATIVE AGENT EACH AGREE THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO
ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART,
TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENT, RENEWAL, SUPPLEMENT OR MODIFICATION TO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS.
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<PAGE>
11.18 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Company,
the Lenders and the Administrative Agent, and supersedes all prior or
contemporaneous agreements and understandings of such Persons, verbal or
written, relating to the subject matter hereof and thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
RAYOVAC CORPORATION
By: /s/ Raymond L. Balfour
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as
Administrative Agent, Issuing
Lender, Swingline Lender and a
Lender
By: /s/ Eric A. Schubert
Title: Managing Director
BANQUE NATIONALE DE PARIS
By: /s/ William J. Krummen
Title: Vice President and Manager
BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By: /s/ Peter Stearn
Title: Assistant Vice President
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<PAGE>
FIRSTAR BANK MILWAUKEE, N.A.
By: /s/ Randy D. Oliver
Title: Vice President
FLEET NATIONAL BANK
By: /s/ Eugenie M. Sullivan
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
CHICAGO BRANCH
By: /s/ Brady S. Sadek
Title: Senior Vice President
M&I MARSHALL & ILSLEY BANK
By: /s/ James P. McMullen
Title:
DG BANK
By: /s/ Norah McCann /s/ Paul Connolly
Title: Senior Vice President/
Assistant Vice President
HARRIS TRUST AND SAVINGS BANK
By: /s/ George M. Dluhy
Title: Vice President
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<PAGE>
THE BANK OF NEW YORK
By: /s/ William O'Daly
Title: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ Nobuo Tominaga
Title: Chief Manager
-95-
Exhibit 23.2
------------
Consent of KPMG Peat Marwick LLP
The Board of Directors
Rayovac Corporation:
We consent to the use of our reports included or incorporated by reference
herein and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
Milwaukee, Wisconsin
April 1, 1998
Exhibit 23.3
[Letterhead of Coopers & Lybrand LLP]
Consent of Independent Accountants
We consent to the incorporation in this registration statement on Form S-3 (File
No. ) of our report dated November 22, 1996, except for Notes 2n and 2r as to
which the date is April 1, 1998, on our audits of the combined consolidated
financial statements of Rayovac Corporation as of June 30, 1996 and September
30, 1996 and for each of the two years in the period ended June 30, 1996 and the
period July 1, 1996 to September 30, 1996. We also consent to the references to
our firm under the captions "Experts".
/s/ Coopers & Lybrand LLP
Milwaukee, Wisconsin
April 2, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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